Monthly Archives: December 2015

Buying a Home at a Home Auction

Real Estate Home Auctions have always existed from Sheriff’s sales to tax sales and the traditional “on the lawn” auction, but to buy a home at auction in today’s auction environment, there is a lot to know.

What you need to know about home auctions:
1. Advertised prices are OPENING BIDS not the acceptable reserve price – usually will sell for 30-50% more.
2. No contingencies for attorney review, inspection or mortgage approval.
3. If you don’t buy after contract, you will lose your earnest money – usually around $2,500.
4. You often will be required to pay a buyer fee or premium up to 5% of the purchase price.
5. Some home auctions will not allow any utility turn on to inspect home – buyer beware. NO FHA loans then.
6. You may not be able to see the home. Some are site unseen purchases. Appraisal could be an issue.
7. Some home auctions will have properties that the condition may not be loanable.
8. Contracts are not subject to change – again no attorney review.
9. Home auctions will not allow longer than 30 days to close. Lenders often can’t do that.
10. Some home auctions still have occupants in the home that the buyer will have to legally remove.
11. Home Auctions sell homes based on reserve prices that are minimally acceptable to the bank/seller. You will never know that amount.
12. You can bid online and there is no charge to bid.
13. After unknown reserve price is met, top bid wins.

What homes are sold at home auctions? The past 5 years have changed the way home auctions are done. Foreclosures and now even short sales are regularly put into home auctions by banks to quickly reduce inventory with market time. Each bank or government entity has their own policies and procedures, but most banks put the least marketable homes in home auctions. Some banks use home auctions for overflow houses that they want off their books quickly. So contrary to prior years, some home auctions have homes that are in decent areas and are not total gut jobs. It just depends. Some homes that are even occupied are sold at auction, which require the buyer to legally remove the occupants and purchase site unseen.

Home auctions also provide an ability for bids to increase the competition and SOMETIMES get close to market value. While deals exist in auctions, the price advertised on the internet is the opening bid, not the accepted price. Contrary to traditional home sales, the advertised price is usually 30 to 50% lower than the reserve “acceptable” price the bank will allow for the home. Banks usually want a reasonably close to market price for the homes. The past sales price and the area market values can give you an idea of what the bank will accept for the home.

Buying a home at a home auction is not a traditional sale and it does not have the same contingencies in a traditional purchase. Auctions are really designed for cash-buying investors, but it is possible for a regular buyer to buy at a home auction under circumstances but are always at a higher risk. You will have to pay a deposit at bid win and this will not be refundable. So if you don’t get a loan or if you find a dealbreaker at inspection, you lose that money. Usually minimum $2,500, so a lot to lose if something happens. And if you don’t like the contract, tough. No attorney review. You need to go in with eyes wide open and get expert help from a Realtor who understands auctions and the market to give you the best advice.

What affects Home and Property Values?

“This is going to lower our property values.” Most things people think affect their property values do not. Appraisals on home sales and refinances are done based on the home and the comparable home sales in the area.

Appraisals leave something to the subjective opinion of the appraiser, but mostly are done by guidelines. Appraisers also have to back up their appraisal to the government, bank and/or management company.

Appraisals are guided by size of the home, number of bedrooms, baths, size of the lot, type of home, and condition of the home (upgraded, not upgraded) based on a good, better, best type system. But the property value or home values are generally determined by a comparison of your home with 3-5 other similar homes sold in your neighborhood or immediate vicinity in the past 4 to 6 months. So if your neighbor underpriced and gave his home away because he wanted to move, does this affect your home value. Yes for at least 6 months.

If there are foreclosures and short sales in your neighborhood and the values are lower, will that affect your property and home value? Yes – again for that period. Appraisers do take foreclosures and short sales into consideration and do make adjustments for distressed properties and for condition of the home, but yes, it will affect your home value.

If you upgraded your home and no one else in the neighborhood did, will it affect your home value? Yes. Appraisers do make adjustments based on condition, upgrades or improvements, but are certainly not worth the equivalent of the value of the improvement.

