There's always a first. First closing, first fall-through, first family transaction...you get the picture. There's always a first and usually it's not the last, just an indicator of things to come or a flashing warning sign of things to never involve yourself in again. Sometimes you see the red flags and despite years of experience, you fail to heed them. Surely, you think to yourself, this can't be what it seems. Well, usually it is. Walks like a duck, quacks like a duck, again, you get it.
Because I deal with clients from all over the world, I have learned that past real estate experiences in other locations tend to color the transaction that the client and I are currently involved in. Sometimes good, sometimes bad. Poor market conditions, including a glut of inventory, plummeting prices and poor professional guidance can create negative residual reactions for future transactions. Stay with me.
Poor market conditions in another state, coupled with life-decisions being made regarding retirement and downsizing made my buyers paranoid about real estate values and rightfully so. Their home, a once stable investment, did not quite bring what they felt it should in today's market, leaving them with a sour taste in their mouths. Per our conversations, their real estate guidance back home was non-existent. When I asked questions about marketing, contingencies, financing options, etc. they looked at me as if I were speaking parseltongue.
Fast forward...we find a house here that meet their needs and is in the price point that they would like to be in. We have viewed over 50 homes in the past year while their home has been on the market, always toying with the idea of buying before the current home sold. Now that it was under contract, time was of the essence in regards to finding a place for them to rest their heads. Now keep in mind, we have viewed tons of homes in a variety of areas, all similar in spatial needs and between a certain range. We have now located one, which according to my past experience, should mean that this is the best home that the buyer has seen, in regards to condition, location and pricing...(that's how homes make it to number one on a buyers' list).
Time to make an offer. Rather than sit down and look at comparable homes that are active (we have seen all of these) or take an in depth look at similar homes sold in the past 90 days, these folks ask for an appraisal. Wow! Didn't see that coming! I am used to negotiating a price based on what the buyer and seller feel the home is worth in today's market, getting it under contract at terms everyone can live with and then "verifying" the price and terms with a certified appraisal. This seemed all backwards--but was it?
The question that I am taking away from this experience is multi-faceted...Who sets the price? What is happening to fair market value in an era of government regulated loans and appraisals? Since when did buyers and sellers not feel like they have the information to make decisions without being dictated by a third party who knows nothing of their personal needs and real estate desires?
The biggest problem I see with this "new" direction is the lack of comparable homes that appraisers have to work with. If there are not three similar homes sold in the past 90 days then appraisers are digging to find homes that are close in proximity but may be quite different for a variety of reasons. You may say "well they are going to have to do it for the bank appraisal anyway" and you are right, but its funny that once a sales price is set between buyer and seller, unless it is way off base, comps are usually found and adjusted accordingly. It's this "pull a value out of the air" using any homes that the appraiser may personally deem reasonable, that I am trying to wrap my mind around.
So the question begs to be asked...What are your thoughts on pre-appraisals and do you see this as something you would consider doing or is the notion that you are buying the best house out there for you and your family's needs enough to base price on?
Until Then...
Brooke
Showing posts with label governmental regulation. Show all posts
Showing posts with label governmental regulation. Show all posts
Tuesday, November 29, 2011
Sunday, August 29, 2010
Which comes first? The chicken or the egg?
Just ran into a frustrating situation this past week on an appraisal where the value came in significantly lower than the contracted purchase price and tax value. Where as I have been preaching for years that tax value has little if anything to do with actual market value, I would hate to think that a seller/owner would pay close to 50k more than the home's "market" value as determined by one individual, in this case the appraiser, who is following a governmental set of guidelines. I say this because I in no way believe that the appraisal was the accurate indicator of the home's value. Real Estate 101 tells us that the value of a home in a given market is determined by the price that the buyer and seller can agree to on a particular day. It takes into account what is on the market during that period of time, the price the competition is available for and the overall thought that the buyer will choose what is best suited for them at the best price.
