Foreclosure Crisis could mean opportunity for Private Owners/Sellers

No one knows how long the freeze on foreclosed properties will continue. But the freeze is keeping the most undesirable competitors off the market, making foreclosed properties less of a factor in pricing than they have been for the past 3 years.

Q: Shouldn’t I wait for a better time to put my home on the market?
A: When there are more foreclosed properties listed for sale, the law of supply and demand applies and suppresses prices. Foreclosed properties are active competition for private home sellers during their marketing period - often being used in negotiations to the detriment of those private sellers.

With a freeze on foreclosures (a number of active foreclosed REO properties have recently been withdrawn from the market) and the fact that pending properties that were scheduled to close have been stalled and postponed indefinitely, buyer's options are reduced and competition for private owners/sellers is eliminated.

Q: Will the freeze affect my home’s value?
A: The fact that those closings did not occur could serve to temporarily buoy the value of comparable homes within a neighborhood or market area. These depressed prices do not go on the books for appraisal purpose.
The fact that active foreclosed properties are not being negotiated on, or are even being withdrawn from the market, reduces underpriced competition for the private home owner/seller. At that point, supply and demand takes over. Fewer properties available at suppressed prices will increase demand for properly priced homes not in foreclosure.

Q: What does this mean to the average homeowner thinking of putting their home on the market?
A: Two things. First, during the freeze, fewer foreclosed homes will go on the market, reducing that inventory. Second (and most importantly), buyers will be wary of making offers on bank-owned homes. The time is right and most opportune for a private homeowner/seller to market their home at a reasonable price.

Q: Are you calling this a window of opportunity, rather than a time to sit out?
A: Yes. The law of supply and demand is still relevant and at work in our economy regardless of all the other challenges we may face. Homeowners can and should seize this opportunity to get serious about marketing their home and seize this window of opportunity that has opened while it is available!

The Value of a Pre Approval Letter

Buyers get pre-approved before they write an offer.  Sellers ask to see a pre-approval letter with an offer.  But why?? 

The intended value of a pre-approval is that it shows credit worthiness.  It is not a guarantee the buyer can get a loan.  Assuming the lender has done their job, the letter is as close to a guarantee as any buyer or seller can get.  However, assuming is a big mistake.  Many lenders check credit scores, ask the buyer how much they make, how long they have been employed and how much debt they have.  Then they write a pre-approval letter without verifying that the information is accurate. A good lender verifies the information by getting copies of W-2s, tax returns, 2 months supply of bank statements and check the credit score before they offer their expert opinion that the buyer will be able to get a mortgage. 

Is this important? As a seller, you don't want to take your house off the market while the buyer gets all their lending in order only to find out they can't afford your house.  You may have lost 30 days or more on the market.  And as a buyer, do you want to get your hopes up that you are going to buy a house only to find out you really can't afford it?  So yes, it is extremely important!

Your agent, whether you are on the buying or selling side, should help you determine if a pre-approval letter is worth the paper it is written on.  Believe it or not, a lender can make or break a deal.  So if you are a buyer, ask your agent for referrals of good lenders.  And sellers, make sure you question the validity of a pre-approval letter before you accept an offer.  

Do OPEN HOUSES sell homes?

Statics show that homes not held open will not sell at an open house.  That's right, don't hold it open and it won't sell at an open house.  But the real question is IF it is held open, will the open house bring the buyer?  And that is not quite so easy to answer.

I just held a house in Noblesville, IN open for two hours on Sunday.  It looked great!  The home owners cleaned, baked cookies, put fresh flowers in vases and made the home look like a model.  We put an ad in the Indianapolis Star (color ad!), I did my homework on the competition, put on my best Sunday dress and was ready to answer any and every question a potential buyer may ask.   And guess what.... no one came! 

Based on that experience, I would say, no, the open house did not sell the home.  But selling a home isn't about doing one thing.  It takes a multiple pronged marketing approach and lots of hard work to get a house sold.  Internet marketing, multiple color photos, print advertising, broker tours, signs in the yard, word of mouth, and yes, open houses, are all part of a complete marketing approach.  It only takes ONE buyer and all buyers do not look for homes the same way.
It is reported that only 1-2% of homebuyers found their current home at an open house.  That means an Open House worked for 100% of the sellers that sold their homes to those buyers.  Not to mention the 'soft' buyer leads that advertising may genterate, meaning buyers that see the ad in the paper and go on line to get more information, or neighbors that tell a friend about the house down the street that they saw last Sunday at an open house. 
So do Open Houses sell homes?  The answer is yes.  But the reality is that Open Houses are not the most effective option for a seller.  However, if your agent is willing to hold your home open, then why not do it?  If you say no, you may have a missed opportunity.  If you say yes, you may have a buyer!

