Home market value

home market value
Home Market Value (infographic from keepingcurrentmatters.com)

It’s normal for homeowners to wonder about their home market value. After all, home sales and prices have been making headlines for well over a decade.  But you certainly can’t get a home market value from a headline, nor can you assume it from a neighbor’s sale.  The reality is that your home market value could vary depending on whom and when you ask.

A timely and important review article by Michael Sanders recently published in the Appraisal Journal asks the question “what does Market Value Mean?”  (Market Value: What Does It Really Mean?; Appraisal Journal. Summer2018, 86:3, p206-218).  The article correctly points out that determining “market value” can realize different results depending on the scope and purpose of the appraisal.  You can see how this might be problematic if you’re trying to determine a home’s value when divorcing or trying to sell an estate property.  Some mortgage lenders even have different value criteria depending on the loan product and purpose.

Sanders suggests that “market value” undergoes scrutiny when valuations are difficult and appraisals are questioned (e.g., during a recession).  However, having a discussion about the meaning of “market value” now, when there is relative market stability, is probably meaningful for the industry and consumers.  Interestingly, the semantics of “market value” have changed through the years, and ultimately depends on the application.  He points out at least twelve similar but different legal definitions of “market value.”

Sanders suggests that Richard Radcliff, an appraisal pioneer of the 1960’s, was ahead of his time by advocated for most probable price valuations.  An ongoing debate in appraisal circles is whether “market value” is the highest price or probable price.  However, it wasn’t until the 1980’s when appraisal articles academically contemplated the association of “probable sale price” and “market value.”

Sanders quotes Richard Ratcliff saying, “appraisal is largely the predicting of human behavior under given market conditions.”  Sanders quips about an “ideal world”, where “appraisers would apply market value definitions using a relatively consistent and objective standard, and reflect conditions in the market as they exist, rather than how others might wish them to be.

Although the accepted dictionary definition of “market value” is the price a buyer is willing to pay for your home, market value and sale price could be different (and often is).  And according to Sanders, an appraised “market value” isn’t necessarily the price for which your home may sell.

At this point you may be asking yourself, “how much is my home really worth?”  For the answer, you may have to ask a Realtor.

Realtors use market data to prepare comparative market analyses (CMA) that can help buyers and sellers decide on a sale price.  Although a CMA is not an appraisal, it is a technical and methodical professional analysis that provides a snapshot of the market.  The CMA is typically more refined in scope than an appraisal, such that it is usually limited to a neighborhood and home criteria.  Additionally, depending on the location and availability of comparable sales, it can provide a 30, 60, and 90-day probable sale price range based on market trends.

If you’re planning a home sale, a Realtor’s CMA may be your best source of information to decide on a listing price.  Even mortgage lenders have relied on Realtor CMA’s, in the form of Broker Price Opinions, to help decide on sale prices for short sales and bank owned homes.

Original published at https://dankrell.com/blog

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home sale renovations

home sale renovations
Interior Home Sale Renovations (infographic from nar.realtor)

According to the National Association of Realtors (nar.realtor), the average time a homeowner stays in their home is ten years.  This is higher than the seven-year average prior to the great recession (but is less than the thirteen-year average immediately following the recession).  Needless to say, many homeowners are approaching (or have exceeded) their ten-year stint, and are likely selling their home during the spring and will likely be doing home sale renovations.

Any home sale preparation in today’s housing market should include some home sale renovations.  If you haven’t replaced the home’s systems (such as the roof or HVAC) while you lived in your home, there’s a good chance that they are approaching or have exceeded their average life expectancy.

Additionally, the décor and fixtures in your home are likely outdated.  The home sellers who make the mistake of not updating or renovating before they list inevitably face home inspection issues.  They ultimately find that the home takes longer to sell at a reduced price.

Let’s face it, remodeling can be expensive and overwhelming, especially when it’s for home sale renovations.  According to the NAR’s 2017 Remodeling Impact Report, about $340 billion was spent on remodeling projects in 2015.  Although a majority of homeowners would remodel their home themselves, thirty-five percent would prefer to move instead of remodeling their home.

