Home prices, Zillow, and Formulating an Offer

by Dan Krell © 2007

Are you waiting for the bottom to drop out of the local real estate market? Although there has been a market correction, the Greater Capital Area Association of Realtors home statistics report shows that the average home price in Montgomery County increased to $611,443 from $593,801 the same time last year (GCAAR.com).

I hear some out there saying there is more correction to come, but in reality there not much more that the home seller can absorb. Those home sellers who are not in dire financial straights will either wait for the right buyer or take their homes off the market. As we are coming out of winter and the spring market has yet to go into full swing, it seems as if there is no end to the lethargic market. However, like the flowers that bloom every spring, so too do homebuyers.

If you look at online valuation systems such as Zillow, it seems as if home values will continue to fall, because the values listed are higher than the list prices of homes for sale. Although web based valuation systems strive for accuracy, they will continue to offer imprecise data because these sites cannot account for real time fluctuations in the marketplace. If you are a home seller, please don’t solely rely on valuation websites to determine a sale price for your home, as the comps offered by such websites may not be the most recent or may not be directly comparable.

If you are a home buyer, you may want some tips on formulating an offer. Basing your offer on the price the home seller paid or the tax assessment is unreasonable. Many of my clients have told me that that they read somewhere or heard from someone that their offer should be based on the price paid when the home seller bought the home. Will someone please tell me whose idea this is? I neither have read this anywhere nor have I met the original source of this “wisdom.”

Additionally, using tax assessments to determine your offer can set you up for disappointment as well. Tax assessments are typically a fraction of the home value and are calculated by the locality for tax purposes. It is common for a home owner to appeal a tax assessment so as to lower the assessed value and subsequently his tax burden. The price the home seller paid and the tax assessment are mutually exclusive figures that have no bearing on market forces.

If you are ready to put an offer on a home, you should do your research and look at pertinent factors such as recent sales and market trends to assist in formulating your offer and terms. You should find the most recent sales prices for similar style and size homes in the neighborhood of the home you are considering. To determine a market trend, look at sales prices in six, three, and one month increments. Additionally, try to determine the home seller’s level of motivation, as the home seller may be open to lower offers if they are highly motivated to sell.

The real estate market is dynamic and cyclical. In determining list prices and offers, home sellers and home buyers should use the most recent and pertinent information to assist in their decisions.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of 2/26/2007. Copyright (c) 2007 Dan Krell.

How to buy a foreclosed home

by Dan Krell © 2007

With changes in the market, we have seen an increase in the amount of bank owned homes on the market. What’s happening? Foreclosure rates for the entire country are up over forty percent since last year (MSN real estate). However, in the Bethesda-Rockville area the foreclosure rate only increased above four percent and decreased in the Baltimore area. If you live in Northern Virginia, the foreclosure rate increased over fifty percent since last year.

Putting the numbers in perspective, although the numbers seem high for our area, the home owner behavior relatively the same. The difference is that those who are in trouble do not have the parachute of the expanding real estate market.

In the last few years, when a home owner fell behind in their mortgage payments it was almost assured they would be able to sell the home quickly and realize a net gain in their sale. If they were not able to sell and the home went to auction, hungry home buyers and eager speculators were ready to purchase sight unseen.

Boy has the time changed! First of all, many home owners who are in trouble with their mortgage are not in the position to sell as the home value is less than what they may have purchased the home for. Additionally, if they have some exotic mortgage, there is a good chance that the interest has eaten into any equity they may have had, in addition to late fees as well as attorney fees (the mortgage company will charge the defaulting home owner for the cost of foreclosing).

If you have fallen behind in your mortgage recently, you know that banks are becoming more difficult to deal with. I have heard stories from home owners who have been told by a bank representative that because there is equity in the home, the bank is looking to foreclose and resell at a profit. Have the banks become greedy?

No. The banks are the same way they have always been, looking for ways to make money. What has changed is real estate market and technology.

A year ago, a bank owned home on the MLS was almost non existent in the Montgomery County area. Today, there are over 25 active bank owned homes on the market just in Montgomery County. Among the listings are a couple of good buys.

