Square Footage Can Kill Your Deal!
Posted on | March 23, 2010 | Leave a Comment
Written by: Diane Donnelly
When a listing agent prices a home to sell, he must do just that. He must price the home to sell.  If he doesn’t, it won’t sell. Seems logical, but as a listing agent, I hear all the time – “Let’s price it higher than the current market value so we have room to negotiate.” This also sounds logical. However, this seemingly benign though process cripples transactions regularly. What do I mean?
When I sell a house, I actually have to sell it twice. Once to the buyer and once to the appraiser. In other words, if I have a buyer that falls in love with my listing and wants to offer $30,000 more than the highest price sold comparable, the seller is jumping for joy, right? Well, yes, he probably is, but the joy is going to be short lived. You see, the appraiser’s job is to evaluate the “market value” of the home.  He does that by pulling up active listings, homes under contract and homes sold within the most recent 90 days (time frame varies). If the appraisal comes in $30,000 low, the bank will not lend more to the buyer than the appraised value. If the buyer doesn’t have the additional $30,000, the deal falls apart.
Here is the tricky part! Recently, I was told that the appraiser’s were really scrutinizing square foot value vs. the more typical approach (in addition to square foot value, number of bedrooms and baths, brick vs. siding, end unit vs. interior unit, granite vs. formica, etc.). I didn’t believe it. How could it be? The same square footage, but one house has 4 BR’s, 2.5 baths and the other has 3BR’s and 1.5 baths? The value couldn’t possibly be the same. You don’t have to be an appraiser to understand that. Do you?
Well, it’s true. It happened to me this week. I had a 2BR, 1.5 bath town home in Crofton that sold for $266,000. Within a few weeks, I sold another town home around the corner with 3 BR’s, 2.5 baths – same same square footage. Take a guess at the appraised value? You guessed it, $265,000. Now, if the appraiser’s job is to determine the market value, it would stand to reason that buyers would see a 2BR and a 3BR as the same value.  And, if that were true and we did an analysis between a 2BR and a 3BR town home with the same square footage, it would suggest that there would be a similar sales pace between the two different homes, right?
Not so much. I did an analysis for sales in the area (not the scenario above), and there were two 2 BR sales in the $350,000 price range and sixteen 3 BR sales in the same time frame. Hummmm, the appraiser’s logic doesn’t seem to hold true. Further, if home prices ebb and flow with supply and demand, and demand is lower for a 2 BR, 1.5 baths as evidenced above, why then would an appraisal be the same?
The square footage of your home is now paramount. All the cool stuff you have inside has become less important than it was before.  Appraisers will probably go back to the more traditional way of analyzing property values, but we are in a different place today than yesterday. It just helps to know what we are dealing with.
So, to reiterate how important pricing is, please follow your agent’s lead. The sales price has to be justifiable to the buyer and to the appraiser or it sits, and sits, and sits and gets stale. This new outlook from the appraisers gives more reason to spend time understanding the market in which you are selling. Get a great competitive market analysis from your agent and price the home to sell, sit back, relax, and then get packing!
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Live well!
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Tags: appraisal > buyers > Home Values > mortgage > Real Estate > realtor > seller
3 Great Reasons to Buy a Home TODAY!
Posted on | March 20, 2010 | Leave a Comment
Written by: Diane Donnelly
3 Great Reasons to Buy a Home TODAY!
It has been a little while since my last blog post and I want to thank my friend, Monty for pushing me to start it up again! It is a very time consuming practice, but I have a lot of loyal followers who have been asking for my return, so I thank you all!
Buy a home today. Buy a home tomorrow. But, buy the home sooooooon.
REASON #1
The feds have purchased mortgage backed securities (MBS) in an effort to keep interest rates artificially low. They have used 95% of the funds that have been allocated. At the end of March, when the securities have been utilized in full, it is expected that interest rates will rise gradually and become volatile throughout the day(s).
