Tag Archives: comps

After the Listing Agreement: What to Expect

Red For Sale Real Estate Sign in Front of House.

You’ve decided to sell your house.  You’ve selected an experienced real estate agent to represent you and the “For Sale” sign has been placed in front of the house.  What next?

Selling a house is usually not a quick and easy process.  It takes longer than most imagine, can be emotionally taxing, and have some unexpected costs associated with it.  Knowing could happen next can help manage your personal expectations.  Here’s  a look at what you can expect once you’ve signed a listing agreement.

Prepping the House for Market

Most agents put their listings up in the local Multiple Listing Service (MLS) along with a set of beautiful photographs of the house to entice potential buyers.  Your real estate agent will hire the photographer and set the appointment.  All you have to do is tidy up, de-clutter and remove personal effects from sight.  Your real estate agent may also suggest some quick easy fixes to get the house photo-ready and primed for imminent showings.  Most sellers underestimate the time and effort required to get the house to market.

If you’ve already moved out, then staging might be a good idea to warm up the environment and give the buyers a sense of how to live in the space.  Whatever the case, the homeowner and the agent need to work together to make sure that the home is aesthetically ready for market, and that it is consistently maintained in tip-top condition during the selling period.  This is not an easy feat if you are actively living in the home with your family!

Open Houses

Your agent will want to hold the house open for colleagues and area agents.  This usually takes place on a weekday and it’s called a broker’s open.  The idea is to expose the house to as many agents as possible so they can start bringing forward suitable buyers.   Then, from time to time, your agents might suggest holding the house open for the general public.  It is best for the homeowners not to be present during an open house so that agents and buyers can tour the home freely and with ease.

Showings

During the first 2-3 weeks, you should be getting phone calls from your agent asking you to vacate your house while he/she brings through potential buyers.  If your agent placed a lockbox on your house, area agents and their clients may drop in on you during times you’ve specified as available for showings.

After a few weeks, traffic may taper a bit and showings may become a little less frequent.  Do not worry if the number of showings decreases, as the dip is rather typical.  Average days on market can be 60-90 days in a normal market.  If the market is slow, buyers will take their time.  It’s a positive sign of real interest when the same buyer returns for additional showings.

Next Steps

In my experience, after about 6 weeks, sellers tend to get anxious.  The initial excitement of being on the market has waned and keeping the house immaculate at all times has become tedious.  Unless you are in a very difficult market, if you haven’t netted any serious interest in 6 weeks, it might be time to assess a change in course or next steps.  The housing market can change quickly, so it may be worth a look at updated comps to determine if the house is competitively priced to sell.   Additionally, it may be in the best interest of everyone involved for the house to undergo some light improvements or cosmetic updates such as flooring or paint.

As real estate professionals, we hope that every house gets sold quickly and with minimal intrusiveness to the homeowner’s life.  But the truth is, the process of selling a house is laborious and can have many twists and turns.  Staying informed and knowing what to expect is key to a positive transaction.

Appraisals – Part II

Appraisal Report

After a few rounds of counter offers and negotiations, buyer and seller agree on a price and the home goes into escrow. Time to celebrate? No, not just yet unfortunately. Within the escrow process, there are several hurdles to overcome, one of which is the appraisal. As we mentioned in last week’s post, appraisals are a critical component of the lending process. A low appraisal can derail the agreement reached by the buyer and seller.

Low appraisals can arise in a declining housing market due to the lack of recent comparable homes sales, making it difficult for appraisers to determine the current market value of a property. When home sales slow, good comps “age” fast. Comps of homes that sold over six months earlier generally become obsolete data and aren’t factored in the valuation. Add foreclosures and short sales to the equation and appraisal values can vary greatly depending on the appraiser’s methodology. But, low appraisals can also occur when the market is rising rapidly as appraisers may have a hard time adjusting their valuations to account for escalating market value.