Bank owned homes used to be priced for quick sales. Today, bank owned homes are priced at full retail prices, even though the condition is less than perfect. Additionally, the banks may not entertain a lower offer until the home has been on the market for a while.

Technology has been a driving force in the real estate industry for over a decade. As technology changes and gets better, the valuation models the banks use will also get better. Presently, I believe the banks and REO disposition companies have fallen behind in the curve such that the valuations they are using are skewed to because of higher home prices from last year.

As the market stabilizes, we will see an increase of bank owned homes for sale. Eventually, bank owned home prices will also find their mark as market conditions and home condition are taken into account. If you are in the market for a bank owned home, talk to your Realtor and keep an eye on the bank owned inventory.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of 2/19/2007. 2007 © Dan Krell.

The Art of Pricing Your Home

by Dan Krell © 2007

As February gives way to March home buyers make their way out of hibernation, while many home owners are preparing their homes for sale. Some home sellers will list their home with a Realtor, while others will attempt to sell by owner. As the home sellers are making their preparations, one item is still undecided-the list price.

Pricing your home correctly is the key to having a successful sale and will make the difference in going to settlement in a reasonable time or having your home languish on the market for weeks and months.

Although it is true that selling a home is not rocket science; however, home pricing is a science to some and an art form to others. There is a certain knowledge and technique in home pricing as well as requiring a lot of work in the form of research.

If you are presently selling your home, (if you haven’t realized it yet) market conditions are no where near the market conditions of several years ago. Don’t expect your home to sell fast at a higher price and/or in poor condition than other homes in your neighborhood-those days are over.

The first step in pricing your home is to see what is happening in the local market and neighborhood. You can see this by getting a comparative market analysis (CMA) from a Realtor. I would ask several Realtors for a CMA as there may be differences in approach and presentation. A CMA is not an appraisal; however it is a comparison of your home to similar homes. It is important to compare your home to homes of similar style and size. Dissecting the analysis in six, three, and one month segments will show you any market trends.

When looking at the analysis, compare recent sales to currently active homes. Are the current listing prices consistent to recent sale prices and days on market? Is your competition is over priced for present market conditions, or is the market slowing down?

Look at the expired and withdrawn listings too. Try to find out why these homes did not sell and avoid doing the same mistakes. Also, look any pending sales for price reductions and seller concession as these may give you a hint to where you need to be in pricing your home.

Now that you have the analysis, it is important to know your competition first hand. Go visit your competition when they hold an open house. Compare active listings’ condition and amenities to your own home. Does your home compare; is the price reasonable; would you consider buying this home?

Be honest with yourself about your home’s condition and features. Are there amenities that will attract home buyers? Are there any problems or shortcomings that will turnoff home buyers? You will need to adjust for these items accordingly.

Home buyers in today’s market are looking for homes that show well and are reasonably priced. Additionally, many home buyers are in need of closing cost assistance. Don’t expect home buyers to make an offer just because the home is on the market-they won’t. Be realistic, as there are lots of other homes on the market that show well and are competitively priced.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of 2/12/2007. (c) 2007 Dan Krell.

Does a Vacant Home Sell Faster?

by Dan Krell © 2007

When I list a home I invariably get the question, “Don’t vacant homes sell faster than occupied homes?”

It is an interesting debate in the real estate industry. Well, not so much a debate as it is a difference of professional opinion and culture. The rationale for vacating the home prior to listing it includes ease and convenience, for both the home seller and the prospective home buyer. After all, the home seller will not have to be bothered with keeping the home clean on a daily basis anticipating home buyers coming to see the home. Additionally, strangers won’t be traipsing through the home at odd times or while the home seller is taking a shower (which does happen).

For the prospective home buyer, viewing a vacant home can’t get any easier. There are no restrictions on showings; there aren’t any worries on going too late in the evening or too early in the morning. Also, there aren’t any worries on letting out pets because there are none in the home.

When the real estate market was on a run away pace, the advice of vacating a home may have been harmless as well as making some sense. The thought was, “Why not move out before listing? Some one will be moving in the home in several weeks.”

