Uncategorized • July 11, 2023

Are you Putting your Faith in Zestimate?

by Debbie Marett

Excerpts from Inman Article

Admit it, you have Googled your property address or gone to Zillow to see how much your home is worth. Haven’t we all?

Everyone probably has checked online to see what the online AVMs (automated valuation models) say their home might be worth at one time or another.

It may be good to understand that any AVM, in and of itself, is not an effective way to value a property.

Although one AVM for any given property might be close to reality, there is usually a wide disparity when comparing a few AVMs side-by-side.

What is an automated valuation (AVM)? It’s a fast and easy way for homeowners or prospective buyers to get a ballpark value for any given home.

AVMs are programs that automatically analyze various data points to produce an estimated value of a specific property. Online visitors can visit an AVM website (the most famous is Zillow’s “Zestimate”), type in a property address, and the AVM engine will use linear and multiple regressions to form an estimated market value.
The engine’s algorithm typically uses the age of a home, current market values, area trends, historical data, specific features of the property, and so on.

Although it’s well-known that AVMs (automated valuation models) can be speculative and inaccurate, it’s a good idea to examine what the various websites are listing as the current value for your home.

In our market, three readily available AVMs are Zillow, realtor.com and Homes.com. If one of those three does not provide a value, you can also go to a site such as Redfin. The easiest way to get their valuation is to type the address into Google.

Under the results, you should quickly find the three different websites — click on each, and, in most cases, the AVM will pop up right away. If, for some reason, the site does not show up in the Google search, go directly to each site and type in the address. The AVM should pop up on the front page unless the home is new or has just sold.

In most cases, there is a noticeable difference between the valuations. Many people are shocked to see the spread between the numbers, but the data can be misrepresentative based on the property’s actual condition and upgrades.

AVMs by any website can fluctuate dramatically in a short period based on what is happening in the local market. Here is an example from a home that recently sold:

As an example, the initial Zestimate for a home was $1,434,031. Based on the level of amenities, it was listed the home at $1,599,950. The very next day, the Zestimate jumped to $1,691,056.

Once the home was in contract one week later, the AVM jumped again to $1,806,823.

In the meantime, realtor.com showed the value at $1,615,734. With 11 offers, the home sold for $2 million, and 60 days later, the Zestimate showed the value to be $2,080,800 while Redfin placed the value between $1,720,000 – $1,890,000.

Good to note:

Any AVM will be averaging home values in any given neighborhood based on historical sales — not property condition or the level of amenities of any specific home.

AVM valuations are speculative and therefore cannot be used to accurately value a home. For this reason, appraisers will never use AVMs to provide market values for any given home.

The difference between an AVM and a CMA

The best and most accurate valuation for any given property will be a Realtor’s comparative market analysis (CMA). Instead of simply looking at overall market trends and a home’s configuration, a CMA takes into account property conditions, amenities, upgrades, condition of the overall neighborhood and other specifics that an AVM cannot effectively address.

When preparing the CMA a good agent will include all of the pictures from every property included in the CMA. Using all the images helps you see quickly and understand the difference between the various homes, and it further accentuates why AVMs are unreliable.

Pricing

Any real estate agent on any given day can promise you that they can get you a specific price. Unfortunately, this is simply not true. The number you see in your agents CMA is the recommended list price if you chose to go on the market today.

If you are not going on the market today, your agent will rerun the numbers the day before your home goes “live” to ensure that it is priced correctly for that market at that time.

Even then, the final price you receive is going to be contingent on:

The level of your amenities
The amount of property preparation you are willing to do
Professional staging
The quality of the photos and other listing media
The state of the market when you go live
Most importantly, the number of buyers who are currently out looking for a home like yours (once it hits the market) and what they are willing to pay for it

As you can see, there are a vast number of variables that will impact your selling price.

Buying • July 11, 2023

Congratulations! You’ve Found a Home

by Debbie Marett

Congratulations! You have applied for a mortgage, are pre qualified and found a home to buy ! You’re undoubtedly excited about the opportunity to decorate your new home, but before you make any large purchases, move your money around, or make any big-time life changes, consult your loan officer – someone who will be able to tell you how your decisions will impact your home loan.

