Interpreting Sales Appreciation Statistics for Your Home’s Value

June 20th, 2007 Columbus Buyer Info, Columbus Seller Info, Columbus and Central Ohio Home Sales Stats, Columbus and Central Ohio Real Estate Tid Bits, Investment Property No Comments

The Columbus Monthly magazine wrote a wonderful, 9 page informative feature article in their June 2007 issue called “Location, Location, Location”– the front cover of the magazine shows roof tops and the title “The Real Estate Market RIGHT NOW– Home Values for 44 communities”.

The writers Alice Hohl and Nancy Richison did their research– interviewing a number of realtors, gathering statistical data, and also utilizing a company called CompuName to obtain the necessary data. In a five year period, communities were up as much as 43% and down as much as 12% in average median price.

Does that mean that the final percentage found in this article is what you can apply to YOUR home?

Not exactly. While that’s the first reaction, there are often underlying reasons for those numbers.  It’s critically important to remember that YOUR home value is ‘personal,’ meaning your area (location), condition (updates), and need (do you need to move tomorrow?) is unique.

For a specific example, let’s look at Powell and a home on the market there.  In the Columbus Monthly article, the increase in Median Price from 2001–2006 is up 31.99%.

This home was purchased in 2001 for $475,000.00. Using the logic of increasing the price 31.99%, the list price would be $626,900.00.  While the seller would LOVE that price, a careful market analysis led the seller to list the home in March for $544,000.00– a conservative appreciation of 14.5%, or around 3% a year.

As of mid-June, there have been no offers and the price is reduced to $529,900.00– now down to 11.5%. This price does not account for the several upgrades and improvements to the property– the owners understood this is part of living in a home.

“How can this be?” you say. “Either the stats are wrong, or something is terribly wrong with this home…”

Wrong in both cases.  The home is in great condition, has nearly 3 acres, a fantastic location, an indoor pool, and other great amenities. And the statistics presented in the Columbus Monthly article are correct.

It’s the reason underneath the statistics that needs investigating.  In the last 5 years, there has been incredible building of new, expensive properties in the Powell area.  All these sales of homes in the $600,000.00 and up range definitely makes an impact on what the average median sales price is. So, areas with lots of growth and sales of expensive new homes are going to show a hefty increase in their average median sales price.

I’ve often used the comparison of the tortoise and hare when talking to buyers and seller about the Columbus area real estate market. Slow and steady wins the race. We have an unusually stable economy, and along with that comes stable home values.  Sellers who study the market (or use a good Realtor who has the expertise to do the studying for them) and price their home correctly will sell. It’s important to ask the “why?” behind the numbers to understand YOUR home’s value.

The Bitter Battle of Buying A Bank-Owned Home

March 14th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Investment Property, The Ugly 3 Comments

Tops on the list of getting a property that is a real ‘bargain’ is to buy a bank-owned home that’s below market value, fix it up and earn instant equity.

The actual process of doing this is not for the faint-hearted….. here’s a very recent experience of a couple I’m working with and what they discovered.

“Bank-owned” means exactly that- the bank (who gave the original mortgage) now has ownership of the home because the original homeowners defaulted on the loan…. as in they did not make payments, so the bank had to take the home back. This is a long and tedious process… often a property has been sitting empty for a year or so. The previous homeowners have either left or been evicted, the bank has sludged through their process (sometimes trying to sell it at a sheriff’s sale, etc.), has listed it with a realtor (often specializing in listing this type of property), and is waiting for an offer.

Logic would say that the bank is anxious to get this property off their books, but logic is definitely not part of this process.  Banks are slow and difficult to work with. I often tell my clients to think of a guy (or woman), sitting at a desk far away (usually in another state), with a HUGE stack of paperwork for this and other homes and no personal knowledge of the property. This person has to justify their job- and the way to do that is keep moving the paperwork.
There is usually no regard for contract timelines- even if you give them several days to respond.
They are going to counter and quibble over the most inane details… things that would normally be a given. 
And most importantly, there is no accountability or motivation to get that property SOLD.

My clients found a property in pretty good condition (many of these homes are in nasty condition…. I’ve seen homes with holes in the walls, feces on the floor, missing the furnace, toilets… it can be shocking) and made an offer.  It took THREE weeks negotiating back and forth- most of that time waiting for the bank to respond back to us. 

