Tuesday, February 4, 2014

Be The Buyer of Every Seller's Dream---Real Pre-Approval With Maximum Purchase Price

Let's say you have found the home you want to own. You think you are in a good position to negotiate a favorable terms with the seller. Your lender provides you with a "Pre-qualification" letter to include with your offer. This is what the lender gives you---boiler plate:

Based on the information you provided and not yet verified, it appears you may meet the requirements to qualify for a mortgage with us....This is not a commitment letter, and a commitment letter may only be issued after verification of your income, assets, and credit report. We will also need an accepted offer and an appraisal of the property supporting the purchase price. After all of this information is submitted and we have a complete file we will submit the package to underwriting for review....

Your offer is submitted to the seller of a property with an asking price of $295,000. You offered $285,000. The seller sees your offer and your non-committal letter with no indication of an amount you may be "pre-qualified" for (based on information not verified). What do you think the seller might be thinking?? If you guessed "WTF???" you are right.

Let's say the loan officer wanted to "help you negotiate" so while you have asked for a pre-approval of a maximum purchase price, the lender gives you a price that he thinks is will help protect your negotiating position. He includes a dollar amount below your actual maximum and makes it for the amount of the asking price of the property you are trying to buy:
We have pre-qualified you for a purchase price of $295,000. Put yourself in the seller's shoes; what thought does this trigger in the seller's mind?? YES! You are right! "Ah, these people are barely qualified, if they are qualified, and any tiny change will sink this ship. Give me a better buyer please!"

The wise alternative is to take the time, before starting to look at properties,  to get an actual preapproval letter from a lender by providing all of the information you will need to provide anyway. Do that and a version of this is what the lender can provide for you:

Congratulations. You have completed the steps of the  mortgage loan application with our bank to be approved for a maximum purchase price of $325,000 as required by our underwriting guidelines. Your credit report, income, and deposits on hand have been verified. Once we have an executed purchase agreement and an appraisal of the property supporting the purchase price, we will submit your application to underwriting for final approval.

Your offer of $285,000 AND this letter are viewed remarkably differently by the seller. $285,000 might be a little less than they wanted, but you are the buyer they need---SAFE. You are approved and you are well within your budget. It's much harder to take the chance to counter your offer because now their is the risk of losing the GREAT buyer.

Yesterday, (and time and again I hear this) a lender told me he didn't want to include a maximum dollar amount to help us negotiate. Goodness gracious, if we end up in competition with a person with the smart letter, we may not get a chance to negotiate. Information is key in negotiating and we have to use the information we have to help our position. Holding back on showing how strong we are would be like the seller not showing us they have brand new appliances in the kitchen, or the roof is new, or the HVAC system is new.

Does this make sense? OK, you are thinking "If the seller knows I can afford more they will want more money." First of all, I doubt it because the need to have a strong buyer trumps the risk of squeezing a buyer for a fraction more money. Secondly, if you know the values and you know what you should pay, it doesn't matter if the seller holds out for a price that you don't want to pay. You're not going to pay what you won't.  Thirdly, I bet you think a CASH offer is attractive, right? Wouldn't that attractive cash offer also suggest to a seller than you have $ and they should then squeeze you for a few dollars more?

Go out today, find your lender, and do the process of Pre-Approval. Then, get the letter that tells the seller everything they need to know about you to say "We found the buyer of our dreams!"


Thursday, January 23, 2014

Appraisers Are Adjusting To Reason

I could surely be wrong, I often am, in 2010 when Congress was rounding up their usual suspects (anyone but themselves) to pin blame to for the housing collapse, appraisers ran scared for cover. Easier for lawmakers to penalize people who were small enough to fail and didn't have the power of a lobby, so the appraisers were targets of least resistance. Appraisers responded accordingly: their appraisals would state conservative opinions. So conservative that the values were understated. The pendulum had swung.

In 2013 the pendulum moved back toward the right. Lenders adjusted to the rules and their focus is on documentation of the buyer's income. The appraisal is still scrutinized, but the pool of recent sales is growing and the evidence is being adjusted by common sense appraisers to support values consumers are willing to offer in a market regaining a competitive balance.

