Take a Pic and Ask a Question!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If you ever see something at a property and find that you have questions, just take a picture or shoot a video and text your question to me!  Questions like…Is this an FHA or VA repair issue? Is this functional obsolescence? Is this likely to have an effect on the value?  Should my Seller have this repaired prior to putting the house on the market?   I’ll give you my professional opinion.  Please feel free to share this with your Philly Agent/Broker colleagues!

 

Michael Coyle  text  610-316-8007

 

The Coyle Group’s team of Philadelphia Real Estate Appraisers are a leading provider of appraisals for Estate/Probate, Divorce, Bankruptcy, Tax Appeal and Pre-Listing. We also provide “footprint” sketches for determining a more accurate square footage of a property.  If you need a guest speaker at your next sales meeting, please give us a call. We would welcome to opportunity to speak to your group and field any appraisal related questions you may have. For more information please visit our website at www.TheCoyleGroupLLC.com You can also contact The Coyle Group at 215-836-5500 or appraisals@coyleappraisals.com

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Let’s End the Trend

For the past few years I’ve been noticing a trend in how homes, particularly new construction, are being marketed.  Perhaps you’ve noticed it, too.  What I’m referencing is the inclusion of finished basement space in the overall Gross Living Area (GLA) calculations. (I’ve even seen it where one agent included the roof deck in the overall GLA because the deck was covered)

I get it.  From a marketing perspective, bigger is better.  Everyone wants to be able to say that their home is larger.  I guess size does matter when discussing square footage.  The only problem is that this practice can be misleading and can contribute to inaccurate appraisals and failed deals.

Picture this.  There is a property in Point Breeze.  It’s new construction, three stories, finished basement, roof deck…the same house that everyone is building right now.  The agent and developer market the property as being 4 bedrooms, 3.5 baths and 2,400SF of living space.  Now, 600SF of that space is entirely below grade in the basement and contains one of the bedrooms and a full bath.

Along comes the appraiser.  From the appraiser’s point of view the house is a 3 bedroom, 2.5 bath house of 1,800SF above grade.  There is also a 600SF finished basement that contains a full bath and a room that could be used as a 4th bedroom.  The appraiser will assign contributory value to the finished basement and the rooms down there but, they will not be included it in the above grade GLA.  The reason being, most appraisers adhere to the ANSI Guidelines for measuring a dwelling.  These guidelines state that only above grade living space is to be included in the overall GLA for a property.  Anything below grade is finished basement space.  (For a copy of the ANSI Guideline, just email me)

This trend can effect the selection of comparables and by extension have an impact on the appraised value of a property.  If an appraiser inspects a property and determines it to have 1,800SF above grade and 600SF below grade, the appraiser is going to select comparables that are closer to 1,800SF, not the 2,400SF reported in the MLS listing.  This could result in the selection of comparables that are smaller and worth less money.  This could adversely impact the sale.

Also, imagine the confusion of the new homeowner when he reads the appraisal.  Here, he thought he just bought 2,400SF home but, the appraiser says it’s only 1,800SF.  In the buyer’s mind, they just overpaid.  There are likely to be some angry phone calls as a result.

But there’s hope!  The Trend MLS allows agents to separate the above grade from the below grade living space when listing a property.  This helps paint a more accurate representation of the living space within a building.  It also helps appraisers make more accurate comparisons to other homes.  I would love to see this become the new trend in Philadelphia real estate, where agents and appraisers are on the same page and above grade and below grade living spaces are separately reported.

NOTE:  If you ever have a question as to what the actually GLA is for a given property, have the house measured.  Many appraisers will perform this service as will a number of “measuring” companies.

