Category Archives: Seller Information

What is an arm’s length transaction in real estate?

Buyer Information, Seller Information

What does arm’s length mean in real estate?

An arm’s length sale in real estate is a transaction between an unrelated seller and buyer. In this type of transaction, each party acts independently and in their own best interests. The property is exposed on the market for a reasonable length of time and is unaffected by special financing or sales concessions. Therefore, the sale price most likely reflects the market value.

What does non-arm’s length mean in real estate?

A non-arm’s length sale in real estate is a transaction between a seller and buyer who have a connection by marriage, family, work, etc. Because of their relationship, each party may not be acting in their own best interests. Therefore, the final price may not reflect the market value of the property.

The 7 sale types in real estate

The type of sale can provide some clarity into whether the transaction was (or currently is) an arm’s length transaction, whether a comparable sale should be used, or whether an adjustment is warranted for the terms of sale for a comparable. By knowing the type of sale, you are better able to reconcile a current opinion of market value that falls above or below a current or recent transaction for the subject property.

For appraisals required to be Uniform Appraisal Dataset (UAD) compliant, you must indicate the type of sale for the transaction. You may report any other relevant information regarding the sale type in the appraisal report, including whether more than one sale type applies.

Here are the seven valid sale types, explained in detail below:

  • REO sale
  • Short sale
  • Court ordered sale
  • Estate sale
  • Relocation sale
  • Non-arm’s length sale
  • Arm’s length sale

REO sale

A Real Estate Owned (REO) transaction is a sale of a home that has been foreclosed and the lender is the owner/seller of the home. The transaction is between the lender and the buyer. Usually these homes are sold “as is” and typically are priced to sell relatively quickly. Sometimes the home is in poor condition or may require extensive repairs.

Short sale

Unlike an REO or foreclosure sale, the homeowner still holds title to the property, but sells short for less than what is owed on the property. Usually, the homeowner is suffering some type of financial hardship which is preventing them from meeting the mortgage payments. The homeowner and the lender must agree to accept a shortage and must approve the sale. Sometimes these sales require extended time to negotiate with the lender and obtain approval for the sale, and there may be some additional costs or outstanding liens that need to be paid off.

Court ordered sale

A court ordered sale may be the result of a dispute among the owners, divorce, death of one of the owners, or a foreclosure where the borrower defaulted on paying the mortgage. Once the redemption period expires (if applicable), the court will issue an order directing the sale or other disposition of the property. This is the point at which the owner has lost control over the ability to sell the property. The property is sold by an official (trustee or sheriff) appointed by the court, usually to satisfy a judgment or implement another order of the court.

Estate sale

The estate is the real estate owned by a decedent at the time of his or her death. The estate is probated so that the real estate can be sold and the proceeds are distributed to the decedent’s heirs. The sale is handled by a representative (executor) named in a will and/or appointed by the probate court.

Relocation sale

Larger companies hire a relocation company to sell the property of an employee that is being transferred or moved to another state. The relocation company may buy the property at an agreed upon price with the corporate employee, then in turn sell the property to the market in an “as is” condition. Often, the property is attempted to be sold quickly, so the property may not be exposed as long as competitive properties in the market.

Non-arm’s length sale

As stated above, a non-arm’s length sale is a real estate transaction in which the seller and buyer have a connection by marriage, family, work, etc. As a result, this type of transaction’s final price may not reflect the market value of the property. Lenders and appraisers view this type of transaction as riskier because the parties involved are not necessarily acting independently of each other.

Arm’s length sale

As explained above, an arm’s length sale is defined as, “A transaction between unrelated parties who are each acting in his or her own best interest.”1 For this type of transaction, the property is exposed on the market for a reasonable length of time and payment is in cash or its equivalent. The property sold is unaffected by special or creative financing or sales concessions. This type of sale is the least risky to the lender and is most likely to be closest to market value.

What is market value?

