Real estate agents have been complaining that appraisers have been under-valuing property again. Recently the National Association of Realtors listed the Cape Coral – Fort Myers real estate market as the #3 fastest rising home price markets in the country. Appraisals an Issue Once Again!

Appraisals an Issue Once Again

Appraisals are one person’s opinion of value based upon recent sold data.  The problem is in an upward rising market, past sales are yesterday’s news and today’s values are higher then a few months ago.

In a declining market appraisers are quick to make a time value adjustment as sales from 3-4 months ago would be worth more than today’s market.  Appraisers aren’t as quick in a rising market if you ask many real estate agents, and therein lay the problem.

Buyers and sellers quite often sweat out the appraisal which unfortunately doesn’t always occur right after the contract.  Many sellers are requiring the appraisal number to come in within 15 days of contract acceptance to remove this obstacle.

Typically a buyer gets pre-qualified for a loan and then goes out shopping for a home.  With inventory so limited in SW Florida it’s getting hard to find suitable homes in a buyer’s price range, and when you do find a home for the buyer the buyer isn’t holding all the cards.  The sellers are pretty much able to dictate certain terms as there are several buyers looking at the limited inventory in some price ranges.

The banks usually order the appraisal from an appraisal management company who hires the appraiser.  The management company serves as a middle man to keep the lender from influencing values.  A problem is if the appraiser is not local or is unfamiliar with the area, or simply chooses bad comparables, there isn’t a good way to fix a bad appraisal.  The bank is typically stuck with that number, so the buyer is stuck, unless they’re willing to switch lenders.

We work with one local lender who has access to 3 appraisal management companies, so if we get a bad appraisal from one company they can seek another opinion without being stuck.  This does add time to the process though and isn’t ideal.

This forces sellers to take the best possible buyer, and price isn’t always the most important issue.  True enough, in a tight supply market, all buyers are going to be at a high price, but what really makes a buyer stand out from another buyer are the “Other” terms, like closing date, and amount in escrow.

If you have a buyer putting 20% down but only putting $1,000 in escrow it looks suspicious to a seller.  The escrow money is counted towards the down payment money anyway, and it is refundable if the buyer cannot get their financing assuming the contract is written properly, so sellers ask themselves, “Why isn’t this buyer putting more money down upfront?”

If a seller has 2 or more offers and one has $10,000 in escrow and one only has $1,000 down, which offer sounds better?  Even if there isn’t another offer Yet it still screams weak offer and throws up a red flag.  In a competitive market where a buyer isn’t in competition with the seller but rather with others buyers, it pays to make your offer look strong anyway you can.  If you’re financing there is a limit to how high you can go because it has to appraise.  Do the other things to make your offer stand out.

Listening to your agent will help.  If you don’t make your offer stand out, you’ll be on your 4th or 5th favorite home instead of your 1st, and in this market many times there aren’t more than 3 to choose from.

If you do run into an appraisal problem, there are things you can do.  Perhaps the seller may consider pre-paying the mortgage insurance which might eliminate the need for the property to appraise.  Speak with your agent and lender about these options.  Don’t let a bad appraisal Kill your sale.

Good luck and Happy House Hunting!!!!

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A few weeks ago we did a story called “Riding Low” about real estate listing inventory falling is SW Florida. We had May data to work with and at that time listings were lower than they were all last year and we speculated based upon pending sales they would most likely go lower when June data was released.

Listing Inventory in Southwest Florida Down

Well, June data was just released and indeed listing inventory fell again to its lowest level in quite awhile. Last year agents from Cape Coral to Fort Myers to Bonita Springs to Naples were all complaining about lack of inventory. It is putting pressure on buyers in 3 ways.

Prices are going up rapidly. Median prices are up about 30% over last year. This doesn’t mean all homes are up in price as some ranges have lots more inventory than others. Buyers today are being squeezed by rising prices, that’s for sure.

Secondly, interest rates are going up and this is causing the cost of ownership to rise. It’s a double whammy. Prices are going up and so is the cost to finance. Throw in some insurance rate increases and even a tax millage increase and you’ll see that some buyers are quickly being priced out of the market.

Lastly, when there is a shortage of homes on the market buyers are in fierce competition with other buyers. It’s very frustrating to look at homes and select a favorite only to find out the seller just accepted another offer, or worse is in a multiple offer situation and a bidding war ensues.

We just listed a short sale that had interest from several buyers because it has been kept up very well. We had to wait 5 day including a weekend because the seller’s loan was a FNMA loan and they now require a waiting period before signing contracts. We did that and a few buyers were very disappointed. We see this quite frequently on our listings and our buyer agents deal with this on a daily basis with our buyers.

