real estate

This regularly-scheduled sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty, voted one of Arlington Magazine’s Best Realtors of 2013. Please submit follow-up questions in the comments section or via email.

Question: I’m planning to purchase a home in Arlington this spring and have heard stories about how crazy the market is getting. I’ve read about people waiving their appraisal contingency in markets like this. Can you explain how that works?

It’s important to first understand why someone would consider this strategy… residential appraisers primarily employ the sales comparison approach to determining a home’s value. This method is heavily reliant on past comparable sales. In situations where a home may sell for more than the recent sales prices of comparable homes (i.e. due to competition from multiple offers), the property may appraise for less than the agreed upon sales price.

If an appraisal comes in low, we usually use it as leverage to try and negotiate a lower sales price. It isn’t exactly fair to the seller because they agreed to a higher price at the onset, but sometimes it is necessary for a buyer to be able to continue with the purchase. Therefore, you can see how waiving the appraisal contingency up front would strengthen an offer by relieving the seller of having to worry about whether a contract they are considering will appraise for the agreed upon purchase price or not.

From a purchaser’s perspective, waiving the appraisal contingency could result in a situation that requires more funds than initially expected, change the loan terms (i.e. monthly payments could be more expensive) or even cause the contract to be in default if the purchaser is unable to proceed with the purchase.

Based on the loan program you use, the lender will require a minimum amount of equity on your part. In turn, they are only willing to finance the balance of that equity. For instance, if your loan requires a minimum of 20% owner equity, it will lend up to 80% of the lower between purchase price or appraisal value. If you are stretching financially to meet the minimum requirement of your loan program then waiving the appraisal contingency is not an option for you.

If you are putting down a lot more money than is required by your loan program, then waiving all or a portion of the appraisal, contingency may be an option, one you could consider very carefully. In this situation it might affect your down-payment or monthly payments. However, it eliminates your leverage to try and negotiate a lower purchase price if the appraisal comes in low.

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This periodic sponsored Q&A column is written by Adam Gallegos of Arlington-based real estate firm Arbour Realty, voted one of Arlington Magazine’s Best Realtors of 2013. Please submit follow-up questions in the comments section or via email.

Question: I keep hearing how much the Arlington real estate market has recovered, but our house has been sitting on the market for several months and we still don’t have any offers. Any advice you can provide is appreciated.

We’ve already hit a seller’s market surge in 2013 and it is barely February.  Almost every offer I have written in the last two months has been against competing contracts.  Yet, certain homes sit there collecting days-on-market.  You really can’t blame the market anymore.  It’s time to look at the items you have control over.

Price — Zillow, tax assessed values and comparable sales (“comps”) do not determine market value.  Comps play a big role in determining appraisal value and are often used when trying to predict market value, but the open market is what determines market value.  In case it needs to be said… what you owe, paid or would like to make on your home, does not influence market value either.

If people are not coming to see your home then it is usually a good indication that you priced your home higher than what the market is willing to consider.  In Arlington you should expect at least one showing per day on average.  That number should be substantially higher for homes along the Orange Line.

Waiting is not going to help.  If you have over-priced your home, address the issue as early as possible.

Days-On-Market (DOM) — The higher your DOM, the lower the perceived value will be of your home.  Potential buyers begin to wonder what’s wrong with the home.  They wonder why everyone else has passed it by.  They also begin wondering how low they can get you to come down on price.  This is why it is important to put your best foot forward as early in the listing process as possible.

If the damage has already been done and you have already racked up a large number of DOM then you need to implement a new strategy.  Your strategy should take into consideration the feedback you have received from potential buyers and showing agents.  You may also want to interview other agents to gain a fresh perspective of how someone else would help you sell your home.

Another option is to take the home off the market for 90 days to reset your DOM in the MLS.  I can’t say I recommend this during the current market.

How it Shows — If your home is vacant and less than beautiful on its own, you may want to have it staged.  A good stager is synonymous with a miracle worker.  It will help divert attention away from every imperfection.  It also goes a long way towards helping the potential buyers envision how they would live there.

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