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Archive for July, 2012

How Appraisals and Assessments Differ

Many people think appraisals and assessments are the same thing or at least that they should be for the same amount. The truth is they can vary greatly. Let’s look at each of them.

Appraisals

An appraisal is an estimate of market value. An appraiser can use many methods for coming up with this estimate. For income producing property, the appraiser may capitalize the value of the income stream. (It would take “x” dollars of capital invested at a “y” rate of return to produce an income equal to the rental income generated by this property.) For other properties, an appraiser may use “replacement value.” (It would cost “x” dollars to build this structure if it were being built today.)

Appraisers usually use “comparable sales” when evaluating the market value of a home. They look at nearby properties with similar characteristics, which have sold in the recent past to see at what price they sold. They typically give the most weight to the property they deem to be most like the property they are appraising.

Buyers and sellers generally encounter appraisals when the buyer’s lender has an appraiser make an evaluation of the market value of the property being sold. The lender wants to be sure of the value of the collateral for the loan. An interesting feature that comes into play in this situation is that one indication of value is at what price two unrelated parties will agree to buy and sell the same property. In other words, what is the contract price the seller and buyer of this property agreed on (if they are not relatives).

Assessments

An assessment is the value your local government puts on your property for the purpose of taxing it. How this value is derived varies from jurisdiction to jurisdiction. Some communities say the value is the same as market value. Some say the value is a percentage of market value. Some appear to actually do what they say they do, and some do not.

I was once a partner in an investment property that we were offering for sale at the time the county re-assessed it. Imagine my annoyance when the assessment came in at one hundred and forty percent of the offer price. We weren’t dummies. The partners were real estate professionals. I appealed the re-assessment, but my appeal was turned down. I offered to sell the property at the assessed price to the appraiser the county had hired to handle the appeals when he was telling me why he could not reduce our assessment. He did not take me up on my offer. Our property sold at the listed price months later. We had paid six months’ taxes on the property at a higher than market value.

On another occasion I helped some elderly people sell a farm they’d lived in all their adult lives. The farm sold for a price a great deal higher than the value at which it had been assessed.

I believe the two examples are fairly typical. Many jurisdictions will “puff up” assessments for businesses and investors and “low ball” assessments for people who have lived in their homes for a long time. Sometimes there are formulas for doing this. “Land use” is one such concept, i.e., the property is taxed at its value as a farm and the fact that it is ripe for dense residential and commercial development is ignored or deferred. Sometimes there are no formulas. It is just done.

For these reasons, it is usually not a good idea to put too much credence in the assessed value of a property when you are trying to figure out market value. They may be the same. They may be vastly different.

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Home Buying Checklist – Paint and Stucco

Buying a home is a big investment. You should use a checklist when sizing up potential homes. In this article, we cover a home buying checklist for paint and stucco.

Paint and Stucco

The exterior of  a home typically makes the biggest impression when you first view a potential buying opportunity. Many homebuyers, however, often make the mistake of looking at color schemes as the principal issue. In truth, a close review of the exterior of the prospective home can tell you a lot about the quality of the structure.

A person selling a home is not stupid. Before putting a home on the market, they are going to take steps to spiff it out to raise buyer interest and the rate you are willing to pay. There is nothing devious about such conduct. It is natural to want to put your best foot forward and a person selling a home isn’t going to act differently. This is why you want to take a close look at the exterior paint and stucco on a home.

1. The first thing to look for is peeling or flaking of paint on the exterior walls. If you see this in an obvious place on a wall, run for the hills because the house needs a total repaint. Typically, you are not going to find such obvious problems. Instead, you need to poke around behind bushes, up under roof overhangs and in nooks and crannies. If you find problems of this sort, it tends to mean the paint job on the home was not applied correctly. Once these problems start occurring, you can count on them getting worse over time.

2. The second thing to look for is stains around perforations in the paint. For instance, look for an area where bolts or nails penetrate a painted surface. If you see rust around the hole, you may be seeing an indication of poor maintenance. Even worse, you may be seeing an indication of a water drainage problem. Investigate such occurrences very carefully.

