December, 2009

If you’ve been listening to the show regularly, we’ve been saying that a big jump towards the end of the year, spurred on by first time buyers, could well be on the cards — an NAR practitioner survey has shown this to be quite the substantial fact, showing first-time buyers purchased 51% of homes in November, compared with an upwardly revised 50% of transactions in October.

Of course, low interest rates certainly have something to do with it as well. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.88% in November from 4.95% in October; the rate was 6.09% in November 2008. Last month’s mortgage interest rate was the second lowest on record after bottoming at 4.81% this past April.

The biggest jump in November came in The West. Existing home sales there surged 10.4% in November. And sales on the Pacific side were up over 28% over the same month a year ago. When it comes to price, well, it’s still a little down on November of last year, by about 4%, but that’s a considerable catch up from the tumbling prices we’d seen earlier in the year.

Moving on now to the South, existing home sales there rose nearly 5% in November, which is a big jump when you compare it to a year ago. From November to November sales in the South jumped nearly 50%! Prices were down year-to-year but by just over 1%.

In the Northeast, sales in November were up 6.6% over October. Perhaps not the double-digit rise we saw in October but it’s still at a level that is nearly 52.7% higher than a year ago. Prices continue to be lower in this region though, currently down around 13% from a year ago.

And ending up in the Midwest, which saw an 8.4% increase in existing home sales, in November over October. And year-to-year, existing home sales were up 53.5%. That’s the highest year-to-year climb in the country, and prices seem to be evening out here more than anywhere, down just 0.4%, November to November.

Overall, we’re seeing some massive sales gains, particularly in the South, Northeast and Midwest and while prices are lower in many parts of the country compared to last year, we are definitely seeing them head back upwards towards self sustainability, with the South and Midwest almost evened out to last year’s prices already. The best thing about this big surge in sales is that it also represents a big drop in inventory — the lower inventory gets, the more even the scales balance between buyers and sellers, leading to a more even keel on pricing and that all points to a normal real estate market on the horizon.

An appraisal is a process in which the value of a home is established. If you find a house you want to buy, make an offer, and it is accepted, then you have what is called a ratified contract. A ratified contract means that you and the seller have agreed on a sales price, on a settlement date, and other conditions. Next, the REALTOR® will get a copy of that signed contract to your lender, who will order the appraisal. The lender wants to make sure that the house on which they are lending money is worth the purchase price.

In normal real estate markets, determining the home’s value is a pretty straightforward process: the appraiser looks at the home you want to buy, and compares it to other sales of similar homes in the neighborhood. They would consider what has sold, for how much it has sold, and also what is on the market, but has failed to sell. Typically, the appraiser would visit the house and take a tour. They would carefully examine the house in terms of size, and condition, and upgrades. Based on all those factors, the appraiser will determine the home’s value, and report back to the lender, telling them whether the house is worth the selling price, or not.

That is, this is how appraisals are handled in a normal market.

But as we all know, today’s market is anything but normal. For many months now, home prices in many parts of the country have been falling. And some lenders want to know not only what the house is worth, they sometimes want to know what it is going to be worth, in six months or a year’s time. And if an appraiser tries to determine property value into the future, sometimes the value projected will kill the deal because the appraisal comes in much lower than the sales price.

If you are buying, you want to get the place for the best price possible. If the appraisal comes in too low, you will not get the mortgage, and perhaps not get the property at all. Here is what to expect: if the appraised price comes in lower than the sales price, the first step belongs to the seller. They might be asked to lower the sales price, to match the appraisal. If they do it, you might just get the house for less money. If they do not lower the price, then you might be asked to come up with the difference. If you have a lot of cash, and you are willing, that is your decision. This is a good time to consult with a REALTOR®, to get their advice.

What can you do if your appraisal comes in low and you want to walk away? In many cases, an appraisal clause in the contract, or your financing clause, might give you the right to cancel the contract. Again…talk to a REALTOR® before placing a contract on a house you want to purchase.

You never want to pay too much for a property and the appraisal can help protect you from being overcharged at the settlement table. But if you truly believe the appraisal is wrong, then talk to your lender. Tell them your concerns. They might be willing to do a second appraisal and keep the deal on track.

If you are faced with multiple contracts on a property you would like to buy, how do you win? For that… We turn to Elisabeth Blakeslee, a REALTOR® with Coldwell Banker Residential Brokerage, in Washington DC.

She suggests that to win, your offer needs to be clearly superior to every other offer.

How do you do that?

• Put down the biggest, earnest money deposit that you possibly can. If you don’t win, don’t worry. Your check won’t be cashed.
• Write a clean contract, with as few conditions as possible (hint: try to do a home inspection before writing the contract so that you don’t have that roadblock to a seller’s peace of mind)
• Find out what the seller needs, and try to give it to them. For instance, if they need to close before the first of the month, make it happen!

And, finally… talk to a REALTOR® who is skilled in competitive negotiations — this could be your edge to winning the deal!