We Tell it Like It Is

I'm going to repeat myself for a moment; for the sake of anyone reading this that hasn't read past blogs.

An appraisal is done once a buyer has a signed purchase agreement on a property and once they have completed their private home inspection. The appraisal is ordered by the buyer's loan officer and is conducted so that the lender knows they are lending the buyer the appropriate amount of money for the home. Since the appraisal is being conducted because the buyer wishes to purchase the home, the buyer is required to pay for it. Appraisals cost anywhere from roughly $450-$550 and the lender will either ask for that fee from the buyer up front, or oftentimes, they will take the money out of the buyers closing costs at the closing.

Most buyers right now are using FHA loans because they require the least amount for a downpayment. When this is the case, a special FHA appraiser must be the one to conduct the appraisal. Not only are they looking to make sure the home appraises at the value that its being sold for, but they are also making sure the home is "livable" and that it meets FHA living standards. If the appraiser finds something that he/she feels does not meet these standards, they will issue a "work order".

A work order is written up and submitted to the lender who then contacts the buyer (or I). The work order states what the issue is and how it needs to be fixed. The work order must be fixed BEFORE the buyer can close on the home. Some examples of work orders that have been written up in my past transactions:

--Doorknob is missing to the door going out to the garage & needs to be replaced.

--Broken windows, window cranks/hardware need to be replaced

--Smoke detectors not operating & need replacement

--Toilets not flushing properly

--Leaky pipes

--Chipping paint on inside or outside of house or garage

--Garage door or service door not working or in bad shape

--Evidence of leakage from the roof w/out recent replacement of the roof

--Bathroom venting/fan not working

--Insufficient amount of insulation in roof area

Who completes the work orders depends on who the seller is. If you are buying a foreclosure, the buyer must take care of these items. If you are purchasing from an actual homeowner, these work orders are negotiable. Nonetheless, they must be done asap and the appraiser must come back to reinspect before you can close on the purchase. Can appraisers reinspect and find the repairs not good enough? They sure can. And they charge you for every inspection. Usually $100 per additional visit after the initial appraisal.

Searching for a home has become the easier part (however, some of my clients right now may beg to differ!). The hardest part has become all of the legwork that needs to be done after a buyer's offer on a home has been accepted. Just a reminder, here are the basic steps in buying a home:

1) Search & find a home

2) Submit an offer on the home

3) Negotiate w/the sellers on your offer

4) Come to an agreement w/the sellers

5) Have a home inspection done

6) Wait for your lender to hire an appraiser to appraise the home

7) Work w/the lender to get everything ready for you to purchase the home

8) Final walk through of the property

9) Closing

Its step 6 & 7 that have gotten very sticky. Stay tuned for details....

Then you have to accept the fact that you will not be making big bucks off of the sale and you will be lucky to break even.

Why is pricing your home appropriately soooooo important right now?

Scenario #1:  I was representing buyers. They found a beautiful home in a city where home values have taken a significant nose dive. A few years ago, I know the home would've listed for $300,000 or maybe even more. The seller was a contractor and did a lot of nice work on the house; most with his own bare hands. I understand it hurt him to list it at what he did, but he had to sell due to health concerns. He and my buyers negotiated $249,900 for the house and we all knew it was a steal. The home inspection came up flawless and we were moving forward with the purchase. The next step was for my buyer's lender to send an appraiser out to make sure they were lending out an appropriate amount of money for this house. An appraiser walks through the home and considers not only the size, age, style, location of the home but also its condition. Then, the appraiser will go back to his/her office and look up other recent home sales in that city to see how they compare. In the case of this home, the appraiser could not find another property that had sold within the past year in that city for anywhere near $249,900. The most expensive home that had sold was about $210,000 and he felt that he could only add on maybe another $6,000 at the most (considering the good condition & updates of the home in question) without getting the third degree from the lender as to why its appraised so high above the others. The appraisal came back at $216,000.  The lender told my buyer that they would not grant them the mortgage loan because they are asking for too much money that doesn't match w/the value of the house. So, we had to cancel the purchase. And, the seller was not willing to lower the price to $216,000. A week later, the seller's agent called me back. He said the seller realized that if another buyer comes along, the same scenario will unfold if they have an appraisal done, so either he agrees to sell it for $216,000 or not at all. My buyers were able to purchase it for $216,000 (yay!) but the seller sure took a hit because of the market.