Below is a list of Things You Shouldn’t Do After Applying for a Mortgage. Some may seem obvious, but some may not.

1. Don’t Change Jobs or the Way You Are Paid at Your Job. Your loan officer must be able to track the source and amount of your annual income. If possible, you’ll want to avoid changing from salary to commission or becoming self-employed during this time as well.

2. Don’t Deposit Cash into Your Bank Accounts. Lenders need to source your money, and cash is not really traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.

3. Don’t Make Any Large Purchases Like a New Car or Furniture for Your New Home. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher debt to income ratios…higher ratios make for riskier loans…and sometimes qualified borrowers no longer qualify.

4. Don’t Co-Sign Other Loans for Anyone. When you co-sign, you are obligated. As we mentioned, with that obligation comes higher ratios as well. Even if you swear you will not be the one making the payments, your lender will have to count the payments against you.

5. Don’t Change Bank Accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is consistency among your accounts. Before you even transfer any money, talk to your loan officer.

6. Don’t Apply for New Credit. It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO® score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.

7. Don’t Close Any Credit Accounts. Many clients erroneously believe that having less available credit makes them less risky and more likely to be approved. Wrong. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those determinants in your score.

Bottom Line
Any blip in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. They are there to guide you through the process.

Market Info • Uncategorized • July 11, 2023

The worst thing clients can do presently is wait to see if rates dip.

by Debbie Marett

Market Update with Mark Sprague Summer 2023

By Mark Sprague, State Director of Information Capital Independence Title

The market had hoped that moderating inflation would have a positive impact on rates by the middle of this year. Not going to happen. Not happening for the rest of the year.

While inflation has shrunk / slowed, the interest rate environment has not cooperated, as any loan officer / realtor can tell you. With no points, the conforming 30 year fixed is now solidly entrenched above 7%. This, despite news that should have moved rates lower, such as the Federal Reserve’s favorite measure of inflation, Personal Consumption Expenditures hit 3.8 percent year-over-year and 0.1% month-over-month. This was great news to illustrate an improving inflation picture, but the bond market didn’t care, instead focusing on the red-hot labor market.

Did someone say labor? The Federal Reserve views increased joblessness as key to reducing inflation to their target rate of 2 percent but there are 10 million + job openings with only about 6 million people looking for work. (i.e. 6+ million unqualified / untrained.) Here in Texas consistently 3 times as many job opening as people out of work.

June’s non rate increase, what did it mean? Investors received some additional insight yesterday into the Fed’s thought process at the June Federal Open Market Committee meeting, when there was less consensus than the unanimous decision suggested in leaving rates unchanged. Some officials favored rate increases but went along with the move to leave policy unchanged, despite concerns that core inflation hasn’t moved downward much in the last six months.

Whatever the disagreement among Fed officials, it’s fair to say the key takeaway is that more hikes are coming, as almost all officials (Federal Reserve governors) said that additional increases would likely be appropriate. We did learn last week that Core PCE inflation is still running hot, but it did edge slightly lower to 4.6 percent year-over-year in May. The annual increase in the PCE Price Index ex-food and energy (the core rate) is the Fed’s most important inflation indicator and has gone back and forth between 4.6 percent and 4.7 percent this year. Personal spending did stall in the second quarter, which will be welcome news to the Fed.

So, are rates going up, yes, or no? As most of you know, yes, I have been right on rates the last 2 years……however there is the previous 5+ years that were less than kind…….expect rates to hike 25 basis points on July 26. (and another possibly in August or September.)

The worst thing clients can do presently is wait to see if rates dip.

Buying • July 8, 2023

5 Powerful Reasons to Own Instead of Rent

by Debbie Marett

5 Powerful Reasons to Own Instead of Rent

Owning a home has great financial benefits.