Assessment, appraisal... what is the difference?

What is the difference between and an assessment and an appraisal? The assessed value on the house is $200,000 and the seller is asking $225,000. Is it only worth $200,000? Can you get a loan for $225,000 if it is only assessed at $200,000? And why do you need to get an appraisal if the house has already been assessed? Good questions!

While both an appraisal and an assessment place value on a home, they are used for different purposes. I don't know all the legal specifications and the technical terms for describing each one, but I do understand the practical implications of each.

An assessed value of a home impacts the tax amount that homeowner will pay. Each individual home is not assessed based on its' unique value. Rather, neighborhoods and like houses are grouped together and run through a formula to determine a price range. Sales prices of homes are factored into the formula, however, the sales price of the home will not necessarily impact that individual home's assessed value. Because the assessed value is determined by a formula, a change in one home price may not be significant enough to impact individual homes.

Still confused about assessed value? I spent a good amount of time in the county assessors office trying to understand my own home's assessed value. It was a confusing meeting but I learned that the lower the assessed value the lower my taxes! So I was just fine if they didn't give me credit for granite counter tops or if they didn't add value for my landscaping.

The appraisal, on the other hand, places value on everything! An appraiser should come into the home and put a dollar figure on the structure of the home, the lot location, the condition of the property, upgrades in home, and all amenities. They are attempting to determine true market value - or what a buyer will pay for a home in today's market. The appraisal is used most often for financing (or refinancing) a home and the investor funding a mortgage wants to know what his/her investment is worth. So the higher the appraised value, the more you can borrow.

While the assessed value impacts tax payments, the appraisal has direct impact on how much buyers can borrow against the house. The numbers can be drastically different. An assessment is only as good as the county's system. And although an appraisal is more property specific and should be more accurate, it is also only as good as the appraiser. Regardless, they are used for different purposes and shouldn't be confused.

5 Most Affordable Housing Markets

Indianapolis is in the top 5!

REALTOR® Magazine-Daily News-5 Most Affordable Housing Markets

Help me find a good deal on real estate.

You want a good deal. You know it is a buyer's market and you want in on the action. Who needs high priced, move in ready, immaculate home when down the street is a discounted, bank owned home? Or a short sale home listed below market price? And you know there is a foreclosed home just two streets over that is empty and has been for months. How can you buy it for a good price?

These are all valid points. But if it were that easy to buy a home at such a cheap price, then everyone would be doing it. However, if you are interested in a fixer-upper, have some cash, and lots of patience, then there may be a good deal out there for you. If you are serious about buying a distressed property, there are a lot of resources available. Below are a few websites that may aide you in your search.

• http://portal.hud.gov/portal/page/portal/HUD/states/indiana The US Department of Housing and Urban Development website has a wealth of information, including a listing of homes for sale. A HUD home is a 1-to-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim. New homes are listed every week. Buyers can bid on property, but HUD requires that a representation by a licensed Real Estate Professional.

• http://www.homepath.com Home Path Homes are foreclosed homes where Fannie Mae was the investor. These properties are listed with a real estate broker and on the BLC for everyone to see. However, if you go the Home Path website, you will find more information about Fannie Mae homes and see a complete listing of Fannie Mae homes for sale.

• http://www.hamiltoncounty.in.gov/services.asp?id=2295 Local Sherriff Sale listings are posted on the County website. Homeowners have defaulted on their mortgages and these distressed homes are sold at public auction to satisfy a judgment. You must have cash (certified funds) at the time of the auction and purchases are not guaranteed to be free and clear of liens. So be prepared to do your homework before bidding on a home.
  

• Your Real Estate Professional Ask your agent to set up a search for you for bank owned, foreclosure, short sale properties. They have the ability to search for listing based on certain criteria and can automatically forward current listings as well as new listing to you on an ongoing basis. Don’t have an agent? Then I would be happy to help! Email me at jjaensson@callcarpenter.com or call me at 317-847-1973.