Real Estate ABC’s

Comparable Sales – The Tool Used To Establish Market Value

April 11, 2012 by admin

: Comps Establish Values For Both Buyers And Sellers

One of the most frequently heard terms in real estate is the word comparable sale or comps for short. Comps is a real estate appraisal term which refers to properties that are similar as possible to the subject property whose value is being established.

Gathering comps is a vital ingredient of the establishment of the listing price of a home for a seller, and for determining a buyer’s offering price for a home that is listed for sale.

A practical definition of a comparable sale:

A comparable sale is sale that would be considered an alternative choice to a buyer considering a subject property

A comp for a property should possess as many as possible of the same characteristics and amenities of the subject property. These traits include, but are not limited to physical compatibility such as square footage, number of bedrooms, location, condition, home style, and age. The conditions of the sale, financing terms, local market conditions also factor into the valuation of a home.

When looking for comps real estate agents and appraisers look for similar properties in the same town or boro, and within the same school district as the subject property. The school district compatibility is important due to the large factor a district and it’s reputation and taxes play in the market value of a home. However the school district does not play as an important factor as the town or boro of the property. Locally for instance, it would not valid to compare a split level home in Swarthmore with a split level home in Wallingford.

When establishing value for a home it is common practice for appraisers to look for 3 to 4 settled listings with the same characteristics of the subject property, and the combination of either 1 Pending and Active listing, or 2 Active listings. Obviously the final sales price of a Pending or Active listing is unknown, but an estimated sales price can be extrapolated based upon the percentage of selling price to the last price data that has been established by similar settled listings.

For a more accurate depiction of a home’s market value it is preferable to use homes that have sold within the last 3 months, and at maximum homes that have sold in the past 6 months. Market volatility over a longer period of time can skew the results of the use of properties that have sold outside those time parameters.

The number of bedrooms will trump a home with a the same square footage that has one less bedroom – the value of a home with an additional bedroom will have a greater market value. Also location plays a big part in the valuation of a home as it pertains to a home’s proximity to a busy road. It is not uncommon to see the value of a similar house on a double yellow line road be $10,000 to $15,000 less than a home located on a neighborhood street.

The task of finding comparable sales can become challenging in slow market conditions that we have experienced over the past several years, or when a property is unique – such as a historical home among an area of new homes. In such conditions the gathering of comps may use the inclusion of properties that normally would not be utilized, and by using price adjustments, increasing or decreasing the value of the subject or comparable property, for traits that are present or not present, derive at a valuation of a property.

Comps play a vital role in establishing the value for a property for people on either side of the buying and selling fence. A agent should put the time into gathering valid comparable data for his/her client. Don’t buy or sell a home without it!

Wallingford Real Estate – Wallingford, PA 19086

Real Estate ABC’s – Strategic Default

January 5, 2012 by admin

Many homeowners across the country faced with plummeting home values, are choosing to pursue the path of strategic default on their mortgage. The debt owed on the property is substantially greater than the home’s market value and the property is “underwater”, and they conclude their home’s value will not recover in the foreseeable future. By definition a strategic default occurs when a borrower has the ability to pay the mortgage on a home, but chooses to “walk away” from the home and let the lender foreclose on the property. There has been a term coined “jingle mail” , describing the sound of house keys in an envelope as they are mailed to the lender.

Nationally, 34 percent of foreclosures are the “strategic” variety, according to a September 2011 survey conducted by the University of Chicago. Approximately 10.9 million, or 22.5 percent of all residential properties with a mortgage had negative equity at the end of the second quarter of 2011. Nevada had the highest negative equity with 60 percent of all of its mortgaged properties underwater, followed by Arizona (49 percent), Florida (45 percent), Michigan (36 percent) and California (30 percent). In addition, 75 percent of homes with negative equity have above market interest rates.

While walking away from your home may seem like a simple solution, the process of recovering from a strategic default takes time. The wait to be considered for a home loan can be anywhere from three to seven years after a foreclosure has been completed. While there are a number of factors that lenders consider when evaluating a request for a home loan, this has to go hand in hand with the applicant proving they have been able to manage their debt since the foreclosure. For most people, their credit score is severely impacted once a foreclosure shows up on their credit report. On average, a foreclosure will stay on a credit report for up to seven years after the initial reporting date.

