Having an appraisal come in lower than expected can be stressful, but it’s not the end of the world! Overpricing occurs in every market condition for many reasons. An abundance of foreclosures in the neighborhood, an over-inflated asking price, and incorrect pricing by the underwriter can all contribute to this awkward situation. But what should you do when the price comes back below expectations?
You may request a value appeal to have the appraiser review their reasoning for not using the similar sales sent by the lender. There may have been an oversight by the appraiser, especially during the busiest seasons.
You can also coordinate with your lender to arrange a second appraisal. Hopefully, you can receive a higher valuation.
If the home’s price was too high to begin with, it’s usually easiest for all parties involved to simply lower the asking price to reflect the low appraisal.
If the appraisal is lower than expected, the buyer may not qualify for the terms in the loan contingency, making them ineligible for the purchase. As long as the purchase contract has been written carefully by a professional, this will require the seller to return the buyer’s deposit upon cancellation.
Of course, each situation is unique and is best navigated with the help of an experienced lender and realtor. Contact me if you have questions!
This article originally appeared here on the Star Tribune website.
Are you living in a hot housing market?
To find out, the Star Tribune’s housing market index combines four key housing metrics for cities with more than 100 sales last year: Change in the average price per square foot; average days on market; percent of list price received by sellers and share of all sales that were foreclosures and short sales.
The Star Tribune ranked each community on the four metrics, then added the rankings together to get an index score. (More details are at the bottom of the page.)
The higher the index score, the more likely houses in those areas were likely to sell quickly and for nearly the full asking price. And because of big price gains, these were also communities that had few distressed sales.
Minneapolis and St. Paul neighborhoods, which had far fewer sales than their suburban counterparts, were compared with one another separately.
Use the map and list below to find your community and see deeper details about how it scored on the index and some key demographics. (Note it only includes communities with 100 or more sales in 2016.) Use the toggle button below the map to see index results for Minneapolis and St. Paul neighborhoods instead.
All data come from MAAR and RMLS of MN, Inc. Data deemed reliable but not guaranteed. Not to be reproduced without MAAR’s consent. Minneapolis Area Association of Realtors
About the index:
Numerical rankings were assigned to each community on four metrics, then those rankings were added together to create the final index score. We compared 103 cities against each other, and separately compared the 100 Minneapolis and St. Paul neighborhoods against each other. Here’s how the rankings worked for the four metrics:
1) We calculated the percentage change between the average price per square foot in 2016 and the average across the previous four years. The change between those two numbers was then ranked. A ranking of 1 represented the lowest change, while the highest score was 103 for the city analysis and 100 for the neighborhood analysis.
2) For 2016 average days on market, a score of 1 represented the longest days on market, while the city with the shortest days on market got the highest score (either 103 for cities or 100 for neighborhoods).
3) For the 2016 percent of original list price received, the community with the lowest percentage received a score of 1. The highest-scoring communities tended to have average percentage of list price received at or above 99 percent.
4) The index also factored in the percentage of distressed sales in 2016 (foreclosures and short sales). In this case, the community received a ranking of 1 if it had the highest percentage of distressed sales. Communities with low percentages of distressed sales got the highest rankings.
This article was written by Sally Forster Jones and originally appeared on the US News website. You can read it in its original context here.
The real estate market is competitive right now, especially in larger markets like Los Angeles and San Francisco. A lack of inventory over the last several years has pushed prices higher and created a challenging environment for buyers who are often up against five, 10 or even 20-plus buyers all bidding for the same property.
For buyers who are just entering the market or for those who have lost out on one or several properties, here are a few tips for putting your best foot forward and successfully navigating a multiple-offer situation.
Working with a real estate professional who is experienced and who is an expert in the market can be a crucial factor in determining whether you will be on the winning or losing end of a multiple offer situation.
Follow what is happening in the market. Are homes selling over asking price? Are seller’s underpricing to encourage multiple offers? What are similar properties selling for? An experienced agent, who you trust, can help to determine appropriate value based on the current market trends and can assist in negotiations and advice throughout the process.
If you know, or suspect, that you’re entering a multiple-offer situation, you’ll want to come in strong from the very beginning. Some buyers try to come in low initially as a negotiation strategy; however, if the property is priced well and is expecting multiple bidders, you may not want to risk having the seller disregard your offer immediately for not being a serious contender.
Many agents suggest their sellers counter all of the offers in a multiple-offer situation, but that decision is ultimately up to the seller. They may choose to counter all offers, they may only counter a portion of the best offers, or they may decide to choose an offer after the initial submission with no counters at all.
One of the most important factors when a seller is considering multiple offers is their belief that the chosen buyer is serious about buying the property, and that they have the ability to meet the terms and close the sale. One of the best ways to do this is to come in strong right from the start.
Make your offer as clean as possible and package everything to be submitted together in a coherent way. You don’t want the seller or their agent to have to chase you for paperwork, signatures or proof of funds.
Unless you’re paying all cash, it may be difficult or impossible to come in completely non-contingent, though there are ways to make your offer more appealing.
