How to Bridge the Appraisal Gap in Today’s Real Estate Market

If you’re searching for drama, don’t limit yourself to Netflix. Instead, tune in to the real estate market, where the competition among buyers has never been fiercer. And with homes selling for record highs,1 the appraisal process—historically a standard part of a home purchase—is receiving more attention than ever.

That’s because some sellers are finding out the hard way that a strong offer can fizzle quickly when an appraisal comes in below the contract price. Traditionally, the sale of a home is contingent on a satisfactory valuation. But in a rapidly appreciating market, it can be difficult for appraisals to keep pace with rising prices.

Thus, many sellers in today’s market favor buyers who are willing to guarantee their full offer price—even if the property appraises for less. For the buyer, that could require a financial leap of faith that the home is a solid investment. It also means they may need to come up with additional cash at closing to cover the gap.

Whether you’re a buyer or a seller, it’s never been more important to understand the appraisal process and how it can be impacted by a quickly appreciating and highly competitive housing market. It’s also crucial to work with a skilled real estate agent who can guide you to a successful closing without overpaying (if you’re a buyer) or overcompensating (if you’re a seller). Find out how appraisals work—and in some cases, don’t work—in today’s unique real estate environment.

APPRAISAL REQUIREMENTS

An appraisal is an objective assessment of a property’s market value performed by an independent authorized appraiser. Mortgage lenders require an appraisal to lower their risk of loss in the event a buyer defaults on their loan. It provides assurance that the home’s value meets or exceeds the amount being lent for its purchase.

In most cases, a licensed appraiser will analyze the property’s condition and review the value of comparable properties that have recently sold.Mortgage borrowers are usually expected to pay the cost of an appraisal. These fees are often due upfront and non-refundable.2

Appraisal requirements can vary by lender and loan type, and in today’s market in-person appraisal waivers have become much more common. Analysis of the property, the local market, and the buyer’s qualifications will determine whether the appraisal will be waived. Not all properties or buyers will qualify, and not all mortgage lenders will utilize this system.3 If you’re applying for a mortgage, be sure to ask your lender about their specific terms.  

If you’re a cash buyer, you may choose—but are not obligated—to order an appraisal.

APPRAISALS IN A RAPIDLY SHIFTING MARKET

An appraisal contingency is a standard inclusion in a home purchase offer. It enables the buyer to make the closing of the transaction dependent on a satisfactory appraisal wherein the value of the property is at or near the purchase price. This helps to reassure the buyer (and their lender) that they are paying fair market value for the home and allows them to cancel the contract if the appraisal is lower than expected.

Low appraisals are not common, but they are more likely to happen in a rapidly appreciating market, like the one we’re experiencing now.4 That’s because appraisers must use comparable sales (commonly referred to as comps) to determine a property’s value. These could include homes that went under contract weeks or even months ago. With home prices rising so quickly,5 today’s comps may be lagging behind the market’s current reality. Thus, the appraiser could be basing their assessment on stale data, resulting in a low valuation.

HOW ARE BUYERS AND SELLERS IMPACTED BY A LOW APPRAISAL?

When a property appraises for less than the contract price, you end up with an appraisal gap. In a more balanced market, that could be cause for a renegotiation. In today’s market, however, sellers often hold the upper hand.

That’s why some buyers are using the potential for an appraisal gap as a way to strengthen their bids. They’re proposing to take on some or all of the risk of a low appraisal by adding gap coverage or a contingency waiver to their offer.

Appraisal Gap Coverage


Buyers with some extra cash on hand may opt to add an appraisal gap coverage clause to their offer.It provides an added level of reassurance to the sellers that, in the event of a low appraisal, the buyer is willing and able to cover the gap up to a certain amount.6

For example, let’s say a home is listed for $200,000 and the buyers offer $220,000 with $10,000 in appraisal gap coverage. Now, let’s say the property appraises for $205,000. The new purchase price would be $215,000. The buyers would be responsible for paying $10,000 of that in cash directly to the seller because, in most cases, mortgage companies won’t include appraisal gap coverage in a home loan.6

Waiving The Appraisal Contingency

Some buyers with a higher risk tolerance—and the financial means—may be willing to waive the appraisal contingency altogether. However, this strategy isn’t for everyone and must be considered on a case-by-case basis.

