What Makes A Good “Comp” or Comparable When Pricing Your Home?

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Tips For Selecting Comparable Sales When Selling a Home

When I sit down and talk to a home seller about listing their home the first question most home seller wants to know, is…. what can I sell their home for….

Often followed up with my neighbor sold his for $800,000, and as I look at the neighbor’s house is towering over theirs with brand new siding, a new roof being three times the size of their home.

Unfortunately, the neighbor’s home is not a good comparable property to indicate their home’s value.  While in the same neighborhood, it is important comparable properties have other features in common.

What Makes a Good Comp

Determining Value

A real estate agent uses a Comparable Market Analysis or CMA to determine the value of a home.  A Comparable Market Analysis is a report that uses similar, recently sold homes to determine the subject home’s fair market value.

Similar homes are referred to as comparables or comps. Comps are often adjusted slightly for amenities a house may or may not have compared to the subject property, like a garage, central ac, sprinkler systems, etc.…

In many ways, a real estate agent will mirror what an appraiser will look at when evaluating a home.  An appraiser has some strict guidelines to follow, while an agent has a little more leeway when choosing comparable homes. In the end, the house must appraise, or there will be problems with a buyer financing a home.

The accuracy of the CMA relies on choosing good comparable homes.

What Makes A Good Comparable Home?

A home seller needs to know what makes a great comparable or comp for your home.  Plus, if you understand what makes a comp for your home, you can have an educated discussion with your REALTOR about why a particular house is a comp or isn’t a comp.

A comparable home is about similarity.

It would be awesome as real estate agents in an ideal world if we could find 3 identical homes in the same neighborhood on the same size and shape lot, all with a similar view.

But the reality is that doesn’t happen very often.

Factors To Consider When Selecting Comps

First and foremost we are looking for homes that have sold in the last 6 months and preferably the last three months.

And did I say sold?!  A seller can ask any price they want for a home, but it is not a comp until it sells.

So besides being recently sold, what are we looking for in a comp?

Location- Comparable sold homes should be in the same town as well as be in the same neighborhood or within 1 mile of the subject property.  If you have to go outside one mile, then you should use homes in similar communities.

Size-  When selecting comps, a comparable home should be similar in size to your home.  Ideally, no more than =/- 10-15% of your home size and certainly not more than 20%.  When we talk about square footage, we are also talking about above grade living area.  Finished basements, living space below grade is not included in a home’s square footage.

Condition- Condition can play a large role in what is a comp for your home and what is not.  A 1980’s colonial period with no work done to its can vs. a 1980’s colonial with extensive renovations can have a very different value.  Your comps need to be of similar condition.

Room Counts- Room counts not to be similar for a comp to be considered.  A ranch can have 6 or 7 rooms, but it is essential to pay attention to the bath count and bedroom count.  A 7 room ranch with one bath and 3 bedrooms is not a good comp for a 6 room ranch with 2.5 baths and 4 bedrooms.

Age- Homes that are compared should be of similar age.  A colonial built in the ’60s will have a very different appeal and function than a colonial built last year.

Style-  The style of the home needs to be factored in when selecting comps.  Try to compare ranches to ranches and split levels to split levels and capes to capes.  Each style comes with its own sets of benefits and downsides.

Amenities- Homes with garages, finished basement, central ac, sprinkler systems, etc.… should also have comps with similar amenities.

Adjusting Comps

Like I said earlier, there is the ideal world…. Which rarely exist.  Often a real estate agent will have to make adjustments to comps.   Maybe the adjustment might be a two-car garage versus a one-car garage, or a home has central ac, and one does not.

Or, on a higher level, a 2 bath home needs to be compared to a 1.5 bath home.

This is where it can start to get subjective.  But an experienced agent will have a handle on what a bath is worth and what one garage stall is worth.

But as a home seller, every time you go outside these guidelines or adjustments are made, there should be a clear explanation of why.  If adjustments for a home are going past 10% of a home’s price, you may need to find another comp.

Selecting comps can be as much of an art as science and cannot be as easy as it sounds on paper.

What Doesn’t Really Effect Your Homes Price

I have 3 acres of land…  A building lot is a building lot.  Of course, you wouldn’t compare a 5,000 square foot of land to 3 acres, but a one-acre lot will not have significantly less value than a three-acre lot.

I just spent $80k on a new deck…..  Ok, but that just is not normal for a $500,000 home.  Exessive, over the top renovations will not make your home worth more money.  An $8-12k deck would have been a more reasonable expense.

My swimming pool was over $100k…. Depending on where you are in the country swimming pool may have more value.  But here in New England, pools will only net you pennies on the dollars spent.  In general, you will just have spent a 100k on a big hole in the ground many buyers will want to fill.