If you need financing, are you able to put more money down? Is it possible, or are you willing, to inspect the property prior to having an accepted offer so that you can come in with no physical inspection contingencies? Talk with your agent about what works for you so that you can come in with your strongest possible offer.
It sounds simple, but many agents and their buyers don’t take advantage of this simple step. Another easy way to make your offer stand out above the others is to have your agent find out what terms the seller is looking for and meet those needs.
For example: Do they want a long escrow period because their next home won’t be ready yet? Are they requesting a leaseback? Do they want to close quickly because they have already purchased and closed on a new property? Price and financing are not always the number one concern to a seller, so meeting their other terms is another way to make your offer more attractive.
Create a Personal Connection. Can a personal letter really work? The answer is yes, depending on the property, adding a personal touch to your offer can have an impact.
If the home you are writing on is a new construction or remodel being sold by a developer, a personal letter may not hold as much weight as the offer amount and terms. But for someone who is selling the home their family grew up in, there is often a strong emotional connection.
You definitely can’t deny the emotional involvement of residential real estate. A home is an incredibly personal purchase and for a seller, letting go can be a difficult process. A personal letter to the seller letting them know how much you love their home and how much you’ll enjoy it and will take care of it may be just the edge you need to overcome another prospective buyer.
Taking the time to write a thoughtful note also shows your dedication to the purchase and ensures the seller that you are a serious buyer.
It’s easy to get caught up in the process when you’re vying for a property with 10 other buyers. Try to stay level-headed and make sure that you are completely comfortable with your offer and terms.
Talk with your agent and be sure that you’re not over-bidding just to win the property, only to feel you’ve overpaid once you enter escrow. You want to come in with your best offer possible, as long as it still complies with your needs and goals.
You’ve done everything you can. You came up to your highest price and your best terms and you still don’t get an accepted offer.
If you’re one of the top contenders, the seller may offer you a backup position. As first backup, you are first in line to get the property at your final offer terms if the first buyer falls out of escrow or does not perform. If you still want the home, backup position can be a great option.
It can be incredibly frustrating to buy a home in a competitive marketplace. Inventory levels are low and prices are high. It’s normal for buyers to lose out on several homes before one sticks.
Sometimes it takes a few times around to fully understand the process and what is necessary to win in a multiple-offer situation. Working with a professional who you trust and respect can help the process feel less daunting.
Give yourself a break if things get too overwhelming. It can be emotionally draining to lose out on a home you had your heart set on. Give yourself time to reset before taking the plunge again. Stay positive, focus on the big picture, and keep your end goals in mind.
This article originally appeared on inman.com and was written by Teke Wiggin. Click here to view the original article in its complete original setting.
Zillow CEO Spencer Rascoff may have recently given real estate agents a gift they won’t soon forget: a sure-fire way to show that Zestimates can miss by a mile.
How? By selling a property for much less than its Zestimate.
On February 29, Rascoff sold a Seattle home for $1.05 million, 40 percent less than the Zestimate of $1.75 million shown on its property page a day later.
The gap between the Zestimate of Rascoff’s former property and its sales price has decreased only modestly since then.
Zillow readily acknowledges that Zestimates can be inaccurate, but some consumers can still take them at face value, causing headaches for agents.
Citing the chasm between the sales price of Rascoff’s former home and the property’s Zestimate may be one way for real estate professionals to show clients that Zestimates are, as Zillow says, only a conversation starter for pricing a home, not the final word on its value.
Philip Gray, a San Leandro, California-based appraiser, is taking this approach. Bringing up the Zestimate of the property Rascoff recently offloaded will help him deal with the frequent pushback he receives from homeowners “who think Zillow is the magic 8-ball,” he said.
Zestimates on Rascoff’s former home have certainly been overstating the property’s value, said Zillow Chief Analytics Officer Stan Humphries.
“The fact that we missed and there are empirical reasons we missed — that’s a great conversation that real estate agents should have” with consumers, he said, citing the property’s irregular lot and location on a busy road as partly responsible for its Zestimate’s inaccuracy.
But he expressed hope that, in the same discussion, agents also won’t instill “data nihilism” in consumers, and that they acknowledge that humans also can miss the mark.
In July, the Zestimate of Rascoff’s former property wouldn’t have raised the eyebrows of anyone who’s familiar with automated valuation models (AVMs). At $1.388 million, the property’s Zestimate was 7.3 percent higher than its listing price of $1.295 million at the time.
Since Zillow only shows revised historical Zestimate data on property pages, the home’s property page currently indicates that the property’s Zestimate was around $1.6 million in July 2015, somewhere in the neighborhood of $200,000 more than the Zestimate that actually appeared on its property page on July 17, 2015.
For all anyone knew in July 2015, the property might have eventually sold at a price closer to its Zestimate than its listing price.
But that didn’t happen. The home later sold for $1.05 million, 19 percent below its July listing price. Undergoing a number of price cuts, the property was listed and de-listed several times between when it was originally listed on July 7, 2015 and when it sold on February 29, 2016.
If Rascoff thought his home was worth its July listing price, the outcome of the sale might have come as a disappointment. But if the success of the transaction were judged by the property’s Zestimate, it was a failure.
