I have been surprised, lately, at the number of people who have been asking me "Just what are closing costs? And why do I have to pay them?"
Whether you are a buyer or a seller, you will most likely have some responsibility for some closing costs in most real estate transactions. When you are the buyer, it is more likely that you will actually have to bring a check to settlement (also known as a 'closing' of a real estate transaction). Often, although not always, the seller's closing costs can come out of the proceeds of the sale. In either case, though, there are usually fees for both sides involved in a real estate transaction and these fees are called the "Closing costs".
Closing costs are normally enumerated for both the buyer and the seller on what is known as a "Settlement Statement". Imagine the confusion, and the opportunity for mistakes, or worse, misrepresentations, if everyone had different "Settlement Statement" formats!
As a result, the US Government developed a standard Settlement Statement form that is used nationwide. It is known as a HUD-1 sheet. It is so named because it was developed under the auspices of the US Department of Houseing and Urban Development, or HUD (pronounced "hud").
The HUD sheet is a legal sized sheet of paper, printed on both sides. It has a header area that has information about the transaction like the type of loan, the loan number, the names & addresses of the borrower, the seller, the lender, property address and the settlement agent.
Each space for data is labeled with either a number or letter so that it is easy to reference any particular piece of data, even over the telephone, if necessary.
The remaining space is divided into 2 columns. One is labeled "Summary of Borrower's Transaction" (also section "J.") and the other is labeled "Summary of Seller's Transaction" (also labeled as section "K.").
Each column then enumerates charges and credits in the appropriate column(s). The most obvious one and the one that appears first is the "Contract Sales Price". It appears as a debit on the borrowers' or buyers' side and as a credit on the sellers' side.
Other charges and fees include such things as the city, county and school taxes. These are paid by the buyer for the time that is remaining in the taxing period from settlement day onward. These are credited to the seller for the time period paid for in advance up until settlement day. This approach is called prorating.
Other fees for the buyer include such things as wire transfer fees, Appraisal Fees, Tax Service Fees, Administrative fees or Application fees.
One of the largest charges a buyer will generally see is the Buyers' share of the Transfer Tax. In the state of Pennsylvania, the Transfer Tax is often split between the Buyer and the Seller, although, as is the case with any item in a contract, this is negotiable.
Other fees include Document Preparation, Notary Fees, Title Insurance, Closing Service Letter fee, Recording Fees, andoveand hing Fees.
Any deposits or earnest monies which have been paid by the buyer are shown as credits on their side of the HUD sheet. Any monies paid by lending institutions in the form of mortgages are also reflected as credits to the buyer's side. Any Sellers' assist also shows as a credit. All of these funds are indicated as "Paid By or On Behalf Of Borrower".
When all of these items are added together and debits subtracted, the bottom line is the amount the borrower has to pay, or in some rare cases, gets refunded.
Similarly, the Summary of the Sellers' Transaction lists the typical debits and credits, which are added together to come up with a bottom line. This bottom line is usually unt of cash to the seller, but in some instances, the seller may have to come up with some cash as well. This can occur if the loans taken against the property exceed the amount of the sale.
The back side of the HUD sheet itemizes in more detail the items "Paid From Borrowers Funds at Settlement" and the items "Paid From Sellers' Funds Settlement". These totals are then transferred to the front of the sheet in the appropriate columns.
A Real Estate Transaction may involve upwards of 40 - 60 individuals, each one a professional in their specific area. The fees listed above are used to compensate each of those individuals for their professional involvement.
It is fairly accurate to say that Closing Costs are one of the largest barriers for most Home Buyers to bring a successful Real Estate transaction to conclusion.
Your Real Estate Agent should always provide you with an estimate of closing costs. This is referred to as a "Good Faith Estimate" and it should give you a very good idea how much money you will need to bring to settlement.
Terms and fees vary by state, so make sure that you check with your Real Estate Agent to see how your state may be different.
Friday, August 31, 2007
Thursday, March 15, 2007
The ABC's of Real Estate Agent Designations
When you receive a business card from a Real Estate Agent, or Realtor, you may notice that many of them have a series of letters after their name. SRES, GRI, CCIM, ePro, RECS, etc., etc.
What does all of this mean? Do more letters necessarily mean a better agent for me? Let's discuss this a bit and see.
First and foremost, it is important for the consumer to know that there is a difference between agents and Realtors. Agents are those who have been licensed by the state(s) in which they operate but have chosen for some reason NOT to belong to the industry's associations. The national association is, as one would expect, the National Association of Realtors (NAR). In the state of Pennsylvania, where I work, the state association is (you guessed it) the Pennsylvania Association of Realtors (PAR). In Lancaster County, the local association is (to no one's surprise, I am sure) the Lancaster Association of Realtors (LCAR).
It is the local Realtor associations that generally operate the local MLS or Multiple Listing Service. This is where all Realtors list their properties for other Realtors to view, sort of like a New York Stock Exchange of real estate properties. It is here where Realtors, and some agents, can go to find properties for their buyer clients and where they can list their sellers' properties for the whole market place to see.
Non-Realtor members can sometimes join the local Multiple Listing Service (MLS) but will have limited access the the services. The fact that someone is a Realtor shows a commitment to their business and a connection with the rest of the industry. This connection helps to ensure that they remain up-to-date with industry news, legal developments and ethical standards.
Being a Realtor is to real estate as being a member of the local Bar Association is to an attorney. I personally would not want to be represented in court by someone who has not maintained the minimal standards required by a professional association. And when it comes time to invest in the largest investment most people will make in their lives, I wouldn't feel comfortable working with someone who is not a Realtor.
