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Thursday, December 18, 2014

How Would Buyer Lose Earnest Money if He Did Not Qualify for a Loan?

So you are planning on buying a house in the coming year.  Good for you!  Are you paying CA$H ( I now spell ca$h like Ke$ha used to spell her name) or are you getting a loan??  If you're getting a loan, read on.  Also, if you are SELLING YOUR HOUSE, read on because you need to know this too.

Most Buyers do need to get a mortgage to purchase real estate.  A Buyer should be at least pre-qualified and better yet, Pre-Approved for the mortgage.  A pre-approval means that the Buyer has already made loan application and the Buyer's credit has been checked and approved, the Buyer's employment has been verified, and bank statements and necessary IRS returns have been reviewed and all that is needed to approve the loan is a property address and an appraisal.

The Buyer and Seller will agree on the amount of time allotted to the Buyer to get the loan approval in a Financing Contingency which will be an Exhibit to the Purchase and Sale Agreement.  This Exhibit will spell out the terms that the Buyer is applying for.  It will state the loan amount (as a percentage of the sale price, the term (duration of the loan) and the maximum interest rate (usually bumped up a little from the current interest rate as of the day everybody agrees and signs the contract).  This sets the bar for the loan so that it can be measured that the Buyer can get a loan based on the disclosed terms.

The length of time stated in the Financing Contingency is usually around 21 days from Binding Agreement. This means that if the Buyer is denied the loan from their lender within 21 days, the Buyer may terminate the contract without penalty and receive a refund of their Earnest Money IF the Buyer gives notice of termination to the Seller within the time allotted (21 days in our example) AND the Buyer's Lender provides a "Loan Denial Letter" within the allotted time (ex: 21 days).  The Loan Denial Letter MUST state the terms of the loan that was denied and the reason for the denial.

If the Buyer does not provide the a) termination notice AND b) Loan Denial Letter within the Financing Contingency time period stated in the Agreement, the Buyer would lose their Earnest Money (Seller keeps it for liquidated damages).  If the Loan Denial Letter states the reason the loan is denied is due to insufficient cash to close or that the Buyer must sell or lease their current property in order to qualify (unless an Exhibit to that effect was agreed upon as part of the original agreement) or the Buyer did not provide the required information to the lender in a timely fashion, the Buyer will lose their Earnest Money.

The best way to avoid any confusion or risk that a Buyer may not be able to qualify for the loan is to have the Buyer PRE-APPROVED for the loan from a reputable lender.  This makes the Buyer almost as good as CA$H.  And everybody loves CA$H!


Thursday, September 18, 2014

The Pitfalls and Risks of Buying New Construction

Don't you love the smell of new lumber and freshly poured concrete?  I do.  I love the VOCs that emanate from new paint and carpet.  Everything is so shiny, new and perfect... or is it??

Most buyers prefer new construction over resales.  While there are many advantages to buying a new home, there are also advantages to buying a resale.  Luckily, as  new construction is booming again in Atlanta, buyers have a choice.

Buying a new home falls into two categories: 1) buying a new  "custom" build 2) buying a "spec (built on speculation of the market)  home.  Most builders will not reduce the price of a new home- you pretty much pay asking price.  A possible exception to that is buying a "spec" home- a house that is either completely finished or almost completely finished.

The builder takes out loans throughout different phases of construction.  When the house is completely (or almost) finished, the builder is paying a maximum amount of interest on construction loans and therefore has increased carrying costs and higher risk of eroding profit margins.  In this case, a builder is more likely to make price concessions or give money towards upgrades in the house and/or pay buyer closing  costs.  In a subdivision that is being built, the builder would usually prefer to offer incentives to add upgrades or pay towards buyer closing costs rather than reducing the list price.  They need to keep the house prices up to allow for price increases and to validate appraisals for future sales.

When buying a spec home, the buyer would usually be able to negotiate the terms of the contract much like a resale.   The earnest money amount may be negotiable and held by the buyer's agent's broker in an escrow account (less risky for buyer).   The buyer may be able to negotiate a due diligence period (which during that period, the buyer can back out of the deal and get their earnest money back) and may be able to negotiate a finance contingency period (if they get denied the financing within the finance contingency period, they would get their earnest money back).  Also, the buyer can see exactly what the house looks like and what all the finishes look like.  The downside is that if the house is finished, the buyer doesn't get to make selections of materials and such.  All in all, buying a spec home does not present a high risk to buyers in my view.