The home’s Zestimate was $1,750,405 on March 1, the day after the property sold for $1,050,000.
If that Zestimate were accurate, it would mean the chief of the biggest name in real estate and the recent co-author of a book about “the new rules of real estate” would have sold his home for 40 percent less than it was worth.
In addition to highlighting the shortcomings of Zestimates, the Zestimate of Rascoff’s home also brings into focus the potential for some automated valuations to be more accurate than others.
Unlike Zillow’s property page on the home the day after it sold, Redfin’s page on the home showed that the sale had occurred. At the time, it displayed a valuation of $1.1 million — much closer to the property’s sales price of $1.05 million.
On Thursday, May 5, Redfin’s estimate of the home’s value was $1.3 million.
So while Zillow’s estimate had come down by around $140,000 since the home sold, Redfin’s had increased by about $200,000. Both differed from the price the home sold for a little over two months ago by hundreds of thousands of dollars.
Zillow has since added the sales price of Rascoff’s former home to its property page.
The property’s Zestimate had slipped from $1,750,405 the day after it sold to $1,608,670 on May 5, but its Zestimate on May 5 still only represented 65 percent of what the home sold for a little over two months before.
To judge the Zestimate’s accuracy based solely on the gap between the sales price of Rascoff’s former home and its Zestimate would probably be unfair. The discrepancy is unusually wide, according to what Zillow says is the Zestimate’s median error rate.
Zillow puts the Zestimate’s national median error rate at 7.9 percent, meaning half of Zestimates nationwide are within 7.9 percent of a home’s sales price and half are off by more than 7.9 percent. The listing portal claims an even higher level of accuracy in Seattle, where Rascoff’s former home is located.
There, Zestimates for half of homes are supposed to be within 6.1 percent of their sales price, while half are supposed to be off by more than 6.1 percent. This suggests that the Zestimate of Rascoff’s home missed by much more than normal in Seattle.
Why was that?
One reason is that the home’s Zestimate was comparing Rascoff’s former home, which is located on a triangular lot, to recently sold homes located on rectangular lots, according to Humphries.
Since rectangular lots provide more utility than triangular lots, he said, that meant the Zestimate was overvaluing the plot of Rascoff’s home.
Another reason was that Rascoff’s home was located on an “arterial” road while nearby recently sold homes sat on quieter streets.
Zillow continues to research how to program Zestimates to account for such factors, but “we haven’t fully cracked the nut on that one” yet, Humphries said.
Zillow Senior Economist Skylar Olsen added that the Zestimate of Rascoff’s home represents “the classic luxury homes problem.”
Zestimates can’t take into account “non-quantifiable facts,” such as layout design or lighting, and these facts can have much more of an effect on the values of luxury homes than less expensive properties, she said.
Real estate agents can see how special features impact a property’s value, but the “Zestimate algorithm can’t know” and “at this point in time, it’s not designed to know,” she said.
The reason why the Zestimate of Rascoff’s former property hasn’t dropped dramatically since selling at a much lower price than Zestimates leading up to the sale is that the Zestimates have a “smoothing function” designed to keep them from overreacting to recent property sales.
The Zestimate on the Rascoff’s former property will gradually come down to more closely resemble its sales price. And upcoming updates to the Zestimate’s algorithms will adjust the smoothing function so that the Zestimate of a home that sells will come to more closely mirror its sales price much faster.
Also worth noting is that Zillow does not have access to sold listing data from the Northwest Multiple Listing Service, the MLS that covers Seattle. Automated valuation models (AVMs) that crunch sold MLS data can have an advantage over AVMs that only use public sales records — which are the only sales records used by Zestimates covering Seattle.
While Zillow says on its website that most consumers understand that Zestimates truly are only estimates, the listing portal concedes that, sometimes, “someone will come along that insists on setting the price they are willing to buy or sell for based solely on the Zestimate.”
Zillow goes on to say that “education is the key” and that, armed with knowledge of how Zestimates are calculated along with their local median error rate, agents can explain “why the Zestimate is a good starting point as well as a historical reference, but it should not be used for pricing a home.”
While Zestimates can create hassles for agents, some agents would certainly agree with Zillow’s assertion that understanding how a Zestimate is calculated, along with its strengths and weaknesses, “can provide the real estate pro with an opportunity to demonstrate their expertise.”
The gap between the Zestimate of Rascoff’s former property and its sales price may have made it easier for agents to seize that opportunity.
Zillow’s Humphries’ hopes that, when putting Zestimates in perspective for consumers, agents will also acknowledge that Zestimates do have a scientific basis, and that nobody’s perfect — even trained professionals.
He noted that a study released by Zillow in 2012 showed that the typical gap between a home’s Zestimate and its sales price wasn’t that much larger than the typical gap between a home’s initial list price — which is often set based on a real estate agent’s recommendation — and its sales price.
“We acknowledge humans are great at this, and we’re great too — but they’re greater,” Humphries said.
This article originally appeared on inman.com and was written by Teke Wiggin. Click here to view the original article in its complete original setting.
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