Friday, January 31, 2014

How Important is Curb Appeal in this Market?

I have talked about curb appeal in the past. It is and has always been a critical component to getting the best price possible. Curb appeal sets the tone in a positive fashion before the buyer even gets out of the car. Many buyer just drive by a listing when the curb appeal is low. I strongly discourage my clients from drive-bys. These low curb appeal listings are often the best value because the do not fetch top dollar. This is good for the buyer and bad for the seller. 

This post is from the National Association of Realtors®

WASHINGTON (January 16, 2014) – A home’s curb appeal is crucial because it can be the first thing buyers notice about a home. That’s why Realtors® rated exterior projects among the most valuable home improvement projects in the 2014 Remodeling Cost vs. Value Report.

“With many factors to consider such as cost and time, deciding what remodeling projects to undertake can be a difficult decision for homeowners,” said National Association of Realtors® President Steve Brown, co-owner of Irongate, Inc., Realtors® in Dayton, Ohio. “Realtors® know what home features are important to buyers in their area, but a home’s curb appeal is always critical since it’s the first impression for potential buyers. That’s why exterior replacement projects offer the greatest bang for the buck. Projects such as entry door, siding and window replacements can recoup homeowners more than 78 percent of costs upon resale.”

NAR’s consumer website highlights the results of the report in its “Best Bets for Remodeling Your Home in 2014” slide show. The site also provides information and advice on various home improvement projects, including a guide to kitchen remodeling with the best payback and dozens of exterior replacement projects.

Realtors® judged a steel entry door replacement as the project expected to return the most money, with an estimated 96.6 percent of costs recouped upon resale. The steel entry door replacement is consistently the least expensive project in the annual Cost vs. Value Report, costing little more than $1,100 on average.

Eight of the top 10 most cost-effective projects nationally, in terms of value recouped, are exterior projects. A wood deck addition came in second with an estimated 87.4 percent of costs recouped upon resale. Two different siding replacement projects also landed in the top 10, including fiber-cement siding, expected to return 87 percent of costs, and vinyl siding, expected to return 78.2 percent of costs. Out of the top 10 projects, the fiber-cement siding replacement project improved the most since last year, with costs recouped increasing by more than 15 percent. Two garage door replacements were also in the top 10; a mid-range garage door replacement is expected to return 83.7 percent while an upscale garage door replacement follows closely at 82.9 percent of costs recouped. Rounding out the top exterior remodeling projects were two window replacements; a wood window replacement is estimated to recoup 79.3 percent of costs and a vinyl window replacement is estimated to recoup 78.7 percent of costs.

According to the report, two interior remodeling projects in particular can recoup substantial value at resale. An attic bedroom is ranked fourth and is expected to return 84.3 percent of costs; nationally, the average cost for the project is just above $49,000. The second interior remodeling project in the top 10 is the minor kitchen remodel. The project landed at number seven and is estimated to recoup 82.7 percent of costs. Nationally, the average cost for the project is just under $19,000. The improvement project likely to return the least is the home office remodel, estimated to recoup 48.9 percent.

For the report, Realtors® provided their insights into local markets and buyer home preferences within those markets. For 2014, the national average cost-value ratio stands at 66.1 percent, a jump of 5.5 points over last year and the largest increase since 2005, when the ratio increased 6.1 points to reach a high of 86.7 percent. For the second consecutive year,Cost vs. Value data shows that the value of remodeling is up for all 35 projects included in the survey. Additionally, for the first time in four years, improved resale value of residential housing had more of an influence in the cost-value ratio than construction costs. A modest 2.2 percent increase in average national construction costs was more than offset by an 11.5 percent improvement in average national resale value.

The 2014 Remodeling Cost vs. Value Report compares construction costs with resale values for 35 mid-range and upscale remodeling projects comprising additions, remodels and replacements in 100 markets across the country. Data are grouped in nine U.S. regions, following the divisions established by the U.S. Census Bureau. This is the 16th consecutive year that the report, which is produced by Remodeling magazine publisher Hanley Wood, LLC, was completed in cooperation with NAR.

“Every neighborhood is different and the desirability and resale value of a particular remodeling project varies by region and metro area. Before undertaking a remodeling project, homeowners should consult a Realtor® as they are the best resource when deciding what projects will provide the most return upon resale,” said Brown. “Realtors® have a unique understanding of local markets, home features and buyer preferences and know that there are a variety of factors that affect a home’s value, such as location, condition of surrounding properties and regional economic climate.”

Seven of the nine regions covered in the report outperformed the national average, a distinct improvement over 2013, when just four regions performed better than average. Once again, the Pacific region, consisting of Alaska, California, Hawaii, Oregon and Washington, led the nation with an average cost-value ratio of 88 percent, due mainly to strong resale values. The next best performing region was West South Central with 76.4 percent, followed by three regions tied at 74.6 percent: South Atlantic, which improved from 63.7 percent in 2013, New England, which improved from 56.2 percent in 2013, and East North Central, which improved from 54.8 percent in 2013.