In a recent research paper, Homeownership and the American Dream, Laurie S. Goodman and Christopher Mayer of the Urban Land Institute explained:

“Homeownership appears to help borrowers accumulate housing and nonhousing wealth in a variety of ways, with tax advantages, greater financial flexibility due to secured borrowing, built-in ‘default’ savings with mortgage amortization and nominally fixed payments, and the potential to lower home maintenance costs through sweat equity.”
Let’s breakdown 5 major financial benefits of homeownership:

1. Housing is typically the one leveraged investment available

Homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. A 20% down payment results in a leverage factor of five, meaning every percentage point rise in the value of your home is a 5% return on your equity. If you put down 10%, your leverage factor is 10.

Example: Let’s assume you purchased a $300,000 home and put down $60,000 (20%). If the house appreciates by $30,000, that is only a 10% increase in value but a 50% increase in equity.

2. You’re paying for housing whether you own or rent

Some argue that renting eliminates the cost of property taxes and home repairs. Every potential renter must realize that all the expenses the landlord incurs (property taxes, repairs, insurance, etc.) are baked into the rent payment already – along with a profit margin!!

3. Owning is usually a form of “forced savings”

Studies have shown that homeowners have a net worth that is 44X greater than that of a renter. As a matter of fact, it was recently estimated that a family buying an average priced home this past January could build more than $42,000 in family wealth over the next five years.

4. Owning is a hedge against inflation

House values and rents tend to go up at or higher than the rate of inflation. When you own, your home’s value will protect you from that inflation.

5. There are still substantial tax benefits to owning

We know that the new tax reform bill puts limits on some deductions on certain homes. However, in the research paper referenced above, the authors explain:

“…the mortgage interest deduction is not the main source of these gains; even if it were removed, homeowners would continue to benefit from a lack of taxation of imputed rent and capital gains.”

Bottom Line
From a financial standpoint, owning a home has always been and will always be better than renting.

Buying • July 8, 2023

Things to Avoid After Applying for a Mortgage

by Debbie Marett

Congratulations! You’ve found a home to buy and have applied for a mortgage! You’re undoubtedly excited about the opportunity to decorate your new home, but before you make any large purchases, move your money around, or make any big-time life changes, consult your loan officer – someone who will be able to tell you how your decisions will impact your home loan.

Below is a list of Things You Shouldn’t Do After Applying for a Mortgage. Some may seem obvious, but some may not.

3. Don’t Make Any Large Purchases Like a New Car or Furniture for Your New Home. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher debt to income ratios…higher ratios make for riskier loans…and sometimes qualified borrowers no longer qualify.

5. Don’t Change Bank Accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is consistency among your accounts. Before you even transfer any money, talk to your loan officer.

7. Don’t Close Any Credit Accounts. Many clients erroneously believe that having less available credit makes them less risky and more likely to be approved. Wrong. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those determinants in your score.

Home Improvement • July 5, 2023

5 Things New Homeowners Waste Money On

by Debbie Marett

Becoming a homeowner is an exciting milestone, but it also comes with financial responsibilities. While it’s natural to invest in your new space, it’s important to spend wisely and avoid unnecessary expenses. Unfortunately, many new homeowners fall into common traps and end up wasting their hard-earned money on things that don’t add much value or benefit to their new home. Here are a few common financial mistakes to avoid.

putt putt fun 1. New Furniture and Decor
One of the biggest pitfalls for new homeowners is overspending on furniture and decor. Filling every room with brand-new pieces is tempting, but this can quickly drain your budget. Stay away from the furniture store in the weeks following your move. Instead, focus on the essentials and consider purchasing second-hand or refurbished items, which can save you a significant amount of money without compromising on quality. Additionally, compare prices at different stores before making any major purchases.

2. Lawn Services
New homeowners are often eager to get their yard and home exterior in perfect condition soon after closing. Lawn care services may even send offers in the weeks and months after you purchase your new home, but these services can be costly. You can do most of the things that lawn services advertise with some basic tools and some elbow grease. You can even consider hiring a neighborhood kid to help you! Either way, the cost will be far lower.