There are substantial risks in buying a new build.  If a builder is going to build you a new house, he is not negotiating on price.  You will usually get a builder allowance for things like carpet and flooring, lighting, plumbing fixtures, appliances, countertop materials, etc. which would be included in the base price.  When you go to pick out these items, you will usually find that the allowance is not big enough to cover your expensive taste and you will actually spend over the allowances in upgrades. These upgrades usually have to be paid for out of pocket by you at the time of selection and are NON-REFUNDABLE if you don't close.  Speaking of not closing, there is usually NO finance contingency and no due diligence period.   Some builders won't even allow an appraisal contingency, meaning that if the house appraises by your lender's appraiser for less than the purchase price, you have to come out of pocket for the difference.

The Earnest Money for a new build is typically not held in escrow by the buyer's agent- it is given to the builder and he puts it in his operating capital account.  What if he goes out of business before he builds your house??  What if he takes the money and moves to sunny California??  In these cases, your money is gone.  And we're not talking pocket change- more likely up to 5-10% of the purchase price as Earnest Money may be required upfront.  On a $500,000 house, that's a cool $25,000-50,000 in case you don't have your calculator out.

Where are you going to live while the house is being built?  It may take MUCH longer to build than you expect it to.  Right now, there is so much new building going on that the city is backed up in the permitting department and permits are taking for-ev-er!  I just had a contract close where I was representing the buyer who signed a contract August of 2013 to build a new house (with a reputable builder) that was scheduled to close 8 months later.  Fast forward to more than a year later, the house finally closed.   There can be many delays due to city permits, unpredictable weather, and other unforeseen events.  Many times the contract will give the builder the right to delay closing due to acts of God and other delays.

The other potential pitfall of buying a new build is that unless you've actually seen a model of the floor plan you chose to build, the actual house may look different in reality once it's built than it did in your head.   The colors you chose from a tiny swatch may look like vomit on the walls.  What if you loved the granite sample in the showroom, but you hate how dark it turned out in the house? What if the living room seemed large enough on the floor plan, but now you have to buy a new sofa that is small enough to work in the actual space??  You get the drift.  I'm NOT saying don't buy a new custom built home, I'm just saying BE CAREFUL and know your risks.

As I said, I do love the smell of new lumber and freshly poured concrete!

If you're thinking of buying a new house, contact me and we'll go over all the details!  Jackson Bass, Keller Williams Realty Buckhead jacksonbasshomes@gmail.com.

Monday, August 18, 2014

How is Atlanta's Real Estate Market- HOT or NOT? 2nd Quarter 2014 Market Results


2nd Quarter Sales Down, but Median Price is UP
We saw a slight decrease in sales through the first half of the year compared to the first half of 2013 (down 1.2% from same quarter 2013 and 7.9% below 2nd Quarter 2012).  Seemingly at odds, the median sale price continued to rise in the 2nd Quarter to reach a NEW 4 YEAR HIGH!   The reason for the sales volume decline is due to the huge drop (34.5%) in homes priced under $100K.   Short sales and foreclosures (distressed properties) also dropped making up only 14.1% of total sales and in areas like Buckhead, only made up .4% (point four percent– not even a whole percent).  The result is a new 4 year high median sale price of $227,000.  If we back out the 14.1% distressed sales, the new non-distressed median sale price was $246,000 for the 2nd Quarter.   In June, the median price hit $235,000 for the month– coming close to the previous market high of $239,000 which occurred in June 2007 before the crash (as I lovingly refer to it as BC). 

New High Median Sales Price to List Price Percentage
How much are sellers having to discount off their asking price to sell?  The answer is (drumroll please…) 3.7%.  This of course varies by price range and location, but by comparison, in Brookhaven, sellers only negotiated 2.5% off the list price to sell.  In Buckhead, on the other hand, sellers negotiated a price 5.9% off their list price in order to sell due to the fact that the median sale price in Buckhead is so much higher- and the higher priced homes tend to have a lower list to sell price ratio.

