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.