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Instead
of asking "Should I get an appraisal?" Let me ask you
this,
"If
you don't get an appraisal how else will you know for sure
(I'll
bet you didn't know an appraisal
told all of that, did you?)
But
more importantly, how will you convince a Buyer your price
is right?"
You
have had time to come to grips with values and get comfortable
with the price, but the Buyer needs to feel that comfortable
as well. Until the Buyer does price will get in the way
of a contract!
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You
don't want to underprice your house because you have the potential
to lose tens of thousands of dollars.
You
also don't want to overprice it so that it sits on the market for
months longer than it has to.
Sellers
whose houses sit on the market for a long time end up accepting
offers they would never have considered in the beginning and consequently
lose money.
You
can't base your house's value upon a tax appraisal because a tax
appraisal isn't really an appraisal, it's really a TAX ASSESSMENT.
An
Assessment is a derived figure based upon theoretical increases
or decreases to a very large area's change in value and does not
look at specific neighborhoods or houses. Yes it is usually, but
not always, in the ballpark, but it can be off $10,000 or more.
An assessment is part of a formula that is used to determine your
tax bill, not a house's value.
How
about using an Agent's market analysis? The market analysis
could help because it (should) only look
at home sales in your neighborhood, but keep in mind that the analysis
is designed to look at marketing positions, not value. So how much
credence can you place upon the market analysis?
Even the most diligent Agent does not have
the training and skills to arrive at value with anywhere
near the accuracy of an Appraiser. Nor do they have access to the
detailed information that an appraiser possesses. An Agent only
has access to a "Reader's Digest" version of sales, features,
details and comp information. This limits them to looking at a "broad
brush" view not the fine details.
Because
an Agent's data is so open to "interpretation" 3 different
Agents will give you 3 different price ranges. If you coach them
as to the figure you want - their figures will be skewed even more.
At the listing stage all an Agent is trying to do is list your home
so they can get their sign in the yard to get some exposure and
pick up some Buyer leads. Some Agents will list your house at any
price just so they can get the sign in the yard.
Keep
in mind that your wants and needs do not influence value.
Wants and needs will affect whether you decide to sell or not, but
once you have decided to sell you need to know what you can reasonably
expect. What
you need to know is how much is your home really worth.
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So
what do you do, pull a figure out of a hat?
Well, there is one more aspect you haven't even considered - FINANCING!
Odds
are you and your Buyer will need financing to buy a home so let's
look at Mortgage rules & limitations.
Why
do you think a mortgage company requires an appraisal before they
will do the loan? Federal statutes say mortgages must have "adequate
collateral" which means the house must have an ACTUAL VALUE
commensurate with the sales price & loan.
Since ACTUAL VALUE is a critical legal
factor of the financing process, the Buyer's financing will be limited
to a percentage of the sales price or appraisal WHICHEVER IS LESS.
This
means a borrower cannot get a loan for just any old price you make
up. Your house is only worth what it is worth, so obviously an appraisal
needs to be an integral part of the pricing process. It is your
limiting factor.
As I hope you are beginning to see, financing is a very critical
part of the sales process. This is why we have added a financing
section to our website and worked hard to ensure we have a Lender
Partner in your area. No matter
how easy the sale was, if your Buyer cannot secure acceptable financing
the whole deal is off!
National
figures say that 44% of all Buyers get almost to closing before
they discover they cannot get the loan they want or can't get aloan
at all.Waht will you do if youir Buyer is one of the 44%? It is
best not to take a contract than to take a contract from someone
who can't perform.
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So
let's look at how the financing system works and find out if your
house or neighborhood has any limitations so we can help determine
what needs to be done to secure you a sale at top dollar and in
the shortest amount of time.
All
mortgage financing, except Seller financing, requires an appraisal.
So
what is the appraiser's duty in the transaction?
The
Appraiser is the Lender's "eyes and ears". The Appraiser's
job is to certify the condition and sales value of the property
and make sure there is nothing in the house or area that would limit
a sale if they should have to foreclose.
If an appraisal is done BEFORE there is a sales contract
the Appraiser has the duty to research the Lender question of "IF
the Buyer never makes a payment, how much could we sell this house
for and are there any limiting conditions to the house or neighborhood?"
As you can see, in this case, the mortgage appraisal is trying
to determine actual selling value.
AFTER there is a sales contract the lender asks a slightly different
question "Is the house worth AT
LEAST the sales price?" As you can imagine,
this can give a very different answer since the appraiser is no
longer looking for full value but only for enough value to meet
the sales price.
Because
of how the question is asked if you have an appraisal done AFTER
you have a sales contract it is quite possible to get an appraisal
for exactly the sales price. This sometimes leads Agents & Sellers
to think that you can always get an appraisal for sales price if
you already have a contract. Nothing could
be further from the truth! All it really means is that
the house sold for exactly the right price or (more likely) that
it sold for less than full value. Remember
that under those circumstances the appraiser only has to prove the
house is worth AT LEAST the
sales price not full value. So a house that sold for $5,000 less
than it was worth would get a full price appraisal.
