Menu
With 2020, a year of endless uncertainty, behind us, we wish you the full optimism, energy, and momentum that comes with the arrival of a brand-new year! We have been updating and sharing with you this list each year as a matter of tradition and, as we do so, we are convinced that real estate should be the foundation of your financial security. Does real estate figure into your 2021 New Year’s resolution? Here are some suggestions for consideration in your real estate related resolutions:
1) Buying Your First Home: Homeownership is the quintessential American dream and is also the top goal of most Millennials. Homeownership represents the foundation of personal freedom and the major source of savings for most Americans . Since we all need a place to live, we can either rent or we can own. Owning is the first step to building equity and financial security. Many have built their wealth through it. However, owning a home does come with a lot of responsibilities and isn’t for everyone. Are you ready to take this step in 2021 for your financial future? We can help you get started.
2) Selling: Do ever-changing priorities and plans have you thinking about selling your home? Is it time to re-evaluate your investment properties? In this fast changing market, it’s important to have a professional consultation when thinking about selling. During seller consultations,one very important question we answer is when to act. In a rising market, time is on the Seller’s side. In a declining market, sooner is better than later. COVID has impacted the market in 2020. What will happen in 2021 when it’s over? We watch and analyze the market closely and are happy to share with you our insights so that you can make the most informed decision.
3) Change of Lifestyle: Our needs and wants can change over time, and where we live can dictate the quality of these many aspects. The stay-at-home months of 2020 highlighted the importance of our homes. They have become the sanctuary where we live, work, and school! Do you dream of a different type of property or location? The ideal home is different for everyone. We’ve helped a family move out of a rigid HOA community and into a custom home on acreage. We’ve helped a family build their dream home on a lakefront lot where they watch sunsets over water and ski to their hearts’ content. We’ve had clients that moved to Downtown Orlando, scenic Winter Garden, beautiful Winter Park, and oak-shaded Winter Springs where they experienced a renewed exuberance and excitement over everyday living. We have so many of these stories and continue to be passionate about homes and what our homes can do for us. We are partners in many of our past clients’ lives because we know how to help them make these transitions. Have you been thinking about something different? Let’s explore together.
4) Upsizing: Is your current home getting too tight? Do you have a growing family? Do you need an office? The average move-uppers purchase a home 1.5 times larger than their current home. For example, they move from a 2,000 to a 3,000 Sq Ft home. When the 3-car garage of our previous home was filled with storage back in 2008, we knew it was time to upsize. Having a larger home now has increased our quality of life in every way. It also made our quarantine much easier in 2020. We are happy to have made the move and will be happy to help you too.
5) Downsizing: Some of us are, or will soon be, empty nesters. Do you have empty rooms or a pool that is never used? Is the maintenance of a large home getting tiresome? Most homeowners downsize to simplify or lower the cost of living. A common theme is to purchase a smaller home outright with the equity from the selling of the current, larger home. Many may also downsize not necessarily to reduce cost, but to increase the quality of life, purchasing smaller homes in more desirable areas or into a newer, more upgraded home. We can introduce new, special communities to you.
6) Vacation/Second Home: If you’ve grown weary of spending your vacations in hotels and rentals, consider joining the nearly one million buyers across the country that purchased a second home last year. This is a dream for many people. After the hustle and bustle of a busy week, imagine a relaxing weekend at the beach or the “lake house” to recharge yourself. Some clients have also shared success stories of renting out their properties part-time..
7) Real Estate Investing: It has been said that the majority of the wealth in the United States has been made in real estate. There are many facets to real estate investing. We have worked with different investors over the last 20 years, from young couples fixing up one small home at a time, to sophisticated investment groups that purchase dozens of properties. Among our past clients, their goals have included portfolio diversification, capital preservation, cash flow, and equity appreciation. Two things that can make real estate a truly unique investment vehicle is the amount you can leverage (borrow) and the fact it can generate income. If a home is purchased with a 20% down payment and the rent pays the mortgage, that is an 80% leverage! Also, the fact that real estate can generate rental income sets it apart from most other investments. For most other investments to be profitable, they have to increase in value. Real estate can be a win even if the value doesn’t go up. With the current investor interest rates as low as around 3%, it is an amazing time to buy. We have been real estate investors ourselves for many years and we are happy to share with you our experience.