By the time we got in contract (and had to wait 5 more days for the bank to get us their signature), my clients had signed 5 times that the sale of the property was AS-IS (it was stated 3 times on 1 counteroffer- talk about overkill!), we had 5 days to do inspections, and my clients had to pay $250.00 up front out of their pocket to have the property de-winterized so the water could be turned on.  (”What?!” you say.  It was one of those ‘it-is-what-it-is’ situations…. if you want the house, that was one of the terms.  The bank ALSO wanted my client to put the utilities in her name and be responsible to get the water turned on… this we refused- which was a good thing in the end….).

The day of the inspection, our first challenge was an inch of water on the basement floor. The sump pump motor had quit working properly.  The inspector got it operating and the water quickly drained. The basement was unfinished, and the water had not risen high enough to affect the furnace, so things seemed OK.  The inspection went well…. until the inspector turned on the water main. 

Within minutes water was pouring through the kitchen ceiling. After a few minutes of panic, it was determined that the plumbing within the walls from the shower had a serious problem.  Water also poured down the exterior wall into the basement.

My clients decided to terminate the contract, and gave notice. It’s now 1 1/2 weeks later, and we’re still waiting for the Release from the bank to return the earnest money deposit to my buyers. After spending $250.00 for the de-winterization, and $370.00 for inspections, we are back to square one in the home search…..

(Note: for MORE battles to buy a bank-owned home, click on this later post….)

The Challenges of Buying (and Selling) A Short Sale Home

February 28th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Columbus Seller Info, Down to Business, Investment Property, The Bad 3 Comments

As buyers look for the ‘best bargain’ in a home, most are curious about three types of bargain-basement properties: the Short Sale, the Bank-Owned, and the HUD Sale.

The Short Sale home is basically a pre-foreclosure sale. The owners have financial issues, have missed or been late on mortgage payments, and are looking at a possible future home foreclosure and/or bankruptcy. Their credit rating will then be seriously impaired and there will be a period of time where they won’t be able to own a home. They may have already tried to sell their home, but the price at which they need to sell is higher than the market value, and there have been no offers.

At this stage, a realtor often becomes involved who has experience in proposing a short sale to the lender. The owners present a hardship letter along with a packet of information for the bank to consider, asking for time to get the property sold.

The lender has said it will consider a price that is lower than the payoff amount of the loan.  The advantage to the lender is that this loss will be less than the losses the lender will incur with a foreclosure. 

In a perfect world, the sale happens, the lender takes a small loss, and the owners have minimal damage to their credit so they can move on and even buy another home if they wish.

Here’s where things get tricky.  First of all, the bank has said they will think about it- there are no guarantees they will decide to accept an offer.  Banks are also notoriously slow and can take weeks to come to a decision.  It’s the bank making the final decision, not the homeowners.  There are also ‘addendums and qualifications’- the home is sold ‘as-is’, the buyer needs to be pre-approved, there is lots of bank paperwork (that their lawyers have created) absolving them from everything.  Last of all, many of these properties have two mortgages- the primary mortgage and the equity mortgage (an equity loan is the same thing).  There are frequently two lenders involved in these mortages, so you have two sets of people deciding if things will fly.  (If you’re a betting person, figure the odds on this scenario moving along smoothly and quickly.) 

So…. the seller is hoping and praying things will work out, and the buyer is often waiting for weeks for answers and hitting one brick wall after another. 

SELLERS- Two things- first, your credit score will be affected in a negative way, and second, the amount of debt the lender forgives is still considered taxable income- and Uncle Sam is going to want his share. For example, if your mortage is $100,000 and the bank agrees to settle for $90,000, you are going to have to pay taxes on the $10,000 that was forgiven.

BUYERS- If you’re an impatient buyer and in a hurry, a short sale is not for you.  If you want a perfect house that doesn’t need maintenance and possible repairs (remember, you’re buying the home as-is, and there’s a good chance the previous owners did not have the money to keep things up to high standards), a short sale is not for you.  If you detest paperwork and bureaucracy, a short sale is not for you.

If you’re a handy fix-em-up person, patient with the world and its craziness, and looking for an opportunity to gain some ground on equity…… a short sale home could be your ticket to paradise.

(Note: for MORE issues to face on Short Sales, click on this later post….)

