What happens when a home appraises for below the contract price?

Dave,

appraisal-value

We sold our home last year and during the process our appraisal went by without a hitch, actually everything went as well as we could have hoped for. However, recently it was brought up in a discussion between my wife and I—what happens if the appraisal on a home comes back less than what the buyer offered? Are the buyers able to change their offer accordingly or are they contractually obligated to continue through and purchase the home with their original offer? Like I said, the appraisal on our house was smooth as silk, but it just got us curious about what the options would have been if things had not gone so smoothly.

Thank you for taking the time to answer our question!

Sarah and John, Grand Junction


Sarah and John,

Congratulations on your smooth transaction last year! It’s always a blessing when all aspects of a sale go smooth and without any significant speed bumps. As I am sure you are aware, speed bumps are just part of the process and a low appraisal can be one of the most significant speed bumps one can encounter on the road to closing!

Low appraisals become more common when a market gets very active and rapidly appreciating prices are hard to substantiate with past sales. It can also be an issue, like it was here in 2011 & 2012 when the large number of foreclosures cloud the data and keep an artificial lid on potentially rising market values. Luckily on the Western Slope we have been seeing very sustainable and verifiable appreciation levels and although we occasionally see low appraisals, it is the exception not the rule. When an appraisal does come in low, there are several options, but all the options generally lead to give and take from both parties involved in the sale.

Unless the buyer waives their right to an appraisal, there is an appraisal provision in every Colorado Contract to buy and sell that provides the buyer an escape clause if the home they have under contract does not appraise at the contracted price. There is no contractual obligation to purchase any property that does not appraise. In fact, Colorado real estate contracts are designed with the intent to protect the consumer. Remember, if the appraisal comes back low, you still have options.

The first most logical option would be to get a second appraisal, if both parties agree that the first one was, for one reason or another, not as accurate as it could have been.

The first most logical option would be to get a second appraisal, if both parties agree that the first one was, for one reason or another, not as accurate as it could have been. If the lender will allow a second appraisal, then this is a reasonable choice and both parties can hope that the value comes in at the contracted price.

The next option is to amend the purchase price down to the appraised value. This is not a very popular option for sellers, however very popular with buyers! Funny how it works out that way.  On the flip side, the next option is to keep the agreed upon purchase price and have the buyer make up the difference between the appraised price and purchase price in cash at the time of closing. Funny how this is a very popular option for the seller, however not very popular with buyers. Another option, and by far the most popular, is they meet in the middle. Say the appraisal comes in $6K low, the seller lowers the price $3K and the buyer brings an extra $3K to the closing table to bridge the gap and get the deal to the closing table.

Ultimately a low appraisal generally comes down to how bad the buyer wants to buy and how bad the seller wants to sell and thus the reason that the “meet in the middle” option is the most popular! There are far too many scenarios to go over here, as a low appraisal can have other, more far reaching impacts. More often than not it just takes everyone coming to the conclusion that a win/win is better than a loss! Count your blessings and I hope this gives some simple insight into a complicated and very unwanted situation! 

Dave Kimbrough
The Kimbrough Team

For Sale by Owner: Advice for working with a buyer's agent

tulip-home-vase

Dave,

I’m am going to sell my home by owner this spring and I am willing to cooperate with agents who want to show it to their buyers. One of my friends told me that agents would not show it without offering “agent protection” and I am not exactly sure how that will work or what it means. If I sell my home to a buyer with a realtor, do I still have to pay the typical agent commission? I know I am asking a real estate agent for advice on selling on my own, however I am confident you will shoot me straight. Thanks for your advice.

Jody, Grand Junction


Jody,

There is one thing I can guarantee, I will always shoot you straight! I think it is great that you are going to try to sell your home by owner! Selling by owner is not for everyone, however it is an option for many and some are successful. According to the National Association of Realtors, 8% of all home sales were by owner and the success rate for by owner properties is 20%. So the success rate is not high, however you never know till you give it a whirl. So you have decided to go by owner, how can you incorporate real estate agents to increase your success rate?