8) Retirement Plan: Some of our clients apply the principle above as their retirement plan. They purchase properties whenever possible with the goal that upon the mortgage payoff, the rental income can support or supplement a comfortable retirement. We have been on this course for 10 years. It’s never too early to start!
9) College Savings Plan: Is there a newborn or a young child in your own or extended family? Consider buying a rental home for the benefit of the child. Let’s say you can do it with 20% down and a 15-year mortgage. When the child is 15 years old, the property will be paid off. It can be sold for college tuition or other financial needs. Or, the future monthly rental income can help cover the child’s expenses. Even with a 30-year mortgage or other configuration, it is a significant head-start for your loved ones. Or, what if your kid is already heading off to college? Many parents have purchased rental properties around UCF for their kids and rent out extra rooms to roommates, which pays the mortgage. Our daughter will be going to law school. We already know which property we will use to fund her education!
10) Creative Use of Real Estate: Here is a creative way to look at real estate. We were in the market for a new car to replace the 10-year old family minivan. However, a car is a depreciating asset. It’s worth less each day you own it. Whereas, real estate is an appreciating asset. So, we bought a rental property with a down payment similar to the cost of buying the new car with cash. This property generated the monthly positive cash flow needed to cover the monthly car payment. In the end, we owned the property and the car!
We sincerely wish you a happy, healthy, and prosperous new year. As always, if you have any real estate related questions, give us a call! We are happy to discuss real estate topics even when it’s not business.
Also, we love referrals!
Happy December! With the end of 2020 fast approaching, we want to wish you a healthy and safe holiday season. COVID-19 impacted all of us in many ways this year, it also reshaped the real estate market. We hope you will enjoy this article on emerging trends of the pandemic’s effect on people’s housing decisions. If you are thinking about buying or selling a home in the near future, give us a call!
There’s increased demand for the suburbs and home offices, and more sellers want to upsize. They also have a greater feeling of urgency and rely more heavily on tech.
WASHINGTON – The COVID-19 pandemic has impacted homeownership. Although the virus continues to spread and unemployment remains above pre-pandemic levels, the housing market has been booming. And according to the National Association of Realtors®’ (NAR) “2020 Profile of Home Buyers and Sellers,” trends are starting to emerge.
The profile, produced annually, contains a new section this year that examines the pandemic’s effect on people’s attitudes and purchase and sales decisions. The report is based on responses from more than 8,000 Americans surveyed between July 2019 and June 2020.
“The coronavirus, without a doubt, led homebuyers to reassess their housing situations and even reconsider home sizes and destinations,” says Jessica Lautz, vice president of demographics and behavioral insights for NAR. “Buyers sought housing with more rooms, more square footage and more yard space, and they may have desired a home office or home gym. They also shopped for larger homes because extra space would allow households to better accommodate older adult relatives or young adults that are now living within the residence.”
1. Multigenerational homes grow in popularity: With people sheltering in place, buyers showed an increasing desire to bring more family members under one roof. Buyers purchasing after the start of the pandemic in the U.S. were more likely to purchase multigenerational homes – 15% versus 11% prior to April 2020.
They cited multiple reasons, such as the health and caretaking of aging parents and relatives, cost savings, the desire to spend more time with aging parents and relatives, and the need for the delayed independence of children. They also said buying a multigenerational home allowed them to pool multiple incomes to purchase a larger home.
2. Homes are pricier: Those purchasing after March were more likely to purchase a more expensive home – $339,400 compared to $270,000 for those who purchased before April.