But, what about all of those other letters on business cards? There are a lot more designations than I will be able to discuss here. But we will take a look at the basic ones that you are most likely to see on a Realtor's card. By the way, most of these designations require membership in the National Association of Realtors - another reason that you should opt to only work with Realtors.
I personally believe that the 2 most sought after designations by Realtors are the GRI and CRS designations. GRI stands for Graduate Realtors' Institute. To attain this designation, one must attend classes that cover everything from running a real estate business to properly representing a client. the courses are somewhat general in nature, but the GRI designation certainly shows a commitment that an agent has made to go the extra step in knowing his/her business better than the average Realtor.
The CRS designation stands for Council of Residential Specialists. Many of the courses required for the GRI designation are the same courses required for the CRS. The CRS is often thought of the highest designation that can be held by a residential Realtor®. More courses are required AND there is a volume or production requirement that is associated with this designation, making its requirements more stringent than any other designation. CRS certified members represent the top 4% of the agents in the industry.
Another popular designation is the ABR or Accredited Buyers' Agent. This accreditation is earned by a combination of course work that focuses on the responsibilities of representing buyers in a real estate transaction, and a production requirement of a certain number of transactions where the agent represents only the buyer.
As one might expect, there is also an Accredited Sellers's Representative or ASR. This is a new designation and is in the process of being authorized by the National Association. It is expected to be authorized in the next few months.
ePro Certified is another designation which is relatively new to the Realtor member. It is earned by completing a fairly rigorous online course with online tests and exercises. Attainment of this designation is an indication of a strong commitment to the use of technology in the real estate business. As the percentage of those looking to complete a real estate transaction beginning on the internet increases from 76%, the importance of this, and other technologies, becomes apparent.
If you are one who uses and depends upon technology to make your life easier and more efficient, and you want to use it to make your real estate transactions similarly more efficient, then this is a designation you should seek out.
Similarly, another technology-oriented designation is the RECS designation. This stands for membership in the Real Estate Cyberspace Society. Often those who are ePro Certified also are members of RECS. It should be noted that there are no tests or production requirements to earn this designation. One merely has to be a member, e.g. pay the annual dues. BUT, it is unlikely that many will remain members and not take advantage of the tremendous technology benefits offered by this organization. This group is going a long way to making Realtors more proficient with the technologies that are available today, and preparing Realtors to use the upcoming technologies of tomorrow.
I just realized that this post is getting to be rather lengthy, so perhaps a future installment on other designations will be appropriate. In the meantime, be aware that only those designations that relate to you or your situation are the ones that will be valuable to you. But, any designation shows the desire of a Realtor to go beyond the average requirements and improve themselves as professionals in their field.
What does all of this mean? Do more letters necessarily mean a better agent for me? Let's discuss this a bit and see.
First and foremost, it is important for the consumer to know that there is a difference between agents and Realtors. Agents are those who have been licensed by the state(s) in which they operate but have chosen for some reason NOT to belong to the industry's associations. The national association is, as one would expect, the National Association of Realtors (NAR). In the state of Pennsylvania, where I work, the state association is (you guessed it) the Pennsylvania Association of Realtors (PAR). In Lancaster County, the local association is (to no one's surprise, I am sure) the Lancaster Association of Realtors (LCAR).
It is the local Realtor associations that generally operate the local MLS or Multiple Listing Service. This is where all Realtors list their properties for other Realtors to view, sort of like a New York Stock Exchange of real estate properties. It is here where Realtors, and some agents, can go to find properties for their buyer clients and where they can list their sellers' properties for the whole market place to see.
Non-Realtor members can sometimes join the local Multiple Listing Service (MLS) but will have limited access the the services. The fact that someone is a Realtor shows a commitment to their business and a connection with the rest of the industry. This connection helps to ensure that they remain up-to-date with industry news, legal developments and ethical standards.
Being a Realtor is to real estate as being a member of the local Bar Association is to an attorney. I personally would not want to be represented in court by someone who has not maintained the minimal standards required by a professional association. And when it comes time to invest in the largest investment most people will make in their lives, I wouldn't feel comfortable working with someone who is not a Realtor.
But, what about all of those other letters on business cards? There are a lot more designations than I will be able to discuss here. But we will take a look at the basic ones that you are most likely to see on a Realtor's card. By the way, most of these designations require membership in the National Association of Realtors - another reason that you should opt to only work with Realtors.
I personally believe that the 2 most sought after designations by Realtors are the GRI and CRS designations. GRI stands for Graduate Realtors' Institute. To attain this designation, one must attend classes that cover everything from running a real estate business to properly representing a client. the courses are somewhat general in nature, but the GRI designation certainly shows a commitment that an agent has made to go the extra step in knowing his/her business better than the average Realtor.
The CRS designation stands for Council of Residential Specialists. Many of the courses required for the GRI designation are the same courses required for the CRS. The CRS is often thought of the highest designation that can be held by a residential Realtor®. More courses are required AND there is a volume or production requirement that is associated with this designation, making its requirements more stringent than any other designation. CRS certified members represent the top 4% of the agents in the industry.
Another popular designation is the ABR or Accredited Buyers' Agent. This accreditation is earned by a combination of course work that focuses on the responsibilities of representing buyers in a real estate transaction, and a production requirement of a certain number of transactions where the agent represents only the buyer.