The Coyle Group’s team of Philadelphia Real Estate Appraisers are a leading provider of appraisals for Estate/Probate, Divorce, Bankruptcy, Tax Appeal and Pre-Listing. If you need a guest speaker at your next sales meeting, please give us a call. We would welcome to opportunity to speak to your group and field any appraisal related questions you may have. For more information please visit our website at www.TheCoyleGroupLLC.com You can also contact The Coyle Group at 215-836-5500 or appraisals@coyleappraisals.com

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FHA Repair Do’s & Don’ts

If you have Sellers who are willing to accept FHA financing from Buyers, make sure you/they understand these two words…professional and workmanlike. The reason being, HUD requires that all repairs for FHA insured loans be completed in a professional and workmanlike manner. If they are not, the financing may be denied.

Now, I understand that most Sellers aren’t thrilled about making repairs to a house they plan on selling.  Some Sellers figure if they do the bare minimum repairs everything will be fine.  However, if the repairs are not completed in a professional and workmanlike manner the deal could fall through. Here’s a real life example of how not to complete required FHA repairs. In this case, the FHA guidelines required that the exterior of all of the windows be scraped, prepped and painted.  The Seller (who balked at the idea) came up with his own solution.  

The Coyle Group - Bad Paint Job 6 - Philadephia Appraiser    The Coyle Group - Bad Paint Job 5 - Philadephia Appraiser     The Coyle Group - Bad Paint Job 4 - Philadephia Appraiser   The Coyle Group - Bad Paint Job 3 - Philadephia Appraiser    The Coyle Group - Bad Paint Job 2 - Philadephia Appraiser    The Coyle Group - Bad Paint Job 1 - Philadelphia Appraiser

Well, needless to say this didn’t pass the professional and workmanlike standards of  HUD.  The appraiser deemed the repairs unsatisfactory.  As a result, the Seller had two options, make the repairs or lose the deal.  As you can imagine, his paint job didn’t exactly add value or make his house more attractive to a new Buyer.  Eventually, the Seller decided to make the proper repairs.  He hired a professional painter (at his own expense, over $4,000) to complete the job in a professional and workmanlike manner.  The repairs were then deemed satisfactory.

Bottom line, when it comes to FHA repairs it pays to do them correctly the first time.  If a repair requirement is unclear, reach out to the lender or appraiser for clarification.  Doing so can save time, money and the sale.

If you are working with a Seller and would like to address potential FHA repairs prior to listing, please contact our office.  We have a service available to homeowners and agents where one of our professional, certified and FHA Approved appraisers will visit your property and work with you to identify potential FHA issues.

 

The Coyle Group’s team of Philadelphia appraisers is a leading provider of appraisals for Estate/Probate, Divorce, Bankruptcy, Tax Appeal and Pre-Listing appraisals in the greater Philadelphia Metro Area.  If you need a guest speaker at your next sales meeting, please give us a call.  We would welcome to opportunity to speak to your group and field any appraisal related questions you may have.  For more information please visit our website at www.TheCoyleGroupLLC.com  You can also contact The Coyle Group at 215-836-5500 or appraisals@coyleappraisals.com

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Agent Alert!

AGENTS!  Spring is here and these warmer temperatures will only help to heat up the Spring Selling Season.  If you haven’t done so already, now is the time to take a hard look at your older listings and think about how they will compete in the Spring market.  Perhaps, it’s time to do a little Spring cleaning and meet with your Buyers to decide whether they need to “reposition” (re-price) their listing. 

You can bet this new crop of inventory will be priced to sell.  If you want to contend with these new listings, you need to have a competitive price.  Proper pricing is the key!

One way to test the market is to have a Listing Appraisal completed.  Now, having an appraisal completed on a listing is not necessary for all situations.  However, if you have a unique property or a stubborn Seller, a Listing Appraisal may be the way to go.

The obvious benefit is that a Listing Appraisal will provide you and your client with an unbiased, professional opinion of the property’s current fair market value.  Aside from that important fact, there are other benefits to having an appraisal completed on your listing. 

As an agent, having a Listing Appraisal completed allows you to still “be the good guy” and maintain your client relationship while adjusting your Seller’s expectations.  Unfortunately, some Sellers refuse to believe that their home has been affected by recent real estate trends or, perhaps, they feel that shag carpeting and pickled-wood cabinets are making a come back with Buyers.  Having an impartial appraiser look at the property could provide you with the insight and feedback necessary to help your Seller “see the light.”