3. With stucco homes, you are typically going to find some cracking do to earth movement and temperature changes. As long as these areas are relatively small, you shouldn’t have problems patching them for a nominal price. The bigger problem, however, is if you find stains or soft spots on the bottom section of a stucco wall. This can mean there are problems with the drainage screen behind the stucco wall and water isn’t getting out. If water isn’t getting out, the stucco will continue to degrade and you may have a mold problem at some point. Both situations can be very expensive to fix.

When checking out perspective home buying opportunities, the exterior of the home should be looked at very closely.  In this case, the merits of the home all come down to the details.

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Homes For Sale – Tips To Help Make Your Home More Marketable

You’ve finally decided that you want to sell your house. Your house is on the market, and you’ve found a real estate agent you can trust. Now what? The next and most obvious step is to get your home sold. To help aid in the selling of your home, I will outline some tips that I personally believe will benefit in the marketability and potential selling of your home. The goal here is to obtain that all important “stamp of approval” in which the red imprint reads: “SOLD.”

Usually, the first place your potential buyer is going to see, will be the front of your house. The goal here is to make it as attractive as possible, but more importantly, inviting. First impressions are very important. First positive impressions, if you will, are even more important. The key here is to make sure everything looks neat and clean. Cut the grass, pull out the weeds, trim the bushes, plant some flowers, and clear out the walkway.

Make sure your home is clean. These include things like steam cleaning your carpets, mopping your floors, dusting hard-to-reach areas, and cleaning your windows (both inside and out). Potential buyers are very picky people, and as such, they like to inspect as much as they can.

Try and keep both colors and styles neutral. The key here is not to influence your buyer with your own personal style. Someone might walk in, look at a red wall, and be immediately turned off. The idea is to try to make them visualize the colors for themselves. Keeping things neutral is a good solution to this “problem.”

Check lighting. No one wants to look at a house that they can’t see. Seems obvious, right? Unfortunately, as a real estate agent myself, I’ve had quite a few cases where this element has been overlooked. Check your light bulbs, and make sure they’re working. Although I recommend checking all the light bulbs, I’d be more concerned with the areas in the house that are darker or that require more artificial lighting. These include places like the basement and bathrooms. It’s also a good idea to open your curtains. Simply put, the more natural light, the better.

Make repairs if necessary. These include things like a fresh coat of paint, patching up of any holes in the wall, and torn patio screens. You want your buyer to feel like your home has been well taken care of. This is a big plus.

Try to avoid clutter. One of the worst things that can happen is when your buyer feels “boxed in.” Try and keep clutter to a minimum. Remove any unnecessary items such as too many pictures and accessories. The goal here is you want to have your house feel like a home, yet at the same time have it as spacious and organized as possible. You want the buyer to get a good sense of the space and visualize it as their own.

After all is said and done, it is important to note that the aforementioned tips do not guarantee a sell of ones home, although it can certainly help. Everyone is different, and there are other variables to consider. But like I said, these certainly can help. As a final test, invite a friend over and have them share their opinions with you about the presentation of your home. In the best case scenario, it is best to invite someone who has never been to your house (or not that often). In this way, they can view your home with a “fresh pair of eyes.” All of these suggestions boil down to one common goal: You want your home to feel inviting, and have your potential buyer view it as their own.

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How Can A Lender Benefit From A Property Short Sale?

The event where a property is declared for real estate foreclosure is not only unfortunate for the inhabitants of the domain, but also for the lender organization, which has issued the loan securing it on the property under consideration. Certainly, the homeowner has to undergo a lot of humiliation and embarrassment for losing home, topped with a bad credit score along with inducing for one some restless nights and limitless worries to make things even worse than ever. But it is not only the homeowner who suffers for facing foreclosure, but also the lender entity which has to go through a lot of trouble in recovering its losses.

The lender has now to carry out the entire foreclosure procedure, bear all the expenses relating to conducting a successful auction, refurbishing the property to make it suitable for sale, finding the right buyers or investors and, of course, bearing all the direct losses from the creditor’s part. And often it is so that the lender does not find a buyer at all, meaning loss and more of that! So what can you, as a lender do to overcome this? The answer is simple though many people do not avail of it due to the utter lack in knowledge – property short sale!

