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Real Estate Services by Jon Griffith

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O Hear the Angel Voices

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(Note, the attached audio player may not appear in your mobile browser)

It was a blessing to know my Aunt Susan. I called her Su Su. She was one of the funniest people I have ever known. Cancer is a pest. But, even when faced with adversity, she was able to laugh about nearly anything.

It was because of her that I was introduced to the most beautiful rendition of O, Holy Night I have ever heard and I play it, and share it every year at this time.

The quality of the recording matches its artistic integrity, I’m sure you’ll agree. It truly is one of those “wait for it” songs, so I encourage you to sit back with your loved ones and be entertained.

Merry Christmas

Make sure you click here to open up the page that has the audio file on it.

It’s Mostly About the Asking Price

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Supply and demand is a powerful economic force that has many dynamic variables that affect consumers and suppliers.

When it comes to selling a home, ultimately, it comes down to the price. There’s a supply of homes on the market, each supplied by a single owner (for the most part) and represented by a myriad of brokerages competing to be the best at what they do.

It’s different than a company that produces the same product over and over again. Create a widget, and the number of widgets compared to the number of widgets demanded plays a huge role in determining market value of that widget. Please go and read stockpair review at gobinaryoptions.net.

Real estate is different, however. In a widget store, the location of the widget doesn’t affect the retail price of the widget. In real estate, one builder could build the same house in two different locations and the demand will be for the location before the house itself.

This is not always true, but is for the most part.

When you ask more than the market will bear, in consideration of the competing properties and their show quality, you’ll have a hard time selling.  When you price a property just right, you tend to sell it much faster than the competition.  Often it doesn’t matter what you’re buying so much as it matters where you’re buying it. Any home can be remodeled to maximize its value in its location.  Tear it down, re-build.

 

 

Price is Negotiated on the Front End

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There are many points along the residential real estate transaction that are open for negotiation.  One misconception that many buyers may have is that they can go in with a higher price than their competition to beat them, then use the inspection period to bring the sales price down by leveraging the repairs against the seller.

Here’s the thing.  While the sales price can be modified at any point by agreement (i.e. on an addendum), your offer/counter-offer time-line expires when the seller signs the offer.  All you have now are contingencies to let you back out of the purchase.  So, you, as the buyer, have very little say over the price after you’ve inspected the home.  What you do have is the right (depending upon the contract terms) to cancel the contract and walk away with your earnest deposit.

When a home needs repairs, you have one opportunity prior to the end of the inspection period to make the seller aware of what you disapprove of, both warranted, and non-warranted items (remember, some items are to be fixed per the Seller Warranty regardless.)  This notification is done using a document called the [download id=”56411″].

Often a buyer might use language such as, “Seller to credit buyer $5000.00 in lieu of repairs.”

This is a red flag for lenders.  Lenders don’t want to see anything about repairs, because they don’t want to lend on a property that may have liabilities.  Credits are typically handled on the front end, prior to reaching an agreement on the sale price.  But, if there is language added that says something to the effect of “Seller to credit Buyer $5000.00,” the BINSR is NOT the place to do it.  This must be done on an addendum, and even that can pose problems, because the credits provided by the seller can only cover closing costs.  So, if the seller is willing to provide a $5,000 credit, they might as well lower the price by $5,000.

Let’s use a buyer under contract at $200,000 with a seller who agreed to pay 3% towards closing costs as an example.  The seller is allowing $6,000 to be allocated to the buyer’s closing costs.  During the inspection period, the seller elects to credit the buyer $5000.00 instead of repairing the disapproved items that the Buyer points out.  Now we have $11,000 in credits, but closing costs won’t be that high, so we have nowhere to put that money, except back into the seller’s pocket.

While the buyer may be attempting to use the BINSR to leverage a price reduction, the BINSR is designed to be used to notify the seller of disapproved items.  Nothing more.

Until a buyer receives a response from the Seller regarding their intentions after being notified of disapproved items, they have only two options.  1.  Either continue with closing without any repairs being completed, or 2. bail out and receive the earnest funds back from bondsman denver co and start searching again.

The outcome of the inspection contingency is going to vary depending on market conditions.  If it’s a Seller’s market, there may be multiple offers on the property, in which case the buyer has less leverage throughout the entire transaction.

Don’t bank on repairs to lower the price of the home you intend to purchase.  It can be done, but it’s the Seller who holds the ball.  If the seller is desperate to sell, then they may simply lower the price, rather than go back on the market, but if they have multiple offers, then they may be willing to close at a higher price with another buyer without making concessions.

 

 

 

 

 

Real Estate Update as of March 2015

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Inventory is down, and as long as demand driven by re-bound buyers (people who sold their homes during the mortgage crisis who can now qualify) are taking advantage of low interest rates remains the same, that only means prices increase.

March showed us more closings than any other single month in the entire year 2014 and pending sales are also up.