More Than a Quarter of All Sales were OVER (or at) Asking Price!
Yes, 25.4% of all sales in the 2nd Quarter were 100% or higher than the list price.  What I am finding is that when the home sells at list price or greater, it is usually in the first seven days of the listing and usually has more than one offer simultaneously.   The type of listing that tends to get 100%  or more of their list price are beautiful homes in beautiful neighborhoods that are correctly priced and there aren’t many or any competing listings. 


Luxury Home Sales Increased in the 2nd Quarter
Homes priced over $1 million were 7.8% higher compared to the 2nd Quarter 2013.  Still, we are finding that in the price range of $750,000-999,000, there is 7 months of inventory indicating a Buyer’s Market and in the price ranges over $1 million, there is 13.3 months of inventory indicating a strong Buyer’s Market.  It is still a Seller’s Market in all other price ranges.

28% of ALL Listings FAILED to Sell
It’s very exciting to talk about seller’s getting so close to asking price and prices going up, up, up, but that’s not the whole story.  More than a quarter of all the listings did not sell, due to overpricing and/or condition issues.  Some sellers get the idea that now that the market is back on track they can just ask any price they want and the house will sell, but this is not true!  Properties still need to be marketed correctly, presented correctly (staging, repairs, etc.) and priced correctly in order to sell for maximum price with minimum days on the market.   Sellers who did market, present and price correctly got a median 98.6% of asking price in 15 days on the market vs. those who had to reduce their price sold for 90.5% of their original asking price in a tortuous 137 days on the market.  (I say tortuous because I cannot imagine making my bed and turning on all the lights and keeping the kitchen clean to impress buyers for 4.5 months).  Unfortunately 28% of the sellers were not able to sell (maybe they didn’t keep lights on and beds made??).

Inside 285  Market Recap
Median sale price in Buckhead rose 18.2% to $765,000 (62 days on market).  Median sale price intown (Midtown, Ansley, Va-Hi, Morningside) rose 20% to $552,000 (31 days on market).  Median sale price in Brookhaven rose 5.4% to $390,000 (30 days on market).  Median sale price in Sandy Springs (inside 285 including High Point) declined 3.6% to $675,000 (73 days on market).

It is my pleasure to bring this information to you.  I am at your service!   Please contact me for a more indepth view of what is happening in your back yard! 
  

Friday, July 18, 2014

Should You Appeal Your Property Taxes? See tips to appeal taxes in this article.

It's property tax bill season!  As real estate prices continue to rise, so are property taxes. Maybe you think your property taxes rose too much.  My friends at the real estate law firm of McMannamy, McLeod and Heller gave me the following article about appealing your taxes (reprinted with permission).

There are two main grounds for appealing your property assessment: fair market value and uniformity. Fair market value is what it sounds like. You should review comparable properties that sold in and around your neighborhood to determine the price at which a willing buyer would purchase your property. You have a legal right for the 100% assessed value of your property — the relevant value for purposes of your appeal — to equal its fair market value.

Please note that the tax assessor only considers sales that occurred during the 2013 calendar year (January 1, 2013 through December 31, 2013) to determine the fair market value of your property for 2014 tax purposes. Sales before January 1, 2013 and after December 31, 2013 will not be considered. One place to find 2013 sales is Zillow.com. Search the yellow “recently sold” properties from 1/1/13 to 12/31/13.

The other basis for an appeal is uniformity. The calculation used by the tax assessor is a bit more complicated than this, but as a shorthand, if the properties in your neighborhood are of a similar type and are on similar tracts of land (1/4 acre, 1/3 acre, 1/2 acre, etc.), then the assessed value per square foot for your home should be the same as the others in your neighborhood.

To determine if you have a uniformity appeal, use the tax assessor’s website in your county to search the other houses on your street or in your neighborhood: The tax assessor’s record for each house will show a 100% assessed value and total square footage. For each house, divide the 100% assessed value by the total square footage. Then, average the “assessed value per square foot” results for your entire street or neighborhood. If your house is above the average, multiply the average by your house’s square footage and request that amount as your 100% assessed value.