3. Extended Warranties
If you’re buying a new appliance, there’s a good chance that an employee will try to get you to purchase an extended warranty. While these warranties are useful on rare occasions, it’s unlikely that a major appliance will malfunction during the warranty period, meaning you’ll be spending money on something you’ll never use.

4. Costly Additions
Making an expensive addition to your home right after you move in isn’t recommended. While your backyard might be perfect for an outdoor kitchen, spending thousands of dollars on a second kitchen that you don’t need is a quick way to waste a lot of money. Instead, prioritize improvements with a high return on investment, such as energy-efficient upgrades, or focus on smaller items that will improve the functionality and appearance of your home.

5. Impulsive DIY Projects
While do-it-yourself (DIY) projects can be a great way to save money, they can also lead to costly mistakes if not approached carefully. New homeowners often get carried away and tackle complex projects without the necessary skills or experience. This can result in expensive repairs or hiring professionals to fix the mistakes. Before embarking on a DIY project, thoroughly research and assess your abilities, and start with small, manageable tasks. For major renovations, it’s often best to consult with experts to ensure the job is done properly.

As a new homeowner, it’s crucial to spend your money wisely. A well-thought-out approach to homeownership will not only help you stay within your budget but also ensure that you maximize the value and enjoyment of your new home for years to come.

Market Info • July 5, 2023

Mid-Year Market Update

by Debbie Marett

The real estate industry is an ever-changing landscape where the future is difficult to predict. Whether you are a potential homebuyer, seller, or investor, staying informed about the latest developments is crucial for making informed decisions. Below are a few of the latest trends in the market as well as some predictions for the rest of the year.

Latest Trends

Steady Prices, Declining Sales
Median sale prices for homes in the U.S. have been consistent year-over-year and are currently around $516,000. However, the number of homes sold in April 2023 decreased by around 3.4% compared to April 2022. Low inventory and high interest rates are to blame for declining home sales, but nearly every area in the U.S. has experienced year-over-year declines.

Faster Sales
One sign that the market is currently healthy is that properties are spending fewer days on the market month over month. In March 2023, homes were on the market for a median of 54 days. That number dropped to 46 days in April and 43 days in May.

Balanced Market Conditions
The U.S. real estate market is gradually moving towards a more balanced state. While the market has favored sellers for several years, buyers are gaining more leverage in negotiations. The number of new listings has increased in recent months, offering buyers a wider range of options to choose from. Sellers should be prepared to price their properties competitively and consider strategies to make their listings stand out in the increasingly competitive market.

Predictions for Remainder of 2023

Steady Rates and Demand
Since interest rates remain high, it’s unlikely the market will change much in the coming months. The average interest rate for a 30-year mortgage is close to 7%. While many forecasts indicate that interest rates will start to drop soon and may reach close to 5% by the end of 2023, it will take significant movement to impact buyer demand by a substantial amount.

Demand for Affordability
Throughout the rest of 2023, there will be increased demand for affordable housing. The combination of stagnant wages and high living costs means that more buyers will be searching for homes that they can actually afford. However, these properties remain hard to come by.

Work From Home Dynamics
Remote work is still common across the country, meaning buyers will continue searching for large homes that offer ample space. Demand for larger, affordable homes will likely push buyers to purchase in rural and suburban areas. Even though there’s slightly less demand for homes at the moment, home values will likely increase throughout 2023.

New Tech
The remainder of the year will also see an increased investment in technological advancements. Everything from virtual tours to online document signing is commonplace. However, technology may also help introduce more affordable housing to the market via 3D printing and modular homes.

While there are some promising signs for the current housing market, 2023 will likely be shaped by interest rates. If these rates start to drop, buyer interest might once again rise.

Market Info • June 20, 2023

Why the Median Home Price Is Meaningless in Today’s Market

by Debbie Marett

The National Association of Realtors (NAR) will release its latest Existing Home Sales (EHS) report later this week. This monthly report provides information on the sales volume and price trend for previously owned homes. In the upcoming release, it’ll likely say home prices are down. This may feel a bit confusing, especially if you’ve been following along and seeing the blogs saying that home prices have bottomed out and turned a corner.