It’s important to remember that waiving an appraisal contingency can leave a buyer vulnerable if the appraisal comes back much lower than the contract price. Without an appraisal contingency, a buyer will be obligated to cover the difference or be forced to walk away from the transaction and relinquish their earnest money deposit to the sellers.7

It’s vital that both buyers and sellers understand the benefits and risks involved with these and other competitive tactics that are becoming more commonplace in today’s market. We can help you chart the best course of action given your individual circumstances.

DON’T WAIVE YOUR RIGHT TO THE BEST REPRESENTATION

There’s never been a market quite like this one before. That’s why you need a master negotiator on your side who has the skills, instincts, and experience to get the deal done…no matter what surprises may pop up along the way. If you’re a buyer, we can help you compete in this unprecedented market—without getting steamrolled. And if you’re a seller, we know how to get top dollar for your home while minimizing hassle and stress. Contact us today to schedule a complimentary consultation.

Sources:

  1. Wall Street Journal –
    https://www.wsj.com/articles/u-s-home-prices-push-to-record-high-slowing-pace-of-purchases-11621605953
  2. US News & World Report – https://realestate.usnews.com/real-estate/articles/what-is-a-home-appraisal-and-who-pays-for-it
  3. Rocket Mortgage –
    https://www.rocketmortgage.com/learn/appraisal-waiver 
  4. Money –
    https://money.com/coronavirus-low-home-appraisal/
  5. S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index – https://www.spglobal.com/spdji/en/indices/indicators/sp-corelogic-case-shiller-20-city-composite-home-price-nsa-index/#overview
  6. Bigger Pockets –
    https://www.biggerpockets.com/blog/appraisal-gap-coverage
  7. Washington Post –
    https://www.washingtonpost.com/realestate/competitive-buyers-waive-contingencies-to-score-homes-in-tight-market/2021/06/02/d335b050-af2c-11eb-b476-c3b287e52a01_story.html
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Matching Cabinet Hardware

Whether it’s with knobs, pulls, handles, or some other hardware, you need to have some way to access your cabinets. If your cabinets are relatively new, that hardware is probably fairly modern. But for older cabinets, you may need to replace the hardware, and it might be kind of tricky to figure how to get it. This can make replacing old cabinet hardware stressful, especially if you’re not sure where to start. While your success will depend on the specific pieces that you’re looking for and how recently they were manufactured, here’s some info that will hopefully point you in the right direction if you find yourself on a hardware hunt.

The Need to Match Hardware

Why do you need to match old cabinet hardware, anyway? There are a few reasons. The most common is that handles and knobs sometimes become damaged or break over time, especially if the cabinets see frequent use. You may also find yourself adding new cabinets or other fixtures that you want to match as closely to the older cabinets as possible, including similar finishes and hardware. In some cases it may even be a matter of hardware being removed to repair or replace cabinet doors and then getting lost or accidentally tossed out. Whatever the reason, you want matching hardware, and it doesn’t seem to be available in stores anymore.

Sources for Older Hardware

When trying to match old hardware, it’s important to start by checking if it’s actually available. Visit cabinet or woodworking shops in your area with pictures of the hardware you need (or the actual hardware itself) to see if anyone can recognize it and know where to order it. If that doesn’t pan out, check the internet; there are a lot of stores online that specialize in older items, and this can include out-of-production hardware and other materials. Even if you can’t find the specific hardware from its original manufacturing run, you may be able to locate visually similar reproductions that will at least match the look of your existing hardware.

If that doesn’t work, spend some time searching online auction sites to see if you can find the hardware that you’re looking for there. While online auctions can be a mixed bag, there are a lot of people who post used or out-of-production items that they have a surplus of to make some money off things that they no longer need. It may be worth checking a few times on different days, as new items are listed all the time, and you never know when someone is going to list that handle or knob that you need for a few dollars.

Unable to Find a Match?

Unfortunately, there may be some cases where you simply can’t find a match for your old cabinet hardware no matter how hard you try. If this happens, you typically have two options: You can upgrade all your hardware to a new style, or you can find something that complements your existing hardware to create a mix-and-match arrangement. It basically comes down to whether you want to upgrade some of your existing hardware or all of it with something a bit newer. You can choose pieces that complement your cabinets, hardware that goes well with sinks and other fixtures in the room, or even something significantly more modern than the cabinets to create a visual contrast between the cabinets and the hardware. Regardless of what you choose, be sure to pick something that you enjoy.

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Considering a Yard Pond?