Even if you are only appealing fair market value or uniformity, be sure to check both “value” and “uniformity” in case you ultimately would like to argue both of these grounds before the Board of Equalization. The type of appeal you are filing is a “real” property appeal. Although there is an arbitration process you can use, there are potential costs to it, so I highly recommend that you check the box for a “BOE” appeal which will send your appeal to the Board of Equalization.

Below are the mailing addresses for the DeKalb or Fulton office to which you should send your appeal. I also have included their telephone numbers in case you have any questions:
DeKalb County Property Appraisal Department
120 West Trinity Place, Room 208
Decatur, GA, 30030
(404) 371-0841

Fulton County Board of Tax Assessors
141 Pryor Street, Suite 2052
Atlanta, GA 30303
(404) 612-6440


The tax assessor will review your appeal and send you a response letter letting you know if they have decided to grant a reduction in value. If they don’t grant a reduction, you have the right to go before the Board of Equalization. If they grant a reduction, you nevertheless can choose to go before the Board of Equalization.

You may want to continue to the Board of Equalization even if you are satisfied with the reduced value from the tax assessor. A reduction given by the tax assessor lasts for the current tax year only. A reduction awarded by the Board of Equalization last for three years, the current tax year plus two more. You can start your Board of Equalization hearing by noting the lower value that the tax assessor gave you. Sometimes the tax assessor will agree to that value right there on the spot and it will be formalized in the decision of the Board of Equalization.

Here are four additional tips for your Board of Equalization hearing:

1. You have the right to review the tax assessor’s comparable properties and other documents before entering the hearing room. You also can request the documents in writing prior to your hearing. Avail yourself of this opportunity.
2. Each side will present their case to the Board of Equalization. Often, the tax assessor’s representative will sit silently and let you go first. Request that the tax assessor present their case first, so that you can respond to it.
3. The Board of Equalization should be comprised of three citizen members. Sometimes they are short-handed and might request to proceed with two members. Insist on three.

4. Bring five copies of your appeal documents with you to the hearing, one copy for each member of the Board of Equalization, one for you and one for the tax assessor’s representative.

If I can help you with the process or provide info to help with your appeal, please email me at jacksonbasshomes@gmail.com.   If you are thinking of selling in the coming year, a lower tax bill can help your bottom line as it is a selling point to potential buyers. 

Thursday, June 12, 2014

Do You Need to Get a Survey when Buying a House??

Mortgage Lenders in Georgia used to require Buyers to obtain a survey when purchasing a property, but most do not require a survey anymore as the lender's risk from matters disclosed in a survey are now covered by Lender's Tilte Insurance Policy (which the Buyer is required to pay for as part of their loan costs).  Since most lenders don't require a survey, Buyers often think they don't need one and should just save the (appx) $400-500 cost of a survey.

The survey is performed by professional surveyors who mark the corners and set out the boundary lines of the property.  The survey will also show easements. utility pipes, fences, walls and other potential encroachments which may affect the property or the dwelling.  A survey will show if the driveway of the property is within property lines and will also show if the building(s) is within the proper setbacks and does not encroach onto a neighboring property or that a neighboring property is not encroaching on the property you are buying. 

What is important for you as a Buyer to know is that while you have to buy Lender's Title Insurance to protect your lender (if you are getting a mortgage) from any risks that a survey would have shown, this is not true for the Owner's Title Insurance that you will also want to purchase at closing.  "An Enhanced Owner's Title Insurance Policy does provide some survey coverage but is subject to a deductible and a maximum loss limit of $25,000.  With a survey, there are no limits on coverage" say my friends at the real estate law firm of McMannamy, McLeod and Heller.

I recently represented a Buyer whose survey revealed that the neighbor's driveway came onto the property that they were buying by 3 feet.  Another Buyer I represented had a survey that revealed the presence of a city storm drain that ran underneath the house they were buying.  Another Buyer I represented had a survey that showed the neighbor's fence was 5 feet over the property line onto the Buyer's property!  

What if you were buying a home and you got a survey which showed the back corner of the house is too close or even over the property line or building setback line?? 

A survey will reveal potential issues with the property while it is still the Seller's problem! 

And, as always, I'm delighted to help you with buying or selling real estate in Atlanta.  Contact me at jacksonbasshomes@gmail.com.    


Monday, May 19, 2014

New Median Home Prices Up 17.9% Inside Perimeter!