In general, market value is defined as the most probable price a property should bring in a competitive and open market. This definition requires an arm’s length transaction with each of the parties acting in their own best interests. Additionally, it requires that the buyer and seller are not acting out of undue haste or duress and that the real property has been exposed on the market for a reasonable period of time.

Reference: The Appraisal Institute, The Dictionary of Real Estate Appraisal, 6th. Ed.

Yes, Winter is a Great Time to Sell Your Home

Seller Information

Cold weather won’t deter a motivated homebuyer. Corporate relocations often take place before the new year and those employees want to find a home now. Buyers want to get their children enrolled in school before the second semester begins. Homebuyers may feel they have a better chance of finding a home while their competitors nest at home until the snow melts. 

You also have a timeline to sell, move, and settle into a new place, perhaps for a new job, birth of a child, up- or down-sizing, etc. Why not sell when there’s less competition from other homeowners who’re waiting to sell until spring?

There are a few things you’ll need to do to make your home attractive for cold weather shoppers:

Decorate for coziness. Some homes are at their best in the winter. Pull out your most fabulous afghans and quilts. Throw some logs on the fire, or keep the gas or electric fireplace on for showings.

Fill the home with evocative aromas. Cinnamon, cloves, and oranges boiling on the stove will stimulate pleasant memories. Use a pine or lavender-based cleanser on your floors and surfaces.

Make a place for muddy shoes. Buy a box of booties and put them next to a chair for homebuyers to put on. Taking their shoes off will make them feel welcome and more comfortable.

Keep the drive, sidewalks, and walkways cleared. Snow drifts are dangerous and could discourage homebuyers. Keep your Berkshire Hathaway HomeServices network professional informed of road conditions.

What to Consider When Selling a Home “As Is”

Seller Information

It’s no secret that homebuyers prefer move-in ready homes that have been repaired and updated. The Wall Street Journal reports that fewer homebuyers want fixer-uppers because of high mortgage interest rates and construction loans. Since the seller has disclaimed the home, the cost of repairs and updates are unknown. Some mortgage guarantors like FHA and VA have certain safety and home integrity requirements, which means that if the seller doesn’t make the improvements needed, the homebuyer won’t be approved for the mortgage loan.

Yet, there are times when the seller simply doesn’t have the financial or practical means to make repairs and improvements. So, what can the seller expect from the marketplace?

Selling a home “as is” means selling the home in its current condition to relieve the seller of most of the responsibilities and costs associated with selling a home. As-is sellers still need to meet minimum state and federal disclosures, such as filling out a seller’s disclosure that declares known defects and problems in the home, but this can have a sobering effect on homebuyers. A balanced market, or one in favor of buyers can reduce the selling price of an as-is home as much as 15% to 20% below market value and takes longer to sell, exacerbated by carrying costs such as mortgage payments, HOA fees, utilities, and more.

Lower offers can also be expected from investors who pay cash, as they have purchase and resale formulas that must be met before they’re interested.

Homebuyers’ Five Biggest Complaints

Buyer Information, Seller Information

Homebuyers have one simple expectation – that when they go out with their agent to shop for a home that the seller is ready for them to buy. 

That means no sticking drawers in the kitchen. No leaning fences. No rust-stained plumbing fixtures. We could go on, but maybe we need to make it clear.  If you have even one of following “turn-offs,” your home won’t sell. 

Overpricing your home

Overpricing your home is like trying to crash the country club without a membership. The ones who belong know that you don’t and you’re going to get some negative feedback. The worst feedback, of course, is silence. That could include no showings and no offers. 

The problem with overpricing your home is that the buyers who are qualified to buy your home won’t see it because they’re shopping in a lower price range. The buyers who do will quickly realize that there are other homes in the same price range that offer more value.

Smells

Smells can come from a number of sources – pets, lack of cleanliness, stale air, water damage, cooking, and much more.  You may not even notice it, but there’s not a buyer in the world that will buy a home that smells unless they’re investors looking for a bargain. Even so, they’ll get a forensic inspection to find out the source of the smells. If they find anything like undisclosed water damage, or pet urine under the “new” carpet, then they will either severely discount their offer or walk away. 