There will always be the appraiser or underwriter out there who has a motive, a fear,  or god-complex, but hopefully Karma has minimized their numbers. If you run into one with illogical conclusions, request a review or move to another lender. With inventory limited, demand may push prices north. Expect 2014 to be a year where qualified buyers and reasonable sellers have a cleaner playing field to move from offer to closing with minimal stress. That is if appraisers and underwriters don't fear for their careers.

Tuesday, December 10, 2013

Zillow's Zestimate is a Good Starting Point

Humility is a fine, fine attribute and Zillow deserves compliments for being humble. I know I'm not perfect in my evaluations of property values and my subjective opinion always factors in. Zillow, to their credit, explains their process of price evaluation via algorithms and they admit the system isn't without flaws. What Is a Zestimate? My trust in Zillow as a responsible real estate partner is high because they acknowledge their weaknesses and give people an opportunity to improve the results.

Starting the process of buying or selling, looking at homes through the eyes of Zillow is a good idea. The more we know the more competent we are. Competency translates to confidence and we know the competent confident consumer is in a strong position to have favorable results.

Zillow is a good place to start sharpening skills to prepare for your real estate adventure.

Wednesday, March 13, 2013

Smoking Hot Seller's Market, The Near Westside of Madison

A lawyer was giving his client some negotiating advice regarding a near west side property the other day. He said, "It's a buyer's market. Come in low with your offer and see what the seller does." What the seller did was they took another offer.... and the lawyer's client is still looking. Time to get out and take a walk around the block. It's a new day out there.  OK, there are buyer's markets but not in the near west side of Madison. Those tried and true neighborhoods located close to everything, with well built older homes are selling like it's 1999...or 2005.   You know the neighborhoods, Westlawn, Nakoma, University Heights, Sunset Village, Westmoreland, Midvale Heights, University Hill Farms to name a few.

Forty eight out of ninety six homes listed on the South Central WI MLS have accepted offers. * That's an incredible number... and not just because the sold homes are exactly one-half of the total. If you own a near west home you can make an offer on another house without selling your house first and know you're moving.  Your house is probably money in the bank. Be careful when you put that sign in the front yard; the couple driving by are probably going to run you over to get inside before the next couple comes down the road and beats them to the door.

Hey, what about the 48 that aren't sold? To live like the other half, the lower 48 need to look close at Price, Condition, and Location. If the condition isn't GREAT, fix it. Smart buyers today are not settling for work you should have done. If the location in the neighborhood isn't ideal....well, you can't move off of an unattractive street, but you can move off of an unattractive price.   There are buyers in the near west neighborhoods for every house. There will be a buyer for the less attractive neighborhood locations--like busy streets, or crummy lots on corners of two streets with double sidewalks to shovel. They maybe can't afford the better locations but they want the neighborhoods and the quality of the house. Check your price if your home isn't sold and you've been on the  market 21 days.



*Data is based on active and pending listings of single family homes in areas w11, w12, w13, w14 of the RASCWMLS at 3:30 PM 3/13/13.


Tuesday, February 26, 2013

Zillow Zestimates, A Good Starting Point

Informed people are happy people...provided the information is accurate. Real estate buyers have loads more information to process today and the value of that info is directly related to how much effort is put into the processing. Zillow.com is one source of the new information home owners and buyers are looking to for real estate values. I'm a fan of Zillow for it's value as a starting point in the real estate pricing conversation.

Zillow calls their value estimate a Zestimate. It's  a number arrived at using automated software designed to be neutral and unbiased. The Zestimate may factor in too much information, such as too broad of an area crossing neighborhood and school district boundaries. On the other side Zillow may have considered too little information, such as overlooking location in a neighborhood, or improvements.

Zillow does a terrific job of cautioning the user of their site and disclosing their limitations on accuracy. For example, go to Zillow.com and scroll down to the bottom of the page and click on: Zestimate. Selecting Wisconsin, and then Dane County, I see they disclose that their data includes 165,400 property sales. They claim their Zestimate is within 5% of the sale price for 42.5% of the properties. However, they are within 20% on 84% of the properties. If your goal is to not overpay for a property or to not leave too much on the table when pricing to sell, you will want to fine tune that 20% in Dane County where ten and twenty percent can mean twenty and forty thousand dollars.