To read the full project descriptions and access national and regional project data, visit “Cost vs. Value” is a registered trademark of Hanley Wood, LLC.

HouseLogic is a free source of information and tools from the National Association of Realtors® that helps homeowners make smart decisions and take responsible actions to maintain, protect and enhance the value of their home. HouseLogic helps homeowners plan and organize their home projects and provides timely articles; home improvement advice and how-tos; and information about taxes, home finances, and insurance.

Founded in 1976, Hanley Wood, LLC, is the premier media and information company serving the housing, commercial design and construction industries. Through its operating platforms, the company produces award-winning magazines and websites, marquee trade shows and events, market intelligence data, and custom marketing solutions. The company is also North America’s leading publisher of home plans.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.

Friday, January 24, 2014

Institutional Sellers are not all alike

Institutional sellers, such as banks and government agencies have been a large part of out real estate market. During the "crash" five years ago, many homes were foreclosed upon by the lenders. These homes have been sitting in various stages of either foreclosure or short sale attempts, etc. Now they continue to trickle onto the market sold by the institution that ultimately ended up with the property. As the title above says; not all institutional sellers are alike.

To understand the difference we first should look at the process. The following description of the process is intentionally simplistic just to keep it a light read. The actual processes are very sophisticated. I have a fair amount of experience in this arena but am by no means aware of every articulate detail in the foreclosure proceedings. This basic outline however can be helpful to understand why institutional sellers do what they do and how it can benefit buyers.

Conventional loans are typically "sold" to either Fannie Mae or Freddie Mac. These are the two large quasi-government companies that purchase mortgage paper from banks and package them as securities to be traded on the market. The system dates back to FDR which is a brilliant legacy piece of legislation. basically, a bank makes a loan for say $200,000. If that loan meets the criteria of Fannie Mae (Federal National Mortgage Association) or Freddie Mac (Federal Home Loan Mortgage Corporation) the bank can sell that note at a small profit to them and then they have another $200,000 to lend out again. It is this system of selling mortgage paper that allowed the American dream to become reality for two thirds of the population. Other loans that do not meet the criteria may be sold to other mortgage investor groups as well.

The other common type of loan is a government insured or government guaranteed loan. These are usually FHA, VA or USDA loans. These loans are similar in that a bank makes the loan and then sells the paper to investors not too different from conventional. These loans however end up differently if a foreclosure happens.

With a conventional loan the bank that issued the loan is initially responsible for servicing that loan. They collect payments and if necessary foreclose. In a foreclosure the bank must follow federal and state proceedings. the home is usually sent to auction by the local courthouse. If it does not sell at the court auction the servicing bank takes possession. That bank may buy the house back from the courthouse and sell it or it may end up going back to the investor that bought it (usually Fannie or Freddie).

When a government backed loan goes south, the government usually takes the house back. FHA foreclosed homes are sold by HUD (U.S. Department of Housing and Urban Development), VA foreclosed homes are sold by the U.S. Department of Veterans Affairs and the USDA foreclosed homes are sold by the U.S. Department of Agriculture.

To simplify there are broadly three types of institutional sellers that are commonly found in the market. They are Banks, Fannie/Freddie, Government.

Banks are the closest to traditional sellers. They often have a few legal addendums they ask to be a part of the sale agreement. The terms vary from bank to bank as to whether they are strictly selling the property "as is" or whether they will negotiate for repairs. For a bank it is always about their bottom line. They are cold and calculating. Once in contract bank owned properties typically close on normal time frame. Banks can be slow to respond to offers or inspection repair requests but generally the transactions are easy to manage. Sometimes banks will negotiate strongly on price so if the home is priced a little high buyers can come in soft and might make headway. Banks may act stupid, but they are not. In this market super low-ball offers generally will be ignored by banks or countered at full price..

Fannie and Freddie have been in a bit of a transition over the last few years. They used to sell "as is" with the homes often in sorry condition. Lately they seem to be taking the approach of fixing the house up and making it a "turn key" move in ready property. They still sell "as is" but all fixed up it is almost moot. These two institutions require the buyer to use their official sales package with terms that are very specific and non-negotiable. Fannie requires the buyer's agent to load the offer into their computer and await a response. Fannie also requires buyers to either use their appointed title and escrow service or choose a local company and pay all costs including the seller's costs. Freddie has the buyer's agent submit and offer traditionally to the listing agent but that agent then loads the offer into a computer similar to Fannie. Upon approval the Freddie required sales package is sent to the buyer for signatures. Fannie and Freddie can be frustrating in that they often will stand firm on a price only to lower the price a month later below that which they denied the previous month. They are very sluggish to respond during the transaction but generally speaking provide an opportunity for buyers to get a quality home at a good price. I have noticed that some properties listed by Fannie Mae lately have been priced high. They have a practice of lowering the price every thirty days and I find that about 20 days into a price reduction they are most negotiable on price. Like the banks, they will not entertain ridiculous low-ball offers.