I am confident what your friend meant by “agent protection” was simply referring to your willingness or lack thereof to cooperate with real estate agents in paying a commission. Let's face it, real estate agents are in the business of selling houses and they generally try to sell the homes that offer to pay them a commission if their buyer ends up purchasing the property. You need to decide what commission you are willing to pay and then let the agents know what that is and agree to offer them some kind of assurance that if their buyer purchases, you will cooperate with an agreed upon commission. If you are willing to cooperate, then offer to sign a commission agreement or proactively provide them with an agent commission form that identifies what percentage or flat fee you are willing to pay and allow them to sign it for their buyer. This will protect the agent and probably substantially increase your chances of getting Realtor cooperation! One way I have seen this successfully done is to deliver fliers to the real estate offices and have curbside fliers that openly advertise your willingness to cooperate with paying a real estate commission.

As far as the amount of commission to be paid, you can negotiate this with each agent individually or just figure what amount you are willing to pay and advertise that rate. More often than not the real estate commission is at or close to 3%, but there is nothing set in stone and it is completely up to you!

Remember, the more you embrace the Realtors, the more cooperation you will get from them.  Trust me, word travels quickly about those for sale by owners that are not cooperative or who are abrasive in their dealings with local agents. Bottom line, remember you generally get back what you give! Best of luck on selling your home by owner and If you are not successful, I know a good agent that would be happy to help you out!

Dave Kimbrough
The Kimbrough Team

Is Radon common in Grand Valley homes?

Dave,

inside-of-home

Our question is not as much a question as it is to get your opinion. We recently purchased a new home and during our inspection process we asked our agent about getting a Radon Test and she told us there really was not any radon in the valley and we did not need one. Well, we are from the Midwest where there is Radon, so we insisted. We got a Radon test done and much to ours and our agents surprise there was radon that registered above acceptable levels and thus had a radon remediation system installed prior to closing. Was this a “one in a million” finding or is Radon something you see in Grand Junction.  Really more curious about your thoughts, than anything. 

Thanks for your time,
Ralph & Cheryl, Grand Junction


Ralph and Cheryl,

Great question. First let me say that I am not a Radon expert, but I will say from my experience your finding of Radon was not “one in a million” and the presence of Radon in the Valley is more prevalent than most people realize, but by no means does it exist in unsafe levels in every home tested. It is my experience that the majority of homes are safe and do not have an elevated radon level and need no remediation done at all, but overall state and local numbers say there is statistically a 50/50 chance a home will have unsafe levels of Radon. Of course, if you are concerned about Radon, it is still a great idea to have it checked so you can be confident you are not living in an unsafe environment.

For those who are not familiar with Radon or know what risks it poses, Radon is an odorless, colorless and tasteless gas. Underground Uranium decays into radium and radium’s decay product is radon that escapes from the ground in the form of gas.

For those who are not familiar with Radon or know what risks it poses, Radon is an odorless, colorless and tasteless gas. Underground Uranium decays into radium and radium’s decay product is radon that escapes from the ground in the form of gas. Radon enters a home through the lowest level in the home that is in contact with open ground, which are typically cracks in foundations, cracks in walls, gaps in suspended floors etc. Once radon has entered into your home it is easily inhaled into the lungs and has been shown to increase the risk of lung cancer. According to the United States EPA, radon is the second most frequent cause of lung cancer and is completely preventable, if remediated properly.

According to a local Radon expert Cory Lindbo at Western Slope Home Inspectors and Radon Service, radonreserve.com, the good news is a radon problem can be completely and permanently resolved for as little as $1500-$2500 and most mitigation jobs can be completed in as little as 1 – 2 days. A radon test generally takes 2 days, but the home needs to be closed down with as little outside air transfer as possible.  This means that you need to close all windows and doors and keep traffic inside and outside to a minimum during the test period. This will allow for a proper reading where you do not get a lot of air transfer from outside. If you cool your home by evaporative cooler a test can be very difficult to do during the summer months. National Radon month is January, as the winter is the easiest time to do a radon test, because most homes have very little air exchange during the winter months.