Now that the real estate market has become (or becoming) more realistic, the reality selling a vacant home is setting in. An empirical study conducted by Chien-Chih Peng and published in the June 22nd 2004 issue of the Appraisal Journal concluded that vacant homes take longer to sell as well as selling for less than occupied homes.

While viewing a vacant home, you notice traffic patterns as well as furniture footprints. If you have ever moved furniture out of a room, you probably noticed that the room looked a bit shabbier empty than with furniture because of the marks left behind from furniture and traffic through the room. You tend to notice more imperfections than if the home was furnished. Additionally, if the home is on the market for an extended period, dust buildup and an overgrown lawn becomes unsightly. Sometimes an unused toilet gets a ring that will become a home buying deterrent. If the home is not maintained on a regular basis, the vacant home looks as if it is an abandoned home that has no appeal.

Why do home builders fully furnish their models? It’s not because they want to advertise someone’s furniture, it is because they want to give you an idea of how the space can be used. Home builders know that selling a home is much more than a financial investment, it’s an emotional investment. Vacant homes are bleak and sterile, whereas a furnished home can show its warmth and connect emotionally with the potential home buyer.

Finally, savvy home buyers may look at a vacant home as a sign of a desperate home buyer in need of a quick sale. A vacant home may be an invitation to lower offers because it is thought to be a financial waste or strain on the home seller.

The message is clear. Whether or not you plan to live in your home during the sale, keep your home furnished modestly, clutter free, and clean.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This column was originally published in the Montgomery County Sentinel the week of 2/5/2007. Dan Krell © 2007.

Do You Know What a Home Inspection Should Cover?

by Dan Krell

Now that the market has turned away from the record seller’s market we recently experienced, homebuyers are asking home sellers for such things as closing cost assistance and home warranties. It is also common to ask for contract contingencies such as financing approval and a home inspection.

During the height of the sellers market it was common for home buyers to forgo the home inspection so as to have their purchase offer look better than others. These home buyers took the chance that the home did not have any latent defects and was in acceptable condition.

If you are a home buyer, it is highly recommended to have a home inspection. The goal of a home inspection is to ascertain the general condition of the home including the structural condition, revealing items that need immediate attention, and determining the remaining lifespan of the home’s systems by visually inspecting the home and its components. Because the inspection is visual, it has limitations. Hiring the right home inspector can make the difference.

Before you hire a home inspector, consider that not all home inspectors are equal. It is recommended that you interview your home inspector and ask basic questions such as what are their qualifications and experience, what certifications/licenses they have, do they carry errors and omissions insurance (ask for a copy), can you contact a past client for a recommendation, what will the inspection cover, how long will the inspection be, and is the inspection guaranteed.

The Maryland legislature passed a home inspector licensure law that has been deferred due to funding constraints. So although your home inspector may not licensed, they could be certified by and/or have memberships in the National Association of Certified Home Inspectors and the American Society of Home Inspectors. Both associations require the home inspector to follow an education requirement as well as an ethical code and standards of practice.

What should your inspector be looking for? The American Society of Home Inspectors standard for a home inspection is to examine the condition of the home’s heating system and/ or central air conditioning system (temperature permitting), interior plumbing system, electrical system, roof, attic and visible insulation, walls, ceilings, floors, windows, doors, foundation, basement and structural components. The findings will be recorded in a report that will be given to you at the end of your inspection.

Like everything else in life, a home is not a perfect structure. Finding problems in the home is not a definite indicator to not purchase the home, however it is more of a guide to determine if you can afford to take on repairs immediately or in the future. Depending on market conditions, it is common to ask the seller to make the necessary repairs.

Home inspections are not just for older homes. It is becoming more common to have a home inspection of a new built home as well. Although home builders have their own quality assurance measures, no one is perfect and mistakes are overlooked.

For more information about home inspection scope and limitations as well as finding a qualified home inspector, you can search the websites of the National Association of Certified Home Inspectors (NACHI.org) and the American Society of Home Inspectors (ASHI.org).

This column is not intended to provide nor should it be relied upon for legal and financial advice. This column was originally publoshed in the Montgomery County Sentinel the week of 1/22/2007. Dan Krell © 2007.