Quicksand

Before I entered the appraisal profession I was a new home sales agent for Coldwell Banker HPW, Better Homes & Garden, representing John Wieland Homes, First Oakland Properties, and C. Richard Dobson Builders (now part of D.R. Horton) at Mill Creek Golf Club in Mebane.

One day while working in the C. Richard Dobson model home in The Park neighborhood, a middle-aged looking couple dropped in to tour the home.  They seemed impressed with the Mill Creek master-planned community development, and excited about buying a home there.

After touring the home, the husband decided to briskly walk the lot with his wife shadowing him from behind.  I decided to observe from a distance on the back patio giving them personal space to look around and discover the lay of the land on their own.

The husband, meticulously surveying the land, continued walking beyond the grassed backyard and onto the back end of the next door cleared lot, at the end of the cul-de-sac.  The next thing I know, I saw him walk right into a sandy looking quagmire, ankle-deep. Seemingly unfazed, he proceeded to take two more steps and was shin-deep, then another two steps and found himself thigh deep.  In just a matter of seconds be for things had gone from bad to worse. I was stunned and speechless as I looked on in disbelief at what was unfolding before my very own eyes. It was as if I was watching an old western movie where the good guy was being swallowed up in quicksand.  Nothing in real estate school or new agent training had prepared me for what to do in such a situation.

Determined, the man mustered with all his might and strength to somehow slowly trudge through it all and walk his way out of this sinkhole to freedom.  As he made his way back to the house, I made sure he was ok and saw that both pant legs were heavily covered in this quicksand looking slop. Thinking quickly I remembered that the home had a garden hose used for watering bushes that were hooked up to the front side of the house and I sprang into action to hose him down as best I could.

The man and his wife then quietly walked down the driveway, got in their car, and drove off.  I never heard from or saw them again and twenty-two years later I still can’t help but wonder where they ended up settling down.  

If you are ready to buy or sell, call  Mary Staton or Bert Ward - they’ll be happy to answer any questions.  

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Gross Rent Multiplier

Ever wonder how most real estate investors determine how much to pay for an investment property?  The most common method used is called the Gross Rent Multiplier (GRM).  To determine the GRM, the investor identifies three similar properties in similar neighborhoods that were rented at the time of sale and divides their sales price by the monthly gross rent.  For example, three similar homes recently sold in the same neighborhood. Home A sold for $75,000 with a monthly rent of $600, giving it a multiple of 125. Home B sold for $80,000 with a monthly rent of $650, giving it a multiple of 123.  Home C sold for $90,000 with a monthly rent of $750, giving it a multiple of 120. The investor now has come up with a GRM range of 120 to 125, giving them measurable data to determine how much they should pay for a similar type of investment property.  The tricky part is knowing about or finding other investment properties that were rented at the time of sale.  

If you are ready to buy or sell, call  Mary Staton or Bert Ward - they’ll be happy to answer any questions.  

 

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Functional Utility

When looking to buy or sell a home an issue that can come into play is a home’s functional utility.  The functional utility is an appraisal term that refers to a home’s ability to adequately provide for its intended use.  The most common example is a home with a pass-through bedroom resulting in a less than ideal traffic pattern. For example, my wife and I recently showed a three-bedroom home to a buyer but the third bedroom had a door off the hallway and one off the kitchen there was a den, functioning as a shortcut to the kitchen and the den for the other two bedrooms.  Although this home had an alternate route to get to the kitchen and den (down the hall, through the living room and through the dining room to the kitchen and den), the quickest and most convenient route was through the third bedroom. Our buyer knew that if she were to buy this home, it would be more functionally convenient to cut through the third bedroom to get to the kitchen and den, especially while getting ready for work in the mornings or going to bed late at night.  If a child was sleeping in the third bedroom, it would be inconvenient to walk around this bedroom to go back and forth to the kitchen and den as needed. In short, the functional utility of this third bedroom did not suit her family’s everyday need of convenience. While other buyers could make this floorplan work for their need of having three bedrooms, it nevertheless has an adverse effect on the home’s marketability and overall value.

If you are ready to buy or sell, call  Mary Staton or Bert Ward - they’ll be happy to answer any questions.  

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Functional Obsolescence

Functional obsolescence is an adverse functional issue of a property according to current market housing trends and buyer needs, wants, or desires.  It is the result of defects within a property. Whether a property has functional obsolescence or not is ultimately determined by the potential buyer of a property through their personal observations and how much they would be willing to pay for the property.  Functional obsolescence may be caused by a deficiency or a super adequacy. 

