Preparing for Appraisals ? Contracts and Comps
You’ve sold your home and are getting ready for the appraisal. Here’s how contracts and comparable home sales impact the appraisal.

Your Contract

One of the indications of value an appraiser takes into consideration is the contract that exists between unrelated parties for the sale and purchase of the home. As odd as this may sound, sales between relatives often downgrade an appraisal amount. So if you’re not selling your home to a relative, make a nice clean copy of your contract, and give it to the appraiser who appraises your home.

Comparable Sales

In general, when you are selling your primary residence, the person buying it is going to make it his primary residence, too. An appraisal done in that situation usually gives the most value to what similar houses have sold for in the same neighborhood (or nearby) recently, and doesn’t pay much attention to the ability of the property to generate rental income or to what it would cost to replace it.

Therefore, the appraiser is going to be looking for homes which have sold in your area in the past few months. If you know of a sale of a similar home at a good price, tell the appraiser about it. Make sure your information is accurate first, however. Don’t just share neighborhood gossip. Check the sales price at the courthouse.

Be careful how you handle these last two suggestions. You want to come across as quietly helpful and factual. You do not want to convey to the appraiser that you question his ability to do his job well.

Prepare to Have Your House Appraised

Plants and Emotional Appeal in House Selling
As a home seller you want to initiate that positive feeling from a prospective buyer; choosing a new home is a very emotional thing and it is this emotional vibe that you want to tune into to. It is always the first impression that will dictate the buyer's mood.

Think of the times that you have been in the audience waiting to hear a speech. When the person walks onto the stage you are expectant and interested in what he has to say. In the first one minute he either has your attention - or you are wondering where he bought his shoes from. If he has wit, a smile and a bright voice you will listen. If he drawls, sounds dull and is talking too quietly your brain leaves the stage.

You will only listen to a boring speaker if you really want to hear what he has to say. Your house is like the speaker. If it appeals in the first minute, the buyer will proceed with interest and enthusiasm. If the first appearance doesn't draw the buyer in, he will approach the viewing of your home with the thought that he is wasting his time. This is where the price of your house comes in; if there is nothing much going for it, then make sure you take the realtor's advice about the price.

If you know your house is a no-frills house, then the first impression will be critical to set the mood. A realtor calls this curb appeal, and if yours is not able to look 'fantastic', it can at least look promising.

Step out side your house, and walk to the street and scrutinize your own home from the sidewalk. Check for things like scuff marks around the base of the house and broken parts of fence. Sweep the paths and hide the garbage can. Make sure the gardening is done - no dead weeds or yellow patches on the lawn.

Certain additions can make your home look as if it is cared for. For instance, plants in pots around your front door. A statue or an elegant bird bath placed centrally in your lawn can take away the plainness of a yard. If you are worried about theft, most of these are too heavy to be easily moved. Flowers or plants can be grouped around it.

This applies to any season. If you are selling your home in autumn you can always buy some potted chrysanthemums or azaleas, if you are selling in spring use daffodil and crocus etc. Whatever time if the year, there can be either flowers or berry bushes in the yard. The back yard will not count so much in terms of first impressions. So concentrate on the front for the first visual impact to your buyer.

One very easy solution to the visual appeal problem is to have a very soft bed in the front and cover it with wood chips. As each season turns, a different group of pot plants can be 'dug in' to the soft soil. Once the daffodils die, those pots get pulled out until next year and the petunias go in, then chrysanthemums, until finally it is the winter pansies and the berries. With a bird bath in the center and about three small ever green shrubs, your front yard will always have appeal.

It is not just that you are appealing to the type of person who likes a nice yard; if the yard is looking good, it will make the buyer think that the rest of the house will be looked after and he will approach the viewing of your house in a positive way. This positive attitude means that the buyer's frame of mind will be open to the emotional appeal of your home.

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Low Cost Houses
How do you find low cost houses? Look in the right towns,to begin with. Then you can find the houses you like and make an offer. Where are the right towns?

Altoona, Pennsyvania still had dozens of homes for sale for less than $30,00 as I write this (2005). I just saw one listed for $7,500! This is a cute little town (see the photo on our site), yet still big enough to have everything you need.

Hot Springs, Arkansas has low cost houses. The cheapest right now is $13,500. My wife and I like Alamogordo, New Mexico a lot, and it still has homes under $50,000. Independence, Kansas has homes starting under $10,000!