How does this affect you? Let’s run the numbers on a home with a sales price of $375,000. You decide to put 10% down ($37,500) leaving you a loan amount of $337,500. TODAY, the interest rate is 5.875 (for example), and your monthly investment or principal and interest payment is $1,994. AFTER the MBS has run it’s course, the same home with a 6.5% interest rate would leave you with a monthly principal and interest payment of $2,131. That’s a $137/month increase. Doesn’t sound like much, but how long will you be in the home? Let’s assume 6 years. That $137 has becomes $9,864. Think of one thing, just one thing, you would prefer spending $10,000 on outside of your mortgage payment.
Reason #2
The tax credit is set to expire on April 30th. If you are a first time home buyer, you could be entitled to as much as an $8,000 credit on your taxes. If you are a repeat buyer, meaning it is not your first home purchase, you may be entitled to as much as $6,500. Did you know that you do not have to sell the home that you currently live in in order to benefit from the tax credit?
How does this affect you??? You stand to lose up to $8,000. Free Tax Credit – Gone.
Reason #3
The Federal Housing Administration (FHA) is preparing to make some significant changes:
- They are increasing the mortgage insurance premium (MIP) from 1.75% to 2.25% of the loan amount for any loans that are registered after April 1st.
- They are reducing the amount that the seller can contribute from 6% to 3% of the sales price (proposed).
- Minimum credit scores will be introduced. If a buyer has a credit score below 580, he will need to put 10% down as opposed to a buyer with a credit score above 580 who would only need to put down 3.5%.
What does that mean to you?? Let’s look at the worst case scenario – you are a buyer who has run into some bad times and your credit score took a dip and is hovering around 560. Here’s the scene for you – you will need to put down (let’s use the house discussed above with a sales price of $375,000) 10% ($37,500), your mortgage insurance will be 2.5% or $8,437.50 and the seller can only give you $11,250 towards your closing costs. In a more direct comparison – if you bought today, you would need $13,125 to purchase that house. If you wait and the above three proposed guidelines are modified, you will need $48,750. So the cost of waiting is a difference of $36,625. Now consider what you would do with nearly $40,000 besides spending it on a mortgage.Â
I would say these are three very strong reasons to buy a home today. Lock in your interest rates. Close by June 30th. The bottom line is, the cost of waiting far outweighs the fear of taking the leap. If you wait, it will be more expensive monthly, it will be more expensive up front, and you will have lost the tax benefit set to expire in April.
If you enjoyed reading this blog, please subscribe to my RSS feed on my blog homepage. If you have a friend, family member or co-worker who is contemplating a move, please share this blog post with them – they will thank you! In fact, ask them to treat you to a nice dinner with the money they are going to save!!!
Live Well.
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Tags: $8000 tax credit > buy a home > buyer > closing costs > credit scores > Down Payment > First-Time Homebuyers > Home Financing > interest rates > loan programs
Anne Arundel County Short Sales Just Got Less Expensive
Posted on | February 8, 2010 | Leave a Comment
Written by: Diane Donnelly
Anne Arundel County Short Sales Just Got Less Expensive!
A short sale is when a seller sells a home for less than what is owed to the bank or the mortgage company. The difference between what the home sells for and what is owed is considered “forgiven debt”.
Anne Arundel County decided to tax short sales on the sales price plus the debt forgiven by the mortgage company or bank.
However, the Maryland Attorney General’s office said the practice wasn’t supported by state law.
Richard Drain, the county controller, said Anne Arundel County will collect recordation tax on the sales price, rather than the sales price plus the forgiven debt by the lender. This is good news for the buyer! Because recordation taxes are generally split between the buyer and the seller, the amount of cash needed to buy the home has now been reduced a liiiiitle bit.
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Live Well!
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Tags: Add new tag > Anne Arundel County > buyers market > closing costs > Financing > First-Time Homebuyers > foreclosure > lenders > mortgage > short sale