Friday, October 12, 2007

Strem of low offers confuses home seller

Q: I tried to sell a house for the appraised price and was unable to sell at that price. I understand that property will not sell when it is priced too high but the offers I received were $5,000 to $8,000 less than the appraisal.

I was under the impression that if I advertised the property for the appraised price, it would move quickly. I told one real estate agent when she made me an offer from a client that I was going to have the house appraised again and that I would provide the appraised price to the potential buyer so he could adjust his bid.

The agent didn't go for that at all. Can you give me some suggestions as to what I did wrong? When I couldn't sell the house, I finally rented it.

A: I think you made a few basic mistakes. First, the appraised value is not necessarily the same thing as the market value.

The appraised value of the home is what an appraiser thinks the home is worth based on the sales of other similar homes in the area. The market value is what someone will actually pay for the house.

In your case, either because of the condition or location of the home, the market is telling you that your home isn't worth what the appraiser thinks it should be worth--it's worth $5,000 to $8,000 less.

Getting a new appraisal doesn't change what someone will pay for the home. You'd be better off buying some cans of white paint and repainting the interior of the property. Then, you might get more money for it.

Renting the house is fine. Eventually, prices will rise in your neighborhood and you'll get your price, but not today. And only you can decide if waiting for prices to rise in order to get the extra $5,000 to $8,000 is worthwhile.

Q: My father died late last year and left a piece of property to my two sisters and me. Ownership is to be divided equally. The property is a house on Lake Michigan on the eastern shore, about due east of Chicago.

Local real estate agents have told us the property is worth $1.2 to $1.5 million. We all live too far away to use or manage the property and have decided to sell. However, one sister insists on doing nothing this year and waiting until next spring to sell. She says she heard one should wait at least a year to sell inherited property and that it "feels right" to wait.

Can you give me some reasons why we should either wait or sell immediately? My own feeling is that the taxes for this property are going to be very high once my father's "grandfathered" tax rate lapses.

A: First, I'd like to offer my condolences on the loss of your father.

Although I'm sure you and your sisters are missing your dad, I can't think of any reason why you wouldn't want to put your dad's house on the market now--when vacation homes are selling like hotcakes. The carrying costs (taxes and maintenance) on a house that expensive could be costly, especially if none of you are near enough to use it regularly and make sure that small problems don't turn into big issues.

I think the advice your sister is remembering refers to individuals who have experienced a huge trauma, like the death of a spouse or partner. In those cases, if the individual can afford to wait, it is a good idea to let a year go by while he or she adapts to the new circumstances of a new life.
In your case, you won't gain anything by waiting a year to sell this property. You have inherited the property at the current market value (which may even be able to be adjusted to whatever price you sell it for this spring). That means you would pay no capital gains tax on your inheritance when you sell.

And after the expense of selling it (broker's commission, transfer taxes, etc.), you would each pocket a significant amount of cash.

I think that you should sell now, especially since interest rates might rise significantly in the next year, which could dampen interest in an expensive vacation property. But it doesn't really matter what I think.

You and your siblings need to talk this out so everyone is comfortable with the plan. If you're having trouble agreeing, ask an estate attorney to mediate.

Contact Ilyce through her Web site, 2006 Ilyce R. Glink


Anonymous said...

It's so hard to get some sellers to understand that in this market their asking prices are simply too high. The sale of their home is such an emotional experience that they are insulted when someone actually offers what the property is worth. It's common for listing prices to be 20-25% too high, but agents 'buy the listings' by agreeing to list the properties for what the sellers think they're worth. Actually, that gives the sellers false hope and results in no shows and no offers. After the properties eventually sit around on the market for months after months, then the offers may start coming in at 25% or more less than listing price. In essence, you can blame much of the problem on the listing agents who agreed to list the properties for crazy prices in this slow housing market.

Now in 2008, the market is even more depressed and homes values have fallen across the country 10-12% in 2007 and are expected to fall the same amount in 2008. The housing market will not bottom out for several years to come, then the uphill climb will be very, very slow. Some sellers may want to sit on their eggs for several years in hopes that values build back up, but some sellers simply can't afford to wait that long. So that is where the lower home values and legitimate lower offers come in now more than ever before.

The higher priced the home the more of a stab the sellers will have to take to sell the home. An offer of $75K to $100K less than listing price on a $500K home is common now, and many homes are selling for much less than tax appraisal value and/or mortgage value.

I have found that regular home appraisals are of little value when you're selling the home. Buyers always see them as too high, and you'll never get appraisal price out of a home. After all, and appraisal is someone's OPINION, and it's not uncommon for appraisers to be tens of thousands of dollars apart.

Also realize that all types of appraisals are not the same. A listing appraisal, a relocation appraisal, and a mortgage appraisal will yield VERY different values. And the buyer really doesn't care much about any of them. A home is worth only what someone is willing to pay. The buyer actually sets the value of the home. In this market, the values are falling rapidly.

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