Government is a whole different 'shebang'. Personally I have not yet sold a house that was owned by the USDA. I have sold houses owned by the VA and HUD. If owned by the VA and the buyer is a Veteran the transaction can be quite smooth. The VA is committed to getting Veterans into the homes they own. If they are unable to find a suitable Veteran the homes are available to non-veterans. HUD is probably the most common government seller. HUD has a bidding process. Most HUD homes are required to be offered for an initial period only to owner occupants, not investors. After that initial period of 15-30 days the property is open to all bidders. The process begins with a sealed bid auction. Usually the first ten days. The buyer's agent loads the offer into the HUD computer and at the end of that sealed bid period HUD will either accept the strongest offer or reject them all and continue on a daily bid process until they get an acceptable offer. I have not seen HUD take up the practice of fixing up the homes like Fannie and Freddie seem to be doing. HUD homes are often pretty rough. HUD sells "as is" and is difficult to negotiate with. Up until very recently all HUD transactions required using HUD's official closing agent. That process was slow and frustrating. Here in the great state of Washington, HUD has instituted a local closing program. This allows the buyer to choose a local title firm to handle closing procedures. This is awesome. Other than some anal retentiveness on the part of HUD to approve the final closing statements, this local process has been a wonderful improvement to the buyer's experience.

So there it is in a nutshell, albeit a large coconut-shell. Do not be afraid of institutional sellers; just be aware. The process will not always make sense and they will do things that seem, well... stupid. But in the end if the buyer gets the house of their dreams for the price they want; it is well worth the aggravation.


Saturday, January 18, 2014

Veterans Should Take Advantage of GI Benefits

Vets can check the VA website here
Are you a veteran? If you served honorably in the armed forces there is a good chance you qualify for a VA loan. The VA loan is probably the best mortgage loan product available. and it is for our veterans only.

What makes the VA loan so good? It is not any one thing but rather the whole package. The VA loan is a ZERO down program. The veteran does not need to save up a down payment for the house. VA loans are typically priced with the some of the lowest interest rates in the market. The VA loan does not have monthly mortgage insurance. These are strong features that make a VA loan hard to beat.

The VA loan does have a few minor drawbacks. It has a "funding fee" that runs around 2.25%. The veteran may finance that fee so the loan remains a truly no down product. The Veterans Administration requires that the property pass not just a standard appraisal, but a special VA appraisal that looks more closely at the quality of the property being financed. This can lead to the veteran having to be a little more selective with offers.

In the current low interest climate, the VA loan has another great feature. VA loans are assumable. A veteran buying a home now will likely have a great low interest rate. In the future when the vet wishes to sell, rates may not be so low. The veteran's ability to allow another veteran to "assume" his loan may make his property more marketable in the future.

Loan products have many variables. If you are a veteran of the US Armed forces I would strongly encourage you to talk to a lender and find out what is available for you. A qualified loan officer can give you all the details about what is required and how the program works. Our veterans have served this country with honor and they deserve an opportunity to own a home without excessive burden. The VA loan is a big step to making that a reality.

Disabled veterans often qualify for additional benefits. I run in to many people some veterans and some not who don't think they can buy a home. All to often they in fact can and many times for a savings over comparable rent.

If you are veteran look into the VA benefits and the VA Home Loan today. It may be the best thing you ever do.

Friday, January 10, 2014

Curb Appeal is Buy Appeal

Yeah, yeah, I know that title is a cliche. But a cliche is often based in a hard reality. In my experience, people typically form strong opinions from their first impression. These can be difficult to change. There has been many a house that I have shown that looked horrible upon pulling up. I always tell my clients to give every house a chance. But over thirty five years of working with clients including fifteen in real estate, that first impression is hard to shake.

Sellers that have a rough looking front yard are well advised to take as many measures as they can afford or manage to perk up that curb appeal. Buyers should also learn to be forgiving when a house looks bad from the front. Ideally, the perspective should be very different depending on whether one is looking to buy a house or trying to sell their home.

Sellers need to maximize the number of people touring their home. They need to get the best price possible and curb appeal starts the tour off with a positive feeling. When a prospective buyer has a warm fuzzy experience as they pull up they are very likely to be more forgiving of minor defects inside. The tone has been set for a good showing when the curb appeal shines. This can add thousands of dollars to the value and that can lead to more and stronger offers.

