What Is a REALTOR®?
A real estate agent is a REALTOR® when he or she is a member of the NATIONAL ASSOCIATION OF REALTORS®, The
Voice for Real Estate® -- the world's largest professional association.
REALTOR® is a registered collective membership mark that identifies a real estate professional who is a member of the
NATIONAL ASSOCIATION OF REALTORS® and subscribes to its strict Code of Ethics.
1908, NAR has grown. NAR is composed of residential and commercial REALTORS®, who are brokers, salespeople, property managers,
appraisers, counselors and others engaged in all aspects of the real estate industry. Members belong to local
associations/boards and 54 state and territory associations of REALTORS®. They can join one of our many institutes, societies
and councils. Additionally, NAR offers members the opportunity to be active in our appraisal and international real estate
REALTORS® are pledged to a strict Code of Ethics and Standards of Practice.
Working for America's property owners, the National Association provides a facility for professional development, research
and exchange of information among its members and to the public and government for the purpose of preserving the free enterprise
system and the right to own real property.
a REALTOR® Can Do for You
The REALTOR® you work with could be one of your most valuable
resources. Unlike many real estate agents who are simply licensed by their state to do business, REALTORS® have taken
additional steps to become members of the local board of REALTORS® and have agreed to act under and adhere to a strict
Code of Ethics. Plus...
- A REALTOR® can help you determine how much home you can afford. Often a REALTOR®
can suggest ways to accrue the down payment and explain alternative financing methods.
- A REALTOR®,
in addition to knowing the local money market, also can tell you what personal and financial data to bring with you when you
apply for a loan.
- A REALTOR® is already familiar with current real estate values, taxes,
utility costs, municipal services and facilities, and may be aware of local zoning changes that could affect your decision
- A REALTOR® can usually research your housing needs in advance through a Multiple
Listing Service--even if you are relocating from another city.
- A REALTOR® can show you
only those homes best suited to your needs--size, style, features, location, accessibility to schools, transportation, shopping
and other personal preferences.
- A REALTOR® often can suggest simple, imaginative changes
that make a home more suitable for you and improve its utility and value.
- A REALTOR® is
sensitive to the importance you place on this major commitment you are about to make. Look for a real estate professional
to facilitate negotiation of a win-win agreement that will satisfy both you and the seller.
Why Use a REALTOR® When Selling
A real estate agent can help you understand everything you need to know about the selling process.
By Ron Schmeadick
The selling process generally begins with a determination
of a reasonable asking price. Your real estate agent or REALTOR® can give you up-to-date information on what is happening
in the marketplace and the price, financing, terms and condition of competing properties. These are key factors in getting
your property sold at the best price, quickly and with minimum hassle.
The next step is a marketing plan. Often, your
agent can recommend repairs or cosmetic work that will significantly enhance the property. Marketing includes the exposure
of your property to other real estate agents and the public. In many markets across the country, over 50% of real estate sales
are cooperative sales; that is, a real estate agent other than yours brings in the buyer. Your agent acts as the marketing
coordinator, disbursing information about your property to other real estate agents through a Multiple Listing Service or
other cooperative marketing networks, open houses for agents, etc. The REALTOR® Code of Ethics requires REALTORS®
to utilize these cooperative relationships when they benefit their clients.
is part of marketing. The choice of media and frequency of advertising depends a lot on the property and specific market.
For example, in some areas, newspaper advertising generates phone calls to the real estate office but statistically has minimum
effectiveness in selling a specific property. Overexposure of a property in any media may give a buyer the impression the
property is distressed or the seller is desperate. Your real estate agent will know when, where and how to advertise your
property. There is a misconception that advertising sells real estate. The NATIONAL ASSOCIATION OF REALTORS® studies show
that most sales are the result of agent contacts through previous clients, referrals, friends, family and personal contacts.
When a property is marketed with an agent's help, you do not have to allow strangers into your home.
Agents will generally pre-screen and accompany qualified prospects through your property.
negotiation process deals with much the same issues for both buyers and sellers, as noted above under the buying process.
Your agent can help you objectively evaluate every buyer's proposal without compromising your marketing position. This
initial agreement is only the beginning of a process of appraisals, inspections and financing -- a lot of possible pitfalls.
Your agent can help you write a legally binding, win-win agreement that will be more likely to make it through the process.
Monitoring, renegotiating and closing
Between the initial sales agreement and
closing (or settlement), questions may arise. For example, unexpected repairs are required to obtain financing or a cloud
in the title is discovered. The required paperwork alone is overwhelming for most sellers. Your agent is the best person to
objectively help you resolve these issues and move the transaction to closing (or settlement).
Why use a REALTOR®?