Radon is no doubt something to be aware of and in most instances you should test for it, but feel confident that if there is an unsafe presence of radon in your home there is no need to panic, the fix is not a bank buster and can be solved quickly and professionally. In this case the solution to radon is as easy as knowing it is there and hiring a professional to again make your home environment safe.

Dave Kimbrough
The Kimbrough Team

How do we find the best builder for our house?

new-construction-builder

Dave,

We have been planning to build our new home, which has already been designed. We have already purchased our property and have been talking to people and getting the names of reputable builders with the intent to interview them and hopefully get started sometime this summer. We have been saving towards this goal, but we are nervous that we may have not saved enough. A friend of ours went through this process a few years back and the builder he used was nearly 60 days late in completing the job and 10-15 % over budget. How can we protect ourselves from falling victim to the same problem? Obviously we will not use the same builder our friend did.

Best regards,

Bill, Grand Junction


Bill,

As always the solution is really quite simple, but easily overlooked. I too have fallen victim to the promise of a 8 month job that turned into 18 months and escalated to 20% over budget. When it happened to us it was one of the most stressful and frustrating experiences of my life.  The stress of when will the job end and how in the world will we pay for the overages, was constantly stressing us out. The best way not to fall victim is to get everything in writing prior to the start of your job.  Make sure the contract you sign spells everything out, in detail. If you do not have a detailed contract, bid and schedule then I would move on to the next builder. If you feel more comfortable have an attorney look the contract over to make sure all your bases are covered.

I am one of those who has an innate trust of people, call me naive if you wish, but it is one of my short comings to believe what someone tells me. I have learned, or should I say am still learning, to trust what is in writing and ask the hard questions up front. If you have already had your home designed and have building plans then you should be able to have a couple of builders put your job out for bid to their subs and get a number back that is fairly tight. In their bid number you should have allowances for lighting, flooring, fixtures etc. When you look over those numbers you will need to go out to the stores and see if the allowances are going to cover your tastes. In my experience where you see the numbers really start to escalate are in the finishes. If the builder only budgeted Granite tile for the counter tops and you wanted Slab Granite, you can easily do some serious budget damage with that one upgrade. Like lighting for instance, when we recently did a remodel our builder budgeted X for lighting, but when we looked it over we told him to double it. What he did not know was, we are lighting freaks! He could have never known that, but luckily we knew it about ourselves and thus averted blowing our lighting budget. Check the numbers up and down and make sure that you can live with the allowances the builder has set forth in the bid for your job on all your finishes.

If I were to do it again, which I may never do, I would make sure that the builder provided a detailed building schedule and I would build in incentives to make sure that the schedule is met. Let’s face it, one way to get what you want is to provide incentives and bonuses for goals that are met. I would easily pay my builder 3% more to come in on budget and on time than save the 3% and suffer through 2 months of inconvenience and coming in over budget. Set it up as a win/win for everyone involved.

Lastly, check references and ask the builder what happens when he comes in over budget? What percentage of jobs has he had that are on time and on budget? When your previous jobs have gone over schedule, what were the delays caused by?

Lastly, check references and ask the builder what happens when he comes in over budget? What percentage of jobs has he had that are on time and on budget? When your previous jobs have gone over schedule, what were the delays caused by? Do you have 5 references?  When you call the references, drill them with questions about the experience. Would they use the builder again? Would they refer them to their own family? If they could change 3 things, what would they have been? These are all questions that will lead you down the path of if they are the right builder. The more homework you do, the better you will generally do on the test! : )

Dave Kimbrough
The Kimbrough Team

Dave's Local Housing Market Predictions for 2017

Dave,

Happy New Year! With the start of 2017 a few of my friends and I were discussing what we think the housing market will look like in 2017. I’d love to hear what you expect in the New Year. What do you think 2017 has in store? We were also talking about whether Trump becoming president will have any impact on our local housing market. Would love to hear your thoughts.