Well, how things have changed. As we are in the midst of "recovery" and the real estate market is taking a deep breathe as we enter what has been historically a slow period, it is now no longer good enough to bring said buyer and and seller together on price and terms, you now battle an unknown set of rules. Those rules are the ones determined by the lender or quasi-governmental entities such as Fannie Mae and Freddie Mac, as they throw down regulations depending on the loan program that the buyer is using, that will dictate which set of criteria will be used to determine the value of the home.
Buyers and sellers are spending unheard of amounts of time and money to find the "real" value of their home in a historically unique marketplace. As they are trying to discover and negotiate this value, the lack of comparable sales, due to the depressed market is being used as an excuse as to why values are not there. This is happening in markets that are considered to be somewhat "stable". Meaning that nothing has been sold in the past several years because nothing has been on the market, because folks actually LIKE to live there! That usually means high demand and a relatively safe investment. Banks say NOT SO FAST! No comps, no values or they will compare and adjust the subject home with homes of varying age, quality of construction and design...for instance comparing a one level home to a two story with a basement.
The moral of the story is to
1-be aware of these risks as you are searching for homes or trying to sell your home
2-have comparable homes in your back pocket should an appraiser ask for assistance in establishing value
3-use more traditional forms of lending when possible, such as conventional loans with lower LTVs that have fewer governmental strings attached
4-don't buy anything unique (just kidding, but it does present challenges on on Fannie Mae/Freddie Mac backed loans)
Have anymore questions? Don't forget to give me a call or post if you have had or heard of a similar experience.
Well, how things have changed. As we are in the midst of "recovery" and the real estate market is taking a deep breathe as we enter what has been historically a slow period, it is now no longer good enough to bring said buyer and and seller together on price and terms, you now battle an unknown set of rules. Those rules are the ones determined by the lender or quasi-governmental entities such as Fannie Mae and Freddie Mac, as they throw down regulations depending on the loan program that the buyer is using, that will dictate which set of criteria will be used to determine the value of the home.
Buyers and sellers are spending unheard of amounts of time and money to find the "real" value of their home in a historically unique marketplace. As they are trying to discover and negotiate this value, the lack of comparable sales, due to the depressed market is being used as an excuse as to why values are not there. This is happening in markets that are considered to be somewhat "stable". Meaning that nothing has been sold in the past several years because nothing has been on the market, because folks actually LIKE to live there! That usually means high demand and a relatively safe investment. Banks say NOT SO FAST! No comps, no values or they will compare and adjust the subject home with homes of varying age, quality of construction and design...for instance comparing a one level home to a two story with a basement.
The moral of the story is to
1-be aware of these risks as you are searching for homes or trying to sell your home
2-have comparable homes in your back pocket should an appraiser ask for assistance in establishing value
3-use more traditional forms of lending when possible, such as conventional loans with lower LTVs that have fewer governmental strings attached
4-don't buy anything unique (just kidding, but it does present challenges on on Fannie Mae/Freddie Mac backed loans)
Have anymore questions? Don't forget to give me a call or post if you have had or heard of a similar experience.
Sunday, July 11, 2010
10 Years....
Almost a month and how time flies! My daughter just turned 10 yesterday, so it seems fitting to reflect on the past 10 years. Months after Maddie was born, I took the real estate course and state test and began selling real estate. My how times have changed and haven't!!
When I first started my real estate career, the market was not exactly what you would call "stellar". Meaning, rates were around 9%, there was a pretty large inventory and I felt, as I sat on phone duty rearranging Post-It notes, that buyers were few and far between. So few and far, that on my very first transaction, the buyers could not secure financing and we negotiated an owner finance agreement, that eventually worked out in every one's best interest.
Banks and lenders at the time were still requiring sizable chunks of cash down and the first-time buyer had to save (gasp!) money or have it gifted in order to make a go of purchasing their first home. I remember one office meeting I sat in at the first firm I worked at, when someone came and spoke to our office about 100% financing and USDA rural housing loans. They showed a slide-show, (yes, not PowerPoint but slide show) of the various income levels and how they correlate to the number of people in the family. I remember the buzz around our office as to how could this be sustained and do these folks really need this kind of governmental assistance if they can't qualify under the current standards of lending....Well, you can now sit back and Monday morning quarterback, but you also know where that got us. Now the government backs over 90% of all loans and establishes outlandish criteria and hoops to jump for legitimate buyers while still offering, up until a very short while ago, these SAME exact loan programs!! Guess we still haven't learned...