Superadequacy is typically associated with the features of a home that are above and beyond (over improvement) what is considered normal for the neighborhood and does not contribute to the overall value in an amount equal to their cost.  An example of super adequacy would be a home that has a two-car detached garage, in addition to the home’s two-car attached garage. Although the additional two car detached garage may have value to some buyers (especially in the county where having a workshop is often beneficial), the cost to build the extra garage typically exceeds contributory value added to the home’s overall value.  In most cases, however, the home with a two-car garage is all that is required or necessary for the majority of buyers and therefore the additional two-car garage represents diminishing returns.  

A deficiency is basically the lack of something that other properties in the subject’s neighborhood have, such as a Cape Cod style home with three bedrooms, one on the first floor with one bathroom and two bedrooms on the second floor with no bathroom.  

Some forms of functional obsolescence are curable while others are incurable.  The key difference between whether it is curable or not is whether the cost to cure/correct results in an incremental increase in value.  If it does it is considered curable. For example, adding a second-floor bathroom by bumping out a section of the roof line on the back of the home is a curable form of functional obsolescence.  This addition would typically result in an increase in the overall value of the house greater than the cost to add the extra bathroom, assuming the bathroom can be accessed by both bedrooms without passing through one of them to access it.  However, if the extra bathroom added is not appropriately functional, the cost to add the bathroom may exceed the incremental value gained by adding it. 

If you are ready to buy or sell, call  Mary Staton or Bert Ward - they’ll be happy to answer any questions about the functional obsolescences that may be happening around your neighborhood.

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Willful Seller Omission

My wife and I were representing a buyer to purchase a remodeled home in the county on well and septic.  After our buyer entered into a contract to buy their home, we discovered through a septic inspection that the seller had a non-permitted septic system.  Needless to say, this was a big surprise since we had pulled a copy of a septic permit on file for this home and that the seller represented on the North Carolina Residential Property Disclosure Statement that there were no problems with the septic system.  

After notifying the listing agent of our findings, the seller called us all out to meet about it at his home.  What we learned was that a septic system had been installed in a different location than the permit on file showed, and had not been permitted by the Alamance County Health Department.  The seller said the septic system backed up just over a year ago and that he had it repaired.  It was at this time that we believe he was made aware that his septic system was not permitted (he probably bought the home without getting the septic system inspected and his agent only pulled the original existing permit on file at the time of purchase).  He contacted the Alamance County Health Department about repairing the septic system and getting it permitted. The seller decided to have an unlicensed friend make the septic repairs and bypass obtaining a permit, due to the cost involved in going through the permit process.  We were shocked to find out that this seller had willingly and knowingly failed to disclose to his listing agent and all prospective buyers on the open market, the material fact that his home had a non-permitted septic system.  

Luckily for the seller, our buyer still wanted to buy his home at the time if the seller could get a new permit issued for a three-bedroom septic system, which he agreed to do.  As it turned out, this seller tried to get the Health Department to issue a permit for the existing septic system which they declined to do. As a result, the seller did not obtain the permit, breached his contract, and negotiated a settlement agreement refunding most of the buyer's incurred expenses.  

Fortunately for this seller, our buyer decided not to sue him for breach of contract preventing him from selling his home to any other buyers.  He also could have faced legal problems for failing to disclose on the North Carolina Residential Property Disclosure Statement that his septic system was not permitted, which he knew and was a Material Fact and a Willful Omission.

If you are ready to buy or sell, call  Mary Staton or Bert Ward - they’ll be happy to answer any questions.  

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Extraordinary Assumption

An extraordinary assumption is an assumption which if found to be false could alter the opinion or conclusion of an appraiser’s opinion of value.  An example of an extraordinary assumption is that a home’s well and septic system are permitted, operational, and not in need of immediate repair.  It is beyond the scope of an appraisal assignment for an appraiser to uncover such hidden defects since they are not home inspectors nor well and septic inspectors.  In other words, the assumption is that all homes are free of material defects unless there are obvious observable issues with the home, such as foundation cracks, holes in the roof, etc.  In this case, the appraiser would make a notation in the appraisal report and make a condition adjustment.
 
As you may recall from my blog post Willful Seller Omission that we found out that a home had a non-permitted septic system after having it inspected.  The appraisal was completed before this material fact was uncovered and was not reflected in the appraiser’s opinion of value.  Had the appraiser been aware of this at the time, it would have adversely impacted their opinion of value since the home was not marketable for owner occupancy without a valid permit. 
 
The seller’s agent argued that since no mention of it was made in the appraisal report that the home was financeable and that they had talked to another lender who said they would make the loan on it.  There are two major problems with this Realtor’s and Seller’s line of thinking.  First, if our buyer would have purchased the home, there was no guarantee that a new permit would be issued leaving our buyer with a financial burden when it came time for her to sell this home at a later date.  Second, if the buyer’s agent knowingly lets a buyer purchase a home when financing is involved, they could be complicit in participating in mortgage loan fraud.  If the buyer were to lose their job, and default on their mortgage, then the lien holder could uncover this defect when they foreclosed on the property and pursue legal action against the Realtor and mortgage lender, if the lender was aware of it too. 
 
