'Collapse' of Home Values?

I heard a news report the other day that mentioned how people are afraid because of the ‘collapse’ of home values. I thought about this for a moment, but honestly, our home values have NOT collapsed, especially here in the Nashville area.

I guess we have to begin by defining what a collapse would be. I’m not sure I want to think about that, but through 2007 most areas around Nashville were still seeing home prices increase. It’s only been in the past few months that prices have actually decreased.

I’ve noticed the recent change because before the market shifted we would value properties based on the recent sales in the neighborhood. Now, it’s more accurate to look at what’s currently for sale and price the home competitively because prices have generally decreased since those homes sold 3-6 months ago.

So, I admit that prices are less in Nashville, but we’re talking about a few percentage points- nothing like a ‘collapse’. The people that are experiencing the most pain are those who bought at the top of the market and are now faced with a need to sell. It’s similar to those who invested in the stock market when the Dow was 14000 and are now selling.

However, you don’t actually lose money in the market until you sell. If you bought at the top of the market, hang on to that investment. Don’t buy high and sell low if you can help it.

The market will come back. I’m not sure when, but historically it always does. It also always goes up much more than it comes down. If you see your home as a long-term investment, you’ll be fine.

Okay, so there’s no collapse. I’m glad we cleared that up.

-Peter

P.S. Another myth is that the supply of homes is way up. Not true for single family homes. Read more here.

www.NashvilleCityHomes.com

How Much Will I Make Selling My Home?

One of the trickiest parts of my job is to help a seller understand how much money they’ll make at the closing. We call this the Seller’s Net Sheet. It’s tricky to come up with because I’m not a closing attorney, and it’s difficult to nail down all those pesky fees ahead of time. However, this tool is very helpful in comparing various offers and helping the seller get a grip on how the monies were disbursed. Let’s take a closer look…

In putting together a Seller’s Net Sheet we start with the Purchase Price. This is sometimes called the “Gross” Sales Price. Next we subtract all the items that the Seller has to pay for at closing. Here are some of the more common ones:

Commissions- The Realtor's commissions are negotiated at the time of listing and is usually a percentage of the Gross Sales Price. Part of the amount, usually half, goes to the listing agent and the rest is paid to the buyer’s agent.

Title Search/Policy- For each transaction, a title search is performed to ensure that the title if free of defects. If the title search is satisfactory, a title policy is issued to protect the buyer against future issues that may arise with the title to the property. The cost of this is based on the purchase price. For a $150,000 property, the title insurance will cost around $800. This varies so when I’m doing a net sheet I just call the title company to get the amount from them.

Buyer’s Closing Costs- It is quite common these days for the Buyer’s to ask for the sellers to pay some of their closing costs. It may be a set amount or a percentage of the price. Most loan programs limit this to 3% of the purchase price.

Down Payment Assistance- Through down payment assistance programs, charities like Nehemiah and Ameridream may pay a portion of the buyer’s down payment. For this to happen, the seller is asked to contribute to these charities. We have to subtract this amount from the sales price as well, not forgetting any ‘processing’ that the charities charge, usually an extra $500. (Note: These programs are set to disappear soon with the latest housing legislation that congress has passed.)

Closing Attorney’s Fees/ Doc Prep Fees- These vary depending on your closing agency, but is usually around $250-300. You might also encounter some smaller $20 fees for overnighting paperwork or wiring monies for your loan payoff, as well as courier fees to get the documents to the Buyer’s closing attorney.

Property Taxes- In Nashville, these taxes are paid in arrears, meaning that they are due at the end of the period. Therefore, at the closing, the sellers will pay their portion of the property taxes to the buyer, who will pay all the taxes for the year at a later date. In effect, each party pays their share of taxes for the time they own the property. For sellers who aren’t expecting this, it can be an unexpected surprise at closing.

Mortgage Payoff- It’s good to have an estimate of your mortgage payoff, which is usually found on your monthly mortgage statement. If you need a more accurate amount, you can call your lender, however, remember that interest is charged daily, so the amount will change every day. Don’t forget to include any second mortgage’s that you may have on the home.

Other Fees- There can be many other items negotiated as part of an offer. Items like termite inspections and home warranties are the most common.

After subtracting all of these items from the Purchase Price, we should have a good estimate of the “Seller’s Proceeds”. This is the amount of the check that the Seller should get from the closing attorney after the transaction closes.

It’s a learned skill to do a net sheet. I’m proud to say I had a closing last week that was within $100 of the estimate I gave to the Sellers. Even still, I get nervous every time I’m doing a net sheet because if my numbers are off, you can bet that the sellers will let me have an earful about it!

-Peter
www.NashvilleCityHomes.com

Take the Mystery Out of Home Prices.

It's always interesting to talk with people about the price of their home. It's usually a tedious subject because the homeowner often already has a price in mind. Perhaps they know of one down the street that sold for a high amount, or they've been renovating and need to price it high enough to make a profit. Sometimes they just want to get enough to pay back numerous home equity loans.

These methods may make some sense, but they may also be totally inaccurate. The prices for homes in the United States, like most other products, are based on supply and demand. When there are lots of buyers demanding a home on your street (with limited supply) the prices will go up. However, if no one wants to live on your street the prices will drop.

Even though the press may report home sales stats like the daily Dow Jones average, local home price trends typically move slower and even tend to lag behind large economic changes. When the changes do happen they may be felt most in the luxury market as opposed to those in the the lower price ranges due to a more steady demand for housing a these prices.

So, how do you really know what your home is worth? Good question. Here's the answer: It's worth whatever someone is willing to pay for it.

Before you say that was a stupid answer let me explain. Your homes value is not based on what you spent on repairs or how much you need to buy your next home. It's based on recent comparable home sales in your neighborhood.

For a Realtor to research this we use what's known as a Comparative Market Analysis, or CMA. We can pull historical data for all the surrounding homes that have sold recently and get an average price per square foot. Using the square footage of your home we can get an estimate of what your home may be worth.

To go further, we'll look at those homes and pick out the ones that are most like your home. These are called "comparable homes". If you live in a subdivision where all the homes are the same basic size and floor plan, this is pretty easy. However, if you live in a historic neighborhood where every home is unique and of varying size, it may be more of a challenge.

This is where a Realtor's experience and opinion come in. The CMA is the starting point. It shows you the cold, hard sales data to get the price in the right ballpark. Then, based on the unique selling features of a home and your specific wants and needs, the final price is arrived at.

Of course, the home seller ultimately decides on the price. These are all tools to aid in that decision. When actually preparing to list a home for sale, I will go much deeper into this process to really understand the neighborhood trends and what buyers are wanting. I'll have to get into this on another day.

Intrigued? Interested in what your home may be worth? Click here to request a Free Home Value Report.

Peter

www.NashvilleCityHomes.com
REALTOR. City Home Specialist.