All real estate licensees are not the same. Only real estate licensees who are members of the NATIONAL ASSOCIATION
OF REALTORS® are properly called REALTORS®. They proudly display the REALTOR "®" logo on the business
card or other marketing and sales literature. REALTORS® are committed to treat all parties to a transaction honestly.
REALTORS® subscribe to a strict code of ethics and are expected to maintain a higher level of knowledge of the process
of buying and selling real estate. An independent survey reports that 84% of home buyers would use the same REALTOR® again.
Ron Schmeadick, CRB, is Co-Owner and Associate Broker at Realty Executives,
Set up the Price
Every reasonable owner wants the best possible price and terms for his or her home. Several factors, including
market conditions and interest rates, will determine how much you can get for your home. The idea is to get the maximum price
and the best terms during the window of time when your home is being marketed.
In other words, home selling is part science, part marketing, part negotiation and part art. Unlike math where
2 + 2 always equals 4, in real estate there is no certain conclusion. All transactions are different, and because of this,
you should do as much as possible to prepare your home for sale and engage the REALTOR® you feel is best able to sell your
What is your home worth?
All homes have a price, and sometimes more than one. There's the price
owners would like to get, the value buyers would like to offer and a point of agreement which can result in a sale.
In considering home values, several factors are important:
- The value of your home relates to local sale prices. The same home, located elsewhere, would likely have
a different value.
- Sale prices are a product of supply and demand. If you live in a community with an expanding job base, a
growing population and a limited housing supply, it's likely that prices will rise. Alternatively, it's important to be realistic.
If the local community is losing jobs and people are moving out, then you'll likely have a buyer's market.
- Owner needs can impact sale values. If owner Smith "must" sell quickly, he will have less leverage in the
marketplace. Buyers may think that Smith is willing to trade a quick closing for a lower price -- and they may be right. If
Smith has no incentive to sell quickly, he may have more marketplace strength.
- Sale prices are not based on what owners "need." When an owner says, "I must sell for $300,000 because I
need $100,000 in cash to buy my next home," buyers will quickly ask if $300,000 is a reasonable price for the property. If
similar homes in the same community are selling for $250,000, the seller will not be successful.
- Sale prices are NOT the whole deal. Which would you rather have: A sale price of $200,000, or a sale price
of $205,000 but where you agree to make a "seller contribution" of $5,000 to offset the buyer's closing costs, pay a $2,000
allowance for roof repairs, fund two mortgage points, re-paint the entire house and leave the washer and dryer?
How much is too much?
Because all transactions are unique there is flexibility in the marketplace.
The amount of flexibility depends on local conditions.
For example, suppose you're selling a townhouse. Suppose also that there have been five recent sales of the
model you own and that sale values have ranged between $200,000 and $210,000. You now have an idea of how your home might
be priced. In a strong market perhaps you can ask for $210,000 or a little more. If the market has slowed, $210,000 may be
a reasonable asking price, but perhaps more than the final sale price.
Here's another scenario. Imagine that you live in a community of Victorian-style homes, most of which were
built in the 1920s. All the homes are different in terms of size, condition, modernization, style and features. In such a
neighborhood, an average sale price is just a statistic without much practical meaning. On a single block one home may sell
for $400,000 while another is priced at more than $1 million. The average price may be outrageously high for one home and
staggeringly low for another.
Who can help?
Experienced REALTORS® are active in the local marketplace and can provide assistance
with pricing, marketing, negotiation and closing.
Because experienced REALTORS® have handled many transactions, they're familiar with the terms and conditions
that went into individual sales, not just published sale prices which may not reflect various premiums, discounts and adjustments.
How to Price Your Home
Pricing decisions should be grounded in reality rather than wishful thinking.
By Marcie Geffner
When the time comes to price your home for sale, you may be tempted to start with
the price you paid for it, add a healthy markup and call it a day. Unfortunately, that strategy is unlikely to result in a
true reflection of your home's market value.
Here are six strategies to help you figure out how much your home is worth:
1. Abandon your personal point of view. How much will a ready, willing and
able buyer be willing to pay for your home? Buyers don't care how much you paid for the home, how many memorable moments you
and your family shared in the home, how much cash you need for the downpayment on your next home or how much time and money
you've invested in your home's hardwood floors, fresh paint, lush landscaping or other improvements.
2. Get a couple of CMAs. Invite at least three real estate agents to visit
your home and give you their opinion of its likely selling price. Ask for a "comparative market analysis" (CMA), which shows
the prices of comparable recently sold homes, on-the-market homes and homes that were on the market, but weren't sold. The
on-the-market homes are the "competition" for your home. Ask the agents why each home was included in the CMA and whether
any other comparable homes were eliminated from the CMA. Price recommendations based on CMAs aren't gospel. Some agents will
tell you to under-price your home in hope of sparking a bidding war. Others will suggest a flatteringly high price to "buy"
your listing only to demand a price reduction a few weeks later.