Clutter

If your tables are full to the edges with photos, figurines, mail, and drinking glasses, buyers’ attention is going to be more focused on running the gauntlet of your living room without breaking any Hummel figurines than in considering your home for purchase. 

Clutter and too much furniture confuse the eye, making it really difficult for buyers to see the proportions of rooms and to try to imagine themselves living there. If they can’t see what they need to know, they move on to the next home.  

Deferred maintenance

Deferred maintenance is a polite euphemism for letting your home fall apart. Just like people age due to the effects of the sun, wind and gravity, so do structures like your home.  Things wear out, break and appear rickety. Especially with an older home, it’s your job as the homeowner to keep your home in good repair.  

Your buyers really want a home that’s been well-maintained. They don’t want to wonder what needs to fix or how much repairs will cost. 

Dated décor

The reason people are looking at your home instead of buying brand new is because of cost and location.  They want your neighborhood, but that doesn’t mean they want a time capsule of a home.  Just like they want a home in good repair, they want a home with updates that complement the home’s era and brings it into the modern era. 

Harvest gold and avocado green from the seventies; soft blues and mauves from the eighties, jewel tones from the nineties, and onyx and pewter from the oughts to be all colorways that can date your home.  Textures like popcorn ceilings, shag or berber carpet, and flocked wallpaper are also undesirable.  

When you’re behind the times, buyers don’t want to join you.  And your Berkshire Hathaway HomeServices network professional can’t get you the price and terms you want. He or she can work miracles, but only if you follow their advice and get your home up to speed – the speed of today’s market. 

What’s Decreasing Your Home’s Value?

Finance and Taxes, Seller Information

There’s nothing you can do about the location of your home, but that may be one of the reasons why your home’s value isn’t as high as you wish it were. What you can do is make sure other aspects of your property are desirable. When you’re selling your home, you want to meet as many homebuyer preferences as possible and keep them in mind as you search for your next home.

Noise – Traffic noise, basketball-bouncing teenagers, loud music, and construction are just a few things homebuyers don’t want to hear. Add more insulation in the walls, and replace single pane windows with sound-muffling double pane or storm windows.

Danger – A home built too close to a busy street, homes with scary guard dogs, and bars on the windows make homebuyers wary. Take your with you during showings.

High Maintenance Costs – You love your swimming pool and spa, but your homebuyer may not. Don’t make improvements that won’t resell well unless you really want them and they make sense for your home and area.

Luxury features in a starter home – If you’re selling a starter or mid-range home, luxury appliances and finishes are appealing, but homebuyers won’t pay extra for them.

Tacky neighbors – Yes, your neighbors can bring your home’s value down as well as up. Junk in the yard, peeling paint and obvious deferred maintenance can be off-putting to homebuyers. Get the other neighbors together and offer to help the homeowner, especially seniors on fixed incomes.

How Property Comparables Are Chosen

Buyer Information, Finance and Taxes, Seller Information

Whether you’re selling your home or buying a home, your Berkshire Hathaway HomeServices network professional will provide you with a comparative market analysis (CMA), a computer-generated report that shows you what homes similar to yours are selling for in your area, or how the home you’re interested in buying compares to other homes on the market.

CMAs are only available to members of the local multiple listing service, which include licensed real estate agents, brokers, appraisers, real estate attorneys, and local property tax authorities. It takes skill and experience to create a report that can help you choose a listing price range for your home or to help you make an offer on one of the homes you’re seeing. 

A CMA can be as narrow as a city block or as broad as a zip code. It can include data on homes for the latest week, month, or six-month period. It can show you homes for sale and those that have recently sold. CMAs can be made specific with search parameters that show only one-story homes, condos, or homes with swimming pools.

Occasionally, you’ll find that the CMA doesn’t have a nearby comparable. In that case, the search parameters must be widened, which may not give as true a picture of value, for the neighborhood.