Thank you,

Greg, Grand Junction


Greg,

nationalmonument

Yes, the beginning of 2017! What is in store for our market? Well this is a question that seems to be making the rounds and I am happy to take a stab at what I see inside my crystal ball! First, a disclaimer, I reserve the right to be wrong! As I am sure you are aware, predicting what WILL happen is often met with the reality of what DOES happen and those two things don’t often dance to the same tune! With that being said, I think there is plenty to be optimistic about and I am excited for what lies ahead for our local real estate market!

I truly believe that our local market will remain strong, especially in the lower price ranges. Currently, we have less than 4 months of inventory in homes priced under $300k, thus we can expect this price range to remain brisk and very competitive. If 2016 showed us anything, it is that properties, especially in the under $300k price category that are in good condition and priced appropriately, go fast. There are plenty of buyers out there looking for a nice clean home that is priced well and when they find it, they are eager to purchase. In this price range, I expect this trend to continue as inventory levels remain tight. Our local job market and wage scale supports the lower price points while the lack of high paying, executive level jobs, is leading to sales that are not as brisk in the upper end price ranges. The upper price points $400-$500k are hovering closer to an inventory level that is more neutral, not favoring the buyer or the seller, with 6 months of inventory (6 months is considered a “healthy” inventory level). The $500k+ price range will remain challenging. At these higher price points, patience and proper marketing will be required as inventory levels will remain relatively high and sellers will be competing for buyers. Although the higher price ranges are slower, relative to the lower price points, we did see positive sales growth in 2016 and I am looking forward to that momentum continuing to strengthen in 2017!

Overall we are staring down the barrel of another successful real estate year in the Grand Valley.

Interest rates will undoubtedly go up and I expect we will hear a lot of chatter about this, however, I don’t expect them to advance at a rate that will significantly impact sales. If rates are going up, the economy is showing signs of sustainable growth and I don’t know anyone who is not in favor of a stronger economy! New construction has shown growth over the past 4 years with annual building permits rising from 440 – 480. I am expecting this number to climb as the low inventory levels will spur on building. One road block to building growth may be the limited number of available ready to build lots, thus leading to a real push for residential development.

Overall we are staring down the barrel of another successful real estate year in the Grand Valley. All areas are showing real signs of growth and prosperity and even though there will be growing pains I am confident that we are all ready for a little pain, in the name of growth! 

Regardless of the Presidential election, locally I think we are poised to see the advances of the past several years continue and I find that optimism reigns in most circles. Onward and upward in 2017! 

Dave Kimbrough
The Kimbrough Team

Value of New Construction vs. Older Homes

Older-home

Dave,

My wife and I are moving this spring. She likes the charm of older homes, but I tend to like new construction homes. We’ve talked a lot about the pros and cons of each but when it comes down to it, we’ve decided that value is the “make it or break it” for us. From a value perspective is an older home as good as a new home?

Thank you!

Betty & Steve, Grand Junction


Betty & Steve,

Value, like beauty, is in the eye of the beholder and very subjective to “what” value means to you. What you value, another may not, and thus the reason true value is a very individual determination and really must be done on a case by case basis. Keep in mind that “value” to some people is measured in happiness, peace, comfort, or a myriad of other things and may only be minimally impacted by monetary considerations! For others, monetary value is the “bottom line”. How much will the value go up on one house vs. the other? For the purposes of this article we will simply look at the monetary perspective, as that is typically the main goal when people are seeking information about “value”.

newer-house

I would say, in my experience, appreciation will be greater on newer homes than it will on ones that are older. This is of course a broad generalization and not an “absolute truth”. For example, if you have two homes in the same neighborhood and one is 4 years old and one is 15 years old, the newer home will gain value at a comparatively accelerated pace. This does not mean that the older home is not a good home, it simply means that the newer home is most likely more in tune with current buyer wants, finishes, and floor plans because it is only 4 years old. The house that is 4 years old most likely has oil rubbed bronze or brushed nickel finishes and the older one may have polished brass fixtures…it is simply not as up-to-date and thus will not gain value at the same pace. On the flip side, while we are on the topic of value, your best value in the long run can also be the older home!