As one might expect, there is also an Accredited Sellers's Representative or ASR. This is a new designation and is in the process of being authorized by the National Association. It is expected to be authorized in the next few months.
ePro Certified is another designation which is relatively new to the Realtor member. It is earned by completing a fairly rigorous online course with online tests and exercises. Attainment of this designation is an indication of a strong commitment to the use of technology in the real estate business. As the percentage of those looking to complete a real estate transaction beginning on the internet increases from 76%, the importance of this, and other technologies, becomes apparent.
If you are one who uses and depends upon technology to make your life easier and more efficient, and you want to use it to make your real estate transactions similarly more efficient, then this is a designation you should seek out.
Similarly, another technology-oriented designation is the RECS designation. This stands for membership in the Real Estate Cyberspace Society. Often those who are ePro Certified also are members of RECS. It should be noted that there are no tests or production requirements to earn this designation. One merely has to be a member, e.g. pay the annual dues. BUT, it is unlikely that many will remain members and not take advantage of the tremendous technology benefits offered by this organization. This group is going a long way to making Realtors more proficient with the technologies that are available today, and preparing Realtors to use the upcoming technologies of tomorrow.
I just realized that this post is getting to be rather lengthy, so perhaps a future installment on other designations will be appropriate. In the meantime, be aware that only those designations that relate to you or your situation are the ones that will be valuable to you. But, any designation shows the desire of a Realtor to go beyond the average requirements and improve themselves as professionals in their field.
Monday, March 12, 2007
ATTENTION! BUYER CONFIDENTIAL!
Those of us who work for full service brokers, like Coldwell Banker, have many programs to choose from and with which to work. So many programs, in fact, that often we forget that what we have is a huge smorgasbord of marketing programs for our clients while other brokers only offer very limited menus.
Our buyer programs are unlike any others. Did you know that you can get a head start on all Coldwell Banker listings when you choose to sign up on our web site? What do I mean by a head start?
We have what is referred to as the "Buyer First Look" program. Buyers who sign up on our Home Retriever program will be emailed property descriptions of new Coldwell Banker listings 48 - 72 hours before they are released to Realtor.com, other real estate web sites . . . even before they get listed on the MLS where other Realtors can see the listing!!!!
This is a HUGE advantage to the careful buyer. This is when the bargains get snapped up by Coldwell Banker buyers - before anyone even else even has a chance to see the listing - it is sold to a Coldwell Banker Buyer!!!
As a result, our buyers are able to save thousands of dollars AND get the best properties.
For the home seller, this means that if they have priced their home competitively (with the guidance of their agent) their home might even sell before the sign goes up in the yard!
For those of you who like the statistics part of the story, just absorb the following:
1) On Coldwell Banker Homesale Services Group web site, we had 2,044,973 electronic showings (property views) in 2006
2) We sent out 2,467,470 emails to our buyer clients last year!
3) We average 4,530 Home Retriever NEW registrants EACH MONTH
4) We maintain an average of 21,535 ACTIVE registrants in Home Retriever any given month.
5) Coldwell Banker closes over 33% of all real estate transactions in Lancaster County! Our next closest competitor closes 11% - and our other competitors drop off precipetiously from there! (4% range and lower).
So when it comes time to Sell your home OR to Buy a Home, we have the listings, we have the buyers and we have the programs to complete your deal quickly and at the highest dollar amount possible.
Call me and I will tell you about all of the programs that we can use to help you sell or buy your dream home.
Our buyer programs are unlike any others. Did you know that you can get a head start on all Coldwell Banker listings when you choose to sign up on our web site? What do I mean by a head start?
We have what is referred to as the "Buyer First Look" program. Buyers who sign up on our Home Retriever program will be emailed property descriptions of new Coldwell Banker listings 48 - 72 hours before they are released to Realtor.com, other real estate web sites . . . even before they get listed on the MLS where other Realtors can see the listing!!!!
This is a HUGE advantage to the careful buyer. This is when the bargains get snapped up by Coldwell Banker buyers - before anyone even else even has a chance to see the listing - it is sold to a Coldwell Banker Buyer!!!
As a result, our buyers are able to save thousands of dollars AND get the best properties.
For the home seller, this means that if they have priced their home competitively (with the guidance of their agent) their home might even sell before the sign goes up in the yard!
For those of you who like the statistics part of the story, just absorb the following:
1) On Coldwell Banker Homesale Services Group web site, we had 2,044,973 electronic showings (property views) in 2006
2) We sent out 2,467,470 emails to our buyer clients last year!
3) We average 4,530 Home Retriever NEW registrants EACH MONTH
4) We maintain an average of 21,535 ACTIVE registrants in Home Retriever any given month.
5) Coldwell Banker closes over 33% of all real estate transactions in Lancaster County! Our next closest competitor closes 11% - and our other competitors drop off precipetiously from there! (4% range and lower).
So when it comes time to Sell your home OR to Buy a Home, we have the listings, we have the buyers and we have the programs to complete your deal quickly and at the highest dollar amount possible.
Call me and I will tell you about all of the programs that we can use to help you sell or buy your dream home.
Buying or Selling Vintage Homes
In most of my marketing materials, I mention that I "Specialize in the Vintage and Premium Homes of Lancaster County, PA". I often get asked, "What makes a Vintage Home?". I also get asked "What makes a Premium Home?, but I'll describe that in a subsequent post.
Everyone has a different idea of what a "Vintage Home" should be. In Lancaster County, as in many places, those who have grown up here see the existing home inventory as "old houses". That terminology doesn't carry the perjorative connotations that it may have before the success of the "This Old House" tv series on Public Television stations, and now, more recently, on "Home and Garden TV" channels.
