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Seller Offering a Flooring Allowance

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This and many other offerings are frequently added to listings in the MLS. From a marketing standpoint, it’s a perk designed to keep you interested at the same price even if something needs to be brought up to date.

Let’s say I wanted to sell a home for $500,000 knowing that the flooring is outdated and needs to be replaced. So, I get a bid on what it would cost to bring that floor up to date and I offer the seller less than that amount in hopes of showing them that I’m willing to “credit” them the cost of the flooring, we’ll call it $30,000, at closing, effectively making the price of the home $470,000.

If the buyer is putting 20% down ($100,000) then the amount of the loan will be $400,000 plus closing costs. The assumption with a “credit at closing” is that there will be cash from the lender that will go to the buyer to cover the cost of any improvements (such as new flooring.) Again, this is not allowed because essentially what you’re suggesting is that the lender convert part of the proceeds they’re providing at closing to an unsecured loan for a cosmetic repair, i.e. cash back.

Even if this was allowed, it doesn’t make sense to juggle numbers around like this. If I sell the house at 500,000, as the seller, I’m going to be paying a commission based upon this value. If the flooring is going to cost $30,000 to replace, then this should be reflected in the final contract price. If the seller is willing to give $30,000 at closing for something, just lower the price, and consider what the seller can contribute.

The seller IS allowed to contribute towards prepaids and closing costs to close the deal, but there are limits. If the loan is conventional, the maximum amount allowed is 3% of the sales price if the buyer is putting down less than 10%. If they are putting more than 10% down, the seller can go as high as 6% of the sales price. For investment properties, it’s capped at 2%. FHA loans also allow 6% and VA loans are stuck at 4%.

If the seller’s contribution exceeds the amount allowed, the buyer can roll the balance to pay down points on the loan to stretch it as far as possible, but anything left over simply becomes seller proceeds (i.e. money that belongs to the seller at closing.)

If the buyer and seller come to some sort of money agreement outside of the real-estate transaction, then it’s 100% on them to hash out the agreement, but it cannot be a part of the actual closing, and all parties involved in the closing can have no hand it that agreement. This is similar to when a buyer purchases additional property from the seller, such as furniture or appliances that are not included in the sale of the home, etc.

Current national average for a 30 year fixed mortgage sits at 7.16%.

The Price of your Home

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There are many factors that determine what someone is willing to pay for your house, today.  And let’s be real.  The value of your home isn’t what Zillow says it is, it isn’t what your neighbor’s house sold for recently, and it isn’t necessarily what you feel it’s worth.

The value of your home is what a buyer is willing to pay for it, today.

It is a completely subjective matter controlled by the forces of Supply and Demand, a simple concept that many people don’t quite understand.

The variables that operate inside of Supply and Demand are seemingly endless, but for the purposes of pricing a home, one of the most important factors is its location.  Where a home is will often be the most influential factor in evaluating a home’s potential sales price.  I say potential because some homes, while they may be located in prime locations, may not be ready to exploit the full value of that location.  They may be in disrepair, etc.

Remember, your home is only worth what someone will pay today.  This makes marketing the property a challenge, because unless someone comes to the table today (which happens from time to time) the price you ask needs to be in line with what it will sell for in the future, and none of us have information that allows us to predict the future.

What we do have is a long history of trends and behaviors.  Those past behavior patterns allow us to accurately predict gradual future changes, whether positive or negative.  There’s no prediction tool for anomalies (such as the market meltdown of 2008) and sometimes they surprise us, but we are able to develop a fairly accurate assessment of a gradual change in the market over time, thereby being able to anticipate the market and price a home correctly the first time.

The goal when selling a house is to get it sold.  If that’s not the goal, then it shouldn’t be on the market.  In order to get the house sold, the price needs to anticipate where the market is headed and be priced according to that trend.  If we do this successfully, then we’ll be able to price the home ahead of the market.

So how do we determine the direction of the market such that we ensure we are pricing the home ahead of the market?

Math.

In almost every metropolitan market, anticipating the gradual direction of the market can be calculated with simple math, and that simple math will show us more about the Market Condition and Market Supply.

Market Condition

There are three market conditions that you may hear from time to time.  The first is a “Buyer’s Market.”  That’s where the number of homes on the market favors the buyer and puts them in a stronger position, i.e.: plenty of homes from which to choose.  The second is a “Seller’s Market,” which is the opposite, giving the seller more control over the outcome because there are less options for the buyer.  The third is a “Balanced Market” where everything is balanced with very little fluctuation in price.

To determine what the condition of the market is, one must first narrow their market to the area that they’re working with, such as your sub-division.  With just the right information, we can figure out what the condition of the market is in your area.

Market Supply

Market supply, in it’s simplest form, represents the time it would take for all of the homes on the market to sell, assuming no other homes were listed for sale.  For instance, if you had 10 homes on the market, and 2 homes per month were selling, then there’s a 5 month supply. (10 / 2 = 5)  Simple math.