Ponds are increasingly popular water features for homeowners. Having a small decorative pond in your yard can help you unwind, provide a unique ecosystem for certain animals, and just generally add some beauty to your property. With that said, it’s important to realize that installing a yard pond is a bigger task than just digging a hole and adding some water. Before diving into a pond project, it’s important that you stop to consider everything that’s involved with the installation, as well as some of the things you’ll need for upkeep once the pond is finished. This isn’t meant to discourage you, just to make you sure that you’re aware of all of this before you get too far into your planning.

Installing a Yard Pond

Yard ponds can range in size between a small 550-gallon pond to one that holds 2,000 gallons or more, so it’s important to take the time to plan exactly how large you want your pond to be. Try outlining your pond with a rope to get an idea of its dimensions, then add an extra 2 feet or so around the entire border to account for transitionary plants, rocks, and other border features. You’ll want to keep an eye on the area once you have it outlined, since most pond plants require at least six hours of sunlight or more per day to thrive.

You’ll also need to have a way to get power to the pond to power any pumps or fountains that you use to circulate water, and a means to add additional water as needed if your local rainfall isn’t sufficient to counter evaporation. Other necessities include a pond liner to keep the water from simply soaking into the ground, any fish or plants that you want to add to the pond once it’s installed, and a pond net or skimmer to keep leaves, seed pods, and similar items from clogging up your pump in the spring and fall. In addition to all of that, you may also need permits or other legal documents before you can break ground, and you will likely have to have a survey to mark underground pipes and wires to avoid potential fines.

Yard Pond Upkeep

Once a pond is installed, there are some things you should keep in mind as part of your ongoing maintenance plan. You’ll need to check your pond every week for leaves, debris, and other things that might gunk up the works and potentially harm fish or plants, though this can be negated with a pond net during the fall or other times when a lot of potential debris is likely. Checking the water level is also important, especially during the summer. If you have cold winters, you may also need a heater or air bubbler to keep everything from freezing as well. In most cases you will only need to spend around 15 to 30 minutes a week checking on these issues, but that can vary depending on where you live.

Another thing you’ll want to consider is insects. While dragonflies and similar insects are often a welcome sight around ponds, water features like this can also be a breeding ground for mosquitoes if you aren’t careful. Making sure that the water is sufficiently circulated or adding products that are designed to prevent mosquito growth without harming fish or other animals are good ways to take care of this problem, though some of these treatments may have to be repeated multiple times per year. Certain fish may also help to keep the mosquito population under control.

Ready to Build Your Pond?

A yard pond can be a major undertaking, but it can really pay off once it’s finished. If you’re not sure where to start, it’s a good idea to consult with a landscaper or water feature installer in your area to see what will work best for your property. HomeKeepr can help you connect with the pros you need to make your pond dreams a reality; sign up for a free account today to get started.

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Look for Creepy Crawlers

The Alfano Group: Pest inspections protect home buyers and ...

Termites and other insects aren’t just annoying to have in your home. They can cause real damage to the structure.

A regular inspection of your property by a pro can head off at the pass any problems before they become too serious. A routine inspection of the interior of your home, including attic and basement, as well as the exterior will give you some peace of mind.

Having a Pest Inspection done once a year will give you the peace of mind you deserve. Professionals will spend some time poking around every corner of your home, crawl space, attic, and yard to give you a full assessment of your situation. If you get a clean bill of health, consider signing up for a quarterly (or more frequent if necessary) preemptive spraying plan to combat any future issues. Generally, the pest experts will spray the perimeter of your home with commercial grade insecticides that will keep your home pest and insect free. We recommend these types of plans because they are generally quite cost effective and save you from the anxiety of having an infestation at some point.

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5 Step Strategy for Downsizing Your Home

 

August 2019 - MVP - Social Media ImageIn our “bigger is better” culture, there’s an expectation that each home should be larger and grander than the last. But life changes like divorce, kids leaving for college, or even the simple act of growing older can prompt us to find a smaller home that better suits our shifting needs and lifestyle.

In fact, the advantages of downsizing are being increasingly recognized. A “tiny house movement” has gained passionate advocates who appreciate the benefits of living simply at any age and stage of life. Not only does a smaller home typically cost less, it also takes less time and effort to maintain.1

Whatever your reasons are for downsizing, the process can seem overwhelming. That’s why we’ve outlined five steps to guide you on your journey. And in the end, we hope you’ll find that less is more … more comfort, more security, and more time and energy to spend on the activities and the people that you love.