What’s more, 23% of buyers who purchased after March bought a home that was $500,000 or more. Those who bought after the COVID-19 outbreak began tended to have higher incomes: $100,800 compared to $94,400 for pre-April buyers.
3. Shorter house tenures expected: With the pandemic driving some purchases that might otherwise have been delayed, some buyers see the purchase as a stepping stone. Those who purchased after the COVID-19 outbreak say they plan to stay in their home a median of 10 years; those who bought a home nine months earlier planned to stay 15 years.
4. More renters become owners: The pandemic drove home purchases among those who were renting an apartment or house. Prior to April, about 36% of homebuyers were coming from the ranks of renters; after the pandemic, the percentage jumped to 45%.
5. Buyers love suburbia: Among buyers who purchased between April and June of this year, 57% picked a suburban location compared to 50% of pre-pandemic buyers. Buyers haven’t abandoned urban areas, however. Prior to the pandemic, 12% of buyers purchased in an urban area or central city; since April, that percentage increased slightly to 14%.
6. Searches speed up: Buyers who purchased after March searched for just two weeks before working with an agent; those who purchased before the pandemic searched for three weeks before contacting an agent. In addition, buyers who purchased after the start of the pandemic have been more strategic in their home search, limiting how many homes they view in person. Since the pandemic began, buyers have walked through a median of eight homes in person, slightly lower than the nine homes prior. When choosing an agent, buyers who purchased after March were more likely to turn to friends or family members. This is possibly because buyers were taking precautions and limiting contact with people outside their immediate circle, the report posits.
7. Certain buying segments grow: While married couples continue to be the largest segment of homebuyers, others increased purchases during the pandemic, particularly unmarried couples and some minority groups.
Before the pandemic, single females were most likely to buy a home after married couples, but their share dropped from 18% to 14% during the coronavirus outbreak. On the other hand, unmarried couples increased their share (rising from 9% to 11% of all buyers), as are “others” (rising from 2% to 3%), a category that likely reflects roommates.
The Hispanic/Latino share of homebuyers increased since the coronavirus outbreak (rising from 7% to 9%), and the share of Asian/Pacific Islander buyers also doubled (rising from 4% to 8%). Black/African American buyers remained at a 5% share of buyers during both periods. White buyers still made up a majority of purchasers, but their share declined slightly, going from 84% of buyers pre-pandemic to 82% in the months since March.
1. Looking to upsize: For many people, their homes feel smaller during the pandemic. Home sellers who sold after March were more likely to consider a too-small home the top reason for the sale (18% compared to 13% of those prior to the pandemic).
And downsizing has become less popular. Even sellers over the age of 55 – who tend to be the most likely to cite a desire to downsize – have shrunk their house footprint by only 100 square feet.
2. Feeling urgency: Sellers are more likely to say they feel a sense of urgency to sell their home – 46% after March compared to 39% of those who sold before April. Prior to the pandemic, 47% of sellers did not need to sell urgently and could wait for the right offer, but only 40% said that during the pandemic.
3. Technology’s importance grows: Sellers who sold their home during the coronavirus outbreak were more likely to rely on technology as a marketing tool, particularly the use of virtual tours: 27% of pandemic-era sellers said their agents used virtual tours compared to 17% before the pandemic. Video also became a more popular marketing tool, with usage growing from 12% to 18%.
4. Incentives haven’t disappeared: Despite high buyer demand, sellers entering the market after March often used incentives to attract buyers: 38% of sellers who sold after March used incentives compared to 31% prior to the pandemic. The incentive increase during the pandemic often focused on a credit toward remodeling or repairs and home warranty policies.
5. Equity gains: Home sellers who sold since the pandemic began sold their home for a median of $300,000; those who sold prior to the pandemic sold for a median of $270,700, and almost one-quarter of sellers after March sold their home for $500,000 or more. The median dollar amount sellers gained since the pandemic is $80,000 in equity compared to $64,000 prior to the pandemic.