I spent a bundle soundproofing my basement family room….  Ok, dude, that is just plain creepy!  But besides being creepy, highly personalized renovations aren’t going to make your home worth more money. (and yes, I’ve heard this one)

I have a new roof and a new furnace….  A home is expected to have a roof that doesn’t leak and a furnace that fires when you turn the thermostat on.  You will not recapture the complete cost of a new roof or a furnace when selling your home.  It may help add some conditional value, but in no way will you recapture the full cost of replacing something that the house needs to function properly.

Wrapping It Up

Understanding what makes a good comp for your home will help you have realistic conversations about pricing your home with any real estate agents you speak with.

When you have a good understanding of how and why your price the home the way you did, it will give you some confidence when negotiating an offer on your home. Correctly pricing your home can also speed up the sale of your home as well as make a less stressful transaction.

Hopefully, you now have a better understanding of what makes a good comp or comparable sale when pricing your home.

Effective Ways To Communicate With Tenants

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How Landlord Can Communicate With Tenants

In any business agreement, solid communication is crucial between all parties. While it may seem obvious, even the simplest forms of communication can minimize tension and ensure mutual satisfaction in any formal business relationship.

The real estate industry is no exception. From cash home buyers to general contractors, the ability to communicate effectively can make or break a relationship. 

The relationship between tenants and landlords is arguably the most delicate. There are emotions and dollars signed involved at all times. This type of agreement isn’t something you can leave at the office. It involves a substantial asset on one side and someone’s place of residence on the other.

Whichever side of the agreement you’re on, it’s important to make sure you’re using whatever tools are at your disposal to make communication as seamless as possible. Whether renting an apartment or home, consumers value a landlord who communicated effectively.

Landlords in particular have a lot to gain from using these tools. Property damage and late rent payments are two of the most common disputes between landlords and tenants.

If you’re a landlord, here are some effective ways to communicate with your tenants to help avoid mishaps later.

Landlords Communicate With Tenants

Property Management Apps

As technology becomes more ingrained in the real estate industry, smartphone applications are becoming a more common platform for communication. They label themselves as a one-stop-shop for landlords and tenants to hash out any notable issues.

One benefit of these apps is to keep all communications in one location. Juggling emails, text messages, voicemails, and letters can get old fast. By using an app, you can organize all communication while keeping it archived in the app for later reference when needed.

You likely won’t see these apps used as much for landlords that only own one or two properties. The true benefit is for landlords that own large multi-unit buildings, or a large portfolio of buildings.

Property managers usually insist on using some type of app for communicating with tenants. Some apps include a feature that allows rent to be collected through it. 

Landlords typically hear from tenants the most when there is something that needs to be repaired. Service requests can be submitted and handled directly from these apps. This allows service requests to be documents and increases response time back to the tenant.

Although technology can be scary, it is worth it to improve the communication between landlords and tenants.

Social Media

A great way to stay connected with your tenants without spending too much money on apps or other technology is through social media. You can use the chat function to message tenants personally and deliver news or updates about the property. Similar to a newsletter, this is another way to get the word out to the masses.

To create a more formal and intimate online environment for your tenants, you can create a Facebook group. Here, your tenants can communicate with each other and potentially solve any problems they might have before it escalates to your attention. This can save you both time and effort when communicating with tenants. However, make sure your tenants are technologically savvy enough to use social media routinely. 

Social media comes with additional communication benefits. People are sometimes more likely to check their Facebook notifications versus email notifications. For landlords that need to get a hold of their tenants as soon as possible, these platforms can help. It can also help issues get solved faster. 

For example, if you have a new tenant that is unsure how to use or access certain facilities in your large commercial building, other tenants can sometimes provide the answer. Especially if there are questions that get asked multiple times, a tenant can look back into different chat threads to uncover the answer. There is power in numbers. Allow your tenants to help each other out, and ultimately improve the communication flow between you and them.

Slack

Similar to creating a group on Facebook to communicate with tenants, Slack can be a great place for people to communicate within the same space. Slack is an online platform that you can also access on your smartphone. Its primary purpose is to streamline communication for groups, teams, or companies that are working on projects. 

Creating a slack group wouldn’t be necessary for every landlord. Your plan may be to buy a house and only own one for the rest of your investing career. If you only have one tenant, you won’t need Slack. It would be much more useful for landlords who own large multi-unit buildings. More specifically, if the tenants are a younger demographic that is accustomed to using technology for daily communication, Slack could solve countless communication issues. 

When communicating on this platform, landlords and tenants can track conversations and get live updates on important matters regarding a property. If there is an emergency, slack is a great way to notify a group of people instantly through their phones.