5 STEPS TO DOWNSIZING SUCCESS

1. Determine Your Goals and Limitations

The first step is to figure out your goals for your new living environment. Do you want to live closer to family? Are you hoping to cut down on home maintenance? Are you looking for a community with certain amenities?

You should also consider any limitations that will impact the home you choose. For example, are stairs an issue? Do you need access to medical care? In the case of divorce, are there child-custody issues you need to take into account?

Estimate how long you plan to stay in your new home. Do you expect your needs to change during that time?

Make a “wish list” of features and prioritize them from most to least important. If you’d like any assistance with this process, give us a call! We’d be happy to sit down with you for a free consultation. We can also help you assess the value of your current home so you can set a realistic budget for your new one.

2. Find the Perfect New Home

Once you’ve established your “wish list,” we can begin the search for your new home. As local market experts, we know the ins and outs of all the top communities in our area. We can help you determine the neighborhood and type of home that will best fit your wants and needs.

From family neighborhoods to retirement communities, we serve clients in all stages of life. If you or a loved one are in need of extended support, we can also share our knowledge of the assisted living facilities in town and help you identify those that offer the optimal level of care.

Are you planning to relocate out of town? We can refer you to a trusted real estate professional in your target area who can help you with your search.

3. Sell Your Current Home

If you’re ready to sell your current home, we’ll begin the process of preparing to list it as we search for your new one.

We have a special interest in helping homeowners who are facing major life transitions, and we offer a full-service real estate experience that aims to remove as much of the stress and hassle of selling your home as possible. We also understand that many of our clients choose to downsize for financial reasons, so we employ tactics and strategies to maximize the potential sales revenue of your home.

We do this by employing our proven three-part approach, which focuses on optimum preparation, pricing, and promotion. As part of that plan, we invest in an aggressive marketing strategy that utilizes online and social media platforms to connect with consumers and offline channels to connect with local real estate agents. This ensures your property gets maximum exposure to prospective buyers.

4. Sort and Pack Your Belongings

Even before you find your new home, you can begin preparing for your move. A smaller home means less space for your furniture and other possessions, so you will need to decide what to keep and what to sell or donate. Sorting through an entire house full of belongings will take time, so begin as early as possible.

Parting with personal possessions can be an extremely emotional process. Start with a small, unemotional space like a laundry or powder room and work your way up to larger rooms. Focus on eliminating duplicates and anything you don’t regularly use. If you have sentimental pieces, family heirlooms, or just useful items you no longer need, think about who in your life would benefit from having them. For large collections, consider keeping one or two favorite pieces and photographing the rest to put in an album.2

Make sure the items you keep help you achieve the goals you outlined in Step 1. For example, if you want a home that’s easier to clean, cut down on knickknacks that require frequent dusting. If you’re moving to be closer to your grandchildren, choose the shatterproof plates over the antique china.

Allow yourself time to take breaks if you start to feel overwhelmed. If you’re helping a loved one with a move, try to be a patient listener if they want to stop and share stories about particular items or memories throughout the process.3 This can be therapeutic for them and an opportunity for you to learn family history that may otherwise have been forgotten.

5. Get Help When You Need It

Moving is stressful in any situation. But if you’re downsizing due to health issues or a major life change, it can be an especially tough transition. Don’t be afraid to ask for help.

Seek out friends and family members who can assist with packing and decluttering. If that’s not an option, or if you need additional help, consider hiring a home organizer, full-service moving company, or even a senior move manager, which is a professional who assists older adults and their families with the physical and emotional aspects of relocation.4 You can find one accredited by the National Association of Senior Move Managers at https://www.nasmm.org/find/index.cfm.

If financial constraints are holding back, let us know. We can help you explore the possibility of tapping into the equity in your current home now. That way you can afford to get the assistance you need to make your transition as smooth as possible.

ARE YOU LIVING YOUR BEST LIFE?

If your current home no longer suits your needs, maybe it’s time to consider a change. We would love to help you explore your options. Contact us today to schedule a free, no-obligation consultation.

Sources:

  1. The Tiny Life –
    https://thetinylife.com/what-is-the-tiny-house-movement/

  2. My Move –
    https://www.mymove.com/moving/senior-guide-downsizing/

  3. Daily Caring –
    https://dailycaring.com/5-tips-to-downsizing-for-seniors-keepsakes-mementos/

  4. National Association of Senior Move Managers –
    https://www.nasmm.org

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Can I Buy or Sell a Home Without a Real Estate Agent?