In Phoenix, over time, we can show that a balanced market (that being a market where price does not fluctuate) occurs when there are approximately 6 months worth of homes on the market.  Anything below means we’re in a Seller’s Market, and anything above means we’re in a Buyer’s market.  The degree to which the prices will be influenced is directly related to how far away the Market Supply is from that 6 month mark.

In your neighborhood, if we find that there’s a 5 months supply, then it would be safe to assume that there is slight upward momentum in pricing.  If there is a 1 month supply, then prices may be increasing at a much faster pace.

The same goes for an over-supply of homes.  If there’s a 10 month supply of homes in your market area, it would be safe to assume that there will be down-ward pressure on pricing.

Once we determine the market supply in your area, we can accurately predict the direction of pricing, and price your home accordingly, which ultimately is a target price that will get your home sold.

That is, after all, the goal.

 

 

Seller’s Obligations: Home Owner’s Association has Less than 50 Units

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The Arizona Association of Realtors Residential Purchase Contract is a legal document. When entering into any legally binding agreement, it is the party’s responsibility to read and understand each section of the contract, and know your obligations and how they affect the purchase or sale of a home.

If you are selling your home, and your home is within a homeowners association, you have additional contractual obligations to the buyer.  If your HOA contains less than 50 units, you have more work to do than if it had 50 or more.  You see, if there are 50 or more units, the Title company handling your escrow will ensure the HOA is notified of the contract and the HOA is required by law to provide the information below, which is a very important section of the HOA Addendum.

Line 36 of the H.O.A. Condomimium / Planned Community Addendum [download id=”56703″] clearly states that if your HOA has less than 50 units, no later than ten (10) days after Contract acceptance (a date that can be affected by various contingencies in the contract), the Seller shall provide in writing to the buyer the information described below as required by Arizona law.

So for example, if contract acceptance occurs on the 4th of a given month, the 5th would be day 1 and the end of the 10 day period would be 11:59PM on the 14th.  This creates a contingency for the buyer which gives them an “out” if they don’t like what they see.  They buyer has 5 days after you deliver the required information to them to make that decision.

As time is of the essence, it’s better to get this information to the buyer as quickly as possible once there is a signed contract. Every contingency that is met and lifted during escrow is one step closer to your success as a seller.

Information required to be provided to a Buyer by Arizona Law

  1. A copy of the bylaws and the rules of the association.
  2. A copy of the declaration of Covenants, Conditions and Restrictions (“CC&Rs”).
  3. A dated statement containing:
    1. (a)  The telephone number and address of a principal contact for the association, which may be an association manager, an association management company, an officer of the association or any other person designated by the board of directors.
    2. (b)  The amount of the common expense assessment and the unpaid common expense assessment, special assessment or other assessment, fee or charge currently due and payable from the Seller.
    3. (c)  Astatementastowhetheraportionoftheunitiscoveredbyinsurancemaintainedbytheassociation.
    4. (d)  The total amount of money held by the association as reserves.
    5. (e)  If the statement is being furnished by the association, a statement as to whether the records of the association reflect any alterations or improvements to the unit that violate the declaration. The association is not obligated to provide information regarding alterations or improvements that occurred more than six years before the proposed sale. Seller remains obligated to disclose alterations or improvements to the Premises that violate the declaration. The association may take action against the Buyer for violations apparent at the time of purchase that are not reflected in the association’s records.
    6. (f)  If the statement is being furnished by the Seller, a statement as to whether the Seller has any knowledge of any alterations or improvements to the unit that violate the declaration.
    7. (g)  A statement of case names and case numbers for pending litigation with respect to the Premises or the association, including the amount of any money claimed.
  4. A copy of the current operating budget of the association.
  5. A copy of the most recent annual financial report of the association. If the report is more than ten pages, the association may provide a summary of the report in lieu of the entire report.
  6. A copy of the most recent reserve study of the association, if any.
  7. Any other information required by law.
  8. A statement for Buyer acknowledgment and signature as required by Arizona law.

If this information is NOT provided by the required deadline, the seller will be in a sticky situation and will probably lose the deal, if not end up being sued by the buyer for specific performance.  Please consult with your real estate attorney for any legal matters that may arise.

New HOA Rules Change The Way a House is Sold

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sold-sign

On February 2nd, there will be new procedures when it comes to selling a home that is located within a Home Owner’s Association (HOA.)

Download the new HOA Form Here

Until then, we will continue to use the standard HOA Addendum that is part of the purchase contract when the property being transferred is part of an HOA.

In the past, this document was typically completed and submitted by the buyer as a part of the contract, defining such things as who would pay specific fees related to the transfer of property.  The problem with this is that without investigating the HOA, it’s difficult for a prospective buyer to determine how much those fees will be.

Consequently, buyers frequently submit their offer without knowledge of facts that would enable them to make an informed decision.

