Real Estate: Appraisal come in low, now what?

By Kristin Piccone

The Real Estate market is experiencing an all-time low in inventory, not just in Maine, but across the country.  The historical low interest rates have created a surge in the amount of buyers with increased buying power, as a result.  Consequently, this is creating excessive bidding wars when a home hits the market for sale.  Sometimes there are buyers with financing and sometimes there are buyers with cash.  No matter what a buyer’s terms are within their offer; if there is a financing contingency and the buyer is putting less than 20 percent down; the property is likely going to require an appraisal. 

What is an appraisal? An appraisal is an evaluation ordered by the lending institution to ensure and protect the buyer and the lender from paying too much.  The appraised value must be at or above the purchase price, not loan amount.  By the time an appraisal has happened, a buyer is already under contract on a home and has, more times than not, completed most or all of their due diligence.  With this, time and money has been spent and maybe even several types of negotiations between real estate agents, buyers and sellers.

Ironically, the appraisal comes as one of the latter items to be checked off within a transaction, unfortunately.  It can create stress and tension when its down to a week before closing, for example, and everyone finds out ~ appraisal came in low.  Now what?

In my professional experience, there are options (I love options!).  In no particular order, here are some things that can be done:

Option 1: Buyer and Seller can agree that seller will reduce to the price of the appraised value.

Option 2: Buyer and Seller can agree that they will “split the difference.”  For example, let’s say the purchase price is $300,000.  Appraised value comes in at $285,000.  That is a $15,000 difference.  By splitting the difference, it can be done by reducing the purchase price by $7,500 (now, $292,500) and the buyer will bring an extra $7,500 to the closing table.  The seller receives $7,500 less for the property and the buyer brings more money to the table.

Option 3: Buyer and Seller can agree to work the numbers in any fashion to create a win-win for both parties.  As in my example above, it was a 50/50 split.  However, it could be any arrangement, for example 80/20; 70/30; 60/40, and so on.

Option 4: Dispute the appraisal value.  Generally, it would be the listing agent to write a letter to the underwriting department of the financial institution or complete a guideline form issued by the lender for completion and submission.  Within the letter or form, it would be likely that the listing agent would need to provide supporting evidence and information that supports the current purchase price.  For your reading pleasure, I will summarize and say, the appraiser will re-evaluate their report.  There are no promises, but a new appraised value could be given; it could remain the same, or it could be lower.

Option 5: Request a second opinion.  With this option and depending upon the financing type; you may or may not be allowed a second opinion.  For example, with FHA financing, you cannot get a second opinion unless there is underwriter agreed justification.  It is also worth noting that if the underwriter agrees to and can justify a second opinion, the second opinion appraised value is what you are “stuck with.”  Further, this FHA appraisal “sticks” with the property for six months. 

What does this mean?  This means that if a buyer and seller do not come to terms on any of the options listed above, as a result of the appraised value, the buyer’s financing will, effectively, be denied.  Consequently, the seller will be “back on market” and start back at square one, so to speak.  Since an FHA appraisal report has already been filed from the last buyer; the seller will have to carefully consider their options and who their next “pool of buyers” will be.  Of course, the seller could reduce their list price to meet the last appraised value; however, if that is not the case, the seller would likely limit their buyer pool since the previous FHA appraisal will stay with the property for a minimum of six months.  In my professional experience, I aim to create a win-win for all parties, especially when so deep and in the throughs of a transaction.  It does not always behoove a seller to go “back on market” in a scenario similar to this, as their buyer pool would be lessened, time extended and time = money!

This is a lot of information and can be even more daunting, in real life, however I wanted to keep it simple for the purposes of this column.  If you are considering buying or selling in today’s real estate market, I am a full-time, local, knowledgeable, trusted professional who would love to help you and learn more about your real estate goals! <

Kristin Piccone is a REALTOR for Landing Real Estate in Windham. Reach her at 207-951-1393 or by email at kpiccone@landinghomesmaine.com

Real Estate: Is market slowing down in 2021?