Short sale refers to that phenomenon in the real estate industry where the lender agrees to selling the property in question at a lesser rate than the usual industry rate (that is, less than the loan balance), thereby making up for its losses from the borrower not being able to pay back one’s debts. With a successful short sale, the homeowner effectively sells one’s home at a lower price before the actual property foreclosure and pays off the debt back to the lender entity, thereby avoid foreclosure auction. By conducting a property short sale, it is not just the homeowner being benefited but also the lender saving up a lot.

The lender is directly paid its debt back and it can easily overcome the minor losses that this payment default has induced. The losses thus induced are nothing compared to the expenses that the bank would have had to bear n order to conduct the foreclosure proceedings. Lenders are increasingly viewing short sale as an effective alternative to foreclosure as it has its own benefits, which are farther reaching than an actual foreclosure auction. The most overt advantage that short sale has over foreclosure is recovering excessive financial losses. A short sale is usually conducted by specialized professionals and the lender does not need to involve in it directly, thereby saving on its labor.

Unlike foreclosure proceeding, short sale does not involve any additional fees for closing a successful deal. As a lender and the subsequent forfeited of the property under question, you will not be needed to take up all the trouble of refurbishing or repairing the property prior to the foreclosure auction. There is no need to market the property or sell it. By approving the short sale of the property under question, you, as a lender, can expect to get the property price closer to industry standards, which are remarkably low when a property is put to auction.

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Selling Your House – $100,000 Pets

Is your pet worth $100,000? It may be if you don’t make accommodations for it when selling your home.

A Hundred Thousand Dollar Pet?

A house I’d seen with a potential buyer in an attractive neighborhood built around two lakes sold for $100,000 less than was typical for the neighborhood. Do you know what caused it to sell for that much less? A pet. Actually, two pets.

I can hear you thinking, “How can that be? Surely she doesn’t know what she’s talking about this time. How could two pets reduce the sales price of a home by $100,000? Is that even possible?” I understand your skepticism, but it’s true. Let me tell you how I know. When I made the appointment for the potential buyer to look at the house, I wasn’t told about the presence of pets. We arrived at the house, knocked on the door, and when no one answered our knock, I got out my electronic key to open the box containing a key for brokers to use. While I was doing this, we began to hear some loud barking from large dog or dogs inside the house. The buyer said she did not want to go into the house with “dogs on the loose.” I have to admit I wasn’t thrilled with the idea either, so we went on to the next house she was considering.

She asked me if we could see that house the next day sans pets. I called and made arrangements.

The next day we looked at a two story, 5 bedroom, house with a fully finished, walkout basement that supposedly didn’t have pets. It was a nice house, but the whole house smelled strongly of pet odors. The furniture in the basement was shredded – truly not too strong a word to use. I’ve never seen furniture in worse shape. The front of the house was nicely landscaped. The back of the house was a disaster. The door frames and exterior doors were scratched and gnawed. The lawn had beaten paths and patches. There wasn’t a flower or a shrub to be seen. The “buyer” couldn’t get away fast enough.

I later found out the owner of the house had a German Shepherd. The second “dog” was a wolf and shepherd mix. The house stayed on the market longer than typical, the price was reduced several times and the final sales price was $100,000 below what was typical for the neighborhood. Now you tell me, what cost that seller $100,000?

Don’t misunderstand, I know pets are wonderful.Pets enrich your life. They don’t enrich the sales price of your home. Take the right steps though, and they won’t rob you of any of your equity.

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How to Avoid Buyer’s Remorse

Buying a home is euphoric and scary. On one hand, you are moving into a property you own. On the other, you are committing to the repayment of a lot of money.

How to Avoid Buyer’s Remorse

Buying a property can throw your emotions all over the place. First, you are ecstatic when the seller agrees to your offer. Soon thereafter, you start worrying about the price, potential problems and the commitment you have made to pay hundreds of thousands of dollars over the next 10, 15 or 30 years. It can be a monstrous rollercoaster for your emotions. You need not have buyer’s remorse.