The Report cited functionality and livability as the top reasons for home sale renovations.  It’s a no-brainer that home buyers prefer homes that are functional, comfortable, and sustainable.  Aesthetics is not enough for a home to be appealing to today’s home buyer, it has to fit their life style.  Additionally, home buyers want efficient systems in their new homes that can help save on utility costs.

Home sale renovations should focus on functionality and livability

What projects will get buyers who will pay top dollar into your home?  It should be no surprise that the number one interior project, listed by the 2017 Remodeling Impact Report, is a complete kitchen renovation.  Other essential interior projects include renovating bathrooms, installing new wood flooring, creating a new master suite, replacing the HVAC system, and finishing a basement or attic.

It also shouldn’t be a surprise that the Report listed replacing the roof as the top exterior project. Other exterior projects in high demand include new windows, new garage door, new siding, and installing a new front door.

If you want to add value to your home, even if it’s not for home sale renovations, check the 2018 Cost vs. Value report (costvsvalue.com).  The report can give you insight to which remodeling projects are the most popular, and estimates how much of the cost you can potentially reclaim when you sell your home.

There’s no doubt that renovating your home can be expensive.  Although the costs of home sale renovations can tempt you to cut corners, don’t.  Cutting corners on renovation projects can actually cost you more.  You may have to repair, or even re-do the project if not finished adequately.  Home buyers are savvy, and can spot low quality materials and poor workmanship.

Also, make sure to get permits when required.  If the home buyer doesn’t ask you, the home inspector will likely recommend that the home buyer check for permits.

Although many homeowners don’t mind a DIY project, many hire home improvement professionals.  When hiring home improvement professionals, check with the Maryland Home Improvement Commission (dllr.state.md.us/license/mhic) to ensure they are licensed contractors.  You should also ask for proof of their insurance, including Workman’s Comp insurance, in case there is an accident on your property while completing the project.

If you hire a contractor who will accept payment when the house sells, read your contract carefully and thoroughly. Do your due diligence.  There may be provisions in your contract that you may not be aware of, such as added costs, charging interest, and setting/lowering the sale price.

Original article is published at https://dankrell.com/blog/2018/11/17/home-sale-renovations

Copyright© Dan Krell
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Quick sale investor promise?

Is a quick sale to a real estate investor worth it?

House flipping is a misunderstood industry.  Sure, these investors promise a quick sale, but legitimate home flipping is valuable to the real estate industry and the community.  Home flippers revitalize run-down homes, and market appealing homes to home buyers.  In a low inventory housing market, home flips have become a significant percentage of home sales in a low inventory market.

House flipping data

quick sale
House flipping is a significant portion of home sales (Home Stats infographic from nar.realtor)

ATTOM Data Solutions (attomdata.com), the data solutions behind Realtytrac, recently released its Home Flipping Report for Q1 2018.  The report indicated that there were 48,457 U.S. homes that were flipped, which represented 6.9 percent of all home sales.  Although the number of homes flipped decreased 3 percent from last year, the percentage of flipped homes in the home sale inventory increased!  The number of flipped homes decreased to a two-year low, but the home flipping rate is the highest since 2012.  The average gross profit of $69,500 is at the highest point since ATTOM started collecting the data in 2000.

Given the stats and profits, it was just a matter of time for the mom and pop home flipping business to become corporatized.  Using the power of the internet and corporate financing, companies such as Opendoor, Offerpad, and recently Zillow have become players in house flipping business.  Whether corporate flippers are profitable or have a sustainable business model is for another column.  But, there is no doubt that home sellers are seduced by one-click instant offers and promises of a quick closing.