This is the market we are given. It does no good to complain, although complaining sometimes makes us feel better. The best solution to having success in a market like this is accepting the market we’re given and educating our customers on how to succeed in this market.

Setting reasonable expectations upfront means educating our customers with facts, data, and logic. Facts help overcome emotional objections and get us in the mindset to make an informed and intelligent decision rather than a seat of the pants knee jerk reaction.

Women might appreciate and notice that they’re male significant other will study their fantasy football team until the cows come home but when it comes to using that same diligence on studying the housing market the motivation isn’t there. Some people are into fantasy football and some people are into studying the market, and neither way is right or wrong. I’m just saying as a buyer or seller it pays to either study the market as if you want to win your league or hire someone who knows.

Buyers and sellers who try to go it alone sometimes make some costly mistakes. Real estate is a complex transaction. Pricing is just one component. Taxing, deed restrictions, title, survey, financing, transfer protocols, HOA and condo associations all play into things you need to know about, and this is just the tip of the iceberg.

If you’ve got questions on buying or selling real estate in SW Florida, don’t hesitate to call someone who can guide you. If you’d like to search the MLS and have a look around, feel free to do so on our website www.Topagent.com If you’d like to get a valuation on your property go to www.SWFLhomevalues.com

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Good luck and Happy Buying/Selling!!! Listing Inventory in Southwest Florida Down.

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Official August 2013 SWFL sales numbers  have been posted from Florida Realtors and as expected the Fort Myers and Cape Coral real estate market is holding its own.  Listing inventory is down again and it’s causing prices to rise.

August 2013 SWFL Sales Numbers

Single family home listing inventory stands at 4,956 currently compared to 5,763 last year.  That’s a 14% drop in listing inventory.  Median sale prices rose 32.1% in the past year.  June sales numbers indicate a median sales price of $185,000 compared to $140,000 last year.  Average mean sales prices increased 17.1% to $271,896

Mean sales tells me that there were less higher priced homes selling pulling the mean average up because the mean average only went up 17.1% while the median average shot up 32.1%

In either event lower inventory and strong demand are pushing up home prices.  Builders have reported strong sales this year and are filling in the gap as current demand is outpacing current supply.

As prices rise and inventory dwindles look for building construction to pickup again this year.  While building is taking the pressure off the resale market and should continue to do so moving forward, there is some risk in the construction industry.

Building a home today takes approximately 6-9 months from contract to completion.  Most builders require a down payment to begin construction.  There are two ways to finance new construction.  One is called an end loan and one is a construction/permanent loan.  Today the most common is the end loan whereby the builder uses their own money to construct the home and the buyer obtains one loan at closing.

The problem with an end loan today is there is no way to predict what interest rates will be 6-9 months from now. Rates have gone up over 1% in the past month or so and we expect them to rise again as the Fed curtails buying mortgage backed securities which has artificially kept rates low as the Fed has tried to stimulate the economy through lower interest rates.  The Fed has announced on two separate occasions this summer their intention to stop this program once there is recovery in the economy, and we are seeing some mixed signs of recovery.  Just when the Feds will kill this program has led the markets to speculate and bid up rates.  Rates are determined by the value of the security.  When the value is bid lower the return (or rate) goes up.  10 yr note buyers have been paying less than they were a few months ago due to volatility in the markets.  The Fed has fired the warning shots over the bow and the markets have responded.

We knew this day was coming, we just didn’t know when.  With uncertainty in the interest rate market, it’s impossible for buyers to know how much more their borrowing costs will be next year when a house is completed.  It can make the difference whether a buyer qualifies for the mortgage at all.  The buyer may qualify today and not next year when the house is complete, so the builder is taking a big risk.

A buyer doesn’t know how much they need to scale back today so they qualify next year.  Imagine being a buyer and being told you qualify for a 3,000 sq ft home, however because rates are going up you need to scale back to a 2,500 sq ft home, or maybe even less.  Perhaps you don’t like the 2,500 sq ft floor plan the builder is offering.  You don’t want to sacrifice your lot location, or the pool you’ve chosen.  What do you cut back on today, and how much?

This is the dilemma buyers are faced with today.  It is terribly expensive to lock in a rate longer than 45 days out, which most builder homes are going to be.  This is pushing many buyers back to resale homes, and we have a shortage of inventory.  It’s a double edged sword.  If you’re a buyer paying cash you have more options and aren’t as concerned with rates.

If you’re a buyer or seller needing to talk to a professional about your options, give us a call at 239-489-4042.  We’ll be happy to help you sort out your options.

Good luck and Happy Buying/Selling!!!!

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