None-the-less, we tend to under appreciate those homes among which we grew up. Whether we think of them as "old houses" or "outdated" or whatever, many Americans recognize the quality and value in our older home inventory. MY definition of "Vintage Homes" is describing those homes that are 50 years old, and older.
As I write this blog entry, it is 2007. That means, according to my definition, any homes built prior to 1957 meet the criteria to be called a Vintage Home. I further like to include in my definition those homes that have some sort of architectural or stylistic element(s) that make the home unique.
These elements might include such things as corbels, knee brackets, barge boards, finials, crests, etc. that add a distinctive look to the home.
From a design standpoint, such elements as turrets, bow windows, gothic arches, tracery, stained glass, chimney pots, unusual roof or gable lines, floor plans or even landscape designs can make a home a Vintage Home, even if it isn't yet 50 years old.
The term is meant to be somewhat vague. It is merely an expression of my love of older homes. I want my clients to know that notwithstanding the problems involved in valuing an older home, there is a Realtor who is willing to look at things beyond the typical "how many bedrooms, how many baths and how many square feet" when determining the value of a Vintage Home.
Vintage Homes also require a different type of marketing than the typical house. Because I specialize in this type of home, I tend to have the buyers for these type of properties. They watch for my ads, check my web site and read my blogs.
Often Vintage Home buyers are willing to wait longer time periods to get "just the right home". Vintage Homes may look uninspiring from the outside and yet have drop-dead gorgeous interiors. Or conversely, they may have lovely exteriors with interiors that have been cut-up or unlivable for numerous reasons, so multiple photos are even more important than with more "predictable" contemporary homes.
Obviously the advertising venues are going to be more specific and differnet for Vintage Homes than for typical newer homes. Old House Journal, The National Preservation Trust Magazine, local Historical Society publications, B & B directories, etc. are places where old house lovers congregate to learn more about their Vintage Home or the type of home they wish for.
In any case, no matter what type of home you have to buy or sell, it is usually best to go to a "specialist" whenever possible. There are those who specialize in first time home buyers, condominium buyer/sellers, loft buyer/sellers, commercial buyer/sellers, etc.
Most Realtors, if they have continued to get educated during their career, are trained in all types of Real Estate, but it is your choice and an expression of your personal style whether you want a generalist or a specialist with whom to work.
Everyone has a different idea of what a "Vintage Home" should be. In Lancaster County, as in many places, those who have grown up here see the existing home inventory as "old houses". That terminology doesn't carry the perjorative connotations that it may have before the success of the "This Old House" tv series on Public Television stations, and now, more recently, on "Home and Garden TV" channels.
None-the-less, we tend to under appreciate those homes among which we grew up. Whether we think of them as "old houses" or "outdated" or whatever, many Americans recognize the quality and value in our older home inventory. MY definition of "Vintage Homes" is describing those homes that are 50 years old, and older.
As I write this blog entry, it is 2007. That means, according to my definition, any homes built prior to 1957 meet the criteria to be called a Vintage Home. I further like to include in my definition those homes that have some sort of architectural or stylistic element(s) that make the home unique.
These elements might include such things as corbels, knee brackets, barge boards, finials, crests, etc. that add a distinctive look to the home.
From a design standpoint, such elements as turrets, bow windows, gothic arches, tracery, stained glass, chimney pots, unusual roof or gable lines, floor plans or even landscape designs can make a home a Vintage Home, even if it isn't yet 50 years old.
The term is meant to be somewhat vague. It is merely an expression of my love of older homes. I want my clients to know that notwithstanding the problems involved in valuing an older home, there is a Realtor who is willing to look at things beyond the typical "how many bedrooms, how many baths and how many square feet" when determining the value of a Vintage Home.
Vintage Homes also require a different type of marketing than the typical house. Because I specialize in this type of home, I tend to have the buyers for these type of properties. They watch for my ads, check my web site and read my blogs.
Often Vintage Home buyers are willing to wait longer time periods to get "just the right home". Vintage Homes may look uninspiring from the outside and yet have drop-dead gorgeous interiors. Or conversely, they may have lovely exteriors with interiors that have been cut-up or unlivable for numerous reasons, so multiple photos are even more important than with more "predictable" contemporary homes.
Obviously the advertising venues are going to be more specific and differnet for Vintage Homes than for typical newer homes. Old House Journal, The National Preservation Trust Magazine, local Historical Society publications, B & B directories, etc. are places where old house lovers congregate to learn more about their Vintage Home or the type of home they wish for.
In any case, no matter what type of home you have to buy or sell, it is usually best to go to a "specialist" whenever possible. There are those who specialize in first time home buyers, condominium buyer/sellers, loft buyer/sellers, commercial buyer/sellers, etc.
Most Realtors, if they have continued to get educated during their career, are trained in all types of Real Estate, but it is your choice and an expression of your personal style whether you want a generalist or a specialist with whom to work.
Thursday, March 8, 2007
Real Estate CMA Confidential
I was talking with a potential client yesterday and happened to mention "CMA" in my conversation. The client said "What is a CMA?". So often in the Real Estate business, we get so used to using jargon that we forget not everyone "speaks the same language". It was obvious the client was somewhat hesitant to ask because I had used the term so casually as if I expected her to understand what it is.
When considering a Real Estate transaction, don't ever hesitate to ask your agent (or potential agent) the meanings of acronyms or terms with which you may not be familiar. It is much too important to allow pride on your part, or hubris on the agent's part, to stand in the way of complete understanding of what you are doing.