If you can purchase the home that is 15 years old for a good price, change out some of the dated features and finishes and bring it up to a more current look and appeal then your best “value” may be the older home that just needs some cosmetic updating. Let’s add one more twist, the older home has an incredible view and the newer one does not. Which one will do better given that change in scenario? I would say, all things being equal and age being the only major difference, the home with the view will outperform the newer home! Homes with unique features or benefits tend to have exaggerated value gains. As you can see, there are so many things that go into measuring value that it gets very difficult to determine which houses will perform best over time from an appreciation perspective.

You have to evaluate each one on a case by case basis and by using all the factors involved to make the best decision possible at that point in time.

You have to evaluate each one on a case by case basis and by using all the factors involved to make the best decision possible at that point in time. Go with the one you love and the one that you will most enjoy living in and don’t focus only on monetary value, but lifestyle, peace and happiness value! Focus on your house being your home and don’t worry about what you can’t control, like the future of the real estate market! Live happier, live longer! Now that’s what I would call “real” value. Hope this helped a little! Best of luck.

Dave Kimbrough
The Kimbrough Team

Countless showings, but no offers? What you should do next...

Office

Dave,

Our house has been on the market for what seems like ages! We would really like to sell it as soon as possible because the whole process is beginning to wear us out! We’ve had countless showings and even a few open houses. Why we don’t have any offers is a mystery to us. The house is in good condition and we think we are in a great location. Have you had houses in the past that just don’t seem to sell? Do you have any ideas on why we aren’t getting any offers? What can we do differently to ensure our home gets sold in the near future?

Judy and Bob, Grand Junction


 Judy and Bob,

Fear not, you are not alone! Yes, I have had houses that just would not sell and believe me, there is no magic bullet or secret sauce to end the frustration of the house that is a chronic non-seller! There are times when, even if you reduce the price to a below market value buyers still find them unsavory and not offer worthy. I have heard it said in the medical field that the disease with no diagnosis and no known cure is always the hardest one to treat! The same is true in real estate, but ultimately in real estate there is always an answer! Keep the faith, because unless you have one of the chosen few that just stubbornly refuse to sell, I am going to be able to give you some idea of where to look and adjust to get your desired result.

I tell people all the time, I am not the sharpest knife in the drawer and I am living proof you don’t have to be a rocket scientist to be successful at selling homes. The process, when boiled down to the basics, is really quite simple regardless of how complicated people choose to make it.  You want to be on target with the three things you can control, Price, Condition and Marketing. It sounds like your agent is doing their job effectively from a marketing perspective. You have had many showings and they have even held open houses to help generate traffic and attract buyers to your home, yet no offers. It also sounds like the condition is good. If you have not received feedback that indicates that you need to make some changes to the condition in order to entice buyers, then it is likely that you are in good. Now what we have left is price. Price is always the most difficult subject to tackle for any agent or any seller!

Where price is concerned there are a couple ways to attack it. You will either be willing to listen to the market and adjust the price accordingly or you will choose to set it and forget it and wait till you find the right butt for the saddle. There are cases that can be made for both approaches. First, statistically speaking, you should have had an offer within 12 showings (on average) all else being equal. If “countless” showings means in excess of 12 then you really need to start considering a reconsideration of your pricing strategy. If you are nearing or over 18 showings it is likely time for action. I have heard sellers say this countless times, “all the feedback indicates that the price is ok, nobody is objecting to our price so it must be something else. If the buyer is interested they will surely make an offer.” I can tell you, this is faulty (but VERY common) logic. No offers and no or few second showings means they are objecting to your price by purchasing something they perceive is a better value at a similar price. Believe me, if a buyer smells value they will pounce! The “real” feedback you need to listen to is the lack of offers…sometimes that silence provides truth.  If you decide to wait long enough one of two things will happen, the market will catch you (assuming the market is going up) or you will find the perfect butt for your seat! I have seen both methods be successful, one just typically takes a lot longer than the other and is ultimately more frustrating.