As I became more experienced, changed companies, owned and sold my own company, my perspective changed. I grew into a position that allowed me to consult and advise buyers and sellers on the purchase and sell real estate. No longer, cold calling (done away with by Do Not Call registry), no longer giving recipe cards and tossing candy in the parade, time and experience blessed me with a trusted and loyal client base that is always sending new leads and referrals my way. Folks now understand my job for them doesn't stop at closing, it continues as an advisor for home remodeling, refinancing, additions, real estate tax questions, advocacy on their behalf to banks and attorneys and so much more. This career is fulfilling and challenging, ever-changing, rewarding, sometimes emotionally-draining and sometimes down-right sad.
Our family has gone from sitting in our first 800 square foot home, with a computer hooked up to a phone line and an AOL disk received in the mail...to wireless and handheld SmartPhones, able to download documents anywhere and databases that includes thousands of names and contacts with a key-stroke.
Easier? No. We sit here today and have no idea where the market truly is because of a false-floor placed on real estate. At least 10 years ago, the buyers and sellers drove the market and the supply and demand, not bureaucrats in DC. Until fewer regulations and requirements are placed on real estate and lending, rather than more and the market settles because of a good dose of old fashioned common sense, then we will continue to speculate on what the next 10 years will look like. Locally, we are in good shape and for that I am grateful, but our market is affected by those trying to sell in other areas and true recovery can't happen until the job market stabilizes and the private sector adds and innovates. And until then, our industry will have to be innovative to not only survive but find a way to thrive in this period of ambiguity.
When I first started my real estate career, the market was not exactly what you would call "stellar". Meaning, rates were around 9%, there was a pretty large inventory and I felt, as I sat on phone duty rearranging Post-It notes, that buyers were few and far between. So few and far, that on my very first transaction, the buyers could not secure financing and we negotiated an owner finance agreement, that eventually worked out in every one's best interest.
Banks and lenders at the time were still requiring sizable chunks of cash down and the first-time buyer had to save (gasp!) money or have it gifted in order to make a go of purchasing their first home. I remember one office meeting I sat in at the first firm I worked at, when someone came and spoke to our office about 100% financing and USDA rural housing loans. They showed a slide-show, (yes, not PowerPoint but slide show) of the various income levels and how they correlate to the number of people in the family. I remember the buzz around our office as to how could this be sustained and do these folks really need this kind of governmental assistance if they can't qualify under the current standards of lending....Well, you can now sit back and Monday morning quarterback, but you also know where that got us. Now the government backs over 90% of all loans and establishes outlandish criteria and hoops to jump for legitimate buyers while still offering, up until a very short while ago, these SAME exact loan programs!! Guess we still haven't learned...
As I became more experienced, changed companies, owned and sold my own company, my perspective changed. I grew into a position that allowed me to consult and advise buyers and sellers on the purchase and sell real estate. No longer, cold calling (done away with by Do Not Call registry), no longer giving recipe cards and tossing candy in the parade, time and experience blessed me with a trusted and loyal client base that is always sending new leads and referrals my way. Folks now understand my job for them doesn't stop at closing, it continues as an advisor for home remodeling, refinancing, additions, real estate tax questions, advocacy on their behalf to banks and attorneys and so much more. This career is fulfilling and challenging, ever-changing, rewarding, sometimes emotionally-draining and sometimes down-right sad.
Our family has gone from sitting in our first 800 square foot home, with a computer hooked up to a phone line and an AOL disk received in the mail...to wireless and handheld SmartPhones, able to download documents anywhere and databases that includes thousands of names and contacts with a key-stroke.