Can I Buy or Sell a Home Without a Real Estate Agent?

Today’s real estate market is one of the fastest-moving in recent memory. With record-low inventory in many market segments, we’re seeing multiple offers—and sometimes even bidding wars—for homes in the most sought-after neighborhoods. This has led some sellers to question the need for an agent. After all, why spend money on a listing agent when it seems that you can stick a For Sale sign in the yard then watch a line form around the block?

Some buyers may also believe they’d be better off purchasing a property without an agent. For those seeking a competitive edge, proceeding without a buyer’s agent may seem like a good way to stand out from the competition—and maybe even score a discount. Since the seller pays the buyer agent’s commission, wouldn’t a do-it-yourself purchase sweeten the offer?

We all like to save money. However, when it comes to your largest financial asset, forgoing professional representation may not always be in your best interest. Find out whether the benefits outweigh the risks (and considerable time and effort) of selling or buying a home on your own—so you can head to the closing table with confidence.

SELLING YOUR HOME WITHOUT AN AGENT

Most homeowners who choose to sell their home without any professional assistance opt for a traditional “For Sale By Owner” or a direct sale to an investor, such as an iBuyer. Here’s what you can expect from either of these options.

For Sale By Owner (FSBO)

For sale by owner or FSBO (pronounced fizz-bo) offers sellers the opportunity to price their own home and handle their own transaction, showing the home and negotiating directly with the buyer or his or her real estate agent. According to data compiled by the National Association of Realtors, approximately 8% of homes are sold by their owner.1

In an active, low inventory real estate market, it may seem like a no-brainer to sell your home yourself. After all, there are plenty of buyers out there and one of them is bound to be interested in your home. In addition, you’ll save money on the listing agent’s commission and have more control over the way the home is priced and marketed.

One of the biggest problems FSBOs run into, however, is pricing the home appropriately. Without access to information about the comparable properties in your area, you could end up overpricing your home (causing it to languish on the market) or underpricing your home (leaving thousands of dollars on the table).2

Even during last year’s strong seller’s market, the median sales price for FSBOs was 10% less than the median price of homes sold with the help of a real estate agent.1 And during a more balanced market, like the one we experienced in 2018, FSBO homes sold for 24% (or $60,000) less than agent-represented properties.3 This suggests that, while you may think that you’ll price and market your home more effectively yourself, in fact you may end up losing far more than the amount you would pay for an agent’s assistance.

Without the services of a real estate professional, it will be up to you to get people in the door. You’ll need to gather information for the online listing and put together the kind of marketing that today’s buyers expect to see. This includes bringing in a professional photographer, writing the listing description, and designing marketing collateral like flyers and mailers—or hiring a writer and graphic designer to do so.

Once someone is interested, you’ll need to offer virtual showings and develop a COVID safety protocol. You’ll then need to schedule an in-person showing (or in some cases, two or three) for each potential buyer. In addition, you’ll be on your own when evaluating offers and determining their financial viability. You’ll need to thoroughly understand all legal contracts and contingencies and discuss terms, including those regarding the home inspection and closing process.

While you’re doing all of this work, it’s likely that you’ll still need to pay the buyer agent’s commission. So be sure to weigh your potential savings against the significant risk and effort involved.

If you choose to work with a listing agent, you’ll save significant time and effort while minimizing your personal risk and liability. And the increased profits realized through a more effective marketing and negotiation strategy could more than make up for the cost of your agent’s commission.

iBuyer

iBuyers have been on the scene since around 2015, providing sellers the option of a direct purchase from a real estate investment company rather than a traditional direct-to-consumer sales process.4 iBuyer companies tout their convenience and speed, with a reliable, streamlined process that may be attractive to some sellers.

The idea is that instead of listing the home on the open market, the homeowner completes an online form with information about the property’s location and features, then waits for an offer from the company. The iBuyer is looking for a home in good condition that’s located in a good neighborhood—one that’s easy to flip and falls within the company’s algorithm.

For sellers who are more focused on speed and convenience, an iBuyer may offer an attractive alternative to a traditional real estate sale. That’s because iBuyers evaluate a property quickly and make an upfront offer without requesting repairs or other accommodations.