A Listing Appraisal also gives agents and Sellers an idea of how a potential Buyer’s appraiser may view the property when completing an appraisal for mortgage financing.  This way you limit the chance of being hit with any last-minute surprises or having to renegotiate your contract price because of a Buyer’s appraisal.

If your listing falls under the FHA program limit of $420,000 for Philly region, having a Listing Appraisal can provide added benefit.  Some appraisers will actually perform an FHA-style inspection when looking at your property and incorporate their findings in their appraisal report (our office does this as standard practice).  This will give you and your Seller a heads-up on any potential FHA issues that may affect your Listing.  That information can be used to correct the problem, possibly eliminating future headaches, negotiations and wasted time.

So, what’s the cost?  Well, typically a Listing Appraisal will be in the $300-$450 range (sometimes more if the property is unusually large or complex).  However, if you think about it, this is a relatively small investment if it can minimize your listing’s time on the market.  Or look at it another way…would you (or your Seller) be willing to pay $300 if you knew that your listing could sell faster and that you wouldn’t have to waste weeks dealing with hidden FHA issues, negotiations and stress? 

Think about it…and have a great Spring!

If you have any questions about Listing Appraisals or any other appraisal related question, please feel free to contact our office at appraisals@coyleappraisals.com or 215.836.5500.

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What is an Absorption Rate?

The Absorption Rate measures the relationship between a real estate market’s supply and demand.  The total number of available homes (inventory = listings and pending sales) is divided by the total number of homes sold in the previous month.   The resulting number represents the number of months it would take, at that same pace, to sell the entire inventory of homes.  It this does not take into count the number of houses which will eventually come on the market in addition to those already for sale.

Knowing your area’s Absorption Rate (AR), can help you track trends.  Understanding your market and where it is headed is very important for both sellers and buyers.  It allows buyers and sellers to understand better why some homes may sell faster than other and to develop effective pricing strategies.

Calculating an AR is not difficult but you will need access to the following information:

  • How many listings are currently on the market in a given area? Be sure to include both active and pending homes.
  • How many homes sold last month?

Once you have those numbers, you will need to:

  • Add the number of Active/Pending Listings together
  • Multiply the number of homes Sold Last Month by 12.  Then, divide that number by 52 for the weekly number of homes sold.
  • Then, divide the number of Active by the number of sold per week
  • This will give you the weekly AR.  For a monthly AR simply divide the weekly AR by 4.

Here’s an example for Montgomery County.  In November 2011 there were 554 settled sales.  Currently, there are 4,481 active listings and 230 pending sales.

Listings + Pendings = Actives

4481 + 230 = 4711

Homes Sold  X 12 = Annualized Sales

554 X 12 = 6,648/52 = 127.85 Week

4711 / 127.85 = 36.84 Weeks

36.84 Weeks / 4 Weeks per month = 9.21 months of inventory

The result is an Absorption Rate of 9.21 Months.  What this really means is that it will take 9.21 months for the market, at the current rate, to absorb the current inventory of homes.  This assumes that no new homes will be added to the existing inventory.

One good thing about absorption rates is that they can be tailored to specific neighborhoods and price ranges. So how can an absorption rate study assist buyers and sellers?

Narrowing an absorption rate study to a certain type of home, in a specific neighborhood, at a particular price point, enables a buyer or seller to first determine the nature of their local market (is it a buyer or sellers market) and then establish a listing or offer price, accordingly.

For instance, in Lower Merion, the overall AR for the township is 8 months.  However, if we take a look at the luxury market within Lower Merion (homes over $2MM) we see a very different picture begins to appear.  The luxury market currently has a 44 month inventory.  Meaning if you have a luxury home in Lower Merion, it could take over 3.6 years for you to sell it.  This could be a problem for someone who needs to sell quickly.  In this case, having the AR could prompt the seller to rethink their asking price.