3. Do your own market research. Go to open houses in your neighborhood and
try to make an impartial assessment of how those homes compare to yours in terms of location, size, amenities and condition.
Assuming all the asking prices were the same, would you buy your home or someone else's?
4. Calculate the price per square foot. The average price per square foot for
homes in your neighborhood shouldn't be the sole determinant of the asking price for your home, but it can be a useful starting
point. Keep in mind that various methodologies can be used to calculate square footage.
5. Consider market conditions. Are home prices in your area trending upwards
or downwards? Are homes selling quickly or languishing? Will your home be on the market in the spring home-buying season or
the dead of winter? Are interest rates attractive? Is the economy hot or cold? Will you be selling in a buyer's market or
a seller's market? Is the local job market strong or are employees fearful of staff reductions?
6. Sweeten the transaction terms. Some buyers have needs that go beyond the
bottom line. If you're willing to close escrow quickly, you'll attract buyers who want to move in right away. If you can offer
seller-financing, your home will appeal to buyers who need to stretch their financial resources. A lease-option can help first-timers
who need downpayment assistance. The more creative and flexible you can be in meeting the buyer's needs, the more success
you'll have in pricing your home to sell.
Copyright © 2000 Marcie Geffner. All rights reserved.
If you bought
a car, you could purchase a given model with selected features from any dealer. Since the car comes from one assembly plant,
it's going to be the same whether purchased from dealer Smith or dealer Jones.
different. Each is unique, the marketplace is always in flux, interest rates constantly change and new buyers search for homes
each day. With such fluidity, it requires REALTORS® to craft marketing plans specifically for individual homes and market
Selling can entail a variety of marketing strategies. Once listed, it's likely
that the home will be quickly entered into the local MLS (Multiple Listing Service) and placed on REALTOR.com®. REALTORS®
routinely market by mail with new-listing announcements and regular newsletters. Open houses, broker access to the home via
the use of a lock box and networking with both local and out-of-town brokers are also common.
of a broker's work will be quiet and unseen -- yet important. The quiet telephone calls, the work with contacts, the follow-ups
with open-house visitors, conversations with ad respondents, the web postings and other outreach efforts are all part of the
process required to sell homes.
Experienced REALTORS® base their marketing efforts on previous
transactions and ongoing research. For instance most buyers check the Internet. NAR numbers also show that most households
move within 10 miles of their current location while 20 percent move at least 50 miles.
to market your home.
If you look at a typical transaction you can see that there are five general areas where
REALTORS® can assist in the home-selling process.
- Preparation: Before
being placed on the market, homes must be in "show" condition. REALTORS® can explain what repairs and upgrades
are required for individual homes which are most likely to produce the best results.
Brokers do more than price homes for sale, they also construct sale terms designed to speed the selling process. It may be,
for example, that a home priced at $150,000 with a 2 percent seller credit to the buyer at closing will be far more attractive
to purchasers than a home priced at $147,000. Why? That 2 percent credit is worth $3,000 to the purchaser at closing -- the
time when buyers are most likely strapped for cash.
- Marketing: REALTORS®
will execute strategies and programs to get the home sold. Typically this includes placement on the local MLS and Realtor.com
as well as related marketing, advertising and networking.
- Negotiation: REALTORS®
assist owners in the bargaining process, offering advice and counsel as offers are received and by working closely with legal
counsel, tax specialists and inspectors as required.
- Closing: Once a contract
for the purchase of a home has been accepted, a series of inspections and checks are typically required to satisfy buyers
and lenders. REALTORS® can help owners complete the transaction process by assisting with the many requirements found
in a typical sale agreement.
How to hold an open
There are no universal marketing standards for real estate because marketplaces are localized. For instance,
open houses may be common in some communities but rarely used in others.
In the case of an open
house, a REALTOR® typically advertises that the home will be open for a given period (2-5 p.m. on Sunday). During the
open period, the REALTOR® hosts the home while the owners leave for a few hours.
At the open
house, the REALTOR® will provide literature, maintain a visitor log and answer questions. By interacting with visitors,
the REALTOR® will seek feedback regarding the home and opportunities to follow up with prospective purchasers.
How do you show your home online?
The Internet is an important factor in real estate
marketing and will likely become more important in the future.
The Internet has two important
roles in the real estate selling process. First, it is a "place" to view real estate. Individual REALTORS® also
maintain thousands of localized sites while professional groups and, likewise, industry organizations, have an online presence.
Online real estate information includes not only home listings, but numerous additional features and benefits.