The other factor is home buyers and what appeals to them. Because appraisals are largely based on the comparable home sales, home buyers’ selections of areas, homes, types of homes, etc. affects your home values. Home buyers are people and they react emotionally about a home, positives and negatives. Location, neighborhood, schools, nearby amenities, taxes, public transportation (too close or too far), as well as numbers of bedrooms, baths, upgrades and condition of homes affect their choices and will ultimately affect your home’s property value.

So school rankings, tax rates and crime statistics do NOT factor into an appraisal. Neither do proximity to trains, commercial property, schools, busy streets or parks. None of this is reviewed or factored by an appraiser. BUT, these are definitely factors that home buyers consider. If home buyers don’t like these things, sellers will have to lower prices to sell. Then it will affect your property values.

So what does and does not affect your home’s property value? In short, it doesn’t matter what YOU think your home is worth, it doesn’t matter what YOUR BUYER thinks your home is worth. It only matters what similar homes in your area have sold in the past 4-6 months and how your home compares with them.

Before selling or even preparing to sell, it is always best to call a Realtor to find out what the recent market is and how it does affect your home values.

Good Enough is Not Going to Sell Your Home

When selling a home, sellers often resist the feedback from their Realtor or homebuyers and other Realtors when viewing their home. Many people selling a home are often offended at the most and perplexed at the least at why homebuyers don’t immediately jump at the chance to offer them piles of money to buy their home.

The most popular phrase is “it’s good enough.” But “good enough” for who? Homebuyers today are picky. Fueled by social media, online resources and cable television home improvement shows, many homebuyers today are more educated on the recent trends in design and often homebuyers have visions of moving into a magazine picture home. Homebuyers expect a lot and that raises the bar for people selling a home.

Whether homebuyers should expect this level or what level they should expect will be dictated by their budget, their information and the marketplace available to them. But most certainly, it is NOT dictated by the person selling a home.

In every other buying decision, if buyers are not satisfied, there is another store, restaurant or car dealer that is available to suit their needs. Selling a home is no different. With some marketplace exceptions, if they don’t like your home, homebuyers will continue to look. That is a missed opportunity for anyone selling a home.

It is also interesting how when the same person selling a home gets a new home and employs many of today’s design trends and upgrades. So “good enough” means good enough for someone else only?

You are selling a home. A product. As difficult as it seems, emotion must come out of it. This is not your home. You are now a retailer, selling a product. If you want to sell, you need to know what your target market wants and give it to homebuyers, or be ready to stay on the market for a longer time, or drastically cut the price.

Remember, when selling a home your competition can be brand new homes, investor rehabbed homes and everyone else in your area. You need to consult with your Realtor to decide what is within your budget to do and what will have the most impact on homebuyers and return. Every dollar must count. Here are the top things you can do to make the most impact on homebuyers, some with little to no money.

1. Paint warm, neutral or decorator colors. Not white or cream or beige, but neutral or decorative but not too dark colors. Many homebuyers don’t want to do any work, least of all paint, but if you have a palette they feel comfortable in, you will get a faster sale and more money.

2. Out with the old. Get rid of the wallpaper, paneling, old curtains, gold light and plumbing fixtures, door and cabinet handles, etc. Can be reasonable to change out – even do yourself. Anything that dates a house other than today is subject to homebuyers like or dislike. Change out whatever you can. Even curtains and bedspreads. The bedspreads may not come with the house, but the more homebuyers can see themselves living in the home, the better off you are.

3. Clean. Clean tubs and showers, sinks and counters, carpets tile grout lines, appliances. No cobwebs or dust. Make everything shine like new.

4. Declutter. And reduce, put away or store (elsewhere) collections, too many personal pictures, additional furniture, and too many personal possessions. Keep everything lean so homebuyers can see themselves living in the home, not feel like they are intruding on your home.

5. Kitchens, baths have the biggest impact. Glass decorative tile backsplash, new flooring, new appliances. New and updated are what they are looking for. Consider your budget, but that will give the most impact when selling a home.

“Good enough” may be good for you in this home at this time, but ask yourself is it “good enough” for a homebuyer to buy.