Realtors  and appraisers who know the market area and know how to make adjustments for the differences of value between neighborhoods, streets, homes, and amenities can get the price zeroed in the way a telescope brings into focus the fine details.



This is Zillow's explanation (copied from their web site) of a Zestimate:

The Zestimate® (pronounced ZEST-ti-met, rhymes with estimate) home valuation is Zillow's estimated market value, computed using a proprietary formula. It is not an appraisal. It is a starting point in determining a home's value. The Zestimate is calculated from public and user submitted data; your real estate agent or appraiser physically inspects the home and takes special features, location, and market conditions into account.  We encourage buyers, sellers, and homeowners to supplement Zillow's information by doing other research such as:

  • Getting a comparative market analysis (CMA) from a real estate agent
  • Getting an appraisal from a professional appraiser
  • Visiting the house (whenever possible)

Friday, February 1, 2013

Spring Market 2013 is Underway and It's Still Deep Winter

I've always known the spring real estate market to start in Madison on the first day of business after New Year's Day. That's when people who are thinking of selling start to ask about making plans to be on the market in March and when people who want to buy start planning to look at homes in February. The eagerness of people this year is surprising---buyers are fast out of the gate and way ahead of the sellers.

A recent report on homes for sale showed the inventory of available homes is down all over Dane County and December sales were higher than previous years. I know that's carrying over into January. Buyers I'm working with are having a tough time finding homes in some of the historically higher demand neighborhoods. The homes that have lingered on the market are getting offers finally--not close to the original asking price, but with price reductions and some concessions, there are buyers who don't want to wait for the higher priced spring market homes to come on.

The best prepared buyers will have the best chance of getting their offers accepted this year. Sellers want security and price in the hot markets. For security give the seller an offer with a rock solid pre-approval letter. No wishy washy language such as "appear to be qualified" or "information not yet verified" will cut it.  If the owner is asking $200,000 and you are approved to buy up to $250,000 tell the owner. Hold nothing back. Let them know you are WELL qualified, not just getting by. If you are in competition, be aggressive with giving the owner what they want--peace of mind. Sure they want price too. But there you are wise to be careful. Make sure that the price you are willing to pay is verifiable. If there is no evidence to support the asking price and you have to offer that price to get your offer accepted, make sure to include an appraisal contingency. That might give you the ability to open up negotiations on price.

Owners might be smart to move up their time frame this year. March is typically a key date for placing homes on the market. With as much demand as we are seeing this spring (winter) I think February could give you an advantage. Buyer numbers are up, inventory is down, and inventory will rise in March---looks like February is a gap month favoring owners of well priced, well conditioned homes.


Tuesday, January 22, 2013

Where The Mad Men Grandchildren Want to Live

Don and Betty Draper, married in 1953, divorced in season three, lived in Ossining, NY a city comparable to Madison, WI in its housing stock; modest to luxurious. The Draper home is a style common to Nakoma, Maple Bluff, Shorewood Hills, University Heights, Vilas, and University Hill Farms.
The attraction of these neighborhoods is the same today as when the Drapers were raising their 3 children...proximity to quality schools, shopping, work, and parks. With modern updates like thermopane windows, high efficiency furnaces, central air conditioning, and added insulation, to complement the plaster walls, wood floors, and large yards, a 1950's house may be as wonderful to own as any home built in the last 10 years. 

With an eye on family life, ease of getting to work and children's schools, without long commutes, we're seeing young people (30 somethings) looking close at the classic Madison neighborhoods where their grandparents lived. The move to inside of the Beltline is good news for home sellers who may have taken a beating on their retirement funds. Competition is good for prices and it certainly will make it easier to make that commitment to get on with downsizing when you can see that some of your lost equity in your home is back. 

After a string of maddening years of down markets and slow activity, 2013 may be the year to cash out on the recovered equity and take advantage of still low interest rates.