<b>How To Find Low Cost Houses</b>

You can look up various local newspapers online, and check out the classifieds. This also assures you that it's a town large enough for a newspaper. If there are at least a dozen houses for sale, you'll have an idea about home prices there.

You can find real estate agents online, or in local paper classifieds. Call one and ask if there are any low cost houses for sale. If not maybe he'll know which nearby towns have some.

You can go to  www.Realtor.com, where you can search any town for homes listed by price, number of bedrooms, and many other criteria. This tool is a lot of fun. Set the criteria to select only homes under fifty thousand or whatever you want, and you'll quickly see if you're wasting your time on a town.

Of course, if you don't see many low cost houses, you still might be able to get one. When we lived in Anaconda, Montana, where we bought our own beautiful house for $17,500, we watched as a house listed for $18,000 eventually sold for $6,000! Towns that have had some economic troubles often have house selling for far under their listed price. The lesson is clear: make low offers to get low cost houses.

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Low Income Housing Investments
Low income housing providers get a bad rap. Be ready to be called a slumlord if you invest in it. Much of what people call slumlording though, is simply providing reasonable housing for those with low incomes. It is of benefit to the renter AND the landlord.

Why Do People Rent Ugly Homes?

Not-so-nice places are rented because they are affordable. When a house needs paint, has old rusty hinges on the doors, and a dirt driveway, it costs less to buy, and therefore can be profitably rented for less. In fact, anything major that the landlord does to improve it will result in higher rents, and possibly drive the renter away.

This often happens due to local regulation. When my own town enacted its first rental regulations, the fifteen pages of new rules required many landlords to spend money to upgrade their apartments and other rental properties. They included many non-safety-related requirements, like a minimum of windows, to allow natural lighting, bedroom square-footage requirements, and no peeling paint or cracked plaster.

Regulations like these are done in the name of low income renters, but the result is always the same: higher rent. Combined with the regulations against mobiles homes, these laws force low income families to move further away from town and jobs. I mention all this to let you know that if you offer an ugly, but safe and affordable rental, you are providing a real service.

Why Low Income Housing Investments?

When an average two bedroom house in a small town costs $130,000 and rents for $800, an old mobile home on a lot will probably cost $45,000 or less and rent for $500. The house costs almost three times as much, but the rent you get isn't even doubled. In other words, the mobile gives you MORE CASH FLOW. That is why old houses, run-down apartments, and mobile homes (on land) are such good investments.

Maybe you think you'll have more risk and management problems with low income housing. Well, you're right. Small repairs come up more often, and rent will be late more often, on average. But this is why you deserve a higher rate of return. I wouldn't recommend investing in low income housing if you didn't get a higher rate of return.

Let them call you a slumlord. Just treat your renters well, and make your places safe. Do these things, and you can enjoy a good return on your investment in low income housing.

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Home Buyers? Guide
Who buys home for the first time will face many difficulties not only having to understand the process of buying a home but also having to know which type of loan suits them the most. Advice from well meaning loved ones can be helpful, but buying a home is a major financial commitment and you would be wise to educate yourself on the home buying process before taking the first step.

You should talk with a real estate agent since they can give you an expert advice when you have any queries regarding the decision to purchase a home. The purpose of this initial meeting is not to sign a representation agreement with the real estate agent, but instead to make yourself aware of local real estate customs in your particular area. If the agent has no time to discuss the home buying process with you, then keep looking until you find one who will. A good real estate agent will offer you information on the local real estate market and give you an idea of the types of mortgage products that are available to you. A mortgage broker or lender can also give you valuable information when you decide to buy a home.

The questions you should ask the real estate agent or mortgage broker include how to make an offer on a home you wish to purchase and the specifics involved in between making your initial offer and the final acceptance of the offer from the seller. Ask about the settlement costs, the down payment amount that you may need, and the length of time involved between the acceptance of your offer and the final closing date.

Make sure you understand your credit situation and what it means to you as far as applying for a mortgage. Down payment requirements and the interest rate you will receive are directly related to your credit score. You should be aware of exactly what is on your credit report before beginning the home buying process.

Buying a home can be stressful at times and that a calm attitude and the ability to cope with any issues that may arise calmly will make the purchase of your first home a more pleasant experience. The guidance will give you a good start in making wise decisions when you purchase your first home. Buying your first home is one of the most exciting events in your life. Give yourself the information you need and take the advice of experts when you begin the home buying process. The experience will be less stressful and you will benefit from the knowledge you have gained.