To get to the CMA itself, a CMA is a Competitive Market Analysis. It is used to determine the approximate market value of a home. They are used by selling agents to help set a price for sale. They are often used by Buyer's agents to help to determine what a fair offer ought to be.
The way a CMA is created is that an agent will look up on the MLS, homes that have sold in the same area and that are similar in style to the "Subject Property" or the property whose value is being determined.
By reviewing other properties in the same area, and by choosing properties that have Sold, recently Listed, are Pending, have Expired or have been Withdrawn, within a relatively recent time period, one can get a fairly accurate market value of a home.
It is always best to consider current market trends as well as the "raw numbers" for those categories mentioned above. e.g., if the market has been trending down as has been the case over this last year, the agent's recommendation of market value should be toward the lower end of the price range of the CMA.
Note that a CMA does not state that there is a single dollar amount associated with a home. In fact a price range is described along with a "Recommended Amount". A CMA is a snapshot of value at a moment in time. It is the approximate value of a home "on that particular day." Home values can change quickly depending upon circumstance.
A good agent will "adjust" their CMA's. That is, when comparing two, three or more houses with the subject property, adjustments have to be made to make them "equal" with one another to determine what a house similar to the subject would be worth.
For example if the subject has 3 bedrooms and the comparable property has 4 bedrooms, then an adjustment has to be made. Generally, a bedroom's MARKET VALUE is estimated to be worth between $2500 and $5000. Yes, it costs more than that to add a bedroom to a home, but the market value of a bedroom falls within this range in most of Lancaster County, PA. The cost of the bedroom is SUBTRACTED from the comparable's price because we are trying to make all properties similar to each other in value given the features and their costs.
Further adjustments are made for such things as central air, style of home, sq. footage - both above and below grade, number of bathrooms, number of bedrooms, garages, etc. to come up with a price range of similarly featured homes.
The closer the comparables are to the subject physically, the better for accuracy. This helps to reflect the desirability of the school district, the neighborhood, the access to shopping, churches, etc. It helps to reflect what the "market" is willing to pay for this location.
Comparables should be relatively contemporaneous, as well. Pulling up a comparable property that sold 2 years ago is usually of little use, just because markets can change so significantly in relatively short times.
If a home is in a development or in a relatively homogeneous neighborhood, I try to use a couple of rules of thumb for doing CMA's. One is I attempt to find comparables within 1/4 to 1 mile of the subject. Secondly, I use comparables whose status has been established or changed within the last 6 months - or a shorter time whenver possible.
There is still a fair amount of subjective judgment used to create a CMA, so they may vary in recommended prices or price ranges for the same home.
A CMA is NOT an appraisal! Most CMA's prepared by Real Estate Agents have a disclosure on them somewhere that says something to the affect of "This CMA is not an appraisal. Appraisals are done only by certified appraisers. A CMA is used to determine the approximate value of a property."
Because I specialize in Vintage and Premium Homes, which are often one of a kind, I often have to ignore my own "rules of thumb" for doing a CMA. For example, if I am attempting to determine the value of an 1869 Gothic Victorian, it is unlikely that I will find comparables within 1/4 of a mile - so I have to go further out for comparables. Sometimes as many as 25 miles!
Likewise, if I am doing a CMA on an architecturally designed custom Premium Home, I may have to go back further than 6 months to find a "comparable" that has sold.
In any case, if an agent follows some basic rules, puts in a good deal of time and research, and uses some common sense, he/she should be able to come up with a fairly accurate range of the market value of a particular property.
We will talk about the value "ranges" mentioned in CMA's and how to use them to your advantage, in an upcoming post.
Feel free to send me your comments, questions and concerns.
When considering a Real Estate transaction, don't ever hesitate to ask your agent (or potential agent) the meanings of acronyms or terms with which you may not be familiar. It is much too important to allow pride on your part, or hubris on the agent's part, to stand in the way of complete understanding of what you are doing.
To get to the CMA itself, a CMA is a Competitive Market Analysis. It is used to determine the approximate market value of a home. They are used by selling agents to help set a price for sale. They are often used by Buyer's agents to help to determine what a fair offer ought to be.
The way a CMA is created is that an agent will look up on the MLS, homes that have sold in the same area and that are similar in style to the "Subject Property" or the property whose value is being determined.
By reviewing other properties in the same area, and by choosing properties that have Sold, recently Listed, are Pending, have Expired or have been Withdrawn, within a relatively recent time period, one can get a fairly accurate market value of a home.
It is always best to consider current market trends as well as the "raw numbers" for those categories mentioned above. e.g., if the market has been trending down as has been the case over this last year, the agent's recommendation of market value should be toward the lower end of the price range of the CMA.
Note that a CMA does not state that there is a single dollar amount associated with a home. In fact a price range is described along with a "Recommended Amount". A CMA is a snapshot of value at a moment in time. It is the approximate value of a home "on that particular day." Home values can change quickly depending upon circumstance.
A good agent will "adjust" their CMA's. That is, when comparing two, three or more houses with the subject property, adjustments have to be made to make them "equal" with one another to determine what a house similar to the subject would be worth.
For example if the subject has 3 bedrooms and the comparable property has 4 bedrooms, then an adjustment has to be made. Generally, a bedroom's MARKET VALUE is estimated to be worth between $2500 and $5000. Yes, it costs more than that to add a bedroom to a home, but the market value of a bedroom falls within this range in most of Lancaster County, PA. The cost of the bedroom is SUBTRACTED from the comparable's price because we are trying to make all properties similar to each other in value given the features and their costs.