The first issue giving rise to remorse is almost always the purchase price. If it makes you feel any better, the seller almost always thinks they should have asked for more. In truth, the agreed upon price is almost always pretty fair if you obtain a mortgage loan. The lender is not going to give you a loan well in excess of the value of the home, so you can rest assured you probably got a fair price. Yes, you may have paid $10,000 too much, but it is a relatively insignificant amount given the value of the property over time.

The second area of remorse is the payment obligation. Buying a home sounds great until you realize payments of $1,500 or $2,000 are due each month. What if you lose your job? What if someone gets sick? What if, what if, what if… Stop worrying. Life is full of risks and buying a home is a relatively minor one compared to other decisions we have to make. If you default on a mortgage, so what? Yes it is bad, but they are not going to put you in jail. Most successful business people fall on their faces five or ten times before hitting it big. In a worse case scenario, you can do the same.

Remorse can be an all-encompassing thing. If you let it take hold of your emotions, you are going to suffer for no reason whatsoever. Remember, real estate is an excellent long-term investment. If you keep the property in decent shape and hold on to the property for five or ten years, you will inevitably come out ahead.  Stop stressing out and enjoy your new home!

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Selling Your Home Yourself – Pricing It Appropriately

When you’re selling your own property, whether it’s a house, townhouse, condo, apartment, a finished lot, raw land, a farm, a ranch, or whatever, the first thing to get right is the price you ask for it. If you work with a broker, the legwork is done for you. When you work as a FSBO (for sale by owner), you need to figure it out yourself. Let’s look at how to do just that.

Setting a Price

First, don’t make the mistake of looking only at what you need to get out of it. It’s important to know that, of course, but that number may, or may not, have any relationship whatsoever to market price. It may be lower or higher than market price. The first is situation is great. The latter may require you to rethink whether you want to sell your property at this time.

If you price your property below market price, it’ll be snapped up quickly. The problem, of course, is you’ll leave a lot of money on the table. This will lead to a lot of seller’s remorse.

If you price your property above market price, it may sit there unsold until the cows come home. If it’s priced very much above market price, people won’t even come and look at it. The market place talks and it talks loudly.

So What’s Your Goal?

Market price is nearly always a range of prices — high, medium, and low — not an exact price. You want to price yourself near the top of the market price range for your property. That way, you’ll have flexibility to negotiate price if need be.

The only exception to the above scenario is if you’re in a hurry to sell your property. In that situation, you should price yourself near the lower end of the market price range. Even if forced to do this, make sure you leave some wiggle room to negotiate with a buyer. Buyers will always assume the listed price is negotiable.

How Do You Determine Market Price as a FSBO?

The first way is the simplest and most expensive. Have it appraised by an appraiser who works with one or more mortgage lenders. Call the firm who initially issued your mortgage loan and ask who they use in your area. Be sure the appraiser knows your purpose is to establish the asking price for a sale.

Using an appraiser can cost a few hundred dollars, but it can be money well spent. In addition to helping you price your property, it can also be helpful to show a buyer with whom you’re negotiating that an appraisal supports the asking price.

If you live in an area with a tight pattern of sales prices, you can check the price of sales in your neighborhood over the last three to six months. This is particularly true if you live in a subdivision with houses in a narrow range of sizes and styles. Many jurisdictions have this information online. If not, it is a matter of public record and should be available at the courthouse. The more individualized and unique your property, the more difficult this approach. With a little work, however, you can learn a lot.

Another method for establishing a price is an online search. If you search for “pricing + house + your state,” for example, you should find sites that will help you price your property. Some of these use real estate agents and brokers as resources, and that leads us to another option.

It’s really unfair if you don’t intend to use a broker to help you sell your property, but if that’s your fall back position (if selling on your own doesn’t work out), you might invite a broker to do a market analysis of your property for you. Be up front. Explain that you’re going to try it on your own first.