6. Long-timers appear more motivated to move: Home tenure among sellers in the survey was 11 years, the same as before the start of the pandemic. However, 40% of sellers who sold after March had owned their home for 16 years or more compared to 34% of sellers who sold before April.
7. Desire to live close to family remains strong: For the second consecutive year, home sellers say a primary motivator to move is so they can live closer to friends and family. That trend continues to be common in the pandemic, although now it’s among home sellers who are planning to move farther away. Home sellers who are moving closer, within city limits or nearby, tend to be relocating out of a desire to move into a larger home.
Source: National Association of Realtors® (NAR)
By Melissa Dittmann Tracey
©Florida Realtors 2020
Dear Stoneybrook Neighbors,
Happy November! It’s hard to believe we are nearing the end of this most “irregular” year. We wish you well during this month of Thanksgiving and hope you have plenty to be thankful for.
We will now conclude the 3-part discussion on real estate valuations.
PART III
Last month, we discussed the difference of approach and valuation opinion between real estate agents and appraisers. In the majority of cases, the mortgage appraisal supports the contract price and the loan is approved, the transaction closes, and everyone is happy. But what happens if an appraisal comes back lower than the contract price? For example, a buyer and seller agreed on a contract price of $300,000 and the mortgage appraisal comes back valuing the home at only $290,000. When this happens, the transaction can be in jeopardy. Many real estate contracts are drafted containing an appraisal contingency (check with your agent to see if this applies). If the appraisal is insufficient to meet the loan requirement, the contract can be canceled. To salvage the deal, one thing the agent can do is request a copy of the appraisal and review it first for simple mistakes. For example, we have seen items left out, and a plus value adjustment entered as a minus value, resulting in a 200% deviation! These errors can be corrected and often the value will become satisfactory. But if there are no straight forward, objective mistakes, it won’t be easy to contest a low appraisal (because, as we previously discussed, the appraisal is an opinion.)
So, if the appraiser refuses to change the valuation, the buyer and the seller often renegotiate the contract price. Based on circumstances and the perceived quality of the appraisal, sometimes the seller will reduce the purchase price to the appraisal value. Other times, the buyer will bring in cash to bridge the shortfall. Or, the buyer and seller sometimes bridge the difference together. If no agreement is reached, the contract can be canceled and the transaction dies. Since we are currently in a tight inventory market- that is, there is more demand than supply- sellers might have higher leverage in negotiations, especially if they have the right agents on their side.
Can an appraisal also be higher than true market value? Yes, but it’s not a problem in the mortgage process because the bank is happy to make the loan. However, it can create a problem if the high appraisal is done for a seller purely to determine a listing price.
We have responded to quite a few calls from sellers who obtained an appraisal first and then found a frustrating lack of success in the market place in trying to achieve that projected price. When an appraisal is done for a loan, the bank scrutinizes the appraisal. When an appraisal is done directly for a seller, there is no such scrutiny. Often, we learn that the seller told the appraiser what they think the home is worth, then the appraiser produced the appraisal report to support it. This can be done quite simply by selecting comparable sales of higher-end homes, or by giving the same value for lesser features. For example, two homes both have a pool and assigned an equal value, yet the pools are of vastly different quality and appeal. The result: the valuation is supported on paper, but not in the open market in the real world.
We hope you now have a deeper understanding of home valuation. Know that there is a difference between “market value” and “collateral value” in a mortgage appraisal when you are buying a home. Also, know that there is a difference between “appraisable value” and “achievable value” when you are selling a home. When you are in the market to buy or sell a home, there is no substitute for an experienced agent as your consultant. We hope you will consider our representation.
Enjoy your November. Until next month, take care!
After a long, hot, and humid summer, we are finally in the season of fall. We hope with the change of season, you are refreshed, renewed, and well settled with work or school pace for the rest of this most unusual year.
There are many questions about the current real estate market, even among real estate professionals. We want to share with you some Questions and Answers from the Chief Economist of our own Florida Realtor Association. We hope you will find the information enlightening. As always, we are available to answer your questions about your specific situations and real estate needs.