So, why will this likely say home prices are falling when so many other price reports say they’re going back up? It all depends on the methodology of each report. NAR reports on the median sales price, while some other sources use repeat sales prices. Here’s how those approaches differ.

The Center for Real Estate Studies at Wichita State University explains median prices like this:

“The median sale price measures the ‘middle’ price of homes that sold, meaning that half of the homes sold for a higher price and half sold for less . . . For example, if more lower-priced homes have sold recently, the median sale price would decline (because the “middle” home is now a lower-priced home), even if the value of each individual home is rising.”

Investopedia helps define what a repeat sales approach means:

“Repeat-sales methods calculate changes in home prices based on sales of the same property, thereby avoiding the problem of trying to account for price differences in homes with varying characteristics.”

The Challenge with the Median Sales Price Today

As the quotes above say, the approaches can tell different stories. That’s why median price data (like EHS) may say prices are down, even though the vast majority of the repeat sales reports show prices are appreciating again.

Bill McBride, Author of the Calculated Risk blog, sums the difference up like this:

“Median prices are distorted by the mix and repeat sales indexes like Case-Shiller and FHFA are probably better for measuring prices.”

To drive this point home, here’s a simple explanation of median value (see visual below). Let’s say you have three coins in your pocket, and you decide to line them up according to their value from low to high. If you have one nickel and two dimes, the median value (the middle one) is 10 cents. If you have two nickels and one dime, the median value is now five cents.

In both cases, a nickel is still worth five cents and a dime is still worth 10 cents. The value of each coin didn’t change.

That’s why using the median home price as a gauge of what’s happening with home values isn’t worthwhile right now. Most buyers look at home prices as a starting point to determine if they match their budgets. But, most people buy homes based on the monthly mortgage payment they can afford, not just the price of the house. When mortgage rates are higher, you may have to buy a less expensive home to keep your monthly housing expense affordable. A greater number of ‘less-expensive’ houses are selling right now for this exact reason, and that’s causing the median price to decline. But that doesn’t mean any single house lost value.

When you see the stories in the media that prices are falling later this week, remember the coins. Just because the median price changes, it doesn’t mean home prices are falling. What it means is the mix of homes being sold is being impacted by affordability and current mortgage rates.

Bottom Line

For a more in-depth understanding of home price trends and reports, let’s connect.

Selling • June 17, 2023

Should You Reduce Your Listing Price after Two Weeks in the Current Market, or Is That Too Soon?

by Debbie Marett

Over the past few years, homeowners have gotten used to the idea that pretty much every house sells quickly and for over the asking price. Houses were selling in such record time that most sellers never even had to consider the thought of reducing their price.

But the market has changed recently, due in large part to mortgage rates rising considerably. This has priced some buyers completely out of the market, made others hesitant to buy, and reduced the buying power of those who are still ready, willing, and able to buy a house.

So, depending upon your area and price range, your house might not sell in the first couple of weeks, let alone the first few days of it being on the market. Not that a couple of weeks is all that long to sell your house from a historical perspective; houses can take months to sell in some markets.

Regardless of whether it’s a fast-paced market like we’re coming out of, or one where it takes months for a house to sell, many people would think reducing the price of a house after just a couple of weeks on the market sounds a bit too soon and unreasonable. But if you’re selling your house and haven’t gotten an acceptable offer in the first two weeks, there’s a good chance your agent will suggest that you reduce your price… and for good reason.

Why Do Agents Suggest Reducing Your Price After Just Two Weeks?

Every agent, market, and situation are different, so it’s not definite that your agent will suggest reducing your listing price after two weeks. However, it’s a fairly common amount of time for agents to give a listing a fair test run and assess how the market reacted.

The reasoning is that the first two weeks are when you’ll see the highest amount of activity from buyers. Serious buyers, people who are just thinking about buying, and nosy neighbors all flock to new listings when they first hit the market.

