Establishing Value in Todays Market or How Much is My Home Worth?
Today's post is a culmination of questions, quips, and ponderings during the year and from previous years reflecting my time in the real estate and mortgage industry. It is also a post of recent client call, which provides a great framework for this discussion. Any comments readers would like to share, I am interested in hearing them. ** Thank you ** (My relocation client has not signed a listing agreement).
Home values in today's market are more of a moving target than ever before and the target seems to be dropping lower in many parts of the Imperial County real estate market (also known as Imperial Valley), however there are areas that seem to be a bit more immune to the turbulence we have seen.
How are values determined? Through a CMA, a competitive market analysis? Through a BPO, a brokers price opinion or opinion of value? Through an appraisal? Is the value decision taking into account an interior inspection? Exterior only? Is the analysis completed using only regular sales or is the market driven by foreclosure sales such as REO Bankowned homes versus preforeclosure short sales? All methods of valuation require a diligent use of comparable housing sales and existing listings to guage and predict price movement of properties.
Recently a client of mine called and left a voice message asking about the value of his home in El Centro, CA. Basically his message said "I am thinking about things and want to know what my home is worth" and asked if I could help him.
I called him back and got his voice message, so I left a detailed message to help him with his reply.
One of the obvious questions I asked him was "have you made any major changes, remodeling, room additions, or structural changes to your home since you bought"? I asked him what is the purpose of him wanting to know the value, such as are you trying to refinance? Are you trying to sell? Are you trying to establish a value for a divorce or seperation? Are you estaimating value for assets to a will or a type of family trust? etc.
Perhaps he was overwhelmed with my reply, however I wanted him to know and perhaps understand that merely stating a value of property is a bit more complex than just asking how many bedrooms and bathrooms it has. I didn't hear back from him for a few days and I know his work schedule can be challenging, so I called him again to make sure he received my message.
This time we were able to connect and he asked me about his value. I asked him the questions and here is what we talked about.
My client purchased his 4 bedroom 2 bath tract home for about $130,000 in 2001 which is located in a well established neighborhood on the west side of La Brucherie Rd in El Centro. The single story gem has about 1500 sf and has a standard sized lot. Homes in this area were built between 1988 and the early 90's, so the homes are just under 20 years old and are from a few different builders. There are also several custom built homes peppered throughout the development and surrounding area. Building has continued further west from his area and houses some of El Centro's finest neighborhoods. Many of thee neighborhoods were considered country at some point due to their proximity of La Brucherie Rd, but now have all meshed together to create a group of starter homes to luxury estates with acerage, truly one of the nicest places to be in El Centro.
He admitted he had made zero changes to the home. He had not updated the roof, AC unit, flooring or any fixtures. He has painted but only did some minimal changes to suit personal tastes. The home was in great condition when he purchased it and he has maintained its near perfect condition since.
After listening to him talk about the home, I asked him how much he owed. He admitted he refinanced late last year and took out a loan of $180,000, he said he paid off a first and second and the value of the home came in at around $235,000 of which he said his loan was about 80%. He apologized for not using my services back then and indicated a "family" matter had influenced his refinancing decision (ie. a family member did the loan). I asked him not to worry about it and thanked him for the explanation.
He then told me the reason for his question of value. He indicated a need to relocate and has some time, but not all the time in the world. He knows homes in his area are not selling for what they were being appraised for back in early to mid-2007 (more than likely the time-frame of the comparable sales used for his refinance).
Earlier in the month I showed some clients several homes in the area where my relocation client is. My purchase clients wanted homes with at least 4 bedrooms and 2 baths with at least 1700 sf in the same area. We looked at 5 homes during a few hours and my clients had already seen another 5 homes during a previous outing. These 5 homes were all very similar in size and use, however they came with different sets of baggage with regard to repairs needed or desired.
We primarily looked at homes with a $30,000 spread, from a smaller unit at $155,000 to a nicely upgraded home at $185,000. The difference in these homes were the repairs needed and the upgrades contained. These homes are very similar in size and use as my relocation clients home is, so I advised him that the range would fall into this category, however I would need to see the home to truly provide a realistic selling or as-is list price.