By Jennifer Quinn
ORLANDO, Fla. – Florida Realtors® Chief Economist Dr. Brad O’Connor provided Realtors with his insight on Florida’s housing and economic future at the recent 2020 Florida Realtors Virtual Convention. Here are some of the questions received from Florida Realtors’ members.
Question: What will sales activity levels look like in the coming months?
Answer: The stunted spring buying season created pent-up demand that exploded into summer, as evidenced by more new pending sales in June and July than the year before. This is expected to translate into more closed sales in August and beyond. That said, employment losses and economic weakness continues and could cause headwinds for this current burst of recovery going into the fourth quarter of 2020.
Question: Inventory was tight before COVID – has anything changed?
Answer: The pace of residential building is still behind last cycle’s highs, and while building has continued through the pandemic as construction was deemed an essential occupation, costs of materials and labor have increased. Safety protocols for workers, some disruption in supply chains and increased demand for materials all have translated into cost increases. Coupled with some uncertainty in lending, relief on the supply side is not coming from new construction.
For existing homes, the tap is dwindling to a dribble as current homeowners are living in their homes for an average of 10 years compared to only seven during the early 2000’s. Uncertainty in the economy is also prompting people who can to stay put. That said, demand continues to be strong, as those who were sitting on the sidelines are feeling the pull to jump into a home for the first time or finally trade up, fueled in large part by record low interest rates and the desire to upgrade to more “pandemic friendly” homes and locations. This all leads to an imbalanced market with demand outstripping supply, particularly in the single-family home category.
Question: What about our friends to the north that snowbird?
Answer: The border restrictions between the U.S. and Canada are still in place, as are other travel restrictions both internationally and domestically. These will certainly impact their return travel to Florida and international buyer activity. According to the 2019 Profile of International Residential Real Estate Activity in Florida, 43% of international buyers came from Latin America/Caribbean, 23% from North America (Canada), and 19% from Europe.
Even U.S residents that call Florida home for half the year may face interstate travel restrictions, as several states in New England have quarantine requirements on people traveling from Florida. This will all create an odd year for people who typically have extended stays in the Sunshine State.
Question: I see a lot of scary stuff in the headlines about the economy – how are we doing in Florida?
Answer: Florida’s total employment dropped 13% between February and April but has begun to come back as people went back to work during the summer months. The return to work and impact is felt differently across industries, however, making for an uneven recovery. For example, the leisure and hospitality sector was hit the worst while finance and insurance grew during this time. The V-shape of the short-term recovery is not an indication of how the recovery will continue, and the loss in employment will have lasting impacts on Florida.
Question: What do you think about a looming wave of foreclosures? I remember the last cycle and I’m getting nervous.
Answer: Remember the market was very strong before the pandemic, and this recession was not borne out of the housing market and banks like last time. The fundamentals are much different. The speed at which the Fed acted in response to the crisis to support the economy was exceptional and largely done out of lessons learned from the Great Financial Crisis.
The CARES Act included action that allowed borrowers to receive mortgage forbearance for up to a year. But forbearance only pauses payments, and some homeowners could be hit with a large balloon payment at some point which they may not be able to pay. There has been a rise in the delinquency rate recently, which includes loans in forbearance. Employment is an important aspect to watch as it directly correlates to one’s ability to pay their mortgage.
Jennifer Quinn is a Florida Realtors economist and director of economic development
© 2020 Florida Realtors®
Happy October! We hope you are enjoying the beginning days of Fall.
Today, we will continue the topic of real estate valuation from last month.