Even under those circumstances, many brokers are willing to help you evaluate the market price of your property without any charge to you. They also usually give you a presentation of how they’d go about marketing your property should you decide to use them. Listen to that carefully, too.

You can start evaluating whether you want to work with this person if you’re not satisfied with your FSBO efforts. You also may very well pick up marketing ideas you can implement yourself.

A Note of Caution

Don’t rely too heavily on what neighbors tell you in social situations about the sale of their own and/or other properties in your neighborhood. Listen, of course, but be aware that they often just know the original asking price and the fact that there’s a buyer in the picture. They don’t know that the asking price was lowered because of the condition of the house, a redecorating allowance was given, etc.

Don’t talk to a neighbor and then think, “Well, that house sold for $X, my house is in much better condition; therefore, I should be able to get $X + $Y.” Maybe so. Maybe not. Base your pricing decisions on the most solid information available to you, not neighborhood gossip.

If you base your pricing decisions on solid information and use good common sense, you should get a good result. In this case, a good result means a quick sale!

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Home Sellers-Avoid A Transaction Collapse

A home seller’s worst nightmare is selling to a buyer who disappears mysteriously at some point during the transaction.  The deal never closes, leaving the seller in the lurch just before moving day.

Occasionally a buyer gets cold feet soon after his offer is accepted and backs out of the deal. This can happen if a buyer gets caught up in the frenzy of a multiple offer competition. When he realizes that he’s in over his head, he regrets his decision and asks to be released from the contract.

Although disappointing, the damage is usually minimal when a transaction collapses early on. In a multiple offer situation, the seller may have negotiated a back-up contract with another eager buyer. In this case, the seller moves directly from the primary contract to the backup contract without having to market the property again.

House hunting tip:  Usually when a real estate transaction falls apart it’s for a good reason, and not due to the buyer’s whim.

Typical problems involve property inspections and financing. But with a good team of real estate professionals on your side, many of the problematic issues that arise during a transaction can be resolved. What’s the key?  Try to anticipate what could go wrong. By anticipating potential problems, you can often safeguard against them.

Buyers can avoid most financing problems by getting Pre-Approved by a professional Loan Consultant.  That’s where a buyer can find out about the financing they need to complete the purchase before they even make an offer to buy a home. A Pre-Approved buyer has already been approved for a mortgage by the bank. His credit has been checked and his employment and down payment funds have been verified.

Sellers who receive an offer they like from a buyer who hasn’t been Pre-Approved should include a provision in the contract for the buyer to be Pre-Approved within a day or two of acceptance of the contract. This way, if the buyer is unable to do so, you haven’t wasted much time.

Even with a Pre-Approved buyer, there’s always a chance that the property won’t appraise for the agreed upon purchase price. A low appraisal can put a transaction in jeopardy. If the buyer’s agent does not have a good working relationship with the appraiser, it can be a good idea for that agent to meet the appraiser at the property armed with recent comparable sales. This helps to insure that the property does appraise for the sale price.

The most common reason that real estate transactions fall apart is inspections. Buyers should include an inspection contingency in any home purchase contract. A home inspection will reveal material facts and potentially some property defects. Even brand new homes can have issues that may not meet the buyer’s expectations. If defects are discovered that the buyer can’t live with, and that the sellers are unwilling or unable to correct, the transaction can implode if other things cannot be negotiated to compensate.

Sellers are wise to disclose any known defects to the buyers before an offer is made. Most states have seller disclosure requirements that require sellers to disclose material facts. A material fact is anything that will affect a buyer’s decision to buy or the price he’d be willing to pay.

In addition, home sellers should consider having pre-inspections done before their home goes on the market. For example if the roof leaks, disclose it. Then take the next step and find out what it will cost to repair it, and make the estimate available to the buyers before they make their offer.

The closing: The more information the buyers have upfront about the property they’re trying to buy, the better. This minimizes the chances of the deal falling apart due to inspections.

Happy House Hunting!

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How to Ensure Tenants Look after Your Property

The most troublesome aspect of being a landlord is tenants who damage your property, from complete trashing to total destruction, and even worse. There are plenty of horror stories around about what tenants can to a rental.