In general, as the foreclosure rating gets older, it has less and less impact on the person’s credit score. However, the time it takes for a credit score to rebound can be enhanced substantially if a person follows some credit best practices in managing his or her debt and simply pays his or her bills on time. According to the Federal Housing Administration, if a person with a past foreclosure has waited three years, has at least a 620 credit score and meets other lending requirements for debt and income, they can qualify for an FHA home loan. Conventional loans, which often have more desirable interest rates, have a waiting period of seven years, and VA loans, two years. In other cases, lenders may not be willing to consider a loan for some time if the reason for the foreclosure was simply because the homeowner chose not to make a payment or because they had too much other debt.

Wallingford Real Estate – Wallingford, PA 19086

Real Estate ABC’s – Improving Your Credit Score

October 17, 2011 by admin

The Federal Reserve Bank offers some basic tips to follow in order to improve your existing credit score:

Pay Your Bills On Time – The quickest way to negatively impact your score is to miss monthly payments on your credit cards or other debts. In fact one late payment can affect your score for years. Bottom line – stay current with your monthly obligations.

Pay Down Large Balances – As you pay down an outstanding balance on a credit card or mortgage, your credit score is likely to increase. In contrast moving balances to new credit lines can decrease your score.

Don’t Max Out Your Credit Cards – Scoring algorithms compare the amount of debt you have relative to your established credit limits. When the amount you owe is close to your limit, your credit score is likely to suffer. Try to carry a low balance, no more than 15% of your credit limit on your cards.

Keep Your Credit In Pristine Condition – A short credit history will have a negative effect on your score, since you have not established a track record of your creditworthiness. However a short history can be positively impacted with timely payments and low balances.

Understand The Impact Of Your Past Actions – If you have a short sale or foreclosure in your financial past you will have a black mark on your credit history for up to seven years. A bankruptcy can impact your report for up to ten years. Your credit score will improve over time as past transgressions age, but you need patience combined with three to five years of good long term credit behavior.

Don’t Apply For Too Many Accounts – Do not apply for a variety of credit over a short period of time. A lot of new credit activity will negatively impact your score. Resist the urge to apply for the credit offers that appear in your mailbox.

Maintain A Mix Of Credit Types – A good credit report will contain a mix of installment loans and credit cards.

Correct Mistakes In Your Credit Report – Under federal law you are entitled to get one free credit report from each of the three credit reporting agencies once per year. To order, go to www.annualcreditreport.com – which is the only authorized source for a free credit report. Regular monitoring of your history brings attention to mistakes in your report, and can alert you to a pattern of identity theft.

Wallingford PA Real Estate – Wallingford, PA 19086

Real Estate ABC’s – Your FICO Credit Score

October 12, 2011 by admin

The importance of wise and prudent use and management of credit is critical.Your creditworthiness determines the terms and interest rate of any loans you apply for, and ultimately whether or not a lender will lend to you at all.

You have probably heard of the acronym FICO. FICO stands for Fair Isaac Corporation, the company who provides the majority of credit scoring services in the country today.

FICO credit scores range from 300 to a high of 850. The following chart is a breakdown of credit scores for the U.S. credit population:

% Of Population Credit Score

2% 300 – 499

5% 500 – 549

8% 550 – 599

12% 600 – 649

15% 650 – 699

18% 700 – 749

27% 750 – 799

13% 800 – 850

When discussing FICO scores terms in mortgage financing a score of 620 has historically been the dividing line between “bad” and “good”. Financing is possible for borrowers with credit scores below 620, but the interest rate will be higher and the terms more strict.

Various facets of your credit data are more important that other when determining your FICO credit score. The breakdown that follows summarizes the major criteria, and their relative weight in the determination of your credit score.

These percentages are based on the importance of the five categories for the general population. For particular groups – for example, people who have not been using credit long – the importance of these categories may be somewhat different.

PAYMENT HISTORY

Account payment information with such agencies as credit card companies, lenders of installment loans, mortgages, and retailers. This part of your credit score measures your ability to pay on time, and the money you have past due. The presence of adverse public records such as bankruptcy, judgements, suits, liens, wage attachments, etc., collection items, and/or delinquency or past due items is also a factor

AMOUNTS OWED

Information concerning the total amount of credit you have outstanding, number of accounts, balances on account, and how much credit you have relative to the maximum amount creditors are willing to extend to you.

LENGTH OF CREDIT HISTORY

This factor measures how long your accounts have been open with creditors and lenders. The longer your credit history, the easier it is to accurately identify payment patterns.

NEW CREDIT

The data used here reflects how much credit you’ve applied for lately. The number of recently opened accounts, and number of credit inquiries are key elements.