Easier? No. We sit here today and have no idea where the market truly is because of a false-floor placed on real estate. At least 10 years ago, the buyers and sellers drove the market and the supply and demand, not bureaucrats in DC. Until fewer regulations and requirements are placed on real estate and lending, rather than more and the market settles because of a good dose of old fashioned common sense, then we will continue to speculate on what the next 10 years will look like. Locally, we are in good shape and for that I am grateful, but our market is affected by those trying to sell in other areas and true recovery can't happen until the job market stabilizes and the private sector adds and innovates. And until then, our industry will have to be innovative to not only survive but find a way to thrive in this period of ambiguity.
Tuesday, February 23, 2010
When Details Matter...
I had lunch today with a former client and a dear friend of mine who is considering a career in real estate. I look forward to continuing our conversation as she works step by step to obtain her real estate license and moves into the position of "trusted advisor" and Realtor.
As we were discussing opportunity and risk, the conversation took an interesting turn as she was filling me in on details of a friend of hers that is in the market for a home. She gave me their information and let me know that they would be contacting me in order to start the home-buying process. We would work in this fashion until she obtains her license and is able to help them if they haven't found the "perfect house" by that time.
She started talking about why she told them that they should work with me, and I have to admit I have never seen it from the outside in quite like she was discribing. Keep in mind this person had just sold and bought a home with me this year, wants to work with our group of associates and is now referring me a friend! Wow! My ego was really getting inflated! The points she made regarding my service and what I could offer her friends buying a home were these...
*Anticipation of problems before they arise "nipping it in the bud" , "worst case scenario" and then "most likely case scenario".
*Taking time to find the right house for a buyer...because of my experience and established clientele, having the patience and resources to spend the necessary time finding a home that works, rather than "pushing" someone into something that doesn't.
*Understanding the marketplace...what it means to understand home values, future development and growth areas and what homes meet varying and ever-changing governmental guidelines.
*Team of Experts...working with the right partners in lending, inspections, attorneys to make the deal go smoothly and knowing that everyone working on the deal is working together to get the job done right the first time!
*Having a system to take care of the details...I admit...I am a little OCD when it comes to my system of business practice...everything is filed, categorized and noted so that we can refer back to previous conversations, provide documentation and make sure that your interests are taken care of...
All of this works to make my clients' real estate experience the best it can be and I love her for taking the time to tell me WHY she trusts my advice! So on that note, I'll refer back to one of my previous marketing mantras and thank my friend for helping me to revive...
"WHEN DETAILS MATTER....EXPERIENCE COUNTS!"
Happy House Hunting!
Brooke
As we were discussing opportunity and risk, the conversation took an interesting turn as she was filling me in on details of a friend of hers that is in the market for a home. She gave me their information and let me know that they would be contacting me in order to start the home-buying process. We would work in this fashion until she obtains her license and is able to help them if they haven't found the "perfect house" by that time.
She started talking about why she told them that they should work with me, and I have to admit I have never seen it from the outside in quite like she was discribing. Keep in mind this person had just sold and bought a home with me this year, wants to work with our group of associates and is now referring me a friend! Wow! My ego was really getting inflated! The points she made regarding my service and what I could offer her friends buying a home were these...
*Anticipation of problems before they arise "nipping it in the bud" , "worst case scenario" and then "most likely case scenario".
*Taking time to find the right house for a buyer...because of my experience and established clientele, having the patience and resources to spend the necessary time finding a home that works, rather than "pushing" someone into something that doesn't.
*Understanding the marketplace...what it means to understand home values, future development and growth areas and what homes meet varying and ever-changing governmental guidelines.
*Team of Experts...working with the right partners in lending, inspections, attorneys to make the deal go smoothly and knowing that everyone working on the deal is working together to get the job done right the first time!
*Having a system to take care of the details...I admit...I am a little OCD when it comes to my system of business practice...everything is filed, categorized and noted so that we can refer back to previous conversations, provide documentation and make sure that your interests are taken care of...
All of this works to make my clients' real estate experience the best it can be and I love her for taking the time to tell me WHY she trusts my advice! So on that note, I'll refer back to one of my previous marketing mantras and thank my friend for helping me to revive...
"WHEN DETAILS MATTER....EXPERIENCE COUNTS!"
Happy House Hunting!
Brooke
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