By Matt Trudel

There certainly are not any signs of the market slowing down at this point, and all indications are we are going to see another crazy year of multiple offers from buyers willing to pay full price or more than the asking price. This raises a lot of questions from both buyers and sellers. Buyers are trying to find the best strategy to get their offer accepted. Sellers are looking for a strategy to get the most out of their home and deciding on which offer is the best. Also, the best offer is not always the highest offer.

There are a lot of things buyers can do to give them an edge over other offers. The obvious one is the price they are offering, but let’s talk about a few other options buyers can use to appeal to a seller. Your broker should be asking the listing agent for some basic information about the sellers and what the seller would prefer to have happen in the transaction. Things like when the seller would like to close the transaction. Limiting or eliminating the inspections are another way to gain the edge over other offers. What about offering the seller to remain in the home for a week or two which might allow them flexibility in getting to wherever they are moving?

There are several other ways to for buyers to stand out, but I will save the rest for my clients and maybe share them in the next article.

There certainly are not any signs of the market slowing down at this point, and all indications are we are going to see another crazy year of multiple offo the sellers and what are some of the strategies they can use when selling their home. Sellers are really in the driver’s seat in today’s real estate market. Inventory is very limited which has increased the demand. Determining the value and creating a solid game plan starts with choosing who to work with as a Realtor. I have written numerous articles on this topic and would be happy to share them if someone would like them. Experience is all I will say on that issue for now. After sellers have chosen a Realtor, they will go over pricing the home and a game plan for putting it on the market. There are lots of creative options for doing this, but for this article we will just discuss two common trends that seem popular.
The first one is when the house goes on the market and showings are limited to just a few days with offers to be in by a certain deadline. This tactic is used to create a sense of urgency with buyers, and the chance for multiple offers with some potentially being more than the listing price. Overall, this is an okay plan, however, some buyers don’t like the “bidding war” or waiting for 3 or 4 days for an answer on their offer. Some buyers feel that if they drop everything and leave work to see a home when it first hits the market, then write an offer with good terms and pricing that the seller should respond in a timely manner. Again, remember that the seller is in the driver’s seat and it is ultimately up to them.

The second trend is put the house on the market and not allow showings for several days, perhaps the seller is finishing up some painting or removing personal items of value. This style can also create a lot of interest ahead of time. It allows buyers to be ready when showings are opened up, and it allows for them to do a drive by before seeing the home. This will eliminate some buyers who don’t like the location which is something you cannot change. I think this is a good thing and means just one less time the seller was inconvenienced. Also, fewer people walking through the home and tracking through the house limits dirt and cleaning. Usually with this style of listing we see offers being handled on a case-by-case basis, but you can actually blend the two styles as well. There are also many other options for getting your house onto the market that are successful as well. This is something that sellers should decide with their Realtor.

This article was written by Matthew Trudel, Broker-Owner of Five Star Realty, Windham. Call him at 207-939-6971.

Real Estate: Creating a home office- Working from home

By Richie Vraux

Most essential businesses have found the need to adapt to working remotely- from your home these days. It has become the new way of life most businesses have to use to succeed in the Covid-19 age. For myself, I always liked going into the office, where everything was there in place, to help my business.  Most Real Estate offices were closed and just recently the NAR (National Association of Realtors) and the Maine Real Estate Commission have eased the restrictions to allow agents to re-enter public spaces, but we still need to wear masks, gloves and whatever else is called for by our governor.

Since this pandemic started, Zoom meetings have become our way of life for both business and our personal messages and most likely will stay as a common tool and way to do business long after this pandemic has gone by. Most businesses have adapted their way of doing business to working remotely.

There are tax advantages we can take as a result of having a home office. You will want to check with your accountant to find out the benefits and requirements of having a home office.