Further adjustments are made for such things as central air, style of home, sq. footage - both above and below grade, number of bathrooms, number of bedrooms, garages, etc. to come up with a price range of similarly featured homes.
The closer the comparables are to the subject physically, the better for accuracy. This helps to reflect the desirability of the school district, the neighborhood, the access to shopping, churches, etc. It helps to reflect what the "market" is willing to pay for this location.
Comparables should be relatively contemporaneous, as well. Pulling up a comparable property that sold 2 years ago is usually of little use, just because markets can change so significantly in relatively short times.
If a home is in a development or in a relatively homogeneous neighborhood, I try to use a couple of rules of thumb for doing CMA's. One is I attempt to find comparables within 1/4 to 1 mile of the subject. Secondly, I use comparables whose status has been established or changed within the last 6 months - or a shorter time whenver possible.
There is still a fair amount of subjective judgment used to create a CMA, so they may vary in recommended prices or price ranges for the same home.
A CMA is NOT an appraisal! Most CMA's prepared by Real Estate Agents have a disclosure on them somewhere that says something to the affect of "This CMA is not an appraisal. Appraisals are done only by certified appraisers. A CMA is used to determine the approximate value of a property."
Because I specialize in Vintage and Premium Homes, which are often one of a kind, I often have to ignore my own "rules of thumb" for doing a CMA. For example, if I am attempting to determine the value of an 1869 Gothic Victorian, it is unlikely that I will find comparables within 1/4 of a mile - so I have to go further out for comparables. Sometimes as many as 25 miles!
Likewise, if I am doing a CMA on an architecturally designed custom Premium Home, I may have to go back further than 6 months to find a "comparable" that has sold.
In any case, if an agent follows some basic rules, puts in a good deal of time and research, and uses some common sense, he/she should be able to come up with a fairly accurate range of the market value of a particular property.
We will talk about the value "ranges" mentioned in CMA's and how to use them to your advantage, in an upcoming post.
Feel free to send me your comments, questions and concerns.
Tuesday, March 6, 2007
Confidential: Real Estate "For Sale" Signs
I just got a comment from a reader that said: "Hi Gerry! I have a nephew that is looking for his first home in the Lancaster County area. He thinks that he must call the realtor that is listed on the yard sign to see and buy a particular house. I told him that I heard it is best if a person has his own realtor and that his representing agent can show him any home that is advertised. Is this true? Thanks for your advice. Sherri C"
This comment points out another 'confidential' fact about real estate that shouldn't be confidential; that is - NO! You generally do not WANT to call the agent whose name is listed on a sign in the yard!
Up until about 1998 in the State of Pennsylvania, if you were driving down the street in a neighborhood in which you had some interest and you saw a sign in the yard that said "For Sale", you would often call the agent listed on the sign. Often the agent would offer to show you the house. He/she would be friendly and outgoing and do everything possible to make you feel 'at ease' and comfortable. After a while, if the agent was good, you might begin liking them. It seems like they know a lot about the house and they are sure being helpful in showing you around. They appear to have your best interests in mind - or at least they seem to!
In fact, that agent's job is to represent and protect the BEST INTERESTS of the seller of the home. They have a written agreement that they will do everything within their power and within ethical practices, to get the BEST TERMS possible . . . for the SELLER!
That means that if you are the person who called the agent with the intention of buying this home, that agent will, through casual conversation, find out as much as they can about your motivations, timing, finances, etc., etc. Then they will "use" that information to negotiate ON BEHALF OF THE SELLER!!!
An analogy might be as follows. Let's say you are in a car accident with another driver. The other driver decides to sue you. You think to yourself "Sue me???!! The accident wasn't MY fault. I should be suing them!" But instead of hiring your own attorney, you decide you will just call their attorney and see if he will represent you, too. Maybe you can even save some money!
The conflict of interests is obvious here. But it is about the same situation as the home buyer who calls the listing agent about a home for sale. You want an agent that represents you and YOUR best interests - exlusively.
The reason that I mentioned 1998 above is because that is the year that Pennsylvania adopted the "Consumer Notice". It is sometimes referred to by agents as "the green sheet" because of the color of the form. At the top of the form, it indicates in bold type "This is NOT a Contract." This is so consumers are not afraid to sign it. It does not obligate you to anything or anyone. In fact, if you were to interview 10 real estate agents about listing your home, you would (or at least should) be asked to sign 10 copies of this notice.
Signing the notice merely indicates that the agent has described to you the various types of agency practiced in the State of Pennsylvania. In other words, he/she has described the various types of Real Estate Agents. These would include Buyers Agents, Sellers Agents, Dual Agents, Designated Agents and Transaction Licensees. They must also indicate WHICH TYPE of agent they would be during the proposed transaction. Again, in other words, they would have to tell you whether they would be representing you or someone else in the transaction (or no one at all).
It is the State's way of ensuring you know who your 'friends' are. And in the past, they weren't always who they said they were. Now they have to identify themselves!
Since this post is getting so long, I will describe the various sorts of agency in another post, but suffice it to say, that in a transaction as important and complex as a real estate purchase or sale, you want to have someone representing YOU and YOUR INTERESTS. You also want to know who anyone you happen to speak to, who they represent. It could save you thousands of dollars as well as having a legal and successful transaction.