How real estate  investors operate

House flippers are known to buy foreclosures and other financially distressed properties.  However, these real estate investors also go after other properties too, as long as it’s financially feasible (it’s a business after all).  Other types of targeted homes include estate sales, divorce sales, long-time rentals, and outdated or obsolete homes.  So, if you haven’t already received a letter offering you a quick offer and fast closing, it’s just a matter of time.

For some home sellers, a quick sale to an investor is fitting.  The seller is disposing of a home that would otherwise continue to be a financial burden and deteriorate further.  However, many realize they can sell for more on the open market (MLS).

Is a quick sale to an investor all it’s cracked up to be?

If you’re thinking of selling your home (or even currently selling), you might be fascinated by the idea of a quick sale.  But for most, the dream of selling for a large sum and closing quickly is just a fantasy.  You should realize that home flipping is risky business, and the investors build their costs into their offer.  So, be prepared for a really low offer.  A typical investor offer is about 70 percent of the home’s value minus rehab, carrying, and marketing costs.

Before you sell to an investor, do your due diligence.  Compare multiple investor offers.  Verify that the investor is legitimate.  Be wary of investors who include extended contingencies.  Be aware that “wholesalers” will tie up your home while looking to sell their purchase contract to other investors.  Although most investors promise “cash” deals, the reality is that most investors actually borrow money.  It is not uncommon for investors to back out or default on a deal because their financing doesn’t come through.  Most important, have your attorney review any contract before you sign.

Also, talk to a Realtor.  You could possibly sell your home for more than the investor’s “instant” offer.  Marketing your home on the MLS at a price appropriate for its condition could net you more.

Original is located at https://dankrell.com/blog/2018/10/11/quick-sale-promises/

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Winter home sale profits

winter home sale
Reasons to buy (infographic from keepingcurrentmatters.com)

If you are planning to sell next spring, don’t wait!  Consider a winter home sale.  A National Association of Realtors survey indicates that a surge of home sale inventory is on the horizon.  The NAR third quarter Housing Opportunities and Market Experience survey indicated that 77 percent of Americans believe it to be a good time to sell (Homeowners Ready to Sell in the Third Quarter of 2018, says Realtor Survey; September 25, 2018; nar.realtor)!  This happens to be a record high for the survey.  NAR Chief Economist Lawrence Yun believes that the strong sentiment is due to recent home price appreciation.  He stated:

“Though the vast majority of consumers believe home prices will continue to increase or hold steady, they understand the days of easy, fast gains could be coming to an end. Therefore, more are indicating that it is a good time to sell, which is a healthy shift in the market.

A winter home sale has less seller competition

The housing market conditions are such that we are on the verge of experiencing a déjà vu.  Two years ago, winter home sales were fueled by rising mortgage interest rates, low inventory and pent up demand.  As I predicted in a November 2016 column, rising interest rates and pent up demand were credited for the almost 10 percent jump in home sales by the end of January 2017!  The massive jump in home sales occurred during the deep winter, when existing home sale inventory dropped about one-third of the summer inventory.  Sellers who had a winter home sale during 2016-17 were greeted by eager home buyers and faced little competition.

Fast forward to 2018.  Yes, admittedly, home sales have slightly dropped off during summer.  But many are attributing this phenomenon to the lack of inventory.  Consider that Montgomery County existing single-family home sale inventory was almost 20 percent lower than that of the summer of 2016.  Although summer home sales dropped off, indicators point to a hot winter housing market.  Moderating home prices, combined with pent up buyer demand and a strong economy could make a winter home sale ideal.

It’s clear that home buyers facing rising interest rates have taken a pause.  But as rates approach 5 percent, positive economic sentiment is lessening the shock and many are planning to buy before rates creep higher.  Giving perspective to the mortgage rate hysteria, current mortgage rates are about the same as they were during 2014.  Additionally, the last time we saw mortgage rates above 5 percent was in 2010.  Rates exceeded 6 percent when home sales broke records during the market buildup of 2006.