You will want to make it bright and cheery. Remember, this is the office adapted to your taste. You will most likely want natural light.  If you can’t, you may want to add a new window and paint it the colors you like. You will want to be disciplined and pick a designated time to accomplish your goals. We were all forced into changing our lifestyles by this awful pandemic so let’s create a healthy alternative to the office environment. Here are some more of the essentials you will want to consider:                                                   

Pick a good desk/ workstation - maybe with a new computer or upgrade. Make sure you have high speed internet, of course, with lots of broadband. Most agents work from their cellphones. They have all the apps we will ever need and a lot of agents use only their phones for everything. You will want a comfortable chair as most likely, you will be sitting in it for a long period of time so make it work for you. Also, a reliable printer to make sure you don’t have to change the ink cartridges after every 10 pages of printing like mine does. You will want to be disciplined and pick a time to accomplish your goals. Organize your day, just as if you were in the office. Have things you use often at hand. You can purchase a file draw and other office supplies to create your new office space. Now you are ready. Put on a happy face and go out and meet the world, or should I say the internet world. Good luck and stay safe. <

Richie Vraux is a Broker/REALTOR and partner at Maine’s Premier Team at Better Home and Gardens, The Masiello Group, 76 Tandberg Trail, Windham and 341 Maine St., Gorham. For Real Estate advice – Call Richie at 207-317-1297.

Real Estate: What you need to know about homeowners insurance

Submitted by Jonathan Priest

As a homeowner, you want to protect your financial investment. Homeowners insurance is designed to pay for damages to your home and your belongings. It also helps protect you from financial liability if someone is injured on your property. Read on for answers to common questions.

How much homeowners insurance do I need?

Ask yourself the following questions when deciding how much insurance you need:

How much would it cost to replace my home today?

You may need the help of a professional for an estimate—ask a real estate appraiser, builder, or your insurance agent. If you’ve made big improvements to your home, such as remodeling a kitchen or bathroom or building a deck, make sure your insurance policy is updated to reflect the increased value.

Am I protected for inflation?

Many companies automatically adjust policies for inflation; if so, your premiums would go up to cover the rising cost of replacement. Review your policy every year to see if your coverage limits are adequate.

Am I planning any additions or renovations?

Adding a family room or finishing a basement could increase the value of your home and the amount of coverage needed. Remember to inform your insurance company of any additions or renovations, otherwise you may not have enough coverage if you sustain a loss.

Is my personal property covered?

If you have valuable possessions, such as computers, cameras, jewelry, musical instruments, etc., you may want to buy optional coverage designed for these types of property and without any deductible.

What if someone gets hurt on my property?

If you or members of your household were hurt on your property, your medical expenses would typically be covered by your medical insurance policy. They will not be covered by homeowners insurance.

Homeowners insurance provides basic liability coverage that protects you and family members who are part of your household, if someone finds you legally responsible for injuries or damages, either on or off your property. You can be held legally liable for such events, even though you didn’t intend for them to happen. 

Liability coverage includes the following:

** Legal defense costs

** Payments for first aid to others at the scene of an accident

** Payments for damage to someone else’s property caused by you or your family (e.g., your child hits a baseball through your neighbor’s window)

** Payments for reasonable expenses and for lost wages or salary up to the per day limit if you attend a hearing or trial at the request of your insurance company

Note that bodily injury and property damage generally are not covered while you are operating a motor vehicle, airplane, or boat. You need separate policies for these activities.

What questions should I ask about my homeowners insurance policy?

Here are a few questions you should ask your insurance company about your policy.

** Does my homeowners insurance policy cover every structure on my property, like a detached garage, storage shed or fence?

** Does my homeowners insurance policy cover all of my personal belongings? There may be exclusions, or certain limitations on items like jewelry.

** What happens if my home needs major repairs as a result of a covered loss? You might be covered for additional living expenses in the event you have to move out of your home and stay in a hotel or rental.

** Do I need to expand my basic homeowners insurance policy? Depending on where you live, you might consider purchasing additional coverage for earthquakes, water damage/floods, lightning, etc.

It’s important to learn about the different types of home insurance coverage available to you—including condo insurance, renters’ insurance, landlord’s insurance, and mobile home insurance—and choose the best policy to fit your specific needs.<

Jonathan Priest is a MetLife property and casualty specialist in Windham. Call him at 207-893-8184 for your home, auto, life or business insurance needs.