However, sellers will pay for that convenience with, generally, a far lower sale price than the market will provide as well as fees that can add up to as much or more than a traditional real estate agent’s commission. According to a study conducted by MarketWatch, iBuyers netted, on average, 11% less than a traditional sale when both the lower price and fees are considered.5 Other studies found some iBuyers charging as much as 15% in fees and associated costs, far more than you’ll pay for a real estate agent’s commission.6

In a hot market, this can mean leaving tens of thousands of dollars on the table since you won’t be able to negotiate and you’ll lose out on rising home prices caused by low inventory and increased demand. In addition, iBuyers are demonstrably less reliable during times of economic uncertainty, as evidenced by the halt of operationsfor most iBuyer platforms in early 2020.6 As a seller, the last thing you want is to start down the road of iBuying only to find out that a corporate mandate is stopping your transaction in its tracks.

If you choose to work with a real estate agent, you can still explore iBuyers as an option. That way you can take advantage of the added convenience of a fast sale while still enjoying the protection and security of having a professional negotiating on your behalf.

BUYING YOUR HOME WITHOUT AN AGENT

According to the most recent statistics, 88% of home buyers use a real estate agent when conducting their home search.1 A buyer’s agent is with you every step of the way through the home buying process. From finding the perfect home to submitting a winning offer to navigating the inspection and closing processes, most homebuyers find their expertise and guidance invaluable. And the best part is that, because they are compensated through a commission paid by the homeowner at closing, most agents provide these services at no cost to you!

Still, you may be considering negotiating your home purchase directly with the seller or listing agent, especially if you are accustomed to deal-making as part of your job. And if you are familiar with the neighborhood where you are searching, you may feel that there is no reason to get a buyer’s agent involved.

However, putting together a winning offer package can be challenging. This is especially true in a multiple-offer situation where you’ll be competing against buyers whose offers are carefully crafted to maximize their appeal. And the homebuying process can get emotional. A trusted agent can help you avoid overpaying for a property or glossing over “red flags” in your inspection. In addition, buyer agents offer a streamlined, professional process that listing agents may be more likely to recommend to their clients.

If you decide to forego an agent, you’ll have to write, submit, and negotiate a competitive offer all on your own. You’ll also need to schedule an inspection and negotiate repairs. You’ll be responsible for reviewing and preparing all necessary documents, and you will need to be in constant communication with the seller’s agent and your lender, inspector, appraiser, title company, and other related parties along the way.

Or, you could choose to work with a buyer’s agent whose commission is paid by the seller and costs you nothing out of pocket. In exchange, you’ll obtain fiduciary-level guidance on one of the most important financial transactions of your life. If you decide to go it alone, you’ll be playing fast and loose with what is, for most people, their most important and consequential financial decision.

SO, IS A REAL ESTATE AGENT RIGHT FOR YOU?

It is important for you to understand your options and think through your preferences when considering whether or not to work with a real estate professional. If you are experienced in real estate transactions and legal contracts, comfortable negotiating under high-stakes circumstances, and have plenty of extra time on your hands, you may find that an iBuyer or FSBO sale works for you.

However, if, like most people, you value expert guidance and would like an experienced professional to manage the process, you will probably experience far more peace of mind and security in working with a real estate agent or broker.

A real estate agent’s comprehensive suite of services and expert negotiation skills can benefit buyers and sellers financially, as well. On average, sellers who utilize an agent walk away with more money than those who choose the FSBO or iBuyer route.3,5 And buyers pay nothing out of pocket for expert representation that can help them avoid expensive mistakes all along the way from contract to closing.

According to NAR’s profile, the vast majority of buyers (91%) and sellers (89%) are thrilled with their real estate professional’s representation and would recommend them to others.1 That’s why, in terms of time, money, and expertise, most buyers and sellers find the assistance of a real estate agent essential and invaluable.

QUESTIONS ABOUT BUYING OR SELLING? WE HAVE ANSWERS

The best way to find out whether you need a real estate agent or broker is to speak with one. We’re here to help and to offer the insights you need to make better-informed decisions. Let’s talk about the value-added services we provide when we help you buy or sell in today’s competitive real estate landscape.