To move the process along at a faster pace, be willing to adjust your price until you get the desired result. The good news is you have had a lot of showings so you probably are not way off, probably a 3-5% adjustment will do the trick! Talk to your agent and get their input on a proper price adjustment. I would bet your desired outcome is closer than it feels! Hang in there and Best of luck. I hope this helps.

Dave Kimbrough
The Kimbrough Team

Should I get a pre-sale inspection on my older home?

Dave,

older-home

We will soon be selling our home and looking to downsize. We have lived here almost 15 years and are the second owners. We have taken good care of our home and have kept up on routine maintenance and also fixed any items needed over the years. Our home is older, built in 1976, but has been well taken care of. We are considering a pre-sale inspection, as one of our friends intimated that it might be a good idea. Your thoughts on pre-sale inspections? Thanks.

Dwight, Grand Junction


 Dwight,

On face value it sounds like you could go either way. Your friend is right, it can be a really good thing and offer you and the real estate agents some peace of mind that the home is in good condition and free of any major problems. The decision should be based on your knowledge of the home and how likely you believe a problem may come up during the home inspection period. With any home built in the ‘70s, there is a reasonable chance that quite a few items will come up on the inspection, not because you haven’t taken care of your home, but because it is old! Generally, I think it is a good idea, based on the age of your home, but it will set you back $300-$400. This may be a very small sum in the long run, if it prevents a deal from falling apart.

One major thing that a pre-sales inspection will do is likely bring any “deal killers” to the surface before you get your home on the market and under contract. If you do find a significant issue up-front this will allow you to get it resolved prior to putting it on the market and getting it under contract. There is no doubt in my mind that many things that happen during and related to the inspection period, after a home goes under contract, are blown way out of proportion and have as much to do with leverage, emotion, fear and lack of knowledge than the problems that are discovered and their remedies. Once a For Sale sign goes up in your yard, regardless of what anyone says, everything changes and everything gets magnified, especially in a market where buyers can be difficult to find.

There are two things that I think are a great idea, regardless of the age of your home. If you are currently on a septic system, I highly recommend you have your tank pumped and inspected prior to putting the home on the market as this serves not only as great preventive maintenance but will also put a stop to any potential septic issues before they generally get started. Also, have a licensed heating and air conditioning professional come and give your heating and cooling systems the once-over and provide a receipt for a clean bill of health.

There are two things that I think are a great idea, regardless of the age of your home. If you are currently on a septic system, I highly recommend you have your tank pumped and inspected prior to putting the home on the market as this serves not only as great preventive maintenance but will also put a stop to any potential septic issues before they generally get started. Also, have a licensed heating and air conditioning professional come and give your heating and cooling systems the once-over and provide a receipt for a clean bill of health.  Septic systems and your home’s mechanical systems (especially heating) are two items that many home inspectors single out and recommend buyers have those evaluated by septic and HVAC professionals. It is good preventive maintenance and eliminates the potential for a conflict of interest to have those things checked out ahead of time. One more thing, if you have any question or doubts about your roof, have that inspected also. Roof inspections are generally free and will bring any potential issues to light and notify you in advance if your roof is at the end of its expected life.

I recommend a pre-sales inspection if you have ANY concerns about a “deal killer” issue that may come to light. If you have no concerns about that, then I would not do one. You know your home better than anyone and if you think you need to have one done let me know and I will be happy to recommend a few inspectors that will do a great job!  A pre-sales inspection is not for everyone, but maybe it should be….. I am finding myself rethinking the issue as I write this column. Thanks for the thought provoking question.

Dave Kimbrough
The Kimbrough Team