Scenario #2: I listed a home that the seller felt was worth $50,000 more than what I was suggesting we list it for because the tax value was about $300k. I provided substantial proof of my findings and said the house needs to be listed under $250,000. The seller eventually talked me into listing it for $275,000. 4 months went by without a single showing. The seller blamed it on me not marketing it enough, not having enough open houses, not having the right pictures online. Little by little we dropped the price by about $2,000 each time (not my choice, his). He refused to list it under $250,000 and we parted ways after about 7 mos. He re-listed at $260,000 with another agent and it sat on the market for almost a year. It sold eventually...for $224,900.

So, you think you want to sell your home? My advice: unless you really have to, DON'T do it. At least right now. Home values have PLUMMETED--especially in certain areas of the city and certain types of properties. For example, the worst cities right now to sell anything are: Brooklyn Park, Brooklyn Center, Columbia Heights, Coon Rapids, Robbinsdale, & Crystal.

The worst places to sell a townhome: Shakopee, Shoreview, Eden Prairie, Hugo, Blaine, Otsego, Savage, Albertville, Elk River, & Maple Grove.

If you are in any of those above cities, you will lose your shirt trying to sell your place. Think of the worst case scenario...and go another 3 notches down. So, how do you know how much (or how little) you can sell your home for? DO NOT GO ON ZILLOW.COM. That info. is skewed and inaccurate.

Tax-Assessed Values are what you will find on your county website on the Property Tax Page. A city assessor determines this value to help determine what your annual property taxes will be by visiting your home. The value is based primarily on the location and size of both your home and your lot. The downfall about this type of valuation is that the condition of the home is not really considered. So, two homes that are identical in size, style & location may have identical Tax Values--however, one may have recently received $100,000 in remodeling work and the other may still look like 1970. It would not be fair to think that both would sell for a similar price if they were listed on the market. Right now, tax values can end up being up to $50,000 more than what it should list for sale. Zillow.com bases the valuations on tax values oftentimes, which is what skews the information they provide.

How do you determine what you should list your home for? Stay tuned.

With all of the low-priced foreclosures & short sales this year, along w/the $8,000 tax credit, there have been a ton of properties that have had many buyers submitting offers on them at the same time. Here's how a situation like that is handled normally:

A home goes on the market & the seller's agent suspects there will be multiple offers submitted, based on the low price vs. good condition.

Side note: Oftentimes, sellers & their agents will purposely price a home low with the intention of getting many interested buyers to compete against each other for the home; bidding over the list price for it and ending up selling the home for $10,000+ more than the original price.

Most of the time, the seller's agent will establish a date that they will stop taking offers and advertise that date to the other agents when they see the listing online. So, buyers will have a certain amount of time to go and see the house and then submit an offer.

Legally, if there are other offers on the home, the seller's agent has to publically disclose that; preferably (as a courtesy) before a buyer goes to see the home. They DON'T have to disclose how many offers there are or how much the offers are for. Sometimes, they will tell me how many offers there are so far, but they will never tell me how much they are for.

So, what does it mean for you as a buyer if you are interested in seeing or submitting an offer on a home that already has one or more offers on it?

The object of the game is to submit an offer that is more desirable to the seller than the other offers that have been submitted. And, you only get one chance to impress them. The seller will only pick one offer to work with. They will not negotiate with all of you. Just one of you.

What makes an offer desirable to a seller? A buyer that wants to move in quickly (therefore, a closing date within 30-40 days) and a price that is close to what they are asking. If you are looking to get a discount on the list price, this is NOT the right situation for you!!

How do we know how much to offer if they won't tell us how much the other offers are for?