Do you plan to ask your tenant to do certain repairs on your property themself? You can track the progress of the home repairs through Slack. Pictures and video files are easy to upload. This ensures that the renovations are done on time, and to the degree that you expect. 

Tenant Newsletter

This may seem old fashioned, but many businesses still use newsletters to keep their customers up to date with news, events, and offers. Newsletters can offer a similar utility to landlords. If you own a property that has +50 units, a newsletter is perfect for keeping tenants up to date on things like scheduled maintenance. 

Newsletters are also great for communities owned by the same owner or company. Senior living communities often use newsletters to announce fun events going on for the residents. You can update everyone at the same time, and include an FAQ to help residents find answers to commonly asked questions.

Newsletters don’t just dispense news, however. They’re also great for creating a sense of community within your property. It may seem unnecessary, but fostering a community means keeping tenants that actually care about your property, and go out of their way to take care of it.

A vacancy is a landlord’s worst enemy. By keeping your tenants satisfied and engaged, you increase the likelihood of them renewing their lease or continuing to live in that community.

Depictions in the media of landlords as rent collectors who bang on doors are long outdated. Use these methods of communication to not just communicate with your tenants, but help avoid issues down the road by keeping everyone informed.

Hopefully, you have enjoyed these tips on effectively communicating with tenants as a landlord.

Types of Mortgage Loan Programs For Buyers Reviewed

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Financing Programs For Home Buyers

Are you wondering what the best mortgage loan programs will be for your needs? The financing part of buying a home can feel pretty overwhelming at first. Fortunately, mortgages are not actually rocket science – you can figure out the basics and make an informed decision based on your understanding without risking disaster.

It would be best if you did a little research, figure out your budget, and decide on your down payment. The rest is relatively straightforward, especially when you have a mortgage company taking you through the steps.

A first time home buyers program will often be one of the better financing solutions. Maximum Real Estate Exposure has reviewed eleven loan programs available to first-time home buyers. Please make sure you thoroughly research them to see which could be best for your financial circumstances.

We will also take a deep dive into some of the distinguishing factors separating one mortgage program from another. There are many questions first-time buyers should be asking, and financing options should certainly be at the top of the list.

Let’s take a look.

Mortgage Loan Programs

5 Types of Mortgages – What You Need to Know

While there is a seemingly endless variety of loans out there, the reality for most homebuyers is that you will only need to choose from around five different categories to purchase a home. Here is a general review of those five mortgage types.

1. Government-insured mortgages

The government is interested in increasing homeownership because it is good for the economy. To facilitate more homeownership, there are a variety of programs in place that buyers take advantage of – and you may be able to take advantage of one or more of them, too.

Three different government agencies back home loans, and each agency requires that borrowers meet certain requirements. Your government-backed mortgage options include:

FHA Loans

The Federal Housing Administration backs home loans for borrowers who may not be able to get conventional loans. Even if you don’t have a big down payment or great credit, you still may be able to qualify for an FHA loan. FHA loans are one of the most popular mortgage loan programs among first-time home buyers.

There are two main options from the FHA, including loans for those with a FICO of 580 or better that require 3.5 percent down, and loans for those with a credit score of 500 with at least 20 percent down.

The opportunity offered by FHA loans is great for many, but it does come at a cost – you will need to pay two different mortgage insurance premiums if you get an FHA loan, which can increase the cost of the mortgage over the long-term.

FHA loan limits have risen from $331,760 to $356,362 in most housing markets in the past year. They are set at 65 percent of the national conforming mortgage limit.

VA Loans

Members of the U.S. military, including active duty and veterans, can qualify for VA loans that offer low-interest rates, no down payment, and no private mortgage insurance requirement. These loans include a funding fee designed to help offset the cost to taxpayers, but the fee can usually be rolled into the loan if you do not want to pay it upfront at closing.

Veterans loans are one of the true no down payment loan programs available. If you are or have served in the military, a VA loan is a great mortgage option for a first-time homebuyer.

USDA Loans

Low-income and moderate-income borrowers buying homes in rural areas may be able to qualify for a USDA loan. The home must be in a USDA-eligible area, and you have to meet certain income limits to get the loan. You may not even need to have a down payment depending on your income.

Other than VA loan, a USDA loan is the only other no down payment loan product. The home you are purchasing, however, must be located in what is considered a rural area. You can speak to your lender, and they will be able to tell you if the area you’re looking in will qualify.

Pros and Cons

Government-insured loans are helpful when you can’t qualify for a conventional loan since the credit requirements are laxer and the down payment requirements are minimal. However, you may have higher costs for borrowing overall and will need to do much paperwork to qualify.