As always, the media is behind the 8-ball on reporting and only now will be telling us that the real estate market is hot. If a home is priced right, it goes rather quickly, and this is coming from first-hand experience in the trenches with buyers who are having a hard time negotiating contracts with sellers. Sellers control the market right now.

If you want it, you need to be able to jump to action quickly, which means you need your financing in place before you even think about buying.

Property Appreciation Over the Past 14 Years

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California_home_Prices

We all know that we experienced what economists would call an “anomaly” between 2004 and 2011, and as a result, thousands of people who were adversely affected by it have developed a particular point of view concerning the value of real estate and it’s viability as an investment.  Remember that time?  Prices shot through the roof, then the whole market “crashed.”

Savvy investors understand that their wealth is built over time, and strange occurrences in the market can be averaged over time to reflect common, long-term patterns.

You may often hear from real estate agents that the average rate of appreciation in the Greater Phoenix Metro Area ranges between 4-7% annually.  That doesn’t apply in every area of the valley, but that’s why they call it an average.

Appreciation is calculated year over year using a rather complicated formula.  Determine a single year’s appreciation is simple, but in order to figure out a pattern of growth over a long period of time dating back many years, this formula must be applied.

A Sampling of One Area of Scottsdale

The area I’ve chosen to highlight lies between Hayden Road and Pima Road, South of McDonald, and North of Chaparral Road.  It contains approximately 2,636 parcels according to the tax records, which are public.

In this area, from the year 2000 through the end of 2014, there were 1,132 closed sales recorded in the Arizona MLS, starting with an average price per square foot in the year 2000 of $87.16 through a final average price per square foot of $172.13 in 2014.

Remember, individual home values should not be calculated based solely on price per square foot.  There are many variables that will improve or hurt the value of an individual home.

Through the mortgage crisis, the highest average $/Foot was in November of 2005 at $223.00, but despite the massive bubble that we all lived through, over the past 14 years, the average rate of real estate appreciation rounds out at 4.98% annually.

Despite the chaos, we have found a relatively normal appreciation rate based on past performance.  This is an important number because it is the number any investor would use to determine what the potential future value of a home might be worth (sans the crystal ball that we all have in our back pocket.)

This average can only be applied to the area that I’ve sampled.  It’s not general.  It’s specific.  It takes time to calculate this information, but it’s important to know what to expect when you compare the value of your home to the current rate of inflation.

Your investment in real estate starts with your equity in the property you own.  Whether you pay cash for a property and own 100% of the home or you make payments whereby a portion of your payment is added to your equity, you can apply an average rate of appreciation to that equity to forecast what it will be worth in the future.

If there’s an area you’d like to have analyzed, I’ll be happy to do that for you.  Contact me today.

Calculating Rate of Appreciation

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Real estate goes up in value, for the most part.  True, there are reasons that values can fall, as we’ve seen in the past, but overall, as long as the property is in an area that is not adversely affected by some sort of uncommon variable, then it will gradually increase in value at varying rates.

When you read about the rate of appreciation for a given area, make sure that the source of the information is properly calculating the numbers you’re looking at.  It’s very easy to paint a picture that doesn’t truly represent what’s happening.

I’ll give you an example.

Let’s say in the year 2015, you purchase a home for $100,000.  In 2016, you sell that home for $200,000.  It would be safe to say that year over year your home appreciated 100%.  It wouldn’t, however, be safe to say that month over month your home appreciated by 8.33% (100% divided by 12.)  Why?  Because appreciation is a compounding calculation.

If your home which you purchased in 2015 for $100,000 was worth $150,000 in 5 years, a 50% increase, it’s possible to make an error in calculation by saying that the average rate of return for the area over that 5 year period was 10% per year, but that’s not correct.

The actual rate of return is a much more complicated formula.  In fact, it looks something like this:

R = 100 × ((EndingValue ÷ StartingValue)(1/period) − 1)

…where Period = years, months, weeks, or whatever you choose.

So, for our calculation on this 5 year period for a huge guide on sharpening knives, we would find that the actual annual rate of appreciation is roughly 8.45%, not 10%.  Let’s proof the calculation, adding the 1 before the rate to include the starting value in each result.

$100,000 X 1.0845 = $108450.00 (Year 1)

$108450.00 X 1.0845 = $117614.03 (Year 2)

$117614.03 X 1.0845 = $127,552.41 (Year 3)

$127,552.41 X 1.0845 = $138,330.59 (Year 4)

$138,330.59 X 1.0845 = $150,019.52 (Year 5).

The variable that changes the rate of return is obviously the amount of time that you calculate, and what period you are calculating (yearly, monthly, weekly, etc.)

So you can see that someone could easily lead you astray in determining your annual appreciation rate.  Sure, estimating 10% per year in our example would only be 1.55% off, but when you’re talking about compounding values with real estate, there’s not much room for error when it comes down to the bottom line, especially when you’re considering a given area as a potential investment for your future.