Before anyone makes assumptions about your home, if you are ready to buy or sell, call  Mary Staton or Bert Ward - they’ll be happy to answer any questions about the Extraordinary Assumptions. 
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Contingent Offers

A common dilemma many buyers face is whether to buy their new home first or sell their existing home first. If you don’t need to sell your home in order to buy your next home, then buying first is the most convenient option. If you sell first you may not be able to find your next home right away and may have to rent an apartment or home before you do. If neither of these two options are appealing to your situation, there is a third option, making a contingent offer to buy your next home.

In this situation, the contingent buyer should have already put their home on the market and identified a new home they would like to buy with the intention of closing on both their existing home and new home simultaneously. This can be tricky because it is risky business for any seller to accept a contingent offer without the buyer at least having their home under contract. If the buyer doesn’t have their home under contract, sellers are not inclined to accept a contingent offer since they don’t know when or if the buyer will get their home under contract. For the purpose of this article, we’ll assume that the contingent buyer has their home under contract.

So what happens next? Once the contingent buyer enters into a contract to purchase their next home, the seller is entitled to receive a copy of the contract on their buyer’s home in which they may or may not share confidential information such as names and purchase price. The reason to provide a copy of the buyer’s contract is to demonstrate that they do indeed have a contract on their home, showing the due diligence expiration date and closing date. Since a buyer can back out of the contract during the due diligence period for any reason, or no reason, it is important for sellers to know how long this period is. The shorter the period, the more attractive the offer, since time is of the essence. Once the due diligence period lapses, the earnest money comes into play and the chances of the contingent buyer backing out are less likely. In other words, the contingent buyer’s contract on their home is more likely to close giving the seller a greater peace of mind. Notice how I said more likely to close. There are still instances where your contingent buyer may not close, such as the buyer losing their job and having no choice but to breach their contract. Generally speaking, the best offers are the ones that are not contingent upon a buyer having to sell their home in order to buy your home. Having said this, if you don’t have any other offers or the contingent offer is substantially higher than the other offers, it may be worth the risk of entering into a contingent contract.

If you are ready to sell and buy but you have questions about the process, call Mary Staton or Bert Ward - they’ll be happy to answer any questions about the Contingent Buying.

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A Home For Large Dogs

This day started off like most any day when I was appraising full time.  I jumped into my Yukon 

XL with my clipboard, file folder, Sony Mavica disk camera, pencil, trusty 100’ tape measure, and drove to Mebane to appraise another home.

When I arrived at the home, the owner greeted me at the front door and invited me to come inside.  As with any homeowner, I advised that I would come inside to do a walkthrough, but the first thing I needed to do was measure the exterior of her home.

So off I went to check out the back of the house and as I turned the corner the first thing that caught my attention was a barking Pit Bull chained to a stake by a small and run down looking dog house.  Startled at first, I relaxed seeing that there was not a single blade of grass around the circumference of the stake, giving me peace of mind that I was out of harm's way from this territorial looking dog.

No sooner than just having turned my back to the dog to hook my tape measure onto the house, I see out of the corner of my eye this large dog charging at me, beyond his well-worn circular dirt path.  

A quick adrenaline rush came over me and in a split second, I dropped my clipboard, raised my tape measure in the right hand and prepared to hopefully strike the dog when he attacked me.  I was thinking, I’ve got one shot and it’s got to count.

Then all of a sudden and out of nowhere the dog, still running in full stride, veered directly off to my left to chase after the neighbor’s dog.

Hearing the loud barking dogs, the owner came out of her home and authoritatively rounded up her dog.  After securing her dog back to the stake she apologized and said that her dog had broken free from his collar again and that she had to buy him a new one about every six weeks.  

Vicious dog attack averted, thank God! 

If you are ready to buy or sell and you are looking for pet-friendly homes, call  Mary Staton or Bert Ward - they’ll be happy to answer any questions.

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You Can’t Sell A House If Your Spouse Doesn’t Sign

One morning when I was first getting started in real estate sales, I received a call from an older retired man looking to get his home appraised.  I asked what the purpose of the appraisal was for since there are different types of appraisal assignments that can affect an appraiser’s opinion of value.  He advised that he was interested in an appraisal for sale purpose. I let him know I could help sell his home, but if I did, I would not be able to appraise it since it would be a conflict of interest.  The owner decided that since I was an appraiser, a Comparable Market Analysis (CMA) performed by me would serve his interest just as well as an appraisal since he wanted to sell.  