Its a total guess, unfortunately. You have to trust your agent and go with your gut instinct. Just know this: If there are more than 2 other offers that you are competing against, you will be wasting your own time, your agent's time and the sellers' time if you submit an offer for more than $5,000 under asking price. Period. In fact, I will normally always suggest to my buyers that when they are competing against 2+ offers, then the MINIMUM they should offer is the asking price. I am not recommending this because I am secretly working in cahoots w/the sellers or because my commission increases as the sales price increases (which it does, but that isn't what motivates me). Based on my past experience, the higher you offer, the more your chances will increase that you will get the house.

So, in conclusion, expect to offer at least the list price, if not above the list price if you are willing to pay more for the house. If you aren't willing to pay at least the list price for the house, if not more, then do not waste everyone's time!

1) Brooklyn Park/Brooklyn Center

PROs:  1950's ramblers, 1960's split levels. 3+ bedrms, 2+ bath, 1300+ sq. ft. Nice exteriors, newer roofs, updated electrical/furnace/mechanicals. FHA friendly**. Often just needs interior paint, new carpet or new appliances and a good scrubbing. Starting at $70,000. Many neighborhoods are clean, quiet with great neighbors. Biggest bang for your buck in the Twin Cities.

CONs:  The City of BP has a very strict policy in place. Before a home can be sold in BP, a city inspection must be completed. It is the seller and their agent's job to have this inspection ordered prior to the home going on the market. However, the city has been behind this year on getting the inspections done and have been telling sellers to go ahead and put the house on the market before the inspection.

The BP city inspectors have a bad reputation of finding MANY code & safety violations during these inspections; some to the point of being ridiculous. They create a list of repairs that are needed in order to fix these violations and they give the list to the seller to complete. HOWEVER, if the property is a BANK OWNED FORECLOSURE, the bank refuses to make the repairs and will pawn it off on the future buyer instead. There is NO negotiating this.

The buyer can review the list to see what repairs need to be made. If their offer is accepted and they agree to take those repairs on, they must have a licensed contractor go out to the house and give an estimate in writing as to how much they believe it will cost to have the repairs made.  Then, the buyer must escrow 1.5 times the estimated amount in a holding account until the sale closes and the repairs are made. The buyer CANNOT move into the home until the repairs are made.

The city will then come back to reinspect the repairs and give the "ok". After this is done, the money that was escrowed will be released back to the buyer.

So, its tricky when a buyer finds a foreclosed house that they like in BP that's for sale, but the inspection hasn't been done yet because the city is behind, so you have no idea what sort of repairs would need to be made and therefore aren't sure if you want to submit an offer on the house.

If this whole thing sounds like a mess, it definitely is compared to buying a home in other cities. Our clients that have gone through this will tell you it was hell, however, now they have an awesome home that's solid with mortgage payments that are super low.

Another "CON" about buying a home in BP/BC is that home values will remain low in these cities for a long time. These areas hold the highest population of foreclosures; so far in 2009, about 1200 homes have sold in BP alone and the average sales price in BP is $146,000. It will be a long time until property values will see an increase in these areas.

One final "CON" about BP/BC is that every home buyer seems to know this is the place to get a cheap house. If you show up to a new listing on the first or second day, you will see the vultures flocking! Its a race right now and anyone that takes a moment to blink will lose out. I've found that an average home in BP/BC listed for under $150,000 will have anywhere from 4-25 offers after just a few days on the market right now. These homes are selling for up to $25,000 over the list price, so the buyer must be prepared to offer full price at the VERY LEAST on these homes. The BP/BC market is highly competitive right now.

Mrs. Buyer & I traveled alone, deep into the thick of the inner city where I grew up. I hardly recognized certain buildings, landmarks, etc. as their colors & structures changed so much in 25 yrs. I felt very comfortable getting out of the car and into the first house. However, upon exiting the home and walking back to our cars, I could feel eyes on me. Were they suspicious but protective eyes on alert to new faces in the neighborhood; wondering who were were and what we were doing? My youthful appearance clad in a dress with briefcase in hand led me to believe I wasn't presenting a threat. Or were they predatory eyes sizing up vulnerable prey?