Home Buyers And Sellers Are Going Online
Technology is changing how Americans buy and sell homes in unexpected ways, including how they work with real estate agents and brokers. That's a key finding of one of the largest surveys of real estate consumers ever conducted.

According to the study, conducted by the National Association of Realtors, nine out of 10 home buyers use a real estate agent in the search process, but use of the Internet to search for a home has risen dramatically over time, from only 2 percent of buyers in 1995 to 77 percent in 2005. The next largest source of information for buyers is a yard sign, mentioned by 71 percent of buyers.

The 2005 National Association of Realtors (NAR) Profile of Home Buyers and Sellers, based on more than 7,800 responses to a questionnaire, is the latest in a series of surveys evaluating various characteristics of home buyers and sellers.

NAR President Thomas M. Stevens from Vienna, Va., said the findings underscore the complexity of the home-buying process. "Buyers who use the Internet in searching for a home are more likely to use a real estate agent than non-Internet users, and consumers rely on professionals to provide context, negotiate the transaction and help with the paperwork," said Stevens.

The study also shows that it may pay for a seller to rely on a real estate agent. The median home price for sellers who use an agent is 16 percent higher than the price of a home sold directly by an owner.

The Web site Realtor.com was the most popular Internet resource, used by 54 percent of buyers, followed by multiple listing service (MLS) Web sites, real estate company sites and real estate agent Web sites.

Typical buyers walked through nine properties, searched eight weeks to buy a home and moved 12 miles from their previous residence. Typical sellers placed their home on the market for four weeks, had lived in it for six years, moved 15 miles to their new residence and previously owned three homes.

The most important factor in choosing an agent was reputation, according to 41 percent of home buyers, followed by an agent's knowledge of the neighborhood, 24 percent. Fifty-seven percent of sellers said reputation was the most important factor.

The National Association of Realtors is America's largest trade association, representing more than 1.2 million members involved in all aspects of the residential and commercial real estate industries.

Home Buyer Incentives - It Doesn't Hurt to Ask

In a seller's market, a prospective home buyer needs to be a little more cautious when negotiating a purchase; however, in today's buyer's market, incentives are an accepted part of the deal. It certainly never hurts to ask. It's not uncommon for a seller to wait for three months or longer to sell their home, especially during this time when the market is saturated with homes for sale. They need to make their home stand out amongst the rest, and often times, offering sales incentives is the easiest way to accomplish this.

Here are a few of the more common closing requests that never would have been considered a few years ago in our previous seller's market.

House Price & Closing Costs

It's quite acceptable to negotiate 5 percent off the price of the house and then request another 3 percent for the closing costs associated with the purchase of the home.

Inspections

Home Inspection: Everyone asks for a house inspection these days. It's the most sensible way to avoid costly surprise that may result from rotten beams, water damage, faulty wiring or cracked foundations to name a few. Once the inspection is completed, the buyer can take his list of deficiencies, associate costs with them, and either request that they be fixed or deducted from the purchase price. It is also common practice to request the seller to arrange and pay for the inspection.

Radon Inspection: This used to be a common inspection in the 1980's and 1990's. There are approximately 20,000 deaths in the U.S. each year as a result of this cancer causing, odorless gas. A test to determine radon levels in a house costs less than $50, and if the levels are high, repairing the problems cost about $1,000.

Well Inspection: When purchasing a home with a well, the seller should be responsible for a thorough inspection of the system including:

• Functionality of the pump and overall well system.
• The well quantity, or the amount of water drawn per minute, to ensure an adequate flow and water pressure.
• The water quality has to be tested to ensure that it doesn't pose a health risk.

Septic Inspection: In rural areas with no connection to sewer lines, the seller also has to provide proof of a certified inspection of the septic system.

Home Warranty

Including a home warranty can go a long way to providing peace of mind in a home negotiation. At an average cost of $250 - $400, it is a reasonable request to make of a seller.

Decorative Improvements

Sometimes a carpet or paint job may be in dire need of upgrading and a buyer can either request replacement of these items or deduct the cost from the offer.

Non-Fixed Items

Generally, any fixed items stay with the house, but often times it is to a buyer's advantage to request certain things to be included, such as:

• Drapery
• Appliances
• Lighting fixtures
• Decorative items
• Lawn tractors or snow blowers
• Vehicles

New Home Buyer Incentives

When purchasing a new home from a builder, the incentives are almost endless, and range from new appliances, landscaping, big screen TV's and even swimming pools.

