Your Home: Can Trulia and Zillow tell me how much my home is really worth?

Question: How do I know how much my home is worth? Can Zillow, Trulia, or the county tax assessment give me an idea of value?

I have answered this question numerous times over the last few weeks. As the real estate market continues to heat up, it seems that sellers fear underpricing their home and buyers don’t want to overpay. A hot “seller’s market” can be rather tricky — and by tricky, I mean emotional. After patiently waiting for seven years, sellers are ready to maximize their value and take advantage of the limited inventory. Due to the limited inventory, buyers are now being forced to compete with other buyers for properties. That means bidding wars, folks, so emotions are running high.

Trulia map

In this emotional time, the same real estate rules still apply. A home is only worth what a buyer will pay for it and what a seller is willing to sell it for. After that, if a mortgage is being obtained, the buyer’s lender will then appraise the home to ensure that it is worth the purchase price. In this appraisal, the appraiser will use comparable closed sales (from the last six months) and pending sales in the immediate area to establish a fair market value for the home. That value must be equal to or greater than the sales price. These closed and pending sales are the most accurate system for establishing “fair market value.”

Now for those two dirty “six letter words”: Trulia and Zillow. As a Realtor, I love the syndication (online exposure) that our listings receive on websites such as Trulia and Zillow. The more exposure our sellers receive the better in my book. However, the valuation models on Trulia and the “Zest-imates” on Zillow are HIGHLY inaccurate. Kansas and Missouri operate as “closed record” states, meaning data on sold properties is not shared with the open market. That data is only shared with the Realtor community and tax entities. In some parts of the country, Trulia and Zillow are highly accurate — but those are areas with “open record” laws. In closed record states, Trulia and Zillow use tax appraisals for valuation. Again, in our market, the tax appraisals are inaccurate. Some are higher than market value, some are lower.

Think about it this way: When was the last time a Johnson County or Jackson County tax official was actually in your home? NEVER. The counties do their best to keep up with the market, but the market is a moving target.

In a lot of ways, the real estate market is like the stock market. Just as a stock can be worth a certain value one day and a different value the next, a home’s value can do the same. Sold comparables around your home can bring the value up in an inclining market, and distressed properties (short sales and foreclosures) can bring it down. It takes a full-time professional Realtor to confidently interpret market value. You just can’t beat the first-hand experience of being in and out of homes all day.

Photo by Truliavisuals

Your Home: Is the ‘For-Sale-By-Owner’ route worth pursuing?

Question: Now that we are in a seller’s market, is there an advantage to selling the house by myself, or FSBO (for sale by owner)?

As a Realtor, most people just whisper the term “FSBO” around me. It’s quite amusing. Honestly, some of my best clients have tried to sell a house themselves at some point in their lives. Additionally, our team has found some great homes for our clients that were FSBO. I am an independent business owner myself, so I can appreciate the entrepreneurial spirit of the FSBO. A lot of the time, I find that the seller offering their home for sale is a lot like me. With one distinction, that is: They don’t sell homes for a living.

Really, I think that numbers (statistics) are the language of my business. Facts, not feelings, give you clarity. So what are the facts?

In 2012, 9 percent of the homes that sold nationally were FSBO. Of that 9 percent, one third of them sold to someone the seller already knew. So that means that really only 6 percent of the homes that sold FSBO were sold on the “open market.” Conversely, 88 percent of the homes that sold nationally were listed with a Realtor on the open market.

Method Used to Sell Homes

Let me put it like this: Let’s say that I had two lottery tickets and one of them was a winner. One ticket had a 6 percent chance of winning and the other had an 88 percent chance of winning. Which ticket would you pick?

Let’s dig a little deeper. And in this scenario, I am going to use my team’s stats to represent a full-time, full-service Realtor. Statistically*, a FSBO will achieve 4 to 5 percent below the “average” Realtor in a market when you compare original list price to sales price. The average days on the market for a FSBO is usually two to three times as long as a listed property. In Kansas City, the average Realtor is accomplishing 92 percent of their original list price (OLP) in 99 days. Therefore, conservatively, a FSBO might sell for 88 percent of the original list price in 198 days. Our team’s listings are selling for 97.5 percent of original list price in 26 days.

Comparing the two results, on a $250,000 home, our clients will retain an additional $23,750 in equity and will save five and a half additional months of carrying costs (insurance, taxes, etc.). That is a 9.5 percent gap. Finally, in 2012, 89 percent of all buyers retained the services of a buyer’s representative who received compensation from the seller.

So when we talk about going with a Realtor over pursuing the FSBO route, we are not talking about saving commission dollars, we are talking about protecting equity. And protecting time. How much is your time worth? The National Association of Realtors Profile of Home Buyers and Sellers reveals that the third most difficult task for FSBOs was having enough time to devote to all aspects of the sale. The first and second most difficult tasks were getting the right price and interpreting the contracts, respectively.