For instance, Homestore® offers neighborhood information, school data, recent home
sale prices, video tours, model forms, real estate news and consumer information.
the Internet offers new communication media. E-mail and instant messaging give REALTORS® and consumers more opportunities
to keep in touch. As the Internet evolves, more technologies and techniques will be introduced to make transactions easier
and more efficient.
The Basics of Marketing Your Home
Your broker's marketing efforts and considerations will include advertising,
showing the property, how long the house has been on the market and whether you're buying another home.
Your home should be listed, whenever possible, in the local Multiple Listing Service
and on REALTOR.com, which has the largest online database of homes and virtually 100% of potential buyers who look for property
on the Internet.
The REALTOR'S® largest
expense has traditionally been classified advertising in the local newspaper. However, today properties are also exposed through
popular Internet home search/listing services, radio and television promotions, and real estate guides. Even with all these additional advertising avenues, "For Sale"
signs on the front lawn are still remarkably effective. Many REALTORS® use brochure boxes along with these signs to market
the property. When appropriate, and with your permission, your agent may send a mailing about your property to neighbors.
Sometimes one of them has "a friend or relative who always wanted to live near me." You never know.
Showings and open houses
To prepare your home for viewing, make it as light, cheerful and serene as possible. Your REALTOR® will probably find
a tactful way to suggest that you not be present while the house is being shown to prospective buyers. This is done because
your presence will inhibit their actions and conversations. They won’t feel free to open closets and cabinets, test
out the plumbing, and discuss their observations objectively as they walk through. It goes without saying that your children
and pets should not be on the premises either.
If your REALTOR® has scheduled an open house, you may want to notify the neighbors,
and assure them that they'll be welcome. They'll jump at the chance to poke around in your house, and sometimes they can turn
up a buyer among their friends. In preparing for an open house, you should:
- Pull the drapes back
- Light lamps
- Simmer a few drops of vanilla on the stove
- Light your fireplace
- Set the dining room or kitchen table if you have particularly nice linen or china
- Put fresh towels in the bathroom
- Leave the house so your REALTOR® is free to deal with prospective buyers in a professional
TIP: When preparing your home, think about the techniques that are used to show builders'
How long has your house been on the market?
Professional appraisers sum up their entire body of knowledge in three words -- "Buyers make
value." Your home is worth as much as some member of the buying public will come forth and pay for it. After it's been on
the market for months, you've been given a clear message that the property may not be worth what you're asking for it. This
is particularly true if there haven't been many prospects coming to see it. What you do at that point depends on whether you
really need to sell, and whether you're working with a time limit. If you're not really motivated to move soon, you can always
wait - years if necessary - and hope inflation will catch up with the price you want. The problem is that in that time, your
home begins to feel shopworn. Buyers become suspicious of a house that's been for sale for a long time. If, however, you really do need to sell, discuss with your REALTOR® a schedule for dropping your price gradually
until you find a level that attracts buyers. There's no point in saying, "We simply can't sell our house." Anything will sell
if the price is right.
If you’re buying another home
Don’t spend a great deal of time worrying about what will happen when you're selling
one home and buying another. You're not alone. REALTORS®, lawyers, and title and escrow companies have had plenty of experience
in arranging contracts and loans so that the two transactions dovetail smoothly. It's best to list your present home for sale
Selling and buying a home is a very emotional event and if you create a "race" by
locating your replacement property before you sell your current home, you may lose it to another buyer, who does not need
to sell in order to buy. If you do find just the house you want, you can always put in a purchase offer contingent (dependent)
on selling your present one. However, in a hot market you will have difficulty getting the house you want this way.
Sometimes the seller will sign a contract agreeing to wait a certain period of time
while you find a buyer for your house - sometimes not. What would you do if you were presented with such a proposal, from
a buyer who also has a house to sell? If you do find that you need to buy the next house before you've received the proceeds
from the present one, lending institutions can sometimes make you a short-term "bridge" loan to tide you over between the
two transactions. Make sure you fully understand the exposure and emotional investment before proceeding with this type of
real estate 101 > selling > closing
The Bottom Line on Contract Negotiations
The price isn't the only factor that determines the net bottom line.
By Marcie Geffner
The natural focal point of a real estate purchase contract is the selling price of
the home, but the price isn't the only factor that determines the net bottom line for both the buyer and the seller. Is a
bargain for the buyer really a bargain if he or she is paying all the transaction costs? Is a top price for the seller really
a top price if the buyer wants all the furniture to be included in the purchase price? Or if the buyer can't come up with
the downpayment or qualify for a mortgage? Before you decide to go ahead with a great price, here are five other bottom-line
points to consider:
1. What are the estimated transaction costs and who will pay for what? Typical
costs include the brokers' commission, a home inspection, a termite inspection, escrow or attorney's fees, a title search,
an owner's title insurance policy, transfer taxes and recording fees. The price tags on these items vary greatly around the
country. Who pays for what is a matter of both local custom and negotiation.