Current sentiment is good for a winter home sale

Another indicator that a winter home sale may be primed is the most recent Fannie Mae Home Purchase Sentiment Index (No Thanks to Housing, Home Purchase Sentiment Edges Up; fanniemae.com; August 2018).  Home buyer sentiment increased the first time since May.  Economists attribute this uptick to a strong economy along with the awareness of the recent market slowdown.  The job and income related index components increased significantly indicating that buyers feel financially more secure with a home purchase.  There is also a belief that home prices may moderate due to the summer sales slump.

Winter home sales tend to have less competition and serious home buyers.  As I said in 2016, don’t wait until spring to sell your home!  If you wait until spring to list your home, you’ll be faced with a profusion of seller competition.

Original located at https://dankrell.com/blog/2018/10/03/winter-home-sale-profits/

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Fast home sale tips

fast home sale
Average Days on Market (infographic from keepingcurrentmatters.com)

Although the volume of home sales is below last year’s figures, most homes are still selling.  Of course, home sellers would prefer to have a fast home sale. When meeting with potential listing agents, home owners are typically overwhelmed by agents promoting their broker’s technology.  But the research is clear that it’s not technology that sells homes, but rather your MLS listing content and the audience that can sell your home fast.

Three years ago, I introduced cutting edge research by Allen, Cadena, Rutherford & Rutherford (Effects of real estate brokers’ marketing strategies: Public open houses, broker open houses, MLS virtual tours, and MLS photographs; The Journal of Real Estate Research; 2015; 37(3), 343-369).  Although the study focused on the listing agent’s motivations about spending money on promoting your home, it did shed light on the effectiveness of marketing staples such as: broker open houses, public open houses, MLS photos, and MLS virtual tours.  Although these tactics may not promote a fast home sale, the study revealed that all four methods used together positively influence the home sale price.

They found that having six or more MLS photos increases the probability of a selling your home, as well as positively influencing the sale price.  Having a virtual tour can decrease the home’s time on market as well as increasing the probability of selling.  Having open houses can help sell your home at a higher price, but can take longer to sell.  Contrary to conventional wisdom, having public open houses can increase your home’s time on market up to twenty-five days, while reducing the chances of it selling by 6.1 percent!  Broker open houses also adds to the time on market, however increases the likelihood of selling your home.  The conclusion was that all four tactics should be considered as a package if your goal is to get top dollar.  However, if your goal is a fast home sale, your focus should be elsewhere.

Do pictures help with a fast home sale? A number of studies found that MLS photos and virtual tours have positive effects to home sale price, but are conflicted with regard to time on market.  However, a study conducted by Benefield, Cain & Johnson (On the Relationship Between Property Price, Time-on-Market, and Photo Depictions in a Multiple Listing Service; The Journal of Real Estate Finance and Economics; 2011; 43(3), 401–422) indicated that having more photos of the home’s interior can increase the time on market.

A study published this year suggests that getting more real estate agents to view your MLS listing can sell your home faster.  Allen, Dare, & Lingxiao (MLS Information Sharing Intensity and Housing Market Outcomes; The Journal of Real Estate Finance & Economics; 2018; 57(2), 297-313) found that just increasing the MLS listing view by one unit can increase the probability of selling your home by 5.7 percent, increase the sale price by 0.2 percent, and reduce time on market by 1.6 days.

A fast home sale

So, what does all this research mean to you if you’re selling your home?  First, consider that your agent’s marketing strategy will certainly affect your home’s sale price and days on market.  While possibly helping to get a better sale price, the research has demonstrated that having a broad marketing plan could increase your home’s time on market.  To decrease the days on market and increase the probability of a sale, pay attention to the pictures and audience.  Make sure your agent places high-definition photos of your home in the MLS, but limiting shots to the most relevant.  Also, make sure your agent has a plan to get your MLS listing in front of other agents.

Original published at https://dankrell.com/blog/2018/08/16/fast-home-sale-tips/ ‎

Copyright© Dan Krell
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Protected by Copyscape Web Plagiarism DetectorDisclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.