Category: real estate

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Coping with a low appraisal

I know it’s trite to say that selling your home in today’s economic environment is challenging. You know that home buyers are very picky and money is tight. However, are you (or your real estate agent) prepared for a low appraisal?

According to the Appraisal Institute (appraisalinstitute.org), an appraisal is “a professional appraiser’s opinion of value.” The appraiser’s role is to “provide objective, impartial, and unbiased opinions about the value of real property”… “Appraisers assemble a series of facts, statistics, and other information regarding specific properties, analyze this data, and develop opinions of value.”

Although there is a standardized procedure in conducting and preparing an appraisal, lenders add their own criteria to meet their underwriting requirements. There is no doubt that many lenders have made their criteria more restrictive since the housing market downturn.

Contrary to the current attitudes, low appraisals have always been around. It was not until the market downturn when many home sellers were confronted with concrete evidence of their home’s depreciation. However, the issues with today’s low appraisals are slightly different those of years past. In addition to stricter lender requirements and increased appraisal scrutiny, some have argued that changes to the appraisal industry (including management and ordering) may have also contributed to low appraisals.

Although not as pervasive as they were several years ago, low appraisals are still common. If your home does appraise lower than the contract price, you can appeal the value with the lender – but it will be difficult. In the past, appraisal appeals were less demanding (typical comparables were homes that sold within 6 months and 1 to 5 miles from your home) providing you a higher chance of success. However, today’s lender requirements are more restrictive. Although lenders vary on their requirements, many lenders now only accept appeals that include three original comparables that sold within the last 3 months and are within ½ mile (or less) of your home.

Don’t wait for a low appraisal to throw a wrench in your sale; take a proactive approach. Long gone are the days of setting a price by tacking on thousands to your neighbor’s recent sale price! Pricing your home correctly doesn’t only help attract home buyers, but it can also help avoid a low appraisal. Furthermore, choosing appropriate comparables for your pricing strategy is highly important, which include: comparables that are most similar to your home (same style and within 15% to 20% of living area and lot size); the most recent sales (within 3 months, but nor more than 6 months); and in close proximity to your home (unless you are in a rural are the comparable should be within ½ mile, but no more than 1 mile).

Additionally, the appraiser should be provided with your pricing rationale (i.e., the comparables that indicate that your sale price is in line with the market as well as a list of improvements that add value to your home). The intent is not to pester the appraiser while they are trying to do their job. However, some appraisers are appreciative that you have made the effort to provide the information (especially those who are unfamiliar with the local market).

Regardless of the outcome of your home’s appraisal, take heart that you can be proactive to possibly avoid appraisal issues. And if need be, don’t be afraid to appeal a low appraisal.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Understanding Title Insurance

title insurance
A Consumer Guide to Title Insurance from the Maryland Insurance Administration (insurance.maryland.gov)

The necessity of title insurance has been debated over the years by many home owners. However, foreclosure disputes, between lenders and former home owners, have brought focus on a valuable and often misunderstood protection. Besides the many stories that have been told about how an owner’s title insurance policy has saved or could have saved a home, many home buyers are unaware of how title insurance was conceived. Many have difficulty understanding title insurance.

According to the American Land Title Association (ALTA.org), title insurance came about as a result of a landmark court case in Pennsylvania in 1868, which found that home seller was not be responsible for a erroneous title opinion. Subsequently, the first title insurance company was formed in 1876 in Philadelphia. The company promoted itself by claiming that they would insure “the purchasers of real estate and mortgages against losses from defective title, liens and encumbrances”…”Through these facilities, transfer of real estate and real estate securities can be made more speedily and with greater security than heretofore.”

Like today, title examinations were conducted to ensure that the title was marketable (or defect free). However, prior to the offering of title insurance, property owners were often held responsible for liens and encumbrances left on the title by the previous owner, or when mistakes occurred. Title disputes were often settled in court.

Initially, title insurance was often a local process. However, the title insurance industry surged along with an expanded housing market after World War II ended. Additionally, the use of lender’s title insurance grew along with the secondary mortgage market; because as the number of nationwide mortgage holders increased, lenders found that title insurance was necessary to protect their interests.

Contrasting to the recordation system has been used in most of the United States (in some cases before the formation of the country); many other countries use a land registration. Land registration typically allows a government to determine ownership when property ownership is challenged; property owners usually have no recourse.

Title insurance is a result of our recordation system that continues to this day, where property ownership can usually be determined by conveyance. Although the recordation system relies on transfer instruments that indicate a grantor, grantee, and property description; the system is not perfect. Besides recordation mistakes and claims from unrecorded conveyances; fraud can also occur by recording falsified transfer documents with a complicit or unsuspecting clerk.