2. How much money is the buyer putting into escrow and how soon? A big deposit
-- called "earnest money" -- and a substantial downpayment are generally seen as a sign that the buyer is serious about completing
the transaction. From the seller's point of view, the more money the buyer places in escrow and the sooner the money is transferred,
3. Is there a mortgage financing contingency and how specific is it? The mortgage
escape clause is a must for buyers, unless they're paying all cash for the home. Without this contingency, buyers can be legally
obligated to purchase the home even if they can't obtain financing. Further, an open-ended statement that says the buyer will
obtain a loan "at the prevailing rate of interest" leaves the buyer completely exposed to interest rate fluctuations. A statement
that says the loan must be at an interest rate "not to exceed xx percent" and on specified terms is preferable.
4. What furniture, fixtures and appliances, if any, are being sold with the property?
Technically, anything that's permanently affixed to or installed in the home is real property. Everything else is the
seller's personal property. This distinction is a narrow one and it naturally leads to a fair amount of confusion. Are built-in
appliances real property or personal property? What about a shelving system? A chandelier? Window coverings? Potted plants
in the backyard? Sellers who intend to remove anything that's attached to the home should have that spelled out in the contract.
And the same goes for buyers who expect to acquire any of the furniture or other movables.
5. What will happen if either side breaches the contract? Unless an unmet contingency
triggers the abandonment of the contract, it's a binding legal document. Buyers who fail to perform can lose their deposit
money. Sellers who try to back out can be sued for "specific performance," which forces the sale of the home to the buyer.
Many contracts also specify that disputes must be brought in small-claims court or presented for arbitration or mediation.
Tip: Ask your real estate agent to go over the standard contract with you before
you receive or make a purchase offer. That way, you'll know what to expect and be prepared to negotiate the best deal you
Copyright © 2000 Marcie Geffner. All rights reserved.
Negotiating to Yes
Negotiating a purchase agreement is perhaps the trickiest aspect of any real estate transaction.
By Marcie Geffner
Most home buyers and home sellers want to arrive at a win-win agreement, but that's
not to say either side would regret getting a bigger "win" than the other. Successful negotiating is more than a matter of
luck or natural talent. It also encompasses the learned ability to use certain skills and techniques to bring about those
coveted win-win results. Here are six tips and suggestions to turn negotiation into agreement:
1. Start with a fair price and a fair offer. There's no question that significantly
overpricing your home will turn off potential buyers. Likewise, making an offer that's far lower than the asking price is
practically guaranteed to alienate the sellers. Asking and offering prices should be based on recent sales prices of comparable
2. Respect the other side's priorities. Knowing what's most important to the
person on the other side of the negotiating table can help you avoid pushing too hard on hot or sensitive issues. For example,
a seller who won't budge on the sales price, might be willing to pay more of the transaction costs or make more repairs to
the home, while a buyer with an urgent move-in date might be willing to pay a higher portion of the transaction costs or forgo
some major repairs.
3. Be prepared to compromise. "Win-win" doesn't mean both the buyer and the
seller will get everything they want. It means both sides will win some and give some. Rather than approaching negotiations
from an adversarial winner-take-all perspective, focus on your top priorities and don't let your emotions overrule your better
4. Meet in the middle. Can't decide who will pay the recording fee? Can't agree
on a close-of-escrow date? Arguing over cosmetic repairs? Splitting the difference is a time-honored and often successful
negotiation strategy. Pay half the fee. Count off half the days. Fix half the blemishes.
5. Leave it aside. Politicians and corporate executives are famous for their
"for future discussion" agreements. If you have a major sticking point that's not material to the overall contract (e.g.,
the purchase of furniture or fixtures), finish the main agreement, then resolve the other difficulties in a side agreement
or amendment. This technique allows both sides to recognize and solidify basic areas of agreement, then move ahead toward
a fair compromise on other terms and conditions. Summarizing the points of agreement in writing is another helpful strategy.
6. Ask for advice. Successful REALTORS® tend to be experienced negotiators. They've seen what works and what doesn't in countless
real estate transactions, and they've established a track-record of bringing buyers and sellers together. Consult your REALTOR
about negotiating strategies, win-win compromises and creative alternatives.
Copyright © 2000 Marcie Geffner. All rights reserved.
Contract Negotiation: Terms and Conditions
If the terms and conditions of the deal aren't acceptable, you might
want to pause and think twice.
By Marcie Geffner
There's a lot to consider before you sign a real estate purchase agreement. If the
terms and conditions of the deal aren't acceptable, you might want to pause and think twice, even if the purchase price is
more than satisfactory. After all, the price will be moot if the transaction never closes.