The reality is that appraisals are conducted by independent 3rd parties hired by the buyer’s lender. Legislation requires lenders to use an intermediary entity who then in turn selects the appraiser, ensuring that the lender and the appraiser have no conflict of interests. The regulatory intent is to have the appraisal be as impartial as possible. So it’s not at all possible for the buyer or the seller to choose who performs the appraisal. However, if you have a knowledgeable and seasoned real estate agent representing you, he or she can be instrumental to the process. Here’s how:

  • Your real estate agent would never want his/her client to overpay for a house so chances are, during the negotiations process, he/she will be facilitating the negotiations towards fair market value, already mitigating the chances of a low appraisal report.
  • Your real estate agent presumably is an area specialist so he/she should be well-studied in the specific neighborhood of the home so that he/she might drawn upon nuanced knowledge of schools, community and other neighborhood desirability details that can be shared with the appraiser.
  • All reputable real estate agents will attend the appraisal at the home and provide a package of most relevant comps to the appraiser.
  • In addition, the agent could have knowledge of off-market home sales in the area that can impact the appraisal or conversely have knowledge of recent foreclosures and short sales that should be exempt from the valuation.

Good agents are keen to the fact that appraisers tend to draw their comps straight from the MLS but that data collected may not represent the clearest picture of market activity and value.

And should the appraisal return a lower value than the negotiated sales price despite the diligent efforts of your agent, here are the buyer’s options:

  • Negotiate a new price – sellers may entertain a lower sales price as a low appraisal is a blemish on their home should they have to put the house back on the market, or there could be other circumstances at play like the purchase of the next home contingent of the close of the current home that might increase seller flexibility.
  • Put more money down – if feasible, buyers can always bridge the difference between the loanable amount with cash.
  • Hire a new lender – a new lending entity will restart the process potentially with a new appraiser.
  • Cancel contract – contracts are typically written with an appraisal contingency to protect the buyers from having to follow through on the heels of a low appraisal.

Under any of the circumstances above, the thing to avoid while navigating the pitfalls of a low appraisal is letting the appraisal contingency period expire or else the buyer is locked into the transaction.  Again, your real estate agent should be well aware of the contingency period and would never allow the period to expire.  A seller benefits from a mutual resolution so typically they will grant an extension while the buyer vets all options.

Whether you are the buyer or the seller in a low appraisal situation, your seasoned real estate agent should be guiding you through the entire process and see you through its resolution.

Appraisals Explained

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Appraisals are a critical component of the lending process.  In any home sale/purchase transaction that requires financing, the lender will mandate an appraisal on the property.  So what exactly is an appraisal?

Often confused, a home appraisal is a separate analytical report from the home inspection.  An inspection identifies potential physical issues with the house to prevent costly repairs down the road.  An appraisal is a third party expert opinion on the current value of a piece of property.  Lenders rely on the appraisal report to ensure that they are not over-loaning on a property.  In the event a borrower defaults on the mortgage and the property goes into foreclosure, the lender recoups the money it lent by selling the home.  If the bank loaned above the value of the property, then the lender is unlikely to recoup their investment.

An appraiser is an independent and objective third party who does not have any financial stake in the transaction apart from his fee for performing the appraisal. Appraisers are state-licensed and work in regions and neighborhoods they are familiar with so they have an expert knowledge of any environmental or other concerns that may affect the value of a property.  Typically, the homebuyer pays for the property appraisal when applying for a home loan and the cost varies greatly depending on the size of the home and the experience of the appraiser.

There are two basic methods of appraisal used for residential properties. First, there is the sales comparison approach whereby the market value of the subject property is determined via “comparable” analysis.  The appraiser typically visits the home in question and obtains specific home information and statistics and then compares the data with “comps,” properties of similar kind in the same geographical area that have recently sold.  The second method is the cost approach, which evaluates value by determining how much money it would require to replace the property if it were to be destroyed.  This approach is more commonly used in evaluating new construction.

The appraiser gathers information for the appraisal report from a number of sources, but the process always begins with a physical inspection of the property inside and out.  Additionally, the appraiser may look at county courthouse records and recent sales reports from the multiple listing service. The appraisal report typically includes:

  • An explanation of how the appraiser determined the value of the property.
  • The size and condition of the house and other permanent fixtures, along with description of any improvements that have been made and the materials used.
  • Statements regarding serious structural problems, such as water damage and cracked foundations.
  • Notes about the surrounding area, i.e. proximity to schools, new or established development, lot size, relevant aspects affecting desirability and resale, and so on.
  • An evaluation of recent market trends of the area that may affect the value.
  • A comparative market analysis that supports the appraisal including maps, photographs and sketches.

Next week we will discuss how to prepare for an appraisal and what happens if the appraiser returns a value lower than your contract price.