This buyer's market won't be here forever. Right now you've got an edge; be sure to take advantage of it.

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Home Buyer: Negotiation and Communication
The goal in a real estate negotiation is to reach a good agreement - one in which the underlying interests of  both buyer and seller are met.  The results of a poor agreement often return to haunt the parties after closing.  Many of our real estate clients have been experienced negotiators in other industries, and we have learned from their skill and experience. Review these tips as you prepare for the purchase of your home.  

What do you want to achieve in the negotiation?

The first step in getting what you need is simply to let the seller know -  in a clear and reasoned way.  For most people, the highest priority is the price they will pay for the property.  The best way to establish this is by a market analysis of the neighborhood.  Set an offering price range that makes sense.  Knowing your range allows you to balance the price with other needs. Your interests might include:

1)  Buying at the lowest price possible.
 
2)  Setting a closing date that meets your time frame.

3)  Settling any repair issues fairly.

4)  Having your concerns heard and addressed.

5)  Locking in an acceptable mortgage loan rate.

6)  Clearing any title or survey issues that come up.

7)  Completing your relocation and job change process.

8)  Getting your family settled into a home and neighborhood.

9)  Forging a good working relationship with the seller.

10)  Having no future problems after closing.

Is an adversarial or cooperative approach more effective?

Effective negotiation does not result from stubborn demands. There is nothing more destructive to the negotiation process than combative behavior. Professional negotiators try to preserve the relationship between the principals.  The goal is to avoid an impasse in which neither seller's nor buyer's goals are met. In many cases, the contract negotiation process begins with some initial distrust between buyer and seller.  Effective negotiators move in the direction of trust as quickly as possible.  

In preparing your offer, let the marketplace establish your price, while remaining very complimentary of their home. Buyers sometimes submit a letter to the seller pointing out deficiencies and explaining why their house is not worth what they are asking.  This will always backfire and start the negotiation off with a defensive seller. Sellers have an emotional attachment to their home, and will have a strong negative reaction to a critical buyer.

How do you handle an adversarial strategy by a seller or agent?

You may find that you have to work with a combative seller or agent.  Their strategy may include: defensive arguments, emotional statements, snide remarks, threats to terminate, ego involvement, and stated positioning.  Creative solutions are difficult to find in this environment.  Good control over your own emotions is critical when working with a combative style negotiator. Here are some pointers:  

1)  Do not argue. Arguing will position them more strongly and drag the negotiation off course.

2)  Do not respond emotionally. An angry or defensive response will escalate the negotiation into a no-win battle.

3)  Do not accept or reject their arguments.  Listen and show that you understand their points.

4)  Accept the fact that strong emotions are present.  Strong emotions arouse fear and anger in others. They may be a negotiation tactic.

5)  Avoid an "us-against-them" strategy. Attach cover memos to your responses in order to communicate with the seller and break down barriers.

6)  Show that your proposals were not been made unreasonably. Firmly anchor pricing, repair requests and other points to outside data.   

7)  Be careful not to allow hazy proposals to stand.  Put everything in writing. An emotional negotiator will often produce an unclear agreement.

8)  Make your offer as attractive to the seller as possible. Look for ways to meet their underlying interests.

9)  Offer some wins on some of the terms. Face saving is important.  Do not try to win every point.

10)  Keep your long term goals in mind.  The seller may have a beautiful home that meets your needs.  

Is every point in the contact negotiable?

Yes.  However, one of the most effective ways to come to an agreement is to rely on accepted norms when possible.  For example, it is common practice in our area for the seller to pay for the title policy, and buyer to purchase the survey.  Using consistent standards reduces the need to haggle over every point. However, every term in a contract can be used to help structure the deal.  By trading off, both parties can come closer to getting what they need.
 
How do you move in the direction of “trust”?

Keep in mind that contract negotiation is a sensitive area, and anxiety can be high. All parties are under pressure, with future plans at stake. It is possible that the buyer or seller may have had a previous bad experience.  Acting with integrity does not mean that all cards have to be put on the table. It is not proper to discuss your personal strategy or needs.  A high level of trust raises the level of cooperation between the parties and forwards the negotiation.  The seller will be much more cooperative if the he feels that the buyer and agent are acting with integrity. Here are ways to develop trust:

1)  Listen and understand what the seller has to say.

2)  Express appreciation for the seller's home, gardens, decorating.

