The Home Buying Process

Today we feature our guest blogger, Bret Engle article.

Image courtesy of Pixabay

Many first-time home buyers consider purchasing a fixer-upper. While you may think a fixer-upper is an inexpensive way into your first home, or a fast track to easy money, it could turn into a money pit. Take these points into consideration so you can make a smart choice.

The home-buying process. Before you do anything else, you need to know the ins and outs of the home-buying process. CNN explains the basic steps:

Save for a down payment. Typically this is around 20 percent of the purchase price.

  • Know your credit score. The better your credit rating, the better your chance of getting a loan and securing a good interest rate.
  • Talk with your bank. Your lender can tell you how much you can borrow.
  • Explore the market. Find out what’s available in your price range.

Special funding. Depending on your situation, you may qualify for special loans to buy a fixer-upper. There are government-backed home-renovation loans available through Fannie Mae and the Federal Housing Administration. These loans are determined in part by your credit rating, along with other factors affecting eligibility.

House hunting. You need to research the homes available in your area, becoming familiar with all the local market offers. You should explore what is in your price range, decide if you can afford repairs, and think about whether it’s appropriate to invest your time, money, and energy in a fixer-upper. For instance, homes for sale in Stamford, CT have a median listing price of $570,000.

As Bob Vila explains, if you’re pooling all your funds for a down payment, it may not be reasonable to consider a home you can’t afford to fix right away. Some repairs are cosmetic, and you can live on-site and do the work yourself. In that case, you can probably take your time and make repairs during evenings and weekends. If a house has structural issues or needs major renovations, consider where you will live and whether you have the skills to do the work. When determining repairs, some items may be difficult for a layperson to evaluate. Before you fall in love with property, some experts note it’s wise to pay for appropriate inspections, which may mean hiring more than the traditional certified home inspector. There are specialized inspections for roofs, sewers, pests, and geological issues, and you might even be able to get the seller to pay for them.

Smart decisions. If you elect to take the jump into purchasing a fixer-upper home, you’ll need to invest in appropriate tools and materials. You won’t want to pinch pennies by buying poor-quality items because good tools such as drills, sanders, and jigsaws make your work much easier. Better quality equates to better efficiency and a lighter workload on your part. You also need to prioritize properly. For instance, HGTV notes you want to make any major repairs to kitchens and bathrooms first because those rooms are of high use and value.

Sell or stay? This is a big question, and there are many determining factors. One of the biggest factors in whether to flip your fixer-upper is the expense involved in your renovations. If quick, cosmetic repairs are all that’s needed and a home is located in a desirable location, you can potentially turn a profit flipping a home. However, expensive repairs, a downturn in the market, or a location that isn’t so marketable can all factor into whether your investment will pay off. Some professionals warn that for many first-time home buyers who purchase fixer-uppers, bankruptcy can be the outcome instead of a tidy profit. Weigh the pros and cons carefully before your dream of flipping a fixer-upper becomes a financial nightmare!

First-time fixer-upper? If you’re puzzling over whether to purchase a fixer-upper as your first home, it’s wise to be cautious. Understand the buying process and evaluate whether you have the skills and money to make it worthwhile. Weigh the many factors involved if you’re considering attempting to flip the property. Careful considerations are the key to making a smart decision!

Bret Engle Article

If you need help with design for your project, or with buying/selling your home or knowing the value of your home fill up the form below.

One Real Appraisal and Six Ways to Support One Adjustment

Full original article can be found hereAppraisers and real estate agents often ask what adjustments I use and/or how I support my adjustments.  The answer is that most properties require a different adjustment that is specific to its market (e.g. size, location, condition, etc.) and there are many different ways to support any individual adjustment.  No one method for supporting adjustments is perfect.  Appraisers should select the method or methods that will produce credible results for the given assignment and available data.