The first quarter results are in and there are a few surprises in the Atlanta Housing Market.  I am reporting  these results for single family detached homes inside I-285 north of I-20.  The trends of the intown market heavily influence the outlying suburban market and the intown market results are a good indicator of what’s coming in the Metro Atlanta market.

The following report is for single family detached houses.  Our statistics are gathered from FMLS and consider all  listing periods for the most accurate information.

Intown Atlanta Median Sale Price Up 17.9% Compared to 1st Quarter of 2013
The new median sale price is $315,000.   That may seem low, but compared to the Metro Atlanta current median price of $198,000 I would give our Intown price a HOLLA!  The lack of inventory is driving prices up, up and… hopefully not away.  The new median price in Buckhead is $653,000.  (I love you Buckhead).

Sales Units Decrease in 1st Quarter
Wait, what??  Actual number of homes sold was down by 3% by comparison to the first quarter of 2013 even though the median price increased sharply.  One of the main factors affecting this is the number of property sales priced below $200,000 has dropped significantly.  These sales were what fueled the market and kept it alive during the downturn.  I think this also points to lack of good inventory.  You might think that since there is such an inventory shortage, everything would sell.  You would be wrong… keep reading. 

Distressed Property Sales Continue to Decline
When I speak of distressed properties, I’m not referring to 1970s shag carpeting and formica countertops (ewww!)  Distressed properties combine short sales and foreclosures.  Only 5.1% of total sales were foreclosures (compared to 6.6% in 1st Quarter 2013) and 7.6% were short sales for a total of 12.8% of all sales being distressed property sales.  Remember back in 2010 when more than half of all sales were distressed? (It was distressing).  An interesting perspective on this is 22.6% of properities priced under $200,000 were foreclosures (almost 1 in 4) while only .5% (not 5%, but POINT 5%) of sales priced between $500,000-749,000 were foreclosures.

New Construction Becomes More of a Factor
New construction is BACK.  Buyers love new homes and generally prefer them.  For sellers looking to resell, more and more, they are competing with new construction, depending on the location and pricing.  New home sales were up a whopping 70% for the first quarter.  In the $750,000-999,000 price bracket, new home sales were up 143%!  If you live in Brookhaven and  have a home in this price range, your competition is new construction.



 Sellers Sell for Close to Asking Price
Sellers got a median 94.3% of their original asking priceTranslation: a house listed for $500,000 sells for $471,500.  To dissect this a little, sellers who priced their property to sell and were able to sell without having to reduce the price (53.9% of all sales) sold for 98.3% of their list price in just 21 days on the market (the $500,000 house sells for $491,500).  For those who started out with a list price that was too high and had to reduce the price in order to sell (46.1% of all sales), they sold for a median 87.9% of their original price in 139 days (the $500,000 house sells for $439,500).  The sellers who priced their homes correctly only had to make their beds for 21 days compared to the overpriced sellers who had to make their beds 139 days.  Remember earlier I said that you would think every listing would sell with such an inventory shortage??  Even with low inventory levels, 40% of listings did not sell.  20.5% of those that DID sell, sold for at or higher than asking price!   So, there is a feeding frenzy over beautiful homes that are priced competitively but buyers turn their respective noses up to not-so-pretty homes, especially those that are overpriced. 



On a personal note, I am thrilled to announce that I have received my CLMHS (Certified Luxury Home Marketing Specialist) certification from the Institute for Luxury Home Marketing in order to better serve my clients. 

If you are thinking of selling your home, please contact me so that I can show you how the market shift has affected your home’s value.

Business is booming!  Let me know how I can help you. 
Jackson Bass, ABR, CLHMS, Associate Broker 
jacksonbasshomes@gmail.com

Monday, March 17, 2014

7 Ways to Avoid Your Home Sales Contract from Falling Apart

You prepared your house for the market, listed your house with a Realtor, received an offer, negotiated the sale and agreed on terms- you're now under contract.  Chances are, you've just contracted to sell your primary residence and in order to move on, this deal has to close, and close on time.  Maybe you've made an offer on your replacement home and in order to close that deal, your current house has to close.  A lot is riding on all of this working out for you!  There are several ways your contract may fall through.  Following are some ways to help avoid a failed contract.