One thing I know is that my relocation client has plenty of competition and he needs to really price aggressively if he wants to sell quickly to move onto his relocation, however he owes more than what his home is worth, also his current home loan is less than 12 months, which could be a major negative factor in getting his lender, Countywide, to approve a short sale since that will be his only real remedy to get out from under the home.
Did he get cash out? Did he use the money for debt or home repairs, if he obtained cash out? Did he just simply payoff a first and second mortgage to a more managable payment? These and a host of other questions are ones that I need to ask before advising him of a short sale.
He may have to hold out and wait until he has held his loan for 12 months and until he can prove some type of delinquency. It's sad to know that with all of the foreclosures taking place into today's market that a bank would rather foreclose on the home rather than working through the details of a short sale, given the facts present themselves in manner consistent with these rules.
As quick "radius" search within 1/2 mile of his address shows about 20 active listings ranging in price from a small 2/1 condo with a 1,000 sf at $118,000 to 5 bedroom/3 bath, 3400 sf luxury home at just $519,000.
Obviously these two homes are not comparable listings to my clients home, however these listings currently represent the high and low as of this entry. Back to listings and sales of homes that would most match my clients relocation needs.
One the low side is a bank owned 2 story home a few blocks away with nearly 300 more square feet and a half-bath more. There is a pool that appears to be empty, perhaps it needs work and the 
pictures shows flooring in need of replacement and a kitchen in need of repairs, but priced at under $140,000 someone could put some money into it and it would make a nice place. 
For nearly another $15,000 more and a few blocks south-west you could purchase this other home without a pool but the same floor plan but in reverse.
Mind you both of these homes are larger, are two stories and one has a pool which my relocation clients home does not.
Although these homes are somewhat in distress, they serve as a price test for would be buyers who would consider these homes in addition to my relocation clients home.
To your left, there's a home very similar to my relocation clients home which is not a bank owned or short sale, it's a regular sale listed by local broker Luke Thannikary of ERA. 
The home is a single story 4/2 with approx 1415 sf on a regular sized lot and priced at $159,000
To your right, there's a home which appears to be a bank owned property for nearly $14,000, which is the same room count, sf and lot size.
Which home will sell first? Luke's listing has been exposed since mid-June 2008 and was reduced down from $169,000. The bank owned home came onto the listing scene recently in mid-July at $181,900. Both homes have had between a $9000 and $10000 price reduction, or between a 5% to 6% reduction in a short time.
OK, so we have seen what's available on the market today, but what about the sales? What has sold recently that matched my relocation clients home? Recently, June 2008 a two story home with 4 bedrooms and 2.5 baths bank owned property sold for nearly $171,000 after being on the market 126 days and another home of similar size/stature, etc sold in late May for $185,000 after being on the market only 20 days! What a contrast between these two homes and marketing time frames.
Compared to similar listings, as shown above, sales prices have dropped another $25,000 to $30,000 in the last few months.
The trend continues as sellers level their pricing strategies to head off new foreclosures in order to sell short ahead of the bank owned status, however as the market adjusts and stabilizes, we emerge a new market of affordable housing, low stable down payment loans and a continuous means of home ownership.
How can I help you accomplish your goal? Simply contact me to find out and we'll talk about your home.
El Centro MLS, El Centro bank owned, El Centro REO, El Centro short sale, El Centro homes for sale
I am biased as my neighborhood is a well established area in a very desirable older part of the city of Brawley in Imperial County. Most of the homes on my block were built during the 40's and 50's and many have keep their craftsman bungalow charm and structure of an era long past. From what I've been told and researched, the area where my home sits used to be a citrus field, ripe with oranges, grapefruits, and other fruits. 
Mature landscaping, towering trees and green manicured yards line the streets of this area which exudes pride of ownership to the nth degree. You can tell that people are happy and pleased to live in this area. 
According to the information gathered about the home characteristics, it appears to be a home built in the early 50's with 3 bedrooms, 2 bathrooms and a large lot estimated at about 12,500 sq ft with nearly 1,600 sq ft of living space. The home sold just 15 months later in May 2006 in the amount of $276,400 based on public records and a review of the total of two mortgages taken out on the property. 
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