There
is nothing wrong with this, he has done his job properly and certified
to the lender that the house is worth AT
LEAST the sales price.
These
type of issues are why we strongly suggest an appraisal BEFORE
the house is placed on the market. It is also why Exclusive Buyer
Agents (Buyer ONLY Real Estate Brokers), as opposed to "Buyer
Brokers" which are really intermediaries and do not represent
the buyer at all, want a blind appraisal (one where the Appraiser
does not know the sales price) so they can determine if their Buyer
got a good deal.
BTW:
Federal law gives the buyer the right to have a copy of the appraisal,
so there is no way to hide the fact that your house isn't worth
the asking or contract price.
Most
people focus on the value aspect of appraisals and never realize
there are other benefits to having an appraisal.
We've
already mentioned that appraisals give you normal marketing times
for your neighborhood which makes it easier for you to plan, but
did you know the appraiser can also help you market your home?
An
appraiser is another impartial set of eyes looking at your property
and giving you some insights into marketing, timing and condition.
The Appraiser gets to see homes that are actually selling so they
have information about condition, decorating, locations and terms
which makes them an invaluable resource. The Appraisers we use are
willing to share their experiences. An appraisal lets you compare
your house to others that have sold and make neighborhood to neighborhood
comparisons. Remember, when comparing your house to others, ASKING
price isn't important, SELLING price is!
We've
been doing this since 1989 so let me relate some of our experiences
we've seen.
Except
in two instances,
1)
IF
the
Seller had an appraisal,
2)
IF
the
Seller priced at appraisal,
3)
IF
the
Buyer was aware the asking price was the same as the appraisal
value,
the Seller got a full price contract with no
dickering over the price!
What
happened to the 2 Sellers that didn't get full price? The contracts
were for $1,000 under full price. In both of these cases the Seller
got nervous and OFFERED to cut the price, the buyer didn't ask
for it!
Dickering
is not required in a real estate transaction. It is something
the Agent community has added to make people feel the process
is complicated enough to require their assistance.
An added PLUS to pricing at appraisal is that Sellers usually
had a shorter sales time than the norm in the neighborhood.
How do we know the normal sales time in the neighborhood? It
is a part of the appraisal. Having the information needed
to allow you to make more accurate plans is another benefit of
having an appraisal.
The
flip side of the same coin is that when a house had an appraisal
but the Seller choose to ignore the appraisal value and price
the home to "dicker". In those cases the closest anyone
to date has ever come to full price is $4,000
under appraised value.
Here
are some of the problems of not having an appraisal or pricing
above appraisal. We have already discussed the uncertainty of
value issues in other sections and the much longer marketing times
so we won't go into that again. Try to look at the home purchase
from the Buyer's viewpoint. Since you are probably a buyer also
right now it shouldn't be too hard for you to change hats for
a moment.
1) IF
the Seller of the home has no proof of value Buyers tend to get
very scared and worried about pricing & value, a situation
which breeds low offers- Buyers think
you are supposed to dicker if there is no proof of value.
2)
IF there is no appraisal the
"I wonder how much it is worth"
question gets in the way of a Buyer really looking at your
house. They walk thru wondering what the house is worth, whether
you will be realistic and trying to decide how much to offer instead
of mentally placing themselves into the house and making buying
noises - the uncertainty can drive the Buyer right
out the front door & into the arms of an Agent.
3)
IF there was an appraisal, but
the Seller did not price at appraisal what do you think the Buyer
will think if you try to whip the appraisal out in the middle
of negotiations and use it as the basis for a price? The Buyers
won't give it any more credence than you did. If you didn't think
it was valid enough to use to price your house they won't think
it valid enough to consider as a basis for an offer.
OFFER
is the key word here. Without an appraisal you get OFFERS not
contracts. OFFERS means LOW OFFERS and why shouldn't you,
you have OFFERED nothing to the Buyer to substantiate your pricing.
Let's
say that you have done your homework and walked thru homes for
sale in your area, looked at Tax Assessments, had 4 Agent Market
Analysis and generally done everything to satisfy yourself you
have the right price. You are comfortable with the price, but
the Buyers haven't been thru the same process and are as lost
about value as you were before you began your research.
What can you offer the Buyers to make them feel comfortable with
your pricing if you don't have an appraisal?
What
you think isn't as important as what the Buyer thinks!
Recently
we had a FSBO who upgraded from an Internet only advertising package
to a full service iPLUS
package that included an appraisal. He called us a week later
just to brag. He was absolutely bubbling, he said it worked exactly
as we said here. For the very first time since he put his house
on the market, people were now placing furniture, decorating and
deciding who would get each bedroom.
He
said he showed them the appraisal as they entered and not one
person had a price issue or asked him how "firm" his
price was. Prior to getting an appraisal that was the #1 question
asked-even before people looked at the house.
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Easy
Contract completion is one of the biggest advantages
a FSBO has over the Agent! |
Being
able to talk directly to the Buyer allows you to find
out their concerns and needs and quickly determine if
there is a deal to be struck. You speed things up even
further when you take price out of the equation because
you have eliminated most of the fear. By having an appraisal
you are effectively eliminating the offer/counter offer
step because you can prove your house is properly priced.