2. Conventional Loans

There are two basic types of conventional loans, conforming and non-conforming. Loans that are conforming fit within the max limits set by Fannie Mae or Freddie Mac. These agencies back most mortgages in the U.S., so they have a big say in how loans are configured. Non-conforming loans are loans that do not fit within these guidelines. The most common type of non-conforming loan is a jumbo loan.

Conventional loans usually require you to pay private mortgage insurance (PMI) if you do not put 20 percent down on the home.

Pros and Cons

Conventional mortgages are very flexible since you can use them to buy any type of home, including a primary, secondary, and investment home. While interest rates may be slightly higher, conventional loans usually have lower borrowing costs than government-backed loans. You can also ask to have your PMI canceled after you reach 20 percent equity in the home.

The challenge with conventional loans for many is qualifying for them in the first place. It would be best if you usually had a FICO score of 620 or higher and a debt-to-income ratio of 45 to 50 percent. You will need to provide a lot of documentation to verify that you can qualify for the loan.

When you are purchasing a home, it is vital to improve your credit score as it can have such a dramatic impact on the loan terms you receive from the lender. Take a look at a rundown of the credit scoring ranges, so you see where you fall. You’ll know how much you need to improve your score to get into the highest category of credit.

3. Jumbo Loans

Jumbo loans are one of the most common types of non-conforming loans. The loan is jumbo and non-conforming because the price of the home you want to buy exceeds the limits set by the federal government for conforming loans.

In 2021, the maximum limit for a single-family home is $548,250 in most areas of the country. If you want to buy a single-family home that costs more than the limit for 2021,  you will need to get a jumbo loan. The max limits can vary by region. In some more expensive areas of the country, the limit was set at $822,375.

These loan limits are set relative to housing price increases. The FHFA’s House Price Index showed that house prices increased an average of 7.42 percent from the third quarter of 2019 and 2020. What this means is that the baseline conforming loan limit will increase by that same amount.

Pros and Cons

The interest rate for a jumbo loan tends to be comparable to many other conventional loan products, so you will likely not pay more for the loan than you would for a smaller loan. The most obvious benefit of a jumbo loan is that it allows you to purchase a more expensive home. Depending on where you are buying, you may need a jumbo loan to get the home you want.

There are more challenges require to get a jumbo loan, however. You will need a down payment of around 10 to 20 percent and a FICO score of 700 or better, as well as a debt-to-income ratio of less than 45 percent. It would help if you also had significant assets, usually 10 percent of the loan amount in cash or savings.

4. Fixed-Rate Loans

A fixed-rate loan will have an interest rate that remains fixed throughout the life of the loan. Government-backed loans always have fixed rates, while conventional loans may or may not have a fixed-rate. These loans usually have terms of 15-years, 20-years, and 30-years. Fixed-rate loans are the most popular loan product by far.

Of all the mortgage loan programs, conventional is the most common.

Pros and Cons

These loans are desirable because you don’t have to worry about your interest rate or payments changing over the life of the loan. Having a fixed-rate means, you can easily budget your finances to ensure you can pay your mortgage.

There are some drawbacks, however. You will often pay more interest for the loan when you have a longer-term loan, and it will take longer to build equity in your home. The interest rate will likely be higher than an adjustable-rate mortgage, at least at the beginning of the loan term.

Although in recent years, this has not been the case, which has made fixed-rate loans even more attractive, especially to first-time buyers.

5. Adjustable-Rate Loans

Adjustable-rate mortgages (ARMs) have a fluctuating interest rate, which means the rate can go up or down depending on what happens with the market. Most of these loans start with a fixed interest rate and convert into a variable interest rate in a few years. You can often get an ARM that has a cap on how much interest will go up so that you can plan better for the future.

Pros and Cons

The biggest benefit of an ARM is that you get a low-interest rate at first and can save a lot of interest. However, once the interest rate goes up, it could become more difficult to afford the mortgage. And if home values fall, the home will be harder to sell or refinance. Adjustable-rate mortgages are certainly riskier, especially among marginal borrowers. A sharp increase in the rate could make it more difficult to remain in a home.

In fact, it could be a recipe for disaster that leads to potential home foreclosure—something nobody ever wants to think about.

An adjustable-rate loan is one of the least favorite mortgage programs at the moment.

Final Thoughts on Getting a Mortgage

Choosing the right mortgage is an essential consideration when buying a home, especially when it is for the first time. It is vital to shop the rates. Make sure you speak to more than just a couple of lenders. Remember, the loan terms you receive will make a big difference in what you are ultimately paying for the house.

Make sure you get preapproved for a mortgage before you start looking at properties. The better educated you can be regarding your finances will go along way toward making your purchase a smooth one.

Hopefully, you now have a better understanding of all of the mortgage loan programs available to you.