You may be pleased or dismayed by what the CMA shows, but you should know that it’s an accurate depiction in real time of current market conditions—until a new comparable changes the results.

Sellers: Don’t Be Surprised by Repairs

Buyer Information, Seller Information, Uncategorized

Repairs or replacements that the homebuyer requires to be completed before closing on the sale of your home can blindside you if you’re not prepared. While any unforeseen expenses are an unwelcome surprise, you’ll still have to fix the problems or risk letting your buyer out of the contract and having to disclose the problems to future homebuyers.

Homebuyers have the right to have the home they’re buying professionally inspected. The purpose of the inspection is to inform the buyer as to the condition, age and likely lifespan of major systems and appliances in the home. As a contingency in the contract, the buyer has the choice to proceed with the contract or ask the seller for repairs or replacements. This is fair because many issues with a home can’t be seen with the naked eye. An inspection gives a rough idea of future expenditures; if there are more problems than the buyer is willing to allow, the transaction will be in jeopardy. The buyer can’t help but wonder what other problems may come to light about the home.

Obviously, the less the buyer finds wrong, the smoother the transaction will be. Before you put your home on the market, hire a licensed home inspector to alert you to unknown problems and repair or replace them so the buyer has no misgivings. You’ll also be able to ask a higher price for your home when it’s in excellent condition.

Surprising Features Homebuyers Want in 2022

About the house..., Seller Information

Picture1Virtual interior designer/home stager Stuccco.com has compiled a wish list from numerous online sources that experts say homebuyers want in 2022. Many popular features aren’t what home sellers may think. Before you upgrade your home to sell, consider these top five homebuyer preferences:

  • Laundry rooms
  • Exterior lighting
  • Ceiling fans
  • Patios or decks
  • Walk-in pantries

Laundry rooms. Homebuyers don’t want to go down to the basement to do laundry, so make room somewhere on the first floor. Including a built-in table for sorting is a good idea. Realistically, many Lansing area homes have a basement laundry.  Paint the surrounding wall a light color and make certain the area is well-lit.

Well-lit outdoor living spaces. Homebuyers want exterior lighting (87%), patio (82%) and a front porch (81%), a rear porch (75%) or a deck (75%). Landscape lighting adds a luxurious glow to outdoor spaces as well as an extra element of security.

Ceiling fans. With the sudden rise in energy prices, it’s not surprising that homebuyers want lighting fixtures to do double duty as an air conditioning aid, especially when cooling or heating a larger home.

Walk-in pantries. Homebuyers want to be able to stockpile food and paper goods. They want to open the door to the pantry and see at a glance what’s on hand.  Not everyone has a large enough kitchen to support a pantry.  Consider reorganizing a nearby closet that currently houses miscellaneous items.

Homebuyers also prefer two-sided kitchen sinks over farmhouse sinks (81%.) They want a full bath in the living area (80%) and kitchens open to the dining room for less formal dining (85%.)

Homebuyer preferences are changing home design. The National Association of Home Builders reports that new home buyers want bigger homes which now average 2,524 square feet.

 

About Earnest Money Deposits

Buyer Information, Seller Information

When a buyer and seller agree on a purchase price and terms, the buyer7856255.large shows the seller a sign of good faith in the form of earnest money. This money, typically 1% to 3% of the sales price or whatever is customary for the local market, is deposited with an escrow agent or title company, a neutral third-party that serves to finalize the transaction for both sides.

Earnest money is designed to protect the seller. It shows the buyer is serious, but if the buyer doesn’t follow through with the contract, the seller could lose valuable marketing time when the transaction doesn’t close. They’ll have to start all over again to market the home. There are also opportunity costs – the seller could have possibly sold the home to a different buyer and perhaps for better terms. For that reason, the seller can keep the earnest money.

This also protects the buyer. The buyer can get out of a sales contract and get their money back if contingencies outlined in the purchase agreement aren’t met. Typical contingencies are that the buyer’s lender agrees to make the loan, the appraisal meets or exceeds the sales price of the home, the home passes inspection or that the buyer sells their current home before closing on the seller’s home.