TYPES OF CREDIT USED

This is the measure of the diversity of credit you have in your portfolio. For example, do you have a mortgage, car loan, and credit cards? The more types of credit you have, the more accurately your score can be determined.

A FICO score takes into consideration all these categories of information, not just one or two. No one piece of information or factor alone will determine your score. The importance of any one factor depends on the overall information in your credit report.

For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO score. Thus, it’s impossible to say exactly how important any single factor is in determining your score – even the levels of importance shown here are for the general population, and will be different for different credit profiles. What’s important is the mix of information, which varies from person to person, and for any one person over time.

Your FICO score only looks at information in your credit report. However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.

Next week: How to Improve Your Credit Score.

Real Estate ABC’s – Agreement Of Sale Timeline

October 5, 2011 by admin

Congratulations! You have found the home of your dreams, the seller has accepted your offer and you have signed an Agreement Of Sale. The clock is now ticking and that process starts with the execution date of the contract. The execution date is the day upon which all changes to the agreement of sale have been made, and signatures and/or initials of all parties have been obtained. The execution date also revolves around the delivery of the executed, signed, contract to agents involved in the transaction. Delivery to the agent constitutes delivery to the client, and in today’s digital age, delivery most of the time is in the form of an electronic transmission via Email or fax. It is common practice that buyers are the first to sign the contract and first to initial any changes. Once the buyers have affixed the proper signatures/initials the seller then signs/initials, and the contract is delivered to the buyer’s agent. The execution date also is dependent upon the receipt of consideration, the delivery of an acceptable form of deposit money, the form of which is most always a check. Without consideration there is no contract.

Time is of the essence in a contact. This means that all dates and time limits within a contract must be met in order to avoid being in default on The Agreement Of Sale.

Let’s review the major day milestones associated with an Agreement Of Sale. Standard contract defaults for time will be used in this example.

DAY 1

The day after the execution date is referred to as day 1 of the contract. This date forms the basis for which all future dates in the contract are dependent upon. It is the first full day after the execution date. If a contract is signed and delivered at 10:00 PM, day 1 is the next day, not the day the contract is signed and delivered. The contract clock is a seven day clock, and all days are included when calculating time. Holidays and weekends are included in the counting.

MORTGAGE APPLICATION- 7 DAYS

The standard time frame for a buyer who requires mortgage financing to apply for a mortgage is 7 days. The contract stipulates that the buyer must meet with a mortgage lender and make a formal application for a mortgage in this time period.

INSPECTION CONTINGENCY – 10 DAYS

The standard time frame for the buyer to perform inspections is 10 days. In this time period the buyer must perform all inspections, and craft what is known as a Reply To Inspection, which details what actions the buyer wants the seller to take as a result of the inspections – repairs, credits, or reduction in sales price. The amount of time for inspections must take into consideration the most difficult and time consuming inspections being considered, and the time it takes for the inspector to provide a full report of the inspection results. For example a stucco inspection – today it can take weeks for the results of a stucco inspection to be ready. Failure to act upon inspection results within this time period may result in the waiver of the inspection contingency, and acceptance of the property regardless of the inspection’s findings.

SELLER RESPONSE TO INSPECTION – 15 DAYS

The seller has 5 days from the end of the Inspection Contingency period to respond in writing to the buyer regarding the Reply To Inspection. Since the normal Inspection Contingency period is 10 days, 15 days is the time frame for a seller response.

RESALE CERTIFICATE AND ASSOCIATION RULES – 15 DAYS

If the property being purchased is part of a homeowners association, or a condominium the seller must order what is known as a Resale Certificate and the associated Rules and Regulations for the community within 15 days.

MORTGAGE COMMITMENT DATE

The Mortgage Commitment date is not fixed to the execution date of the contract. Calculation of the date should take into consideration the particular practices and procedures of the lender involved.The commitment date is the day on which the mortgage lender must produce what is known as a Commitment Letter granting conditional approval for the loan. If the commitment date is not met the seller has the right to terminate, in writing, the agreement.

Time frames are negotiable in the process of negotiation. The standard time periods are generally sufficient for most transactions. Consider any special circumstances and conditions that apply to you as you negotiate the terms of your agreement.

Your agent should inform you of all the relevant dates and time frames that are critical in the contract. It is good practice to review the dates with your agent and put them in writing so as not to miss any milestones. Remember you have entered into a legal contract, and in doing so a contract requires specific performance of the tasks outlined in a timely manner, or else bad things can happen.

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S. Clark Kendus