The typical residential real estate purchase contract is complicated, densely written
and packed with legal jargon, but don't use that fact as an excuse for not reading the entire contract. Take your time and
read slowly. Ask questions about anything you don't understand. Be flexible and willing to negotiate. The following five points
are among the many items that merit attention:
1. What are the cutoff dates for inspections and approvals of the inspection reports?
A typical contract provides an opportunity for the buyer to hire all manner of experts to check out the condition of the
home. From the buyer's perspective, the more time that's allowed for these once-overs, the better. Sellers, on the other hand,
usually want the inspections to be completed and signed off as soon as possible.
2. Who is responsible for making repairs, if any, as a result of the inspections?
The fact that the buyer orders one of more inspections of the home for informational purposes doesn't obligate the seller
to make repairs or modifications as a result of those inspections. In practice, however, inspection reports often are used
to negotiate repairs of major problems or safety or environmental hazards that may be noted. The purchase contract should
provide some guidance for these negotiations.
3. Is the seller making any representations or warranties regarding the condition
of the property? In some contracts, the seller warrants that specified major components of the home (e.g., the roof or
central heating or cooling system) are in good repair and working order at the close of escrow. Buyers should understand which
components of the home are guaranteed and which are being sold "as-is."
4. Will a home warranty plan be purchased? A home warranty plan is a sort of
limited insurance policy covering the basic major systems and appliances in the home. It may seem like a prize for the buyers,
but it's equally important for the sellers and the real estate broker representing the sellers. In fact, these warranty plans
are so popular among real estate agents that many of them will pick up the tab for the program in order to insulate themselves
from irate buyers.
5. When is escrow scheduled to close? Pay attention to this date! If you're
selling your home, you'll be expected to move out completely before the property changes hands. You'll want to make sure the
closing date doesn't fall before you're able to move into your next residence. If you're buying a home, you'll be able to
pick up the keys on the day escrow closes. You'll want to make sure you don't give up your prior residence too soon. Don't
cut the dates too close. Many escrows end up closing a day or two later than the contract states--but that can happen only
with the mutual agreement of the buyer and seller.
Copyright © 2000 Marcie Geffner. All rights reserved.
Myths and Facts about Appraisals
Consumers tend to have some misconceptions about the appraisal process.
By Marcie Geffner
If you've ever watched "Antiques Roadshow" on PBS, you're already familiar with the
concept of an appraisal. The idea is similar in the realm of real estate valuations. Each property is unique, and the appraiser
relies on his or her general expertise and specific research to arrive at an opinion of value. Appraisals are an infrequent
experience for most consumers, who consequently tend to have some misconceptions about the process and the results.
Here are some myths and facts:
Myth: The primary purpose of an appraisal is to make sure the buyer doesn't
pay too much for the house.
Fact: An appraisal provides valuable information for the buyer and the seller,
but the appraiser's primary mission is to protect the lender. Lenders don't enjoy owning overpriced property any more than
they relish lending money to irresponsible borrowers. That's why the appraisal takes place before the lender grants final
approval of the buyer's loan.
Myth: Appraisers use a specific formula (e.g., price per square foot) to figure
out exactly how much each home is worth.
Fact: Appraisers weigh the location of the home, its proximity to desirable
schools and other public facilities, the size of the lot, the size and condition of the home itself and recent sales prices
of comparable properties, among other factors.
Myth: Good housekeeping can improve a home's valuation.
Fact: Appraisers aren't interested in dirty dishes or dusty dressers, but they
do notice such signs of neglect as cracked walls, chipped paint, broken windows, torn carpets, damaging flooring and inoperable
Myth: Anyone who has a clipboard and business cards can be an appraiser.
Fact: Federal law requires states to establish minimum standards and licensing
practices for real estate appraisers. In California, for example, trainees must take several courses, pass an examination
and complete 2,000 hours of supervised experience.
Myth: Appraisers have no obligation to reveal home defects to buyers.
Fact: If the buyer is applying for a mortgage that will be insured by the Federal
Housing Administration (FHA), the appraiser must survey the physical condition of the home and disclose potential problems
to the buyer. No such obligation exists for non-FHA mortgages.
Myth: An appraisal is identical to a home inspection.
Fact: The new FHA disclosure requirement notwithstanding, an appraisal isn't
a substitute for a professional home inspection. The appraiser formulates an opinion of the property's value for the lender,
while the inspector educates the buyer about the condition of the home and its major components.
Myth: If the appraiser's opinion of value is lower than the purchase price,
the buyer won't be able to purchase the home.