Considering Selling Your Home at Auction?

January 30th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Columbus Seller Info, Investment Property, The Good No Comments

Selling your home through an auction is a growing trend. 

This selling technique has quadrupled in volume since 1980 (although overall it is still less than 2% of total residential market). 

Sales for 1998 totalled 49 billion dollars, up nearly 20% from 1996-97. (source: Gwent Group)

There are 3 kinds of auctions:

1. Absolute auction:  there is no minimum bid- it WILL sell, at some price.  Usually, this type results in the highest selling price… people come looking for a bargain, and then bid against each other, raising the price.

2. Disclosed minimum bid:  The seller tells buyers the minimum bid to be accepted- this price is advertised ahead of time….  often, fewer bidders come.

3. Confirmation reserve bid:  there is a minimum bid to be accepted, but buyers are not aware what that price is- the seller has the right to accept or refuse the highest bid.

Auction advantages for the seller: 
• they know the date when the property will sell
• buyer pays all closing and title costs
• no contingencies to deal with, such as loan approvals and buyer requests for repair
• you have multiple bidders competing at the same time
• your property can be in contract as soon as 35 days after you sign the paperwork. 

Buyer responsibilities: 
• to inspect the property before purchase and make sure it’s what they want.
• get pre approved for financing-  know your maximum price.
• know if the final bid is the actual purchase price, or if there is an additional buyer’s premium to be added. (See special note below.)
• there is a considerable deposit taken upon acceptance that is non-refundable.  If the buyer accepts the contact and the buyer does not close, the deposit goes to the seller.

What are the ‘typical’ Auction details? The common auction cost is 8% of purchase price (paid by the seller), plus a promotion fee (usually around $1800-2000).  The promotion fee is paid at the time of signing the auction contract.  This method of sale may have offsetting costs that actually result in a net savings to the seller compared to the traditional home sale. 

How does the auction price compare to the traditional selling price?  Auction sale prices average 95% to 105% of the suggested Comparative Market Analysis price.  Approximately 50% of auction sales actually go over the suggested Comparative Market Analysis price.

When should I consider an auction? When timing and circumstances dictate that you need a quick sale. 

Investment Property Basics

January 30th, 2007 Columbus Seller Info, Investment Property, The Good 1 Comment

Terms to Know:

• Market Rent- The amount the market considers reasonable for the space rented

• Gross Rent Multiplier (GRM)- the Sales Price divided by the Gross Monthly Income

• Gross Income Multiplier (GIM)- the Sales Price divided by the Gross Annual Income

• Operating Expenses-  DO count taxes, insurance, maintenance, repair, landscaping, legal fees, condo fees, etc.  DON’T count mortgage payment (principal or interest, or PI), depreciation, or income tax effect.

• Net Operating Expenses (NOI)- it’s the Effective Gross Income minus the Vacancy Rate minus Expenses.

• Market Value (formula for buildings larger than 1-4 family units) is the NOI divided by the Capitalization Rate (Cap Rate)

• Cap Rate is the NOI divided by the sales price of a recently sold property. “Ballpark” Rules of Thumb: (note: these are given as very generalized reference items and will vary based on the property, specific situation, and negotiated terms)

• Basic Rent- usually a little lower than 1% of the market value. (For example, the rent for a $150,000 condo would likely be $1450.00 a month or under.)

• The service fee for a property administrator would range from 6-10% of the monthly rent.  A property administrator is optional, but can manage all aspects of the renting process. 

• Special condo note: the monthly condo fee is paid from the monthly rent amount.

Ways to Determine Rent:

• Review the newspaper

• Call large property management companies in the area

• Check rental amounts in the area

• Go door to door- what are the rents in the neighborhood?

• Call for rent amounts of nearby vacant units- these are the competition, not the filled units.

HUD Homes- How To Buy One

January 30th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Columbus Seller Info, Investment Property, The Good 1 Comment

Questions on Buying a HUD Home

1. What is a “HUD Home”?

HUD is the US Department of Housing and Urban Development. When someone with a HUD insured mortgage can’t meet the payments, the lender forecloses on the home; HUD pays the lender what is owed; and HUD takes ownership of the home. Then we sell it at market value as quickly as possible.

2. Who can buy a HUD home?

Anyone! If you have the cash or can qualify for a mortgage, you can buy a HUD home.