Once we know the AR, we can determine what kind of market we are in.  That information can then be used by sellers to price their homes more effectively and hopefully reduce days on market.  For buyers, this information can help you determine if you are in a Buyers or Sellers Market and to structure your offer, accordingly.

Buyer’s Market: Over 7 months of supply
Balanced Market: 5 to 7 months of supply
Seller’s Market: Less than 5 months of supply

The AR is not the only thing you will need to determine a market’s condition.  Specific property features, condition, location and of course price will typically be more important in determining how fast a property will actually sell than any statistical formula.

If you have any questions about Absorption Rates or need assistance calculating the AR for a specific market or property type please feel free to contact us through this blog or email us at appraisals@coyleappraisals.com

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The Importance of Listing Appraisals

Last week temperatures in the Philadelphia area flirted with 70 degrees.  Spring fever was definitely in the air.  People were out and about; and for a day or two everyone forgot that it was still February.  It got me thinking about the upcoming Spring Selling Season. 

Traditionally, Spring is when the Philadelphia real estate markets start to shake off the Winter sluggishness and things start to pick up again.  However, I can’t help but think this year may be different.  Given accumulating inventories, high unemployment, impending inflation and the lack of a tax credit, the 2011 Spring Selling Season could be a challenge.  Sellers and Agents alike will need to rethink their marketing strategies and pricing in order to be competitive enough to attract Buyers.

Pricing will be the key this Spring. 

For Agents, this year more that ever it will be important to make sure listings are priced to compete.  Not only will you have to compete with the older listings that are out there, you will have to go up against fresh, new listings that will be priced to move.  If you haven’t thought about getting a Listing Appraisal, now is the time to act. 

More and more, Agents and Sellers are having Listing Appraisals completed to aide their decisions about pricing and marketing strategies.  They realize that in this market not only do you have to price a house to sell, you have to price it so that it will appraise, as well.  Other Agents (your competition) are getting Listing Appraisals.  Frankly, if you are relying on the same old CMA these days, it’s like bringing a knife to a gunfight. 

Aside from helping to price a house properly, there are several benefits to having a Listing Appraisal done:

  • Demonstrates to the Seller that the Agent is committed marketing the house effectively
  • Sets realistic expectations for Seller
  • Provides Seller with an unbiased opinion of how their home compares to others on the market
  • Helps maximize the asking price without overpricing or under-pricing
  • Can help identify potential problems, repairs or issues present at the house that may cause delays or make the sale fall through
  • Gives the Agent/Seller an indication of how a potential Buyer’s appraiser may view the property which could have an affect on the Buyer’s ability to obtain financing
  • Can help reduce days on market, resulting in higher selling prices and possibly eliminate unnecessary negotiations 
  • Saves time, money and effort

Selling a home can be a very emotional process.  Perhaps the most important benefit of a having a Listing Appraisal completed is that it allows Agents to maintain client relationships without having to be the bearer of bad news.  The Appraiser is the one to present any unpleasant or “bad” news to the Seller.  The Agent is there to aide the Seller with interpreting the news and devising a strategy to sell their home. 

Listing Appraisals can also provide some level of defense against issues arising from the HVCC Guidelines; namely, appraisers who are unfamiliar with your market, inexperienced appraisers and appraiser who may not have access to the best data for your market.  The Listing Appraisal will provide a benchmark against which any subsequent appraisals can be measured. 

So, as the Spring Selling Season begins to heat up, it is time to invest in your own success and that of your Sellers.  Get a Listing Appraisal from a Certified Real Estate Appraiser.  For $300-$450 depending on the size and complexity of the property being appraised, Agents and Sellers can get a solid understanding of the value of a property and use that information as a tool to develop the best pricing strategy possible for the property. 

For more information on Listing Appraisals please contact The Coyle Group at 215.836.5500.