And, if you think finding a good tenant depends on luck, you couldn’t be more wrong, or else why don’t you work to ensure luck favours you, at least, in relation to the right choice of tenant. That means taking the following measures to reduce risk concerns that will guarantee the well-being of your rental property.

First, adopt Tenant Screening, which is the magic mantra of all successful, savvy landlords. How many landlords can confirm they carry out a complete tenant screening exercise, when looking for prospective tenants? Not many if gauged from the horror stories that float around about property damage! To get a good tenant, a landlord must be thoroughly professional about the entire tenant screening process, and verifying past landlord references is an essential part of every standard screening process. Call them and question them about prospective tenants.

Second, as an important part of the screening process, visit or at the very least, drive by the property the tenant intends to vacate, in order to assess its physical condition. The odds are your prospective tenant will treat your property in the same manner he / she treats their current rental home.

Third, photograph and videotape as in before and after advertisements, in the presence of the tenant after he / she has finished signing the lease. This evidence will ensure tenants look after your property as if it were their own. After all, if taken to court, the before and after evidence ensures law is on your side, no matter what argument the defendant might put up.

Fourth, before handing over your property prepare a complete Property Condition Report documenting the state of your property. Go over it with the tenant and once he / she has signed the inventory and condition checklist, he / she is on record, and you have another legal document, in addition to the lease.

Fifthly, before handing over possession, take a substantial sum as security deposit including the first month’s rent. With so much at stake, the tenant will ensure he / she looks after your property well.

As long as you follow the above steps, you will be able to find a responsible tenant to take good care of your property.

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Is Now the Time to Buy? Taking Advantage of the Housing Slump

Despite the current downward trend of the housing market and the tightening of credit standards by mortgage lenders, many in the industry agree that now may be the perfect time to buy for those who have been waiting for bargains in the housing industry.  Record numbers of unsold houses sitting on the market, plus a record number of foreclosures, mean that there are a number of properties that just a few short years ago may have been outside of your price range that you can now comfortably afford.  How can you as a smart home buyer take advantage of the current housing market and get the home of your dreams without worrying about losing your shirt?

What goes up must come down.  We are seeing this age-old piece of wisdom come true in the housing sector as years of rising housing prices have finally come crashing down to more affordable levels.  Thanks in part to an oversupply of housing on the market and strengthened by the sheer number of foreclosed houses showing back up on the market – the time is right if you can afford it to consider making the jump and buying a house.  Not only does the current soft market appeal to bargain hunters, but also to the aging baby boomer population. 

There are millions of Americans who are approaching retirement and they are looking to sell their house in markets where real estate prices are still packing a punch and moving to areas that are more affordable for their golden years.   It is these two groups who are poised to take the most advantage from the current situation – and you can too.

Have you had your eye on a house that has been on the market for a while but thought it was too expensive?  Now is the perfect time to put your haggling skills to work.  As houses sit on the open market for longer periods of time the owners become more desperate to sell and usually are willing to entertain reasonable offers.  You may find that it is possible to knock tens of thousands off an asking price by just working with the realtor and “naming your price”.

Got good credit?  Use it to your advantage!  The mortgage industry is tightening the reins on lending, but for those with good credit they can still get incredible deals on home loans. 

Shop around – as the pool of those who are eligible for a mortgage becomes smaller, mortgage companies become more competitive for your business. 

Many mortgage companies are eager to take on home buyers with good credit and stable finances to help offset some of their weaker credit customers on their portfolio. If it isn’t fixed rate – forget it!  No matter whether you are buying now, or considering it for the future, remember that fixed rate mortgages are your best friend no matter what you might hear otherwise. 

Don’t get caught up in the adjustable rate trap and find you have payments you can’t afford down the road.  Most mortgage companies now are pushing fixed rate loans – but if they aren’t, demand it or take your business elsewhere.

The market for housing may be soft, but like all things it will come around again.  Now is the perfect time for those who have held off buying a new home or moving to consider taking the plunge to take advantage of low housing prices and a competitive mortgage marketplace.

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