There are two types of title insurance that are offered: lender’s and owner’s. A lender’s policy is usually required by a mortgage lender and protects the interests of the lender by validating the lender’s validity and enforceability of the mortgage. The lender’s policy is typically issued for the mortgage amount and coverage decreases as the principal is paid down.

An owner’s title insurance policy protects the owner’s interest in the property. The policy is typically issued for the purchase price and is usually valid through ownership to cover claims against the title. Policy coverage varies- so check with your title agent for pricing and coverage levels.

When purchasing a title insurance policy, consult with your title attorney about the policy coverage and limitations. Additionally, A Consumer Guide to Title Insurance is available from the agency that regulates title insurance producers – the Maryland Insurance Administration (https://insurance.maryland.gov/Consumer/Documents/publications/titleinsurancebrochure.pdf).

by Dan Krell
© 2011

Original published at https://dankrell.com/blog/2011/08/18/title-insurance-a-misunderstood-safeguard/

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Financial Crisis Déjà-vu

Although it may feel as if you’re experiencing one, no – you’re not having a déjà-vu. Wall Street and other world markets are once again in crisis mode. However, unlike the crisis of 2008 that was caused by a credit crunch; this week’s crisis is characterized as a debt crisis.

Sure, crises shock the public and economic systems. And much like other crises, we are stunned, worried and confused. However, this crisis is a bit different. Although the imminent effects are yet to be seen, this crisis has been openly brewing for months; and the public has been primed leading up to the debt debate and subsequent debt deal that seemed to satisfy no one – especially Standard & Poor’s. As you already know, S&P downgraded the credit of the United States of America on August 5th (You can read the downgrade report along with the rationale on standardandpoors.com).

As a home owner, you might think that home values are once again in peril. However, a sharp decline in home prices that was characteristic of the housing downturn from 2007 to 2009 is unlikely. In retrospect, the housing bubble lost its turgidity and home values started to erode before the credit crunch of 2008 (one could argue that the credit crunch was caused by the foreclosure crisis). Unlike today’s housing market, the market downturn in 2007 and home prices were mostly affected by the tsunami of distressed properties that swelled the active inventory for over three years. As inventory decreased, home prices seemed to rebound indicating the beginnings of a very modest housing recovery.

Although nationwide home prices may continue to roller coaster until economic stability is achieved; a hyper-local analysis may indicate that neighborhood home values will vary.

As financial markets “correct” themselves, consumer sentiment of home ownership may not be initially or directly affected by the current crisis. It is more likely that most home buyers may initially continue their home search unabated. Home sellers, on the other hand, are more apt to pull their homes from the market if indications are of a slowdown.

Of course there will be consequences. Intuitively, one might have expected mortgage interest rates to increase on the heels of a U.S. credit downgrade. However, at least initially, interest rates decreased. The rationale is that although the U.S. credit was downgraded, investors looking for a “safe haven” for their money view world markets in turmoil; there is fear of a worldwide recession as Europe is dealing with an ongoing debt crisis, while China is coping with inflation and their version of a real estate bubble. Notwithstanding, the long term effects on mortgage interest rates remain to be seen.

Additionally, the short term evaporation of savings and capital in the financial markets can affect the ability of home buyers’ down payments; savings are the most common source of downpayment as indicated by the National Association of Realtors® Profile of Home Buyers and Sellers 2010 (realtor.org). The end result may be a bifurcated housing market, evident by the financial disparity of home buyers. Home buyers who are financially better off will have cash for their downpayment as well as be able to afford the potential higher interest rate mortgage.

As we move forward, uncertainty is felt about the immediate effects of a combined global crisis and/or possible recession. However, like all crises – this too shall pass in time.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice.  Using this article without permission is a violation of copyright laws.

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The challenges of selling a home while divorcing

Of the many challenges you might face while going through divorce, having to leave your home is not only emotionally disruptive, but has the potential to create short term havoc as well. Imagine not only having to pack and move your personal possessions, but also having to cater to strangers traipsing through your home on a regular basis.

Because selling a home during divorce can sometimes offers additional pitfalls, choosing the correct Realtor® as well as arranging a thorough home sale agreement with your ex-spouse may minimize the emotional stress and grief, as well as possibly avoiding additional conflict. As always, I need to remind you that I am not an attorney, and if you’re going through or thinking of separation/divorce, consult your attorney for legal counsel.