Earnest money paid upfront in the transaction means the buyer has to come up with less money at closing or the deposit can be used as part or all of the down-payment.

20 things that may not add to your property value

Seller Information

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  1. DIY Home Improvements – while they may save you money, if not done professionally, it will be obvious to a prospective buyer, which might cost you in property value more than you invested in improvements.
  2. Garage Conversion – When it comes to home buying, buyers care about their garage space and size.  Cutting into that with a garage conversion that might not match the rest of the house might be something to consider before taking the plunge.
  3. Solar Panels – If you decide to lease solar panels instead of buying, keep in mind, that future home buyers might not want to take on that responsibility.
  4. Quirky Wallpaper – it may look cute, and you might think it adds character but with quirky wallpaper, the odds of others not holding them as fondly as you do are very high. Consider investing in temporary wallpaper instead and removing it before selling if you have your heart set on it.
  5. Custom Luxury Upgrades– They may be just perfect for you, but that’s just the thing, they probably won’t be for others, and the more custom you go, the likelihood the cost will go up for replacing the upgrades. Make sure you think through these decisions.
  6. Wine Cellars– With so maybe individuals who don’t drink, or hate wine, or are simply committed beer drinkers, wine cellars take up a lot of square footage. They are expensive and difficult to renovate into a different space.
  7. Remodeled basements and attics –If you are looking to add on a bedroom, using this space, there is a lot to factor in. There are ceiling height, closet, and emergency exit requirements that can end up racking up quite a cost so if you are thinking of doing this make sure you do your research and the math beforehand.
  8. An oversized home addition –If you expand the home too far, it will start to look unplanned and not give the added appeal you may be thinking it will have.
  9. New windows – If these are old windows we’re talking about, then they may add to your property value, but you need to check your local market to see if houses with new windows are going off the market faster than ones that haven’t made the upgrade, especially with windows being such a large investment.
  10. Swimming pools – Swimming pools often scare aware new family buyers who have little ones around to worry about, while they may seem fun, keep in mind your target buyer before installing.
  11. Lavish lighting fixtures– These can go wrong in so many ways, they can go out of style fast, dates themselves and your home, and aggressively tell other people your style and how much it’s not theirs.
  12. Too much wallpaper – Once again, it’s hard to envision a space of your own, in a room with a distinct look because of the wallpaper. Solid color walls give homebuyers more room for imagination.
  13. Textures on the wall and ceiling– Textured walls can go in and out of style, people who want this in their home will make the investment to do it themselves but for others who don’t want them, they may be discouraged by the mess of having them removed.
  14. Overbuilding for the neighborhood – A house that doesn’t match the neighborhood, can stand out and make people feel it’s out of place.
  15. Inconsistent high-end upgrades – This creates more work for the buyers to make the home more cohesive and it can sometimes give the impression that your home upgrades weren’t thought out.
  16. Invisible improvements– If it’s not something you need to be done and not something homebuyers would see or ask about, it likely will be a good deed unrecognized, save your wallet the stress.
  17. Quirky tiling – It is pretty hard to work with tiling if it is already setting the tone of the room all on its own. Try picking tiling that can mess well with many different design tastes, homebuyers often are interested in ripping up and replacing tile right after purchase.
  18. Too much carpeting– Carpet can age fast, wear down and get messy. It may make sense in some rooms like the bedroom but with the market changing, committing to most of the rooms with carpet is a big no-no, especially in the bathroom! 
  19. Bright or bold paint colors – If new buyers cannot imagine themselves in your home because you have left so many traces of your design style that they might not agree with, they are going to be less likely to see it as their dream home.
  20. Large Gardens – Gardens are amazing, but depending on the property price range, large gardens can be expensive and time-consuming to maintain, and not easy to get rid of if the new owners don’t share your green thumb.

This is not to suggest that you shouldn’t make your home as unique as you want it, but if you are considering selling in the not so far future, or are already on your way to listing, staying away from these items or self-correcting might pay off.