3)  Respond within a reasonable time to counter offers.

4)  Reassure the seller of your ability to close.

5)  Reveal some personal information about yourselves.

Finding common ground with the seller can be a very powerful tool in the event of multiple offers. Sellers often choose their contract for personal reasons.  For example, the buyers reminded them of their own family when they moved in with young children. Or, they were of the same religion. Or, the new owners would care for their gardens or feed the birds.  

How much leverage do you have?

A crucial part of your strategy in a negotiation is an accurate perception of the real estate market.  You must know the underlying market condition.  If you are in a sellers' market you must act quickly, and be willing to present an offer at the top of the range. This is most important if the home is in a hot area and has strong appeal. If the seller has multiple offers, you must make your very best offer up front.

In a buyers' market your prospective home may have been on the market for months.  There may be a small buyer pool for the home because of economic conditions or due to repair or updating needs.  In this case you have a lot more leverage than you would with a new listing. Some knowledge of the sellers' needs may help you improve your leverage. If you can meet some of their needs you have gained leverage for a lower price.

It is important to make your offer as straightforward as possible.  Contingencies will reduce your leverage for a lower price in a buyer’s market, or for any consideration in a seller’s market. Be proactive about showing the seller your desire and ability to close.  Here are some possible contract contingencies:
 
1)  Contingent on sale of your home:  Usually, the seller will not accept a contingency to find a buyer for your home.  It is more likely to be accepted if your home is under contract.  Attach a copy of the contract and status report.
 
2)  Contingent on inspections:  In our area this is covered by  an option period. Keep the option time within accepted norms.  This contingency can be removed to strengthen your offer.  Do this only if you are knowledgeable about the property condition.   

3)  Contingent on financing:  Strengthen your offer by obtaining credit approval.  An approval letter with your offer improves your leverage, and is crucial in multiple offers. If you are making a cash offer, get a letter from your banker stating that the resources are available.

How much under list price should you offer?

Unless there is a strong seller’s market, buyers usually offer less than list price.  Establish your price by a market analysis. It is usually counter-productive to offer so low that the seller will automatically reject the offer. This will set a negative tone from the beginning.  In a recent deal the seller responded to a low offer with an above-list-price counter.  

How are multiple offers handled?

The listing agent and seller will decide how they will handle multiple offers.  They may disclosure to all parties, or disclosure to none, that multiple offers have been received.  By disclosing that there are multiple offers, the seller is not "shopping your contract."  Shopping occurs when the seller discloses the terms of an offer to induce a buyer to submit a better offer.  This can have a negative result by creating distrust of the process by all parties, and possible loss of the buyers.  The standard procedure is to notify each potential buyer that there are multiple offers, and give each a chance to raise his offer by a certain time. When all are received, the seller will review the offers and choose one to work with.

Home Appreciation and Capital Gains
The last seven years has seen tremendous appreciation in home prices. This brings up the issue of home capital gains tax issues for people when they sell.

Home Appreciation and Capital Gains

Owning home is considered part of the American Dream. Unless you are extremely unlucky, homeownership leads to tremendous wealth building. You simply sit in your home, make the monthly payment and reap the benefits of appreciation and increased equity. A bit of the luster, however, can be lost when it comes time to sell.

Capital gains taxes are the problem. The federal government encourages homeownership, but also wants a chunk of a change when you sell. The capital gains tax is a percentage of the profit you have realized from the home, to wit, the difference between the price you purchased it at and the price it is sold. You can deduct mortgage costs, improvements and so on, but there is still the tax.

Fortunately, there are some large safe harbor exemptions to the home capital gains tax. If you are single, you can exclude the first $250,000 in profit from being taxed. If you are married and filing jointly, you can merge your individual exemptions and protect the first $500,000 from being taxed. In most parts of the country, these exemptions will completely protect you from home capital gains tax. Even if they don’t, the tax savings should be substantial.

To claim the exemptions, you must meet a few requirements. Obviously, you have to actually own the home. You must also have lived in the home two out of the previous five years. It must have been two years since you tried to claim the exemption on any other home. Put another way, you cannot claim the exemptions for investment property or second homes. Still, these healthy exemptions are a windfall for most homeowners.  

Americans are notorious for being horrific savers when it comes to financial planning. Homeownership provides a relatively straightforward savings method and the government promotes it as such by providing these large home capital gains tax exemptions. If you can pull it off, buying a home is one of the smartest moves you will ever make.