The eyes, the loud music, and the slow-moving vehicles started to draw up images in my mind of movies such as Boyz in the Hood where bullets flew from guns drawn out of coat pockets & car windows. My heart pounded as we continued our home shopping. Not one person approached us or vocalized anything to us from afar. Other than images in my mind, we were not threatened by anyone or anything around us. At one of the last houses we looked at, Mrs. Buyer approached a postman outside and asked him what he thought of the neighborhood. He said that he has never been threatened, and folks have always been curtious to him. Mrs. Buyer asked him if he'd be ok w/his sister buying this house that we had just looked at and his answer was "no". He said he would never be caught walking through those neighborhoods without his uniform. In his uniform, he serves a purpose, therefore, they leave him alone. Without it, he doesn't feel safe.

We talked w/other neighbors that have lived there for many years and they said they felt safe in their homes, in spite of incidents a few blocks away that send sirens & flashing lights down the streets on a regular basis. They have been left alone and feel completely independent from the crime that takes place in other areas, which they believe is isolated to specific individuals.

So, I guess its all subjective. Its all about one's comfort level and interpretation. What I can say though is that all the homes we looked at in N Mpls were the opposite of the vandalized, missing copper, rat-infested, broken windowed that one may picture being for sale there. We saw some VERY nice homes for a very good price. Each person must be the judge of how they feel in the areas that they are in.

Since I've become a Realtor, I've avoided showing homes in North Minneapolis like the plague. Funny saying that, because its an area that I know like the back of my hand and can actually give people a lot of history on.

However, a few weeks ago, some newer buyers of mine (thanks Dan & Trish!)requested to venture into the Camden area -- a place that is famous right now for having nice, refurbished homes for cheap in order to attract young buyers in the hopes of changing the demographics of the neighborhoods there. I was a bit nervous, but bit the bullet and set up the appointments for a weekday afternoon. After seeing a few houses that day, we felt as if we had hit a goldmine and I was enlightened. We looked up more listings and went back another day. After seeing about 15-20 homes under $100,000 that were clean, polished, spacious, and up to code, we had just barely cracked the surface of the list that were for sale. And I was astonished at how quiet and well-maintained the houses were on the entire blocks. It was so impressive to see homeowners outside mowing their lawns, planting flowers, and chatting with each other. Pleasantville in North Mpls???

As my buyers & I continued on with their home search, we became braver & braver; slowly sneaking closer in as home prices dropped further. How far could we go before Pleasantville disappeared? And how many times could we visit that cookie jar until our hands got slapped? Have we uncovered a secret that the ghetto as we've known it has disappeared or did we sail through the uncharted waters and find sharks? Stay tuned :)

I was having pizza with a childhood girlfriend of mine this past Saturday. We had such a wonderful time reminicing about growing up in the city 25 years ago: playing ball in the alleys, writing on the sidewalks with the neighbor's rocks (this was long before the creation of sidewalk chalk!), roaming the neighborhoods until our mothers yelled aimlessly out the door when it was time to come in for dinner, visiting Monroe's (the corner store 2 blocks away) to get the newest flavor in bubblegum, and going down to the park to see the breakdancers do their thing w/their boomboxes blaring. The good ol' days when -YES- us kids did all of that on our own...no parental supervision needed. Not only did we do this in the city, but specifically in the city of North Minneapolis. Yep, I was a 'ghetto girl' back in the late 70's/early 80's. Its pretty funny to say that because my memories of the first 10 years of my life do not contain gunfire, prostitution, robberies, poverty, gangs, and all of those things that describe 'ghetto' to most people. Was my immature mind just immune to all of that or was my neighborhood on 28th & Aldrich really a nice place at one time?!

My folks & I moved out of the inner city in 1985, when I was getting ready to start 5th grade. A "prostitution house" transformed across the street and 5 houses down from us and that's when my mother laid down the law. We moved to the suburbs after many months of market time to an investor for $30,000. I missed the 'hood and to appease me, my dad would take us for a ride once in awhile to drive past the "old homestead" as my mom would call it.  However, after only a couple of years, those rides began to fade as news reports scared us into believing it was no longer safe to do. Houses on our block began to decompose as all of our old neighbors followed suit and moved out & away. The media painted a new picture in my mind of a place filled with senseless & random violence, poverty and people that lived like pigs. I have carried that image in my mind for years....up until a month ago.