This comment points out another 'confidential' fact about real estate that shouldn't be confidential; that is - NO! You generally do not WANT to call the agent whose name is listed on a sign in the yard!
Up until about 1998 in the State of Pennsylvania, if you were driving down the street in a neighborhood in which you had some interest and you saw a sign in the yard that said "For Sale", you would often call the agent listed on the sign. Often the agent would offer to show you the house. He/she would be friendly and outgoing and do everything possible to make you feel 'at ease' and comfortable. After a while, if the agent was good, you might begin liking them. It seems like they know a lot about the house and they are sure being helpful in showing you around. They appear to have your best interests in mind - or at least they seem to!
In fact, that agent's job is to represent and protect the BEST INTERESTS of the seller of the home. They have a written agreement that they will do everything within their power and within ethical practices, to get the BEST TERMS possible . . . for the SELLER!
That means that if you are the person who called the agent with the intention of buying this home, that agent will, through casual conversation, find out as much as they can about your motivations, timing, finances, etc., etc. Then they will "use" that information to negotiate ON BEHALF OF THE SELLER!!!
An analogy might be as follows. Let's say you are in a car accident with another driver. The other driver decides to sue you. You think to yourself "Sue me???!! The accident wasn't MY fault. I should be suing them!" But instead of hiring your own attorney, you decide you will just call their attorney and see if he will represent you, too. Maybe you can even save some money!
The conflict of interests is obvious here. But it is about the same situation as the home buyer who calls the listing agent about a home for sale. You want an agent that represents you and YOUR best interests - exlusively.
The reason that I mentioned 1998 above is because that is the year that Pennsylvania adopted the "Consumer Notice". It is sometimes referred to by agents as "the green sheet" because of the color of the form. At the top of the form, it indicates in bold type "This is NOT a Contract." This is so consumers are not afraid to sign it. It does not obligate you to anything or anyone. In fact, if you were to interview 10 real estate agents about listing your home, you would (or at least should) be asked to sign 10 copies of this notice.
Signing the notice merely indicates that the agent has described to you the various types of agency practiced in the State of Pennsylvania. In other words, he/she has described the various types of Real Estate Agents. These would include Buyers Agents, Sellers Agents, Dual Agents, Designated Agents and Transaction Licensees. They must also indicate WHICH TYPE of agent they would be during the proposed transaction. Again, in other words, they would have to tell you whether they would be representing you or someone else in the transaction (or no one at all).
It is the State's way of ensuring you know who your 'friends' are. And in the past, they weren't always who they said they were. Now they have to identify themselves!
Since this post is getting so long, I will describe the various sorts of agency in another post, but suffice it to say, that in a transaction as important and complex as a real estate purchase or sale, you want to have someone representing YOU and YOUR INTERESTS. You also want to know who anyone you happen to speak to, who they represent. It could save you thousands of dollars as well as having a legal and successful transaction.
Sunday, March 4, 2007
Open House Confidential
If agents were totally honest, they would admit that only 6% of the buyers of a particular home come from attending an Open House at that property. In fact, if sworn to the whole truth and nothing but the truth, Open Houses are actually a better source for buyer leads for the Realtor holding the Open House!
Then why should a seller agree to an Open House at all? Isn't it just a waste of time (except maybe for the agent?).
I would have to respond with "No they are NOT a waste of time for the seller. Not by a LONG shot!" "Why", you might ask?
Even though only 6% of Open House attendees buy the house that they see during an Open House, there are numerous reasons why a seller will want to have his agent hold Open Houses in his behalf.
A good agent will notify the neighbors about the upcoming Open House. Yes, that means that there will be a lot of 'nosey' neighbors who just want to see what the inside of your house looks like. Yes, that also means that most, if not all, of these 'prospects' are not prospects at all. If they already live in the neighborhood, then it is unlikely that they will be buying another house in the same neighborhood - although I have had this happen in especially desirable neighborhoods.
Then why notify the neighbors? Because in some cases, the neighbors know someone that is interested in moving into the neighborhood. Often friends, family or co-workers will say to a neighbor, when visiting, "Let me know if a house ever comes up for sale here. I love this neighborhood."
I have had it happen more than once that a neighbor has told someone that one of my listings was for sale, or that I was holding an Open House and maybe they would like to come and see it.
At an Open House in Grandview Heights, I had 18 couples come through one Sunday. Many of them were neighbors. Many of them were 'tire kickers'. Some of them even admitted to going to Open Houses just to get decorating ideas. BUT, one couple's daughter had told them about the Open House. They wanted to live near their newly born grandaughter, so they came and got very interested. For a number of reasons, they didn't get the house, but the point is, neighbors are often good sources for leads for the sale of your home.
For those other potential buyers (after I eliminated the tire kickers and the decorators) I was able to refer to other houses of similar style or in a similar area. I sold two houses as a direct result of these types of leads.
Again the seller might say "So how does that help me???!!!"
Because it works the other way around, too. Buyers who attend other Open Houses then get referred to YOUR home as a home that is in a similar neighborhood or from a similar property that, for whatever reason, they are not interested in buying. Some agents actually send potential buyers from an Open House they are holding to another Open House they think might be of interest.
So the inside information is that, yes, Open Houses are good for Realtors, but they are also good for sellers and buyers as well.
Then why should a seller agree to an Open House at all? Isn't it just a waste of time (except maybe for the agent?).
I would have to respond with "No they are NOT a waste of time for the seller. Not by a LONG shot!" "Why", you might ask?