Fact: A transaction can sometimes survive a "low" appraisal if the seller reduces
the purchase price, the buyer makes a hefty downpayment or a separate escrow account is set up to fund repairs that will increase
the value of the home. On rare occasions, an appraiser will reconsider his or her opinion if new evidence supports a higher
There is no question that selling a home is an important event. A home sale represents transition, movement
and change. Big money is involved. Households move from the known and comfortable to the unknown and a period of adjustment.
There may be job changes, new schools, distance from old friends and the possibility of new ones.
No less important, a home sale by itself can be complex. There will be people looking at your house, documents
to sign and issues to be negotiated.
Because a home sale involves an array of both personal and business concerns, it's important to get it done
right. You need to carefully prepare your home, understand the market and see what alternatives are realistically available.
The old motto "be prepared" is a good guide in such circumstances.
What's an acceptable offer?
The goal of every seller is to have a line of buyers outside the front
door, each clutching higher and higher offers. And while this has been known to happen, in most markets there is some balance
between the number of buyers and sellers. A number of factors determine whether a buyer's offer is acceptable. They include:
each case, owners -- with assistance from REALTORS® -- will need to carefully review offers, consider marketplace options
and then determine whether an offer is acceptable.
- Is the offer at or near the asking price? Is the offer above the asking price?
- Has the buyer accepted the asking price or something close? Has the buyer then buried thousands of dollars
in discounts and seller costs within tiny clauses and contract additions?
- What is the alternative to the buyer's offer? If a home has not attracted an offer in months, then sellers
need to determine if a better deal is possible -- recognizing that each month costs are being incurred for mortgage payments,
taxes and insurance.
- Does the owner have enough time to wait for other offers?
- What if no other offers are received?
- What if several offers are received? Do you choose the high offer from the purchaser with questionable finances
who may not be able to close, or a somewhat lesser offer from a buyer with preapproved financing?
What is a counter-offer?
When a home is made available for sale the owner is essentially making
an offer to buyers: For a given number of dollars and other terms you can acquire this home. Buyers, in turn, can respond
with several options:
- Not interested.
- Yes, we'll buy on the owner's terms.
- We're interested and here's our counter-offer.
A counter-offer is nothing more than a new offer. And just as the buyer had three options in response to the
owner's original price and terms, the seller can now choose one of three reactions: accept the offer, decline the offer or
make a fresh counter-offer.
Offers and counter-offers reflect the back-and-forth activity of the marketplace. It's an efficient and practical
process -- but also one that may contain tricky clauses and hidden costs. The REALTOR® who lists your home can explain the
local bargaining process in detail and assist in the actual negotiations.
How do you negotiate?
It's sometimes argued that negotiation must produce one "winner" and one "loser."
Others suggest that a "win/win" situation is possible where each side gets something of value.
Real estate bargaining typically involves compromises by both sides. It's not war; it's not winner-take-all;
and it's not the time to take personally any comments made by purchasers.
Instead, negotiating should be seen as a natural business process; buyers should be treated with respect;
and owners should never lose sight of either their best interests or their baseline transaction requirements. These are the
standards unique to each owner, which must be met before the home can be sold.
Tax Implications of Selling a Home
Selling a home can have a major impact on your federal and state
Check with your tax consultant on the factors
that may affect taxes resulting from the sale of your home. For example:
Whether you purchased the home or acquired it by gift or inheritance
Whether you used your home partly for business or rental
Costs associated with selling your home
Home improvements or additions, which may help to offset capital gains
Gain from the sale of a prior home on which tax was postponed prior to
the enactment of the federal Taxpayer Relief Act of 1997
The federal Taxpayer Relief Act of 1997 says when you sell your home you can keep,
tax free, capital gains of up to $500,000 if you are married filing jointly or $250,000 for single taxpayers, or married taxpayers
who file separately. To qualify for the exclusion, you must have used the home as your principle residence for at least two
of the prior five years. It is not a one time tax exclusion. You can use the exclusion as often as you meet the qualifications.
The federal Internal Revenue Service Restructuring and Reform Act of 1998 further
clarified the law and says you can prorate the $500,000/$250,000 exclusion (not your specific gain) if unforeseen events,
such as a job change, illness, or some other hardship forced you to sell before you meet the two-year residency requirement.
Many, but not all federal tax benefits are also available from state tax departments.
Be sure to discuss your move with a tax professional familiar with state tax rules, especially if you are moving from one
state to another.
-Adapted from the MetLife Consumer Education Center with assistance
from the National Association of the Remodeling Industry.
Six Seller-Financing Pointers
Should you "carry back" a loan?
By Marcie Geffner
You're selling your home and the buyer wants you to finance part of the purchase price
by "carrying back" a loan. Should you?
