How Distressed Home Sales Impact Your Home's Value
We know the gut wrenching feeling when a home sells down the street from you for well below Fair Market Value (FMV). You may only find out when a perspective buyer says your home is too high priced because of that distressed home sale! Distressed home sales happen in any and every neighborhood from ghettos to multi-million dollar estate neighborhoods.
What is considered a distressed home? We usually think of distressed property as one with plywood over the windows and doors, perhaps inhabited by vagrants or drug dealers. In fact, most distressed sales are generally in no worse shape than the other homes in the neighborhood. So, a distressed home sale should be considered any property that sells enough below Fair Market Value (FMV) that it impacts the value of the surrounding houses.
From our experience, we believe that any property that trades at 20% or more below the “Median Home Value” will affect appraisal values throughout the neighborhood. This is especially true if there has been a second distressed sale within six months. What begins to happen is these distressed sales become new comparable sales and start impacting local homes on the market. These distressed sales force homeowners to reduce their prices and a domino effect of declining prices can begin to take place. Many other aspects of a home sell it besides price alone, but many sellers don't realize this.
One of the most common causes of a distressed sale is neglect of the property, especially where residents may be physically or financially unable to care for their property. The only chance for change for these homeowners may be to wait until they move, or sell your house before theirs comes on the market where it will be sold as a distressed property. This distressed sale again causes a decline in your home's value and neighborhood values in general.
Other common causes of distressed sales are foreclosure and divorce. In foreclosure, the property may be sold well below fair market value because the homeowner no longer cares what happens to the property and the lender gets it back through the foreclosure system. To avoid losing his home and having the foreclosure on his credit report, he may sell his home for what is owed, which can be 80% or less of last year's market value. In divorce situations, common sense can go out the window when one or both spouses wants out of the relationship, without caring about selling their home for the best possible price.
Not as common are special inter-family sales that take place below fair market value for of personal reasons. Probate or estate sales often take place below FMV because the beneficiaries only want to get out of the property and into cash as quickly as possible. We detail these problems and other reasons for distressed home sales with specific solutions in our Home Study Course for home sellers.
There is some consolation is the fact that the distressed sale is only looked at by appraisers for about six months after it becomes public record. This time period was previously as much as one year but has recently been shortened by lenders because of the declining real estate market.
If you are selling your home, you want your appraiser to do a “full appraisal” which includes coming inside your property and giving you credit for the condition of your home and any improvements you made. Otherwise, if he simply does what is called a “drive-by appraisal” he must use only the information that is in the public record. With a “full appraisal” you will more importantly have the opportunity to talk with him about the reason for the distressed sale in your neighborhood so he can discount it entirely. A distressed home sale in your neighborhood can decrease the FMV of your property by as much as 10% to 15%.
In summary, your best option to overcome distressed home sales in your neighborhood is to be alert to their potentially happening and see if you can get involved with your neighbors to help the homeowners before the sale. If this is not an option, and you sell your home and get an appraisal below what you feel is FMV, look at the appraisal specifically for the home or homes that brought down your property value, and challenge the appraisal. If you see a comparable sale or two that are way out of line with others in your neighborhood, talk to neighbors about what happened and relate this information to the appraiser so he can redo his report. Being proactive like this could save you tens of thousands of dollars by not having to reduce your selling price or having to give unnecessary seller concessions.
About Author :
Dave Dinkel has over 30 years experience in real estate investing which has given him a unique perspective into the workings of the real estate market. He has developed a CD entitled "How to Sell Your Home in as Little as 72 Hours", available at no cost for a limited time by going to www.fsboTLC.com and he shares even more techniques and secrets in his homeowner's home study course at www.FSBOautopilot.com
Buying Homes Pre-construction
Many people hear about buying homes in the pre-construction phase of development and having the home value skyrocket in the first few years. The stories usually involve someone “getting in” during the early phases of development when the builders offer good incentives and competitive pricing. These homes can be great investments, but deals like these are harder to find now than they were even five years ago. So, talk to your real estate agent about pre-construction homes (and investing in the Charleston area in general) if this is something you are interested in.
A lot of our clients have opted to buy homes pre-construction because they need time to sell their current home. Building a new home in Charleston usually takes anywhere from four to nine months. We have found that new construction is the best way for people to go ahead and buy a home (reserving a price in the market) but also postpone their closing date (giving them time to sell their house). Along the same lines, most builders only require you to put down a small amount (anywhere from $1,000-15,000 depending on price of house) upfront. After you make this payment, you don’t usually pay any more until the house is built and you close on it. So, if you are still making mortgage payments on your current home, you don’t have to worry about making double mortgage payments until the time that your house sells. Also, if you are an investor, it would be beneficial for you to try to not close for a while so that you can capture the appreciation of the home.
Another benefit of buying homes pre-construction is that you know your home will be low maintenance. Builders are required by law to give specific minimum warranties to ensure that you don’t face any major problems during the first few years of living in your new home. One of the warranties is a minimum of 1-year “bumper to bumper” warranty which ensures that everything in the home is covered by the builder. There is also a 2-year warranty that covers all systems (electrical, plumbing, heating and air conditioning, etc.) in the home. Another warranty is the 10-year structural warranty which covers foundation and other structural problems.
An obvious benefit of buying pre-construction homes is that you get to choose many features in your home. Depending on the progress of construction, you can often choose flooring, cabinetry, light and plumbing fixtures, etc. You can either go with the upgrades, or you can keep the standard features in order to keep costs down. If you are buying a home during the early phases of development, you can usually choose which floor plan you want to use and even which lot you want to build on.
Although there are plenty of benefits of buying new homes, there are also some drawbacks. New construction homes sometimes sit on smaller-sized lots compared to older homes. Older lot sizes in Charleston are typically about 1/3 of an acre, while newer lots are generally ¼ of an acre. These averages vary according to area, and you’ll find larger lots in general in areas that are farther out in Charleston. Another drawback of pre-construction homes is that you don’t have a definite closing date. Due to weather and building permits, the builders don’t always close on time. A third drawback is that people can’t always walk through the house and see how it looks before you buy. New construction neighborhoods almost always have a model home to show you examples of finishings and upgrades. Although these homes have different layouts and features, they can still give you an idea of the quality of work you can expect from the builder.
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Find best Destrehan Homes for Sale in Louisiana from Destrehan real estate agent
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About Author:Jeff Melancon is one of the leading real estate agents in Louisiana. Backed by Remax, he, along with his team of realtors, operates especially from New Orleans, Kenner, Metairie, Destrehan, LaPlace, River Parishes, Garden District, and the Warehouse District. For more information, please contact Jeff at 504-457-2662 / 504-914-0988 or by visiting our website:http://www.jeffmelancon.com/