Timing The Sale *
Appraisals and Appraisers
* Timing Is Critically Important Decision (consider this a pivotal, # 1 decision)
It is easy to be overwhelmed with the volume and variety of economic and housing market data. We have identified the data the market pivots around, reacts to and reflects current and future demand. So take some time to familiarize yourself with this important data, use it to your advantage and share it with those you care about.
Critical and Pivotal Data Trends to Watch:
• Months Of Inventory
• Days On Market
• Sale Price (median and average)
• LP / SP (list vs sale price)
• Population Trends
• Available Financing
• Home Affordability
Real estate markets are very local with significant price changes occurring within neighborhoods and sometimes just across a street or highway. So national and state market data must be looked at when looking at the larger picture but regional, county, city, community, neighborhood and historical price trends of houses literally nearby you must be taken into account to determine your Max Sale Strategy.
“Home Affordability, Available Financing and Employment are the main
determining factors in the housing market… so timing sale to match the
vertex of these trends will help the seller in Maximizing their sale price.”
Buyer and Buyer Trends – You must know “who your buyer is”… that is… who is the typical buyer that is purchasing homes in the area? What size home and how many bedrooms and baths do they want? What is their expectation of “move in readiness” of property… that is… are they willing to do some work on property or do they want it “turn key” and ready to move into.
Special Note to Investors:
Key Point: You really must know your buyer to know your exit strategy. What does buyer expect regarding level of remodel (marble vs. granite slab vs. granite squares vs. ceramic tile counter tops)? Are buyers ok with minimum landscape upgrades or want full front and back yard completed? Knowing buyer expectations saves and makes thousands of dollars in fewer DOM, remod costs, remodel time, redoing and remarketing.
Economic Trends - Months Of Inventory, Days On Market, Sale Price (median and average), LP / SP (list vs sale price), Employment, Population Trends, Available Financing and Home Affordability are the most important data trends to observe to gain both a macro and micro view of the housing market. Of those the three most important to observe are Months of Inventory, Employment and Affordability.
- “Months of Inventory” shows if market is bloated or lean and by comparing historic values you can gauge the overall “health” and “trajectory” of the market (and “Days on Market” shows the acceleration or deceleration trend of that overall health).
- “Employment”, regarding housing trends, simply means; there is income to qualify for the loans, to purchase the homes, which manifests demand, which reduces inventory, which causes prices to rise, which increases net worth / available cash, which consumers spend, which improves the economy, which increases employment which creates more demand. Which is a self perpetuating cycle that is stopped by # 3…
2012 Annual Housing Historical Data
CAR Data Tables
Timing The Sale
The Timing Of Real Estate Max Sale
This is The Critical Piece Of Information for you to research and decide upon as it will determine many factors of the sale along with what steps can be taken and how soon those actions should be taken. This will ultimately be the sellers decision but use all available resources (sources from this site, from the internet and * worthwhile professional advice.
This information so important it has a special page: www.maxsalerealestate.com/timing
Timing cannot be “exact” and many people have been hurt by following “historic trends” that did not accurately predict the market turning points because they were based on erroneous or incompatible data. So that is an obvious warning to all, but more important than that potential failure, is to not attempt to determine the apex of the market and time the sale of assets at the point most beneficial for their sale and maximization of sale price. Not attempting to do that is short sighted, or lazy, fear based, negligent behavior.
For example… If you determine the market will likely not top out for another year, then you probably have time to complete a light to moderate remodel of the property but you would need to confirm this with local permitting and building professionals in your area. You would need to compare the cost of remodel to the estimated increase in value.
Factors that determine timing of sale…
Below are some of the factors that determine the timing of the sale, that is, when the property should be placed on the market to sell to avoid selling after the top of the market.
• Home Affordability
• Months Of Home Inventory
• Days On Market
• Economic Trends
• Work Required at Property
• Population Trends
• Available Financing
When selling, it is almost ALWAYS better to attempt the sale early, versus, after the market has peaked because prices historically drop much very fast at the beginning of decline.
Top 10 Reasons You Know It May Be Time To Sell Your Property
10. Because the same people who lost property to foreclosure in 2007 to 2010 are buying again.
9. Your financial advisor says, ‘now is the time to invest in home builder stock’.
8. NINJA loans are back!
7. The general public finally figures out the difference between ‘debt’ and ‘deficit’.
6. Detroit has turned around.
5. Because your realtor just advised you to buy more investment properties.
4. You want to actually retire… not be a property manager for the rest of your life.
3. You think the house may pop because it is so full of equity.
2. Your barber (mail man, gardener, cousin, etc) has suddenly become a real estate investor!
1. You start checking your family tree because you think you may be related to Warren Buffett.
“Black Swan” or “Unpredictable Markets”…
Many real estate industry groups and financial advisors say the housing implosion was a “Black Swan” event that nobody saw coming so you cannot predict the housing market or time the sale of real estate assets. Many treat housing like financial advisors talk about the stock market as a “long term hold” and how you should always be holding and buying during the downturn.
The FACTS about this are different though… The FACT is that wise investors and “owner occupied” home owners sold their appreciated assets and 1031 exchanged them into areas that did not go down dramatically in price and “owner occupied” sellers extracted their two year, tax free 250k/500k sales exemption. The “owner occupied” sellers rented a place until the market bottomed out and bought again and now enjoying appreciation and “investors” swapped properties back to California for big gains.
We know people did this because these people were our clients…!!! In 2006 we wrote a report that predicted a minimum of 25% decrease in housing values, shared this with our clients along with strategies for maximizing gains by liability protection, tax strategies, protected investments and timed repurchase plans.
Timing is critical. You must start with evaluating your circumstances and if you need help determining when is the best time to sell please request a Free Evaluation.