The answer depends on the anticipated ease of selling your home without the financing
and your own financial situation. Seller financing is more common in slow housing markets when it's offered as an inducement
for buyers. But it's also a viable option for sellers who prefer to receive a stream of payments over time instead of a lump
sum in cash. If you're toying with the idea of offering seller financing, consider these six suggestions:
1. Think like a banker. Examine documents and reports indicating the buyer's
ability and willingness to pay his or her debts. Verify the buyer's employment and other sources of income. Get a credit report.
Ask for copies of bank statements and other financial documents. If the buyer is applying for additional financing from a
mortgage lender, review a copy of the loan application.
2. Get a contingency in writing. The purchase contract should specify the amount,
interest rate and term of the seller financing and include a clause allowing you to approve the buyer's financial situation
before you go ahead with the loan.
3. Call your accountant and your attorney. Lending money to someone who is
buying your home will affect your income tax situation. Interest earned on the loan is taxable income. The transaction can
be treated as an "installment sale" for tax purposes, enabling you to spread your capital gain on the sale over the term of
the carry-back loan. The loan documents should be drawn up by your attorney.
4. Set a shorter term. Seller-financed loans usually have relatively short
terms -- perhaps 5 years or less. Some seller carry-backs are very short term bridge loans that cover a gap until the buyer
sells a prior residence or obtains long-term financing. Balloon payments are common too.
5. Consider the collateral. Your loan to the buyer should be secured by the
property, so you'll be able to foreclose and evict the buyer if he or she defaults on the loan. The home should have an appraised
value equal to or higher than the purchase price, and the buyer's downpayment should be at least 10 percent of the purchase
price. Otherwise, you could end up foreclosing on a home that can't be sold to cover the outstanding encumbrances. A sizable
downpayment also reduces the likelihood of the buyer walking away from the mortgage obligations.
6. Hire a servicer. If you're willing to loan money to the buyer, but don't
want to handle the paperwork or the payments, you can retain a contract collection or loan servicing company. This company
will compute the principal, interest and outstanding balance on the loan, send payment coupons to the buyer, deposit payments
into your bank account, prepare year-end statements and provide other services. Some servicers will purchase the loan outright
if you later decide to take the cash.
Copyright © 2000 Marcie Geffner. All rights reserved.
It might seem as though once a sale agreement has been signed that the selling process is complete. Not only
is it not over yet, but some of the most complex aspects of a real estate transaction now begin.
A sale agreement sets not only a purchase price for the home, but also a series of terms and conditions. For
- Contracts routinely depend on the ability of a buyer to obtain financing, which is why most sellers prefer
buyers with preapproval letters from lenders.
- A growing percentage of transactions involve a home inspection, or a physical review of the home by a trained
and independent observer.
- Lenders will establish numerous conditions before granting a loan. They will want a title exam, title insurance
to protect against title errors, termite inspections, surveys and an appraisal to assure that the home has sufficient value
to secure the loan.
The REALTOR® typically arranges required inspections and helps the owner prepare for closing.
When should you close?
With automation now available, closings can occur within a week in some areas
-- at least in theory. In practice, it takes time to arrange financing, conduct inspections, obtain appraisals, locate replacement
housing, contact movers, pack and actually move.
While instant closings are not practical, neither are closings too far in the future. The problem with closings
much past 60 days is that loan rates are difficult to lock in. If mortgage rates go up, it's possible that the buyer will
no longer be able to afford the home and thus the deal may fall through.
The result of these considerations is that most homes close 30 to 45 days after a sale agreement has been
Closing -- or "settlement" or "escrow" as it is known in some areas -- is essentially
a meeting where the closing agent (the party who conducts settlement) takes in money from the buyers, pays out money to the
owner and makes sure that the purchaser's title is properly recorded in local records along with any mortgage liens.
The closing agent reviews the sale agreement to determine what payments and credits the owner should receive
and what amounts are due from the buyer. The closing agent also assures that certain transaction costs are paid (taxes and
Closing is also the time when "adjustments" will be made. For instance, suppose you've pre-paid taxes four
months in advance. In this case, the closing agent will compensate you for the prepayment at closing by having the buyer pay
you additional money.
It could also work in reverse. If you are behind on property taxes, the closing agent will reduce the money
due to you at settlement by the amount of the unpaid taxes.
How do you prepare to sell?
It's important to look at the sale agreement and review your obligations.
For instance, if you have agreed to paint a room or replace the dishwasher, such work must be completed before closing. Your
REALTOR® can discuss your agreement and the steps which must be taken to complete the transaction.
The closing agent will handle both the settlement papers and related documents
Sarit Finkelstein Real
The West Los Angeles, Beverly
Beverly Hills, Brentwood, Bel Air, Sunset Plaza, Century City,
Westwood, Cheviot Hills, Rancho Park, Pacific Palisades, Santa Monica, Topanga and Malibu