But the serious buyers are the ones who truly matter. They’re the most informed about what’s on the market, how one house compares to another, and ultimately whether something is worth what the seller is asking. And most importantly, they’re ready and anxious to make an offer immediately on a house they like so they don’t lose it to another buyer, regardless of whether the pace of the market is fast, slow, or somewhere in between.

So, if you go a couple of weeks and none of the serious buyers in your area and price range have made an offer, that’s a pretty good sign that the buyers don’t feel like your house is worth the price you’re asking, and why your agent might suggest reducing the price.

Things to Consider if Your Agent Is Suggesting a Price Reduction

Trust your agent’s expertise and advice, it can be difficult for some sellers to understand what their agent is basing their suggestion upon, other than it just being on the market for two weeks without selling. While the two-week rule of thumb has a solid basis, you should also consider a few other factors that your agent likely takes into account, before you decide whether or not to reduce the price of your house.

Here are some questions to help you have an educated discussion with your agent, and make a well-informed decision:

Were there offers being made on other competing houses? If so, that’s a definite sign that buyers are actively making offers but chose another house over yours. This is difficult to ascertain at times, because offers being made aren’t typically trackable. But agents often have a handle on which houses are receiving offers due to interacting with other local agents.
Did anything else in your area and price range go under contract? Receiving offers is one thing, but accepting one is another. If any house you’re competing with actually goes under contract, the downside is that one of your potential buyers is now gone. On the flip side, one of the houses you’re competing with is gone, too. You’ll need to weigh both of those things in your decision to reduce your price or not.
Were the competing houses that buyers made offers on better than yours? Honesty can be hard, but make sure that the houses you’re assessing against truly were similar in size, condition, and location to yours. It’s easy to put blinders on and feel like your house is the greatest one on the market, but it helps if you can be as objective as possible.
Was your house priced appropriately to begin with? It won’t do you any good to assess the market activity if your house isn’t even in the proper market price point. If your agent originally suggested a lower listing price based upon their comparative market analysis (CMA) and you opted to list your house for a higher amount, then you should consider reducing your price to the one they initially suggested.
Has the market changed since you first decided upon a list price? Whether you listed at the price your agent originally suggested or not, consider whether the market has changed since you originally discussed and decided upon your list price. The real estate market doesn’t typically have drastic ups and downs like the stock market, but it can change enough in a short period of time to impact the activity you expected, or the appropriateness of your price.How Much Should You Reduce the Price?There’s no way to say that a certain percentage price reduction is appropriate for every single seller in every single situation. It boils down to reducing it enough to get the attention of the current buyers in the market and make them feel the need to act before it’s too late. Doing that is as much art as it is data-driven science…
…which is why you should ultimately trust the judgment and advice of your agent — who knows the local market, your particular home, and your situation — about when to reduce, and how much to reduce the price of your house.

The Takeaway:

In many areas and price ranges, houses aren’t selling as quickly as they were in recent years. Many houses were selling well before being on the market for two weeks, which is about the timeframe when agents suggest reducing the asking price if there haven’t been any acceptable offers.

Even though two weeks might not sound like enough time on the market before reducing your price, it’s enough time to assess whether or not your price is appropriate. If your agent is suggesting a price reduction after two weeks, be open to an objective discussion about the reasons you should consider doing so.

Uncategorized • May 17, 2023

Thank you for a great 2022!

by Debbie Marett

Are you Putting your Faith in Zestimate?

Congratulations! You’ve Found a Home

The worst thing clients can do presently is wait to see if rates dip.

5 Powerful Reasons to Own Instead of Rent

Things to Avoid After Applying for a Mortgage

5 Things New Homeowners Waste Money On

Mid-Year Market Update

Why the Median Home Price Is Meaningless in Today’s Market

The Challenge with the Median Sales Price Today

Bottom Line

Should You Reduce Your Listing Price after Two Weeks in the Current Market, or Is That Too Soon?

Thank you for a great 2022!

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