As a buyer, one needs to learn to look past a rough looking exterior. Buyer's are often looking for a "deal". When the majority of prospective buyers have a tendency to have an unfavorable opinion of a house with bad curb appeal; a savvy buyer can see opportunity for a solid property at an under market value. This is true with interior issues such as bad paint and carpet or poor decorating choices. These are easy fixes for a new homeowner. The reduced competition means the seller will receive fewer offers and likely for lower amounts than a comparable, well staged home with broad curb appeal. That translates for buyers as a "good deal".

Sellers attempting to sell in the winter may have a difficult time building a strong curb appeal unless they are located in the southern half of the nation. Upper latitudes often have dark and dreary winters with dead grass, leafless trees and a general ugly yard syndrome. Keeping the home free of yard debris and greened up with some evergreen bushes or trees can help.

In summary, sellers can not overlook curb appeal if they want the best price for their house. Our current market rewards turn key, move in ready listings, with multiple offers often at or above full price and a quick closing. Less desirable condition tends to benefit buyers. Houses that don't have that move in ready sharpness, lend to linger on the market. These homes are the ones that get discounted and sold for less than market. For buyers these can be that "deal" they have been looking for.

Friday, January 3, 2014

Online Tools, are they any good?

Happy New Year! I get a lot of clients that utilize a wide variety of online websites to find houses, get values and stats, etc. But are these websites any good? Is the data accurate? These are valid questions and the answer is not as simple as yes or no.

There are many popular sites that people use. Redfin is a popular home hunting site but is not in all markets yet. Zillow is just about everywhere and at its core is a valuation site.

In general public search able sites that offer for sale listings are only accurate when they pull data directly from the local MLS system. If the site is relying on the listing agent to update the listing then often the information is inaccurate. Some agents may simply forget to pull the listing after it sells. If they have it advertised on a dozen sites the could easily miss one of the sites when they mark the listing as sold. Some agents may deliberately leave the listing up after it sells to get calls from prospective buyers. None of this is bad per se, just inconvenient for the person looking to see what's available online. Using the public access site for the local MLS systems is the best choice when searching for listings. Many real estate companies also have search able MLS on their websites. The local MLS system typically has strict requirements that agents keep the data current. This is what makes it more reliable for actual house hunting.

Websites like Zillow offer much more than just house hunting. Zillow made itself famous with the "Zestimate". This is their own proprietary system of estimating the value of individual homes. My experience with this is that they do not have enough data on individual sales to make a price evaluation on a specific house. They do not know the variables in the pricing equation. What they have is a bunch of numbers from local MLS and county recording records. You can have two identical houses right next door to each other one sells for $200,000 and a week later the other sells for $150,000. What gives? Zillow has no way of knowing the difference in these two houses outside of raw numerical data. Maybe the lower priced house was gutted inside. The $200k unit could have been nicely remodeled. Homes in the entry level and middle market that are solid enough to qualify for VA, FHA or USDA financing can generally fetch a high price than a home that does not qualify for those financing programs. As for county records, they can be inaccurate. Sometimes a home shows up on the county records as a four bedroom house when it is actually a three bedroom house. This is more common locally than many people realize. There are a variety of reasons and usually it is on homes that were built during a busy construction period and in large subdivisions where changes were made last minute on lots and homes. Zillow will not be aware of these facts.

But Zillow is not a bad site. On the contrary, I find some of their data to be quite useful. You will notice I use some of their tools on this blog! The mortgage and median value widgets in my right sidebar are powered by Zillow. The Zillow data is very good for looking at broad market indicators. Looking across the whole of a local market area, such as Clark County, Washington does not require specific individual data. Here we are seeking trends in valuation and general closing and recording data is more than adequate. If one wishes to compare large neighborhoods for valuation differences, Zillow can be very effective. Locally someone living in Orchards are of Vancouver might wonder if they could afford a similar house in Camas, WA. Checking the 98682 zip code against the 98607 zip code on Zillow is a broad enough comparison to at least get an idea of relative difference in pricing between the two areas.

I find that buyers and sellers that utilize these various websites often misread the data. When a buyer is using a loan to acquire a loan for a house, the bank orders an appraisal of the property. The bank does not log into Zillow. A real appraisal is necessary to get a reliable and solid opinion of the market value. The local tax assessed value is also very confusing to many people. Tax assessors do not do a true appraisal. They do not enter the home. They utilize a generalized condition in their market analysis. They also use a cost approach system. The land value is separated out and the structure is depreciated based on condition and useful life. This is done to determine the taxes on the property and is not a reliable source of fair market value.

Overall I think buyers and sellers should use these sites when they are in the preliminary stages of buying or selling a house. These tools can provide insight that may help a person decide whether they are ready to proceed to the next step. Once the decision is made then it is time to trust a local professional to help them find their next house or list their home for sale.