We have found that most FSBO contracts are completed in
15-30 minutes vs. the days it takes when you add middlemen
to the transaction.
With
middlemen in the transaction neither the Buyer or the
Seller has a clue where to begin or what the other party's
needs & concerns are.
The
Agent is comfortable with the process because they have
done it before and they have nothing to lose. But then
the Agent won't be living on the streets if the deal doesn't
work!
You,
on the other hand, are very uncomfortable with a middleman
because you can't ask even the most basic questions of
the Buyer in less than a day. The Buyer is AFRAID of losing
the property and the Seller is AFRAID of losing the Buyer.
Everyone is AFRAID of losing money. Price is a very big
issue because no one knows if it is correct. It is very
SCARY to everyone but the Agent.
It
is good to know that dickering is not automatically a
part of a real estate transaction any more than it is
automatically a part of any other purchase. It can be
built into the system as Agents and Car salesmen do, but
since Native born Americans HATE to dicker you are better
off not adding the complexity & FEAR.
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Simplicity
is the FSBOs greatest advantage so KISS it!
(Keep it Short & Sweet)
One
of the biggest disadvantages to the offer/counter offer system is
that you must overprice your home to allow room to dicker which
scares off the quick sale. Because Buyers are unsure of your house's
real value, overpricing can also scare them off and into the arms
of an Agent which I am sure is not the desired effect!
Appraisals
remove much of the Buyer's fear factor and simplifies the purchase
of your home. Work
within the system! The fact that many houses start off overpriced
is very good for you! If you properly price your house it will stand
out from the overpriced crowd and appear to be an even greater value
than it is.
Think
about how you and most people shop. You comparison shop. When you
find the product you want, if it is priced right, you buy it. It
is the same with houses.
Are
you comfortable dickering? Then why would you think the potential
Buyer for your home would be?
When
was the last time you dickered over prices at the grocery, shoe,
or drug store? As a matter of fact when is the last time you dickered
over a price for anything?!? In an effort to upgrade their image,
even many car dealers are getting smart and posting a "no-dicker"
price on the windows.
Welcome
to Real Estate in the 21st Century.
Buyers tell us they feel more comfortable with this method of doing
business. They also say they love our system - never realizing we
didn't invent the system, we only know the rules. All this goes
to prove up the old adage that if you know the rules to the game,
you are more likely to win the game.
An
appraisal helps you sell your home faster because it affects how
the Buyer looks at your house. We're back to those IFs
again. IF you have an appraisal &
IF
you are priced at appraisal & IF
the Buyer is aware it is priced at appraisal before he looks at
your house (we laminate the appraisal so you can put it by the
door) THEN they relax and look at
the house, place furniture and mentally move themselves in rather
than letting the worry of whether you'll be reasonable and wondering
how to proceed get in the way of really seeing your house.
We
are not the only ones to have found out that an appraisal helps
you sell your house quicker and for more money. In several studies,
the National Association of Realtors has found that the Seller nets
the most money and sells their house the quickest when they price
the house fairly and stick to their guns. Studies done by the Real
Estate Research Center at Texas A&M also show the same thing.
When
a property is new on the market, the first 2 weeks is usually a
period of high activity.
The
reason for this is the Built-In Buyers that every neighborhood has.
Right now there are people wanting to buy a home in your neighborhood.
When a new home comes on the market the Buyers immediately call
and look at it. Since they are familiar with the neighborhood and
prices, IF
your house is the type they are looking for and IF
it
is priced properly they will jump on it. The properly priced Seller
gets quick sale but IF
you overprice to dicker, you lose this quick sale. And people who's
houses sit on the market for a while typically end up taking less
than they ever would have considered in the beginning because they
get scared they will never sell it.
We
see an inordinate amount of quick sales on our homes that have been
appraised and almost no quick sales on those without an appraisal
or those priced above appraisal.
I
know you are anxious to get your house on the market, but sometimes
it is quicker to wait. Don't get anxious and make up a price just
so you can get the sign in the yard, wait until after your
house has been appraised and it is 100% ready to be shown. You
really can't afford to lose the Built-In buyers.
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One
last word, a mortgage appraisal can only be ordered by a mortgage
company. Other types of appraisals are done to less exacting standards
and are not as accurate. An added plus is that if you have a mortgage
appraisal no other appraisal will be needed to secure financing.
If
you only have a Marketing appraisal
(which is the only one you can order) you will still need to get
a mortgage appraisal to get financing. You'll end up with twice
the cost and although a
Marketing appraisal
is better than an Agent's Market Analysis there is still a large
margin for error. After you've sold the house would be a heck of
a time to find out the original marketing appraisal was too low
or too high by $5,000 or more.
You
are probably looking for a home right now.
Wouldn't
it be easier if you knew the value of the homes you are looking
at? Wouldn't you be more comfortable buying? In this market would
you pay more than a house is worth? Your Buyers are in the same
boat.
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