Real Estate Valuation Part II
When a real estate agent performs a home valuation, it is called a Comparative Market Analysis (CMA) or a Broker’s Pricing Opinion (BPO). It’s usually done for one of two different reasons. The first is when a buyer wants to know if the listing price of a home is fair. A Buyer’s Agent will look at what similar homes have sold for in the neighborhood to answer that question. It is fairly straight forward and not very detailed. The second is when a seller wants to know what their home will sell for. This is the more difficult and skill-based assessment because it is a forward looking forecast. A stock analyst can tell you how a stock has performed in the past, but to predict how a stock will perform in the future is clearly the more difficult task. To forecast what a home will fetch in a given market combines the “art” and “science” of pricing. This predictive process contains both objective components and subjective assumptions. The experience and skill of the agent making the prediction as well as the quality and accuracy of the prediction itself are important factors that contribute to the success or failure of a home listing.
The CMA and BPO valuations are not official appraisals. Only the valuation of a licensed real estate appraiser can be called an appraisal. We hold high respect for real estate appraisers. Their training and expertise related to home valuations are vastly superior to an average agent. Our function and approach differ in that:
(1) When real estate agents perform home valuations, the customer is the seller. Our objective is to determine the “market price” of a particular home. By “market price,” we are referring to the price that a home can achieve in an open market exposed to all potential buyers. This valuation incorporates an intimate understanding of buyer behavior in addition to market sales data interpretation.
(2) In a mortgage appraisal, the appraiser’s customer is the bank. The appraiser determines the “collateral value” of a home based on an established set of rules. A mortgage appraisal is reviewed and scrutinized by loan underwriters before it’s accepted by the bank. The bank simply wants to know if the home has sufficient value to act as the collateral for the loan.
In the majority of cases, our valuation and the appraisal are in agreement. We list a home at our projected market price, we achieve a contract at or near that price, and the subsequent bank appraisal supports the price and approves the loan. The transaction closes smoothly and successfully.
However, sometimes the appraisal comes back below the contract price. This usually puts the transaction in jeopardy. The appraisal can come back low for a number of reasons. Often, the difference is due to the appraisal rules. For example, would you pay more for a home that has a brand new roof and A/C system, so you wouldn’t have to worry about them in the next 15 years? Would you pay more for a home whose kitchen is equipped with gorgeous top-of-the-line premium appliances? We would. Those features have added value to us as buyers. However, the bank does not see these features as having value because by the time the bank forecloses and takes back a home, those upgraded features could be gone. This is why sometimes a highly upgraded home has problems with appraisal.
We will stop here. In the next issue, we will talk about what happens when an appraisal comes back lower or higher than market value!
Until then, take care! We look forward to seeing you next month!
|
|
|
Happy September! We hope everyone is adjusting well to the changes at work, back-to-school, and other aspects of our lives. The Orlando real estate market continues at a brisk pace. Orlando now has only 6,220 homes available for purchase, down 22.2% compared to July of 2019! This is the lowest level of inventory in recent memory.
We welcome all your real estate questions. Many of you have asked us about real estate appraisals. We will use the next couple of months to discuss this broad topic.
PART I.
Most people encounter a real estate appraisal in 3 situations: (1) when buying or selling a home using a mortgage loan, (2) when refinancing a mortgage, or (3) when a seller wants help with determining the asking price of their home.
First, what is a real estate appraisal? A real estate appraisal is a report done by a licensed appraiser showing what a property is worth. Banks then use this report to determine how much money they are willing to lend on a home. Most people believe an appraisal to be an objective determination of value, but we think it is more accurate to think of it as a subjective opinion of value. That means a home’s value is not a set absolute. 3 different appraisers would likely come up with 3 different values for the same home, especially if the home is “unique.” A licensed appraiser’s opinion of value is called an appraisal, while the opinion of a real estate agent is called a CMA (Comparative Market Analysis) or a BPO (Broker’s Pricing Opinion). The important thing to note is that they are all opinions.