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FHA Protocols

The FHA has a number of appraisal inspection protocols which must be followed by FHA Appraisers.  Agents and Sellers should be aware of these inspection protocols as they may affect the appraisal and upset settlement timelines.  These protocols are intended to assure a level of due diligence that must be performed by the appraiser in order to property assess whether or not a property meets the Minimum Property Standards set forth by HUD/FHA.

The Head & Shoulders Test – this standard simply means that when inspecting attics, basements and crawl spaces an FHA appraiser must enter the space to “head and shoulders” level, at a minimum, to allow for a proper visual inspection. 

Mechanicals & Plumbing – all of the homes mechanical systems and plumbing must be turned on and available to be tested by the appraiser.  A representative sampling of switches, outlets and fixtures must be tested.  The heater must be operational.  If temperatures permit, cooling systems must be tested.  Water pressure and temperature should also be tested.

If for some reason, the appraiser cannot access any of these spaces or complete any of the necessary system tests, the appraiser must contact the lender and reschedule another inspection of the property at such a time that property access can be made.

This is where Agents and Sellers have to be proactive.  Make sure that these areas are readily and safely accessible to the appraiser.  Have a ladder ready for the attic inspection if there are no drop stairs.  Clear the access to the crawl space and have a light available to light up those dark corners.  Remove any personal property that could block these areas from access and view.  Make sure that all of the utilities are turned on and are ready to be tested.

These simple steps will save time and money.  The FHA appraisal process will move more quickly without having to schedule unnecessary reinspection appointments; and the appraiser won’t have to charge a re-inspection fee.

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Price vs Value

I was invited to speak at the monthly meeting of local Caldwell Banker Agents and Brokers. I was there to discuss the appraisal process, recent market trends and how the HVCC is affecting agents and their clients.

After speaking, I opened up the floor to questions. One of the first questions was a great one. The agent asked me to explain the difference between Price and Value. I’ve been thinking about it and have come up with the following explanation.

When viewed against the backdrop of recent marketplaces shifts both locally and nationally over the past few years, the difference between Price and Value has become more and more important to understand. In fact, I feel that most Agents and their clients are using the terms incorrectly.

When discussing a property most Agents and their clients are thinking in terms of price. “What is the price of the house”, “will they come down in price”, “that price is high/low” and my favorite “did the appraisal come in at the selling price?” The fundamental problem in these scenarios is that it is not about price, it’s about value. The focus should be on what the value of the home is, not the price. Value takes into consideration today’s market and underlying market conditions. Price often does not.

Price is a marketing tool. By setting a price, the Seller is actually choosing a segment buyers who will hopefully see the price as being the value of the property. The closer the Seller positions the price to the true value of the property, the larger the pool of potential Buyers the house will appeal to. Just the opposite is true, as well. The further the price is placed from the actual value of a property, the smaller the pool of buyers who will see that value.

An example of this was this property in Gladwyne. This property was listed in 2009 for $19,500,000. It was eventually withdrawn from the market. In 2010, it was re-listed for $17,900,000. All totaled, the house sat on the market for more that 660 days.

This is a situation where the Seller priced the house so far above the perceived value placed on it by the market, that they effectively diminished the pool of potential buyers to zero. This market did not support the price that was being asked

Remember value is guided by the market. Price is guided by the individual Selling the property. If the price is not supported by the market, no sale will occur.

Common perception is that price and value are interchangable. They are not. Value relates to what something is really worth.  That is, what could one expect to receive in terms of money in the free market?  It doesn’t matter what the value was last year, last month, or even last week. Value is determined by the conditions and influences of the current marketplace. Too often, sellers get hung up on that fact when the marketplace moves in the other direction. They don’t want to acknowledge the fact that their home was worth $800,000 a year ago and, based on supply and demand, is only worth $700,000 in today’s market. Value is determined by the scarcity of something and the ease of replacement with similar, equal, or better products or service (i.e. The Principle of Substitution).  In its most basic form, this is a simple function of supply and demand.

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