3. Are HUD Homes meant for people with low incomes?

HUD homes range in price, but most are affordable for low- and moderate-income Americans.

4. Is it true I can get a HUD Home for a dollar?

No. HUD sells homes at market value - that means that the price is set based on the price of similar homes sold in the area.

5. If the HUD Home needs repairs, will HUD make them?

HUD Homes are sold “as-is,” without warranty. That means that HUD will not pay to correct any problems. But even if a HUD Home needs fixing up - and not all of them do - it can be a real bargain! For example, HUD’s asking price on the home will reflect the fact that the buyer will have to invest money to make improvements.

And keep in mind that on most sales, the buyer can request HUD to pay all or a portion of the financing and closing costs. We encourage you to get the home professionally inspected before you make an offer so you will know what repairs you may have to make BEFORE you submit your bid.

6. How do I buy a HUD home?

Your real estate agent must submit your bid for you. Normally, HUD Homes are sold in an “Offer Period.” At the end of the Offer Period, all offers are opened and, basically, the highest reasonable bid is accepted. If the home isn’t sold in the initial Offer Period, you can submit a bid until the home is sold. Bids can be submitted any day of the week, including weekends and holidays. They will be opened the next business day.

If your bid is acceptable to HUD, your real estate agent will be notified, usually within 48 hours.

7. If my bid is accepted, then what happens?

Answer: Your real estate agent will help you through the paperwork process. You’ll be given a settlement date, normally within 30-60 days, by which you need to arrange financing and close the sale, or forfeit your earnest money deposit, or pay for an extension of your sales contract.

When you buy a HUD Home, the selling agent’s commission will be paid by HUD but only if you make this a condition of your offer. The listing agent’s commission is always paid by HUD. HUD will pay a total sales commission of up to 6%.

8. How can I get a loan to buy a HUD Home?

HUD doesn’t make loans directly. But there are a number of mortgage programs that could help you buy a home. Contact a HUD approved lender, who will take you through the steps and actually make the loan.

Can I buy a HUD Home as an investment?

Answer: Most HUD Homes are initially offered on a priority basis to owner occupant purchasers (people who are buying the home as their primary residence). Following the priority period, unsold properties are then available to all buyers, including investors.

For more information on HUD home purchases, contact Sondra at sondra@findmemyhouse.com.

Investment Properties in Columbus, Ohio 2006-2007

January 30th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Investment Property, The Good No Comments

Here’s an overview of for those who want to invest in our area: In regards to return on investment, our market right now can offer cash flow OR appreciation returns, but not both at the same time…. which is what most potential investors are wanting.

The cash flow homes are in depressed areas where homes won’t easily sell, but where there are possible renters. Finding reliable renters in this area that will take care of the property can be a challenge.

The appreciation homes are in areas where you can get renters, but the only real return is in the appreciation over time. The market for those who want to do a ‘quick flip’ on homes and a quick return on investment is particularly tough- there are few properties that meet the criteria of a good profit and a lot of people interested in this.

HUD homes are limited. Most of the ‘good ones’- those that need minimal work- are bought by primary homeowners. The challenge for the leftover homes that investors can buy is to move quickly and make a fair offer, since there are many watching this market.

Finding good homes and holding on to them for a while (in good areas with solid renters) is a good opportunity, where the rent covers the PITI payment, projected maintenance costs, and perhaps a tiny bit of profit, while appreciation will bring the net profits. We have been slow and steady with appreciation- 3-4% a year, and this year will likely be a bit lower. Actually, that rate is great for a healthy, stable market, and our history proves that out- we have not had the ups and downs of other markets.

However, with 13–27% more homes on the market than last year (depending on the month in 2006), our overall average days on market have gone from 86 to 98. Pricing has also been consistent.

You’ll find some good deals and committed sellers, but there are not going to be extremes in drastically lower prices happening. We are seeing a flurry of local and out of area investors having an interest of buying. Since investors are about six months ahead of the personal buyers, I’m anticipating a healthy upswing in our market spring 2007.

The investors that are getting the deals done are offering fair pricing for the properties, looking for ones in good, solid condition, and including terms that compel the buyers to do a little better on their price.

Other MUST Read Info:
Property Rental Tips
Investment Property Basics