A licensed appraiser is a trained professional in rendering the opinion of a property’s value. The purpose of this opinion is to help banks make risk assessment in mortgage loan decisions. It is important to understand this: an appraiser’s true customer is the lender financing the purchase, not the buyer or seller. The bank wants to know if a property is worth at least the sale price. Yes, the appraiser does get a copy of the contract and knows the sale price ahead of time. He is not being asked to make a blind appraisal. If the appraiser agrees with the given sale price, the bank will accept the property as the collateral for the loan. The bank does not care if the home is worth more, but it must not be worth less. Many people ask us if the appraisal only has to match the loan amount. Actually, if a bank is lending 80% of value and requiring the buyer to put down 20%, the collateral must meet the 100%, not just the 80%, hence the appraisal value must be at least the full sale price.
As mentioned above, an appraisal is a “subjective opinion of value.” We see the reality of that all the time. We’ve seen different appraisals on the same house come back at significantly different values and we’ve reviewed many of the appraisals over the thousands of transactions we’ve been a part of. Most of them are good appraisals, but many can be less so. We have good relationships with many appraisers. They contact us routinely to seek additional information on our sales to be used as comps in their reports. We respect the work of professional appraisers, but we also distinctively see the difference in what they do vs. what we do as real estate agents. Our opinions of value can converge or diverge.
Next month, we will discuss this convergence and divergence.
Until then, take care! See you next month!
The Orlando real estate market has been operating at full swing this summer, with lots of buyers and sellers being active in the marketplace despite the challenges presented by this pandemic. One of the most popular topics among our neighbors right now is property pricing and appraisal values. The following is an abbreviated version of what I teach in class for real estate agents, Home Valuation 101.
There are generally 3 approaches to value theory in real estate: (1) comparable sales, (2) reproduction cost, and (3) income potential. In residential resale, a comparable sales approach is the method of choice, so that’s what we will focus on today. Comparable sales uses already closed sales to determine the market value of a property. Assuming the market is efficient and the buyers and sellers are acting in their own best interest, we can derive value based on how sellers are selling and buyers are buying. Like stock prices, the supply and demand ultimately drives the fluctuation in price: when demand exceeds supply, the price goes up. When supply exceeds demand, the price goes down. Therefore, a home does not have a fixed value and instead changes with time.
Unlike shares of a company’s stock, no two pieces of real estate are exactly alike. The comparable sales approach takes the available previous sales that meet the right criteria (sufficiently similar to the subject property, sufficiently close to the subject property, and sale date close enough to reflect the current market) and then compares them to the subject property. Adjustments are then made based on established guidelines as well as any subjective judgments based on experience that may increase or decrease the value. For example, if a home that backs up to a road sold at a particular price, an otherwise identical home across the street that backs up to a wooded conservation would be presumed to be able to fetch a higher price (the value adjustment for conservation frontage).
Two crucial factors in making sure the comparable sales method is done correctly are: (1) Selection of appropriate comparable properties. If wrong comparables are used- however diligent the subsequent adjustments may be- the results will likely be off. For example, Stoneybrook sales should be used as comparables for a Stoneybrook subject property, not an Eastwood or Avalon Park property. (2) Use right adjustment values. Even when the right comparables are selected, if the adjustment values are inaccurate, the result will still be off. For example, once comparables similar in size are selected, the adjustment for difference in square footage is not the average price per square foot. It may only be $30-$60 per square foot based on the price range of the home.
Licensed appraisers are trained to make the above adjustments based on professional guidelines. These guidelines must be strictly adhered to in order for the appraisal report to be accepted by the bank, which relies on this report to then assess its risk in making the loan on the property.
Real estate agents are not licensed appraisers. Their approach should start in the same objective manner as an appraiser, but there are many additional factors to consider. Many features in a home have different values to a buyer than to an appraiser. For example, top-of-the-line appliances in a kitchen will certainly impress a potential buyer, who may be inclined to pay more for this home than a similar one without them, but an appraiser will not appraise the home higher because of the better appliances.
So, a skilled listing agent considers all the tangible factors such as features and amenities, as well as intangible factors such as benefits and appeal. They estimate what a normal buyer would be willing to pay based on the current market environment. An understanding of market trends is paramount. In an up-trending market, the last home that sold in the area is the base floor on price. During a down-trending market, the last home that sold is the ceiling on price. In a stable market, the last home that sold is a mirror on price.