Of course you want to choose a listing agent with sharp real estate acumen. However, consider additional agent attributes such as facilitator, active listener, as well as being discreet. Most top real estate agents are good facilitators, being able to move a transaction from an offer to close; but in a divorce situation, the listing agent should not only address the buyers side in negotiation, the agent needs to be able to facilitate the transaction by bringing both ex-spouses together.

In what may seem to be a skill that is scarce these days, active listening is not only hearing what you may have to say but is demonstrating you are understood. Not unlike a counselor, the agent with active listening skills is able to recap a conversation and be able to actively address your concerns during the home sale.

To thwart unwanted lowball offers, the listing agent must be also be discreet. Home buyers may sometimes mistakenly equate a divorce related home sale with a distressed property, and subsequently present an offer that is below market pricing. Additionally, the listing agent must remember that they have a fiduciary responsibility when representing all the sellers of the property and not should not favor one side or attempt to cram offers through.

Having a thorough home sale agreement prior to listing is not always realistic, it’s not unusual for an agreement to be reached after the sale. However, giving consideration to other sale related issues in addition to disbursing the sale proceeds can facilitate a sale. To assist in making your transaction and transition smoother, consider the disbursement of escrow accounts, payment of left over bills, property damage and removal of your spouse’s possessions.

The mortgage and water bill escrows are sometimes forgotten during a divorce sale. When your mortgage is paid off, the mortgage company will refund any remainder of the escrow account that was used to pay your insurance and property tax. Additionally, the remainder of the escrow that is collected at settlement to pay the final water bill must be disbursed as well.

An ex-spouse’s personal property can sometimes linger, making the home appear cluttered and creating challenges to staging. Arranging to remove personal property prior to listing may assist in showing the home at its best. Additionally, agreements as how to handle escrow shortages and any property damage that occurs prior to settlement may also prevent potential closing issues and delays.

Although proactively arranging for all pitfalls in the divorce sale is not always realistic, consulting with your attorney can help you navigate through the obstacles.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Preparing an open house for welcome and unwelcome visitors

In a time when home buyers and their agents are increasingly using online services to search for homes, some question the value of holding an open house. However, holding an open house provides the opportunity for both welcome and unwelcome visitors to experience what your home has to offer.

Of course, the wanted visitors include home buyers and their real estate agents. The National Association of Realtors® Profile of Home Buyers and Sellers 2010 (NAR, Washington, DC; Realtor.org) indicates that about 10% of home buyers in 2010 reported finding their home via an open house visit. And although the number of home buyers finding their home by means of visiting open houses has decreased from the 16% that reported in 2004, many home buyers reported that they use open houses as a means of information gathering. Of those home buyers who used the internet for their home search, 47% also visited open houses as an additional source of information.

Although preparing for an open house should not be too much work, since most of your preparation should have been completed prior to listing your home, time should be taken to offer your visitors a memorable home. No matter how much de-cluttering you have undertaken prior to listing your home, getting ready for an open house offers the opportunity to focus on the details.

Attention to the home’s curb appeal can make the difference between having home buyers driving by and having them stop to come inside. No amount of advertising can overcome a home with poor curb appeal; remember that your home’s exterior and yard is like the opening chapter of a story that should be engaging to home buyers.

When cleaning your home, look for trip hazards. Trip hazards can turn the promise of an open house into a potential disaster. Of course, visitors should be informed of home features that present trip hazards, such as irregular stairs and uneven floors. However, other trip hazards are sometimes created by the virtue of an open house: think twice before asking visitors to remove their shoes, as walking around in socks can be quite slippery on bare floors and stairs; new rugs should be secured so they do not slip from under your visitors’ feet.

Certainly cleaning and dusting the home is a given; but since home buyers often find strong odors a turn-off, consideration should be given to odors and their sources. Odors that emanate from such sources as pets, cooking, and even your cologne and perfumes can often linger throughout the day- and sometimes trigger an allergic reaction from a home buyer.

Now to the unwanted traffic: Besides cleaning your home, take precautions to protect your valuables and prescription medications. Every year there seems to be an outbreak of open house thievery somewhere in the country. Think twice before showing off your new flat screen or computer, or laying out the fine china for staging. Thieves can easily visit an open house to not only see what they can fit into their pockets, but to “take inventory” of your valuables for a later score when no one is home. And it’s not always jewelry and cash- some thieves look for prescription drugs that are easily pocketed during their visit.

Your Realtor® can assist you in making your open house successful; prepare equally for the welcome and unwelcomed guests.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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