Even though only 6% of Open House attendees buy the house that they see during an Open House, there are numerous reasons why a seller will want to have his agent hold Open Houses in his behalf.
A good agent will notify the neighbors about the upcoming Open House. Yes, that means that there will be a lot of 'nosey' neighbors who just want to see what the inside of your house looks like. Yes, that also means that most, if not all, of these 'prospects' are not prospects at all. If they already live in the neighborhood, then it is unlikely that they will be buying another house in the same neighborhood - although I have had this happen in especially desirable neighborhoods.
Then why notify the neighbors? Because in some cases, the neighbors know someone that is interested in moving into the neighborhood. Often friends, family or co-workers will say to a neighbor, when visiting, "Let me know if a house ever comes up for sale here. I love this neighborhood."
I have had it happen more than once that a neighbor has told someone that one of my listings was for sale, or that I was holding an Open House and maybe they would like to come and see it.
At an Open House in Grandview Heights, I had 18 couples come through one Sunday. Many of them were neighbors. Many of them were 'tire kickers'. Some of them even admitted to going to Open Houses just to get decorating ideas. BUT, one couple's daughter had told them about the Open House. They wanted to live near their newly born grandaughter, so they came and got very interested. For a number of reasons, they didn't get the house, but the point is, neighbors are often good sources for leads for the sale of your home.
For those other potential buyers (after I eliminated the tire kickers and the decorators) I was able to refer to other houses of similar style or in a similar area. I sold two houses as a direct result of these types of leads.
Again the seller might say "So how does that help me???!!!"
Because it works the other way around, too. Buyers who attend other Open Houses then get referred to YOUR home as a home that is in a similar neighborhood or from a similar property that, for whatever reason, they are not interested in buying. Some agents actually send potential buyers from an Open House they are holding to another Open House they think might be of interest.
So the inside information is that, yes, Open Houses are good for Realtors, but they are also good for sellers and buyers as well.
Saturday, March 3, 2007
Is there really confidential information about real estate?
With the advent of the internet, the real estate industry has gone through tectonic shifts in the way that it operates. Almost any information that was at one time available only to real estate agents, is now available, in some form or another, to the public in general via the internet. Some of it is good information and some of it is poor information, or just outright wrong. A lot of the information on the internet is poorly written and, as a result, easily misinterpreted and misused.
But, for the saavy user, one can get a good headstart on their real estate goals without the intervention of an agent. In all fairness, one of the reasons that over 86% of all real estate buyers and sellers begin their search for information on the internet is because, like the information on the 'net, there are good agents and bad agents (and some really horrible ones).
Everyone has probably heard a horror story about how their agent did little or nothing for them, and in the worst cases, even did things that may have frustrated them and their transactions. Those of us who are professional Realtors certainly hope that these cases are the exceptions!
None-the-less, we all know that there is good and bad out there, with regards to both information and agents. But, is there really still information that is witheld from the general public? The answer is an unqualified YES!
Of the 7 transactions I have conducted so far this year, 3 of them have not been published on any Multiple Listing Service (MLS), any web site or in any public record UNTIL the transaction was completed. They have been transactions between private individuals whom I have put in contact with each other or who had agreed to complete a transaction before contacting me. I then steered their transaction to completion quickly, efficiently and safely.
So, yes, there is still a lot of information out there that is limited to "those in the know" just by virtue of their experience and exposure in the industry. That is not to say that someone cannot complete all or part of a real estate transaction without the benefit of a Realtor, but one does sacrifice the advantage of an expert's opinion and advice.
The value of a Realtor today is not so much the information that he/she has that the consumer does not (although I will say that sifting through hundreds or thousands of web pages about real estate is not always the best or most efficient way to gather information about real estate), but more importantly, a Realtor should be acting as an advisor to clients.
This is a new (and intimidating) role for many agents, but for the professional Realtor, it has been a natural evolution and one that is welcomed by those who embrace it.
Your comments are welcome!
But, for the saavy user, one can get a good headstart on their real estate goals without the intervention of an agent. In all fairness, one of the reasons that over 86% of all real estate buyers and sellers begin their search for information on the internet is because, like the information on the 'net, there are good agents and bad agents (and some really horrible ones).
Everyone has probably heard a horror story about how their agent did little or nothing for them, and in the worst cases, even did things that may have frustrated them and their transactions. Those of us who are professional Realtors certainly hope that these cases are the exceptions!
None-the-less, we all know that there is good and bad out there, with regards to both information and agents. But, is there really still information that is witheld from the general public? The answer is an unqualified YES!
Of the 7 transactions I have conducted so far this year, 3 of them have not been published on any Multiple Listing Service (MLS), any web site or in any public record UNTIL the transaction was completed. They have been transactions between private individuals whom I have put in contact with each other or who had agreed to complete a transaction before contacting me. I then steered their transaction to completion quickly, efficiently and safely.
So, yes, there is still a lot of information out there that is limited to "those in the know" just by virtue of their experience and exposure in the industry. That is not to say that someone cannot complete all or part of a real estate transaction without the benefit of a Realtor, but one does sacrifice the advantage of an expert's opinion and advice.
The value of a Realtor today is not so much the information that he/she has that the consumer does not (although I will say that sifting through hundreds or thousands of web pages about real estate is not always the best or most efficient way to gather information about real estate), but more importantly, a Realtor should be acting as an advisor to clients.
This is a new (and intimidating) role for many agents, but for the professional Realtor, it has been a natural evolution and one that is welcomed by those who embrace it.
Your comments are welcome!
Subscribe to:
Posts (Atom)