We hope the above description is helpful to you. Next month we will discuss the truths and myths about appraisals. For more details or an evaluation of your home, you can always call or email our team of expert real estate agents.
Happy July! A topic that has again become popular is that of real estate investing. There are different types of real estate investment. This month we will cover the concept and benefits of real estate cash flow investing.
Q: I’ve heard a lot about real estate investing, however I’ve personally only invested in the stock market. I know you are an avid real estate investor. Can you share with me your perspective?
A: Certainly. I am financially conservative and appreciate secure investments. I invest in real estate by buying and holding homes long term, focusing on cash flow. To start investing, you must have savings. Saving is basically spending less money than you make. To save more, you can either make more money, or spend less. Making more is often not in our control, but spending less certainly is. Lifestyle choices determine this first step.
Once you have savings, you must invest it. You cannot save to riches. With inflation, cash will always decrease in value over time. You have to do something with your money to make it grow over time. You worked hard for your money, so now make your money work hard for you.
Of course, there are many types of financial investment. Most of them are outside of my area of expertise. You should always consult appropriate professionals regarding other types of investment. What I know is real estate. I’ve written about different types of real estate investments before, including house-flipping. My personal favorite real estate investment is long term buy-and-hold where the focus is on cash flow.
When you buy and rent out a home, the rent you receive becomes your income. You then pay expenses such as property taxes, insurance, HOA dues, maintenance and repairs. You may also have a mortgage payment or professional management fees. Only when the rent is more than all the expenses will you have positive cash flow.
In the majority of financial investments, such as stocks, precious metals, or collectibles, you only make money if the value of your holding goes up. If it does not, you lose money. There is only one outcome that will pay off.
This is not the case with real estate cash flow investment. If you have a disciplined focus on cash flow, you should only buy homes that generate
more income than they cost to own. This is positive cash flow. If the home value goes down, you will still have positive cash flow. If the home value goes up, you will have positive cash flow PLUS appreciated equity. Either way you win. This is the foundation of the security that comes with cash flow investment in real estate.
Over the long term, real estate values have always gone up. I can sleep soundly at night and not worry about political changes, stock performances, or financial market fluctuations.
On this foundation, many important benefits of real estate investments are built. I have written about them in the past. For example, leverage. You can borrow money to invest in real estate! With a mortgage, you can borrow as much as 80%. There is nothing like it elsewhere.
I will stop here. In the future we will certainly discuss real estate investment again!
ORLANDO, Fla. – June is National Homeownership Month, a time to celebrate the benefits of homeownership for families, neighborhoods and communities.
This year, however, many Americans already understand the importance of home as the nation slowly emerges from two months of self-isolation. Before the pandemic, home for many people was a source of operations – the place where they slept before leaving for work, school and exercise.
Suddenly, home is the safest place in the world, and many Americans’ attitudes about ownership have changed. Some renters look around and realize that the place they call home could be bigger or better. They want to paint the walls, change the flooring and own something that continues to rise in value over time.
For many Americans, however, homeownership is at risk. Owners who lost jobs due to COVID-19 may find themselves on a forbearance plan, while some of those renters who dream of ownership have been shut out by tightened credit restrictions and stay-at-home orders.
Still, Americans generally agree that homeownership is one of the best vehicles for building wealth. In 2019, overall home prices rose 4% year-to-year. And while the coronavirus has created issues for the American economy, home prices have continued to rise with demand still outstripping supply.
National Homeownership Month has changed over time. It started as a week-long celebration in the 1920s by local real estate associations and eventually became a month-long celebration created by the U.S. Department of Housing and Urban Development.
Americans can celebrate Homeownership Month by using #CreatingHome in their social media channels. But the best way to celebrate is to actually become a homeowner.
By Kerry Smith
© 2020 Florida Realtors®
We will be contacting you shortly.
