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Beware Of Overpriced Homes
Lately I’ve noticed an abundance of overpriced homes in the area. So why are there so many? Every real estate agent knows that unless you have a cash offer, there will be an appraisal on the house. I’ve run across this problem several times and again I am having this issue today. Are agents doing a disservice to the entire industry by not properly pricing homes for sale?
Just in the last month I’ve ran across so many houses that are tens of thousands overpriced in the Temecula Valley and surrounding areas. It is causing a chain reaction. People see these homes for sale and think that if the home down the street went on the market for that price, that’s what they can get for theirs, so that’s the price they want also. Are seller’s not being realistic about their home’s true value? I’m curious, are all of these overpriced listings taken because the real estate agent will list the home for whatever the owner wants just to get a listing? I mean, there is a bit of homework that should go into it before the agent even meets with the seller and some sort of expectations should be set. A comparative market analysis, also known as a CMA, should be done where the agent pulls comparable properties within a close proximity to compare and price the properties. Usually the agent will pull all active, pending, back up and sold properties in the last 6 months for the CMA. They problem is, recently the active, and even pending and back up properties doesn’t match or even come close to the price of the sold properties.
Once you’re in escrow, an appraisal is done on the property. When an appraiser appraises a house, just as a real estate agent does with a CMA, comparable sold properties with like square footage and features usually within a half-mile are pulled to help value the house. When the house appraises for less than the purchase price, the lender will not lend on the house unless the purchase price is dropped to the appraised value or the buyer comes up with cash out of pocket to pay the difference. Most buyers do not have the extra cash on top of the down payment and closing costs that they are already paying. If an agreement is not come to with the buyer and seller, the house could fall out of escrow. On top of that, an FHA appraisal will be stuck to the house for six months, so any future buyer’s lender will see that appraisal, putting future buyers in the same situation.
This isn’t the first time I have had the problem a low appraisal and I’m sure it won’t be the last. I recently showed some homes to one of my buyers. I always pull sold comps of the properties I show to take with me. Several of the homes were very overpriced (could be one reason they are even active in this market). One of the homes my buyer loved and wanted to put an offer in on. I explained what comparable properties have sold for and explained what can happen if the house doesn’t appraise. We submitted an offer at what we think would’ve been a full market value offer, yet it was still $20,000 under the listing price. I explained our reasoning for the low (for the listing price) offer. The agent came back and said that the owner didn’t even want to consider the offer. Not even a counter! So my buyer wanted to write an offer on the next house they liked, but that house had the same situation. And yet again, the seller wouldn’t consider the offer. After seeing many houses and none of them that my buyer liked as much as the two we wrote offers on, my buyer decided to write an offer on the first house closer to asking price with a little bit of closing costs. I explained the risk of the house not appraising, but she was willing to take the risk because she loved the house. Needless to say, the house didn’t appraise for the offer price, and it actually appraised exactly at what our first offer was. Now that the house appraised low, it proves to the seller it was over priced. After two weeks of delay in the escrow because of an appraisal rebuttal that was pointless because there were no true comps the agent could use, and still instead of just lowering the price, the seller only agreed to lower with price with the buyer not getting any credit for closing costs, and both agents reducing their commissions. Do you think the seller would take a 17% pay cut from their paycheck? That is essentially what they are asking the agents to do by dropping their commission a half percent.
I know listings can be hard to come by for some agents, but agents should not take a listing with an unrealistic listing price without first explaining to the owner what their house is really worth in today’s market and know that the even if the seller wants to start high, they have room to come down on price if need be. So many peoples valuable time, money and effort are used in these situations. The agent and client’s time spent showing the homes to their clients, writing the offers, doing tons of paperwork, seller’s time and all of the paperwork, the lender’s time and effort, the appraiser, title and escrow, plus the money spent on home inspections and appraisal by the buyer. All of it could simply be avoided if the house is properly priced. What is the true market value of your house?!
-Jessica LeBrescu, Realtor
Re/Max Real Pros
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