Sources:

  1. National Association of REALTORS –
    https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers
  2. Washington Post –
    https://www.washingtonpost.com/business/2020/12/09/factors-consider-when-determining-whether-use-an-agent-buy-or-sell-home/
  3. National Association of REALTORS –
    https://www.nar.realtor/blogs/economists-outlook/selling-your-home-solo-to-save-money-you-ll-actually-make-less-than-you-think
  4. Seattle Times –
    https://www.seattletimes.com/business/real-estate/redfin-is-first-major-ibuyer-to-sell-in-seattle
  5. MarketWatch –
    https://www.marketwatch.com/story/selling-your-home-to-an-ibuyer-could-cost-you-thousands-heres-why-2019-06-11
  6. Forbes –
    https://www.forbes.com/sites/nataliakarayaneva/2020/03/19/billion-dollar-real-estate-businesses-ibuyer-suspended/?sh=c7f59f921747
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What is a Real Estate Bubble?

💥 What is a real estate bubble? 💥 

A real estate bubble occurs when there is a rapid and unjustified increase in housing prices. Often this is caused by speculating investors blowing some hot air 🌬️

Like an overfilled balloon 🎈, the bubble eventually pops, and then a swift drop 📉 in home values occurs. This leads to reduced equity or, in some cases, even negative equity 😱

Fortunately, economists don’t foresee that happening! 🔮

Prices are going up because there’s a very low supply (homes for sale) and high demand (lots of buyers). And those market dynamics aren’t expected to change any time soon.

🏁 Looking for guidance as you navigate this fast-moving market? Contact me to learn more about current real estate trends and whether now is a good time to buy or sell. 

realestate #realtor #realestateagent #realestatetips #homebuyer #homeseller #homeowner #markettrends #realestatetrends #homesweethome #househunting #lovewhereyoulive

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Is the Real Estate Market Going to Crash?

While many areas of the economy have contracted, the housing market has stayed remarkably strong. But can the good news last?

When COVID-related shutdowns began in March, real estate brokers and clients scrambled to respond to the shift. Record-low interest rates caused some lenders to call a halt to new underwriting, and homeowners debated whether or not to put their houses on the market. However, those first days of uncertainty ushered in a period of unprecedented demand in the U.S. real estate market, which ended the year with increasing average home prices (up 13.4% from the previous year) and shrinking days on market (13 fewer than in 2019).1

Now, as the spring market approaches, you may be wondering whether the good times can continue to roll on. If you’re a homeowner, should you take advantage of this opportunity? If you’re a buyer, should you jump in and risk paying too much? Below we answer some of your most pressing questions.

How is today’s market different from the one that caused the 2008 meltdown?

At the beginning of the pandemic, fears of an economic recession and an ensuing mortgage meltdown were top of mind for homeowners all across the country. For many buyers and sellers, the two seemed to go hand in hand, just as they did in the 2008 economic crisis.

In reality, however, the conditions that led to 2008’s recession were very different from those that triggered the current downturn—and this time, the housing market is the source of much of the good news.2 This is in line with historical patterns, as housing prices traditionally hold steady in the face of recession, with homeowners staying put and investors putting their money into bricks and mortar to ride out uncertainty in the stock market.

This time around, because of lessons learned in 2008, banks are better funded, homeowners are holding more accrued equity, and, crucially, much of the economic activity is focused on financial factors outside the housing market. As many industries quickly pivoted to work-from-home, early fears of widespread job loss-related foreclosures have failed to materialize. Federal stimulus payments and the Paycheck Protection Program also helped to offset some of the worst early effects of the shutdown.

Are we facing a real estate bubble?

A real estate bubble can occur when there is a rapid and unjustified increase in housing prices, often triggered by speculation from investors. Because the bubble is (in a sense) filled with “hot air,” it pops—and a swift drop in value occurs. This leads to reduced equity or, in some cases, negative equity conditions.

By contrast, the current rise in home prices is based on the predictable results of historically low interest rates and widespread low inventory. Basically, the principle of supply and demand is working just as it’s supposed to do. In addition, experts predict a strong seller’s market throughout 2021 along with increases in new construction.3 This should allow supply to gradually rise and fulfill demand, slowing the rate of inflation for home values and offering a gentle correction where needed.

Effects of low interest rates

According to Freddie Mac, rates are projected to continue at their current low levels throughout 2021.4 This contributes to home affordability even in markets where homes might otherwise be considered overpriced. These low interest rates should keep the market lively and moving forward for the foreseeable future.

Effects of low inventory

Continuing low inventory is another reason for higher-than-average home prices in many markets.5 This should gradually ease as an aggressive vaccination rollout and continuing buyer demand drive more homeowners to move forward with long-delayed sales plans and as new home construction increases to meet demand.6

Aren’t some markets and sectors looking particularly weak?