– Holly Esligner, ABR, CRB, CRS; Chair – 2014 HOA Workgroup; 2010 President of Arizona Association of REALTORS®.

Any buyer should know, before they submit the offer, what the true costs to join an association would be, whether there is one association, two, or in rare occasions, three governing associations on the subdivision (Grayhawk would be an example of this.)

The new form will change this.  The revised HOA Addendum will now be generated by the Seller, just like the Seller Property Disclosure Statement.  When someone offering a home for sale lists their home, it will be their responsibility to provide information about the governing agencies of the HOA as well as the costs associated with selling the home and include it with the listing on the MLS.  The buyer will still be able to propose which parties will be responsible for the fees, but now they’ll know what the true costs are before making the offer.

As a result of these changes, buyers will be informed in advance which will help alleviate the problem of unexpected fees prior to closing which often kill the sale of the home and cause headaches for everyone.

If you’d like to know more, a Frequently Asked Questions page has been posted as well as a Best Practices page.

The Five Stages of Real Estate Grief

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There are three factors that determine the sale of a home.

  • Location
  • Condition
  • Price

What good news!  Why?  You have nearly complete control over 66% of what sells a home.  Granted, you cannot change the condition of the surrounding properties or the type of construction of your property.  I mean, you could raze your house and rebuild a completely different style home, provided your HOA didn’t prevent it, but then you’d be throwing good money after bad as you created a home that didn’t fit the surroundings.  The condition of the surrounding homes has mostly to do with location anyway, so you really do have control over most of the consumer response to your home.

There are five stages of grief that, if you are not in touch with reality, you will traverse throughout your experience selling a house.  Why is this?  Well, selling a home isn’t like selling off your possessions at a garage sale.  Garage sales are usually designed to eliminate junk.  Your home is a very personal space, and you’ve grown very attached to it, most likely.

My job is to provide you with the right information to help you make an informed decision about how you should price your home, and what you can do to improve its chances of selling.

In todays market, of the determining factors that you can control, price carries the most weight, and many sellers have fallen victim to “rear view mirror” thinking.  Newsflash!  The gig is up.  We have to price our homes in line with what buyers are willing to pay.  Remember that the value of a home is determined upon close of escrow.  Asking more than it will sell for does not declare the new value on the block.  The actual sale price of a neighboring like property combined with an appraisal is what is going to help you price your home properly.

Stage 1: Denial. Nobody is exempt from feeling this if their expectations are out of line.  Not even real estate agents these days are pricing their properties realistically.  If you enter the transaction with a realistic outlook on what your home can actually get in the marketplace, you’ll be able to avoid the denial that accompanies the let down after your property has chased the market.

Stage 2: Anger. Obviously if you’ve felt the loss of thousands of dollars (albeit on paper only, which makes the situation even crazier because you never had the money in the first place) then you’re going to experience all five phases.  To what degree is determined by how quickly you can bounce back from fantasy land.  You will be angry about waiting too long to sell.  You’ll be angry when you realize that your Realtor was right when he/she recommended a much lower price bracket than you insisted upon.  Get over it.  It’s time to sell your home.  Make the adjustments now and minimize your losses (remember, that didn’t even exist in the first place.)  And, if you are actually experiencing more than just losses on paper, that’s all the more reason why you should price your home right, the first time.

Stage 3:  Bargaining. Through your anger you’ll find yourself justifying why things are the way they are.  You’ll begin to think things like, “If only I had.”  “Maybe if we try this we can still salvage our…”  Nope.  You’re where you are now, just get it sold.  Listen to your Realtor.  He or she does this every day and sees people go through this process all the time.  Trust us, we are here to help you move on with your lives.

Stage 4:  Depression. This is where you’ll want to give up.  Perhaps you might even consider taking your home off the market because you’ll find no point in selling.  Most people can’t afford to hold two or more properties.  Lots of people can’t even afford one property these days, especially after getting into the financial trouble that lenders allowed.  You may even want to let your Realtor off the hook and find someone else to sell the home.  Trust the Realtor you have.  If he’s done his homework and is working hard for you, stick with it.  We dread working our tails off to be a victim of the fourth stage of grief, which usually ends in you finding another Realtor who advises you to drop your price only to sell where your first Realtor had already suggested you price your home.

Stage 5:  Acceptance. If you’re a healthy person, you’ll probably make it here quickly.  In fact, if you’re a healthy person, you will probably avoid this entire process of grief through the idea of losing your yet unrealized equity gains in your home.

I can’t stress enough how important it is to price your home to sell.  If you’re serious about selling your house, think about the cost in your lives of the process of selling.  You may own two homes, you may have added utility bills through the process…you name it.  The cost of pricing your home too high can last far longer than it’s worth.  Your time is important.  If you’re not actually serious about selling your house, then you probably shouldn’t list it at all.

Are you happy with your real estate situation?  If not, please give me a call and I’ll help you move from point A to point B in as few steps as possible so you can go about the business of living and enjoying your life.