  1. Paired Sales – Paired sales are a cornerstone of textbook appraisals, but textbook cases of paired sales rarely occur in practice. In a common textbook scenario, paired sales are two sales that are the same in every way except the one factor for which the appraiser is trying to estimate an adjustment. For this reason, it is easy for appraisers to forget that a paired sale can have other differences (although it is important that the differences are minimal and that adjustments for the differences can be supported). In this assignment, my grid included four sales that had very little difference from one another except for GLA. After adjusting for a couple of minor factors, the paired sales all suggested an adjustment of $51 and $60 per square foot for GLA.
  2. Simple Linear Regression – I’ve blogged in the past about supporting adjustments, particularly GLA, using simple linear regression. Linear regression is basically analyzing trends in data.  For this assignment, simple linear regression suggests $53 per square foot when comparing sales price to GLA. Significant variation exists among the data of this sample, but the datum points are spread evenly along the entire regression line suggesting that the indicator is not being skewed by a small subset of outliers. It is okay if the properties in the sample have differences, however it is important to make sure to filter out differences that would skew toward one end of the range or the other. For example, if a larger site size also tends to include a larger home, then it would be important to make sure that the homes in the sample all have similar site sizes or the adjustment could be falsely overstated. Also, it is helpful to the outcome of the regression analysis that the subject property is in similar condition to the majority of the sales in the sample. The following chart shows the linear regression outcome in this appraisal.Simple Linear Regression Support Adjustment
  3. Grouped Data Analysis – This method is closely related to simple linear regression and is essentially many paired sales representing a fast way to estimate an adjustment simply by sorting comparable sales. This can be done using quick searches on the local multiple listing service or using data exported to a spreadsheet. But remember that the same factors that can skew linear regression will also skew grouped data analysis. For best results, it is important to sort out all of the features that might distort the results without sorting to the point where the sample sizes are small and wildly varied. For this assignment, I filtered out all ranch sales in the past two years with a lot size of 7,000 to 9,999 square feet, that feature two baths and three bedrooms, and that were built within ten years of the subject. Sales of homes meeting these criteria between 1,000 and 1,199 square feet have an average of 1,128 square feet and an average sale price of $212,637. Sales of homes meeting these criteria between 1,200 square feet and 1,299 square feet have an average of 1,253 square feet and an average sale price of $220,055. The difference between the average of these two sets is $7,418 and 125 square feet or $59 per square foot. The median could also be compared as well to provide another indicator that is less likely to be skewed by outliers.
  4. Depreciated Cost – The cost approach value in this assignment is consistent with values suggested by recent comparable sales. This suggests that the cost approach is likely valid and could be used as a way to test reasonableness or support adjustments. The subject’s original cost is estimated at $108 per square foot and the depreciated cost is estimated at $81 per square foot. A simple depreciated cost adjustment might not be a good adjustment to apply to comparable sales. This is because the depreciated cost is a straight-line measure from zero square feet all the way to the total area including the kitchen, bath, mechanical, and everything else in the house. For this adjustment, we are just looking for the value difference from a similar-sized comparable to the subject. To obtain this adjustment using the cost approach, I ran a cost estimate for the smallest comparable sale and another cost estimate for the largest comparable sale with no physical changes for anything other than living area (e.g. room count, garage, quality, and all other factors kept equal). The original cost difference between the low and the high came out to $79.53 per square foot. If this number is depreciated based on the cost approach in the appraisal, a reasonable adjustment of $60 per square foot of GLA is estimated.
  5. Income Approach – The income approach was not performed for this appraisal assignment, but if it had been, the income approach could have been used to support another indicator for the GLA adjustment. One way the income approach could be used to support a GLA adjustment is by taking the estimated loss or gain in rent from an additional square foot of living area (can be estimated using any of the above approaches except for cost) and apply a Gross Rent Multiplier (GRM). Critical to this approach is that the multiplier and rent estimates are market derived and that rent might be a consideration for the typical buyer.
  6. Sensitivity Analysis – This method is closely related to paired sales and I think it works best for secondary or tertiary support for an adjustment or helping to reconcile what adjustment is most effective. However, this method is not very useful if adjustments for other comparable sale differences are not accurate. Once all of the comparable sales have been placed side-by-side in a comparison grid and adjusted for all other factors using market derived adjustments, the appraiser can test different GLA adjustments to see what adjustment produces the tightest range of adjusted value indicators. If the appraiser is unsure by simply looking at the data, the Coefficient of Variation (CV) can be applied to each set of adjusted indicators to mathematically test what adjustment is producing the tightest range. The lower the CV, the better the adjustment is working within this sample of sales. Here is a link to a free CV calculator. Just enter your adjusted indicators separated by commas and press calculate. Then test another adjustment and repeat with the calculator. An appraiser could also set up a formula using the Worksheet function in a la mode Total to instantly provide the Coefficient of Variation. For this appraisal, sensitivity analysis helped me reconcile that the simple linear regression adjustment is most well-supported adjustment because it has the lowest CV as seen in the following table.

Paired Sales

Simple Linear Regression

Grouped Data

Depreciated Cost

Indicated GLA Adjustment

$51 or $60

$53

$59

$60

CV

0.00648 or 0.0082

0.00538

0.00734

\0.0082

None of the above methods for supporting an adjustment are without limitations and there are many more ways an appraiser could support an adjustment.  Although this is an example where data sets are particularly plentiful, the example shows that information does exist outside of textbooks for supporting adjustments; and when multiple approaches are combined and reconciled, a strong case for the appraiser’s conclusion can be made.  An appraiser won’t always need to go this far to support one adjustment, but if that one adjustment is crucial to the outcome of the appraisal or the appraiser believes they will be challenged on this adjustment, then the appraiser should expand and explore multiple methods for support.

By Gary F. Kristensen, SRA, IFA, AGA

Full original article can be found here

Seen on Facebook

ON HOME OWNERSHIP

National-Capitol-Building-Washington-DC

Don’t let Congress take away your Home Interest Deductions!

Right now, there is a discussion going on in Congress that could have a huge impact on your home and your wallet.

How? Congress is considering eliminating income tax deductions for our homes.

If some lawmakers in Congress have it their way, we could see big changes not only to federal income tax deductions for mortgage interest and property taxes, but also a change to the homeowner’s capital gains exemption. What that means is that current and future homeowners would pay more taxes every year!

In these tough times, we can’t afford to lose important deductions. By signing our petition and sending a letter to your representative, you can tell Congress to keep our home interest deductions intact.

Read full story here:

http://www2.homeowneraction.org/site/PageServer?pagename=moadv_petitionpage&autologin=true&s_subsrc=HID_fbnf2