One of the big stories of 2020 was a mass exodus from attached home communities and high-priced urban areas as both young professionals and families fled to the larger square footage and wide-open spaces of suburban and rural markets. This trend was reinforced by work-from-home policies that became permanent at some of the country’s biggest companies.

Speculation then turned to the death of cities and the end of the condo market. However, it appears that rumors of the demise of these two residential sectors have been greatly exaggerated.

With the first vaccine rollouts, renters have begun returning to major urban centers, attracted by the sudden rise in available inventory and newly discounted rental rates.7 In addition, buyers who were previously laser-focused on a single-family home responded to tight inventory by taking a second look at condos.8 While nationwide condo prices continue to lag behind those of detached homes, they’ve still seen significant price increases and days on market reductions year over year.

In addition to these improvements, the 2020 migration has spread the economic wealth to distant suburban and rural enclaves that normally don’t benefit from increases in home values or an influx of new investment. As many of these new residents set up housekeeping in their rural retreats, they’ll revitalize the economies of their adopted communities for years to come.

How has COVID affected the “seasonal” real estate market?

Frequently, the real estate market is seen as a seasonal phenomenon. However, the widespread shutdowns in March 2020, coming right at the beginning of the market’s growth cycle in many areas, has led to a protracted, seemingly endless “hot spring market.”

While Fannie Mae’s chief economist Douglas Duncan predicts slower growth from 2020’s historic numbers, the outlook overall is positive as we embark on the 2021 spring selling cycle.9 Duncan anticipates an additional lift in the second half of 2021 as buyers return to business as usual and look to put some of their pandemic savings to work for a down payment. Thus we could be looking at another longer-than-usual, white-hot real estate market.

How will a Biden administration affect the real estate market?

Projected policy around housing promises to be a boost to the real estate market in many cases.10 While some real estate investors bemoan proposed changes to 1031 Exchanges, the Biden plan for a $15,000 first-time homebuyer tax credit aims to increase affordability and bring eager new home buyers into the market. In addition, Biden-proposed policy pinpoints low inventory as a primary driver of unsustainable home values and is geared toward more affordability through investments in construction and refurbishment.

Overall, according to most indicators, the real estate news looks overwhelmingly positive throughout the rest of 2021 and possibly beyond. Pent-up demand and consumer-driven policies, along with a continued low-interest-rate environment and rising inventory, should help homeowners hold on to their increased equity without throwing the market out of balance. In addition, the increase in long-term work-from-home policies promises to give a boost to a wide variety of markets, both now and in the years to come. 

STILL HAVE QUESTIONS? WE HAVE ANSWERS

While economic indicators and trends are national, real estate is local. We’re here to answer your questions and help you understand what’s happening in your neighborhood. Reach out to learn how these larger movements affect our local market and your home’s value.

Sources:

  1. Realtor.com –
    https://www.realtor.com/research/december-2020-data/
  2. New York Magazine –
    https://nymag.com/intelligencer/2020/06/why-this-economic-crisis-wont-be-as-bad-as-2008.html
  3. Washington Post –
    https://www.washingtonpost.com/business/2021/01/11/2021-housing-market-predictions/
  4. Freddie Mac –
    http://www.freddiemac.com/research/forecast/20210114_quarterly_economic_forecast.page?
  5. Wall Street Journal –
    https://www.wsj.com/articles/housing-market-stays-tight-as-homeowners-stay-put-11611226802?mod=re_lead_pos1
  6. Marketwatch –
    https://www.marketwatch.com/story/new-home-construction-activity-soars-to-highest-level-in-over-a-decade-as-builders-rush-to-produce-single-family-homes-2021-01-21
  7. Forbes –
    https://www.forbes.com/sites/noahkirsch/2021/01/14/signs-of-a-rebound-new-york-city-rent-prices-are-climbing-back
  8. Washington Post –https://www.washingtonpost.com/business/2021/01/07/condo-sales-rebound-amid-dwindling-inventory-houses/
  9. Mortgage Professional America –https://www.mpamag.com/news/fannie-mae-chief-economists-forecast-for-us-economy-housing-market-in-2021-244045.aspx

Inman –
https://www.inman.com/2020/11/09/what-a-joe-biden-presidency-means-for-real-estate-and-housing/

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