In surfing, it is almost impossible to catch a wave that has already crested. In real estate, selling after the top of the market is not as difficult as catching a crested wave, but, almost. Selling after the crest of the market is much more difficult because there are fewer buyers with less buyer emotion so less seller strength to counter offer at higher prices, less bargaining power for repair request and seller credits and every day, property value is going down.
So selling after the top of the market should always be avoided… And CAN BE AVOIDED by proper planning… So get a Free Evaluation right now.
Again… This information so important it has a special page: www.maxsalerealestate.com/timing
Appraisals and Appraisers
Most owner occupied and investment properties have some sort of financing associated with them and with the bank financing come the lender property value determination resources… The Appraiser! Appraisers have a strict set of guidelines to follow but there are also many grey areas in appraisals where appraisers have much latitude in appraisal value and ways they can quickly and dramatically improperly lower the appraisal value.
Which causes more damage? A High appraisal? Or… Low appraisal?
The low appraisal damages more parties (see why below)
Buyer is hurt by not getting home or having to put in more cash or more expensive financing. The buyer’s agent hurt if the deal cancels, the buyer’s lender for additional work or not getting the loan, escrow, title, the listing agent for additional work and possible lost commission.
For the home owner, the financial damage is significant and long lasting.
See just how bad “Home Owner Is Damaged” below.
A “Low Appraisal” or “under value” appraisal is where the property is improperly valued, below market value. Not all appraisals that are below current offer price are “under value” but it happens frequently and has profound ramifications to ALL the involved parties. A Low Appraisal hurts both the buyer, the seller, the listing agent, the buyer’s agent, escrow, title and all of the other parties involved due to closing delays, reduction in sale price, increased work load or cancellation of the sale. If the sale is cancelled the buyer is out the property, the cost of the appraisal, their time and the missed opportunity of owning the property.
“The seller who wants to maximize sale price MUST avoid
a “Low Appraisal” by doing everything they can to prepare
the property, maximize the offer and educate the appraiser
on the true “Market Value” of the property.” - Max
How Home Owner Is Damaged by Low Appraisal
The Home Owner Is Damaged because of lower sales price (thus net profit), additional market time and holding expenses, perceived value decrease due to escrow cancellation and increased market time. AND most important is that appraisal sticks with the property because the seller must disclose it to all future buyers and THAT appraisal is assigned to the property if it is a VA, FHA or other direct government loan. Even if the buyer does not agree with the appraised value they must either bring in additional funds or cancel the purchase. Appraisals can be challenged but experience shows that rarely provides much relief or change to value and takes additional time, resources and energy to fight.
So the MAJOR POINT here is to do all you can ahead of time to avoid an appraisal coming in below value.
If you have been damaged by a low appraisal click here to tell us about it and make a note of property and appraisal information to see if you may have a claim against appraiser.
Be sure you or the broker / agent you hire to sell your home knows how to avoid appraisal issues.
How can the appraiser quickly and dramatically improperly lower the appraisal value?
(So you also know how you can help appraiser avoid doing this to your property!!!)
1. By using financially distressed sales (see more info on this)
2. By using physically distressed sales that would not qualify for traditional financing
3. By not looking far enough around the immediate sales area
4. By not properly adjusting for lot size, orientation, views, upgrades, etc.
5. By not taking the time to do the research on “comparable” homes to see if property had past sale issues (like cracked slab, water intrusion, mold, etc.).
6. Using as comparable sales properties that would not qualify for traditional financing because of missing appliances, no heating, lack of flooring, etc.
7. Trying to compare newer homes or fully remodeled homes to older, non remodeled and functionally obsolescent homes.
The details of these items can get very complicated and many of them are up to interpretation but appraisers are required to follow specific guidelines and can be held accountable (and their insurance company) for errors they make.
Appraisal Value and “Property Category” of Properties:
This section describes how appraisers (and buyers) look at properties. For Appraisal and 'Buyer Appeal' purposes, there are four "Property Categories" :
4. New Construction
Distressed = Properties that are run down, filthy, functionally obsolete, have a major issue (cracked slab, mold, etc.) and sometimes do not qualify for traditional financing.
Normal = Fair to Very Good condition, functional, no major problems, can qualify for most all financing.
Remodeled = Properties that have been partially or fully remodeled. Appraisers like remodeled homes because they demonstrate work has been done to property so that allows them, at least mentally, to bring their appraisal value above that of distressed and normal sales.
New Construction = Appraisers can use new construction sales to compare “Remodeled” homes but have to account for builder incentives, options and price lag between when pricing set and time required to construct property.
There are of course subcategories of each of these and the goal is to position property to avoid the lesser categories and be at the top of the better ones.
The Lender “REO and Short Sale Properties Hypocrisy”: Appraisers are hired by the banks or servicers to perform an appraisal for valuation purposes and are often are required by them to NOT use any financially distressed sales (short sales or REOs). The hypocrisy occurs when an appraiser, either at the direction of a lender or the appraiser on their own, includes financially distressed sales when evaluating a non financially distressed sale because it almost ALWAYS brings the Appraisal Price DOWN!
Focus on the facts that determine your maximum sale price and maximum profit on the property. Research the local market trends, compared your property to those actually selling in the ‘Property Category’ you want to sell in and determine how long before property can be ready to sell.
Find the market trends in your area (months of inventory, listing/sale trends, etc.), compare historic affordability rate maximum in your area to current numbers, adjust both those numbers to any regional foundational changes (large new employer or big government contract lost, etc.) then decide when is best time to sell.
Know that final sale price will depend on the buyer and their lender (appraiser, home inspector, underwriter, etc.) agreeing on the value / condition so plan ahead to assure that occurs and the sale of the property is timed to be at or near the top of the market (max price and buyer activity).