1.  Shorten the Due Diligence (aka "FREE LOOK") period.  In Atlanta, most of our Georgia Association of Realtors contracts are now "Option Contracts" with a due diligence period.  The contract states that the Buyer has made an option to purchase your house and has a pre-determined (negotiated by you and the Buyer) due diligence period.  At the end of this period (typically between 7-14 days) the Buyer will either exercise their option to purchase your house or void the agreement with no penalty or obligation to perform. The Buyer can walk away for any or no reason- leaving you vulnerable during this time frame.  My best advice is to negotiate the shortest time frame possible so that if the deal falls through, you haven't lost valuable time on the market and you can move forward to your next purchase faster and more confidently.

2.  Get a Strong Earnest Money Payment.  What is strong??  It's up to you to decide and negotiate the Earnest Money with the advice of your Realtor.  I would consider strong to mean enough money that if the Buyer defaults, you were adequately compensated for losing time on the market.  And strong from a Buyer's prospective is enough Earnest Money that they would be unwilling to default on their commitment to purchase.   

3.  Minimize Buyer contingencies.  The Buyer wants as many ways to get out of the contract as possible to protect their interests. Typically, besides the due diligence period just mentioned, the Buyer wants a Financing Contingency and an Appraisal Contingency.  If the Buyer has their current house for sale and has accepted a contract to sell, they may want a Contingency to Sell and Close on their current property.  If you have a hot property that received multiple offers, you're in the driver's seat here.  You may be able to negotiate that there is no finance or appraisal contingency.   I would not advise you to take an offer contingent upon the Buyer selling their property UNLESS you can verify that there property is already under contract with a pre-approved Buyer and that they are already past the due diligence period in their contract.

4.  Make Sure the Buyer is Pre- Approved!  The Buyer should be PRE-APPROVED for the mortgage based on the amount they are to borrow to buy your house.  Don't take an offer without verifying the Buyer has already submitted loan application and that their credit has been checked and that their employment and income is verified and they're pre-approved.  If the Buyer is confident that they will get the loan, they may be willing to not have a financing contingency (meaning they guarantee they can close- or they would forfeit earnest money).

5.  Be Willing to Make Repairs.  During the due diligence period, the Buyer will likely have a home inspection.  If there are repairs needed that cause the Buyer concerns, he will submit an Amendment to Address Concerns, which asks you to make specific repairs.  Be prepared for this before it comes up.  If you know there may be expensive repairs that may come up (ex: roof replacement, HVAC system aged at or near life expectancy, drainage issue, water intrusion in crawl space or basement), get estimates for these repairs before you even list the house for sale.  This way, you will know how much a big repair may cost and you are more prepared to answer the Buyer's request if it comes up.  Knowledge really is power, and the more prepared you are with estimates, the more control you may have to keep the deal together with regards to making repairs.  By the way, in my experience, the number one reason a deal falls through based on the inspection is water in the crawl space or basement.

6.  Have a VALID Contract.  Most people (and many agents) don't know that if your contract does not have a valid legal description of the property in the Purchase Agreement, there is not a valid contract. For this reason, I always attach a full legal description (usually found on the warranty deed) to the Purchase Agreement as an Exhibit- never take a chance by filling in the legal description because a typo or incomplete legal description could completely invalidate the contract. If a Buyer is trying to get out of a contract to purchase and goes to an attorney for advice, chances are the attorney will first check to see if there is a correct and valid legal description in the contract.  Also, if there is vagueness to the contract, it could be void.  An example would be that the contract has a financing contingency.  The finance contingency must state the loan amount, term, interest rate, rate type and source of loan.  If the interest rate is filled in as "to be determined" or "market rate", the vagueness would make the entire contract void.  

7.  Establish Good Will and a Win-Win Environment.  While you are negotiating your contract up front, if you approach with a mindset of establishing a win-win environment, your deal will be much more likely not to fall apart.  Through all phases of the contract, if you maintain an "everybody wins" attitude, your transaction will be much smoother due to the good will you've established up front.  You can absolutely negotiate the best possible terms for yourself and still maintain a win-win envrionment!   

-Jackson  Bass, Keller Williams Realty Buckhead
jacksonbasshomes@gmail.com