Honestly, I cannot take all of the credit for the aforementioned results. Our clients are incredible! They accept our stager’s suggestions to improve condition. They follow our coaching on pricing. It is truly a partnership and I am so grateful to have the opportunity to work with such great people.

*Statistical data from the National Association of Realtors

Your Home: What’s the difference between a short sale and a foreclosure?

A short sale is when you sell your house at a price that is less than the balance owed on your mortgage. The bank that holds the mortgage must approve the home for a short sale and will ask for documentation explaining why the property should be allowed to sell “short.” Typically the seller still lives in the home when it is offered as a short sale. Therefore a buyer’s initial offer will be negotiated with the seller first and then must be approved by the bank. So, in a sense, you are negotiating with two parties at the same time. The bank, however, is the final authority. All terms and agreements are not final until the bank signs off. A typical short sale can take anywhere from 90 to 365 days to process. That’s right: a full year. It all depends on the lender. The short sale market is not for the impatient or those on a specific timeline.

Foreclosures

A foreclosure is when a lender forces the sale of a property in an effort to recover the balance of a home loan. In this situation, the homeowner has stopped making payments and is most often out of the home. This is a true bank-owned property. The bank will then order an appraisal and market the property at a price that will liquidate the asset. And to the bank, it is exactly that: an asset. There are no emotions involved at all. Most of the time, the asset manager or negotiator at the bank has never seen the home or and might not even know where Prairie Village, Kan., is. Therefore, the negotiations can be very cut and dry. A foreclosure can be processed and closed in as little as 30-45 days.

Both are more commonly known as “distressed properties” and are fortunately becoming less of a factor in today’s market. As a point of reference, in February 2009, distressed properties represented 49 percent of the national real estate market. As of December of 2012, only 24 percent of the national market was distressed properties, of which 50 percent were short sales and 50 percent foreclosures. The reduction in the distressed property inventory is a major contributing factor to the housing market recovery.

Even as the distressed property inventory declines, the HGTV generation is still clambering for them. Quite often my wife, Leah (our Lead Buyer’s Specialist), will meet new clients for the first time and they will immediately ask about short sales and foreclosures. There is a misconception out there right now that you commonly find these little “diamonds in the rough” for way less than market value and all they need is a little paint and some TLC. It is rare that a property like that is available.

Typically the home owners have been in financial difficulty for some time and most often property maintenance is the first expense that they eliminate from their budget. So the homes are usually in disrepair and some are uninhabitable. If you are an investor, a distressed property can be a great way to purchase an investment with immediate equity whether your intention is flipping the home or holding it as a rental. But if you are purchasing a home for your primary residence, the budget for improving a distressed property can be overwhelming.

Your Home: What’s behind the early hot housing market? 2 Factors

Why is the housing market “heating up” so early this year?

Boy, this could be a very long answer. However, I am going to stick to two main contributing factors: low inventory and affordability.

Low inventory, in this case, means a lesser number of homes for sale than there are buyers looking to purchase. This is exactly what many homeowners have been waiting for for six years now. It appears we have gone from a buyer’s market (high inventory) straight to a seller’s market (low inventory).

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Please know that each subdivision or area of town can be its own micro-market. Thus, one area of town might be in a slight seller’s market while another might be in an extreme seller’s market with almost no inventory available. You might ask, “What constitutes low inventory?” For me, it would be anytime you have less than three months of inventory. An example: Let’s say four bedroom Cape Cods in Prairie Village are selling at a rate of two per month and there are currently six for sale. If nothing else comes on the market, then in three months they would all be sold.

For the month of January, most of northeast Johnson County had between five and six months of inventory available. And that inventory is dropping. Inventory in the KC metro is down 22 percent from January 2012.

Onto the next factor: affordability. Affordability is my favorite topic right now. I find that the more friends and clients I talk to about it, the more I realize I need to do a better job of getting the message out to them that houses have almost never been more affordable.

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At the end of 2012, it took only 12.9 percent of the median family income to cover the median family house payment. That is in large part due to historically low interest rates coupled with lower home prices. As a reference point, in 2005 (just eight years ago), that number was 23.2 percent. Almost double what it is today. From 1970 to today, the long-term average has been 21.6 percent.

So what does this mean to you? Have you ever heard the term “house poor?” That is when you have a great new home to live in, yet no money to improve it or do anything else fun like vacations, dining out, gifts for those that you care about, etc … In the early 80s when it took more than 36 percent of your income to pay your mortgage, it was very easy to be “house poor.” So comparatively speaking, with affordability at 12.9 percent, our clients are finding that they have more funds available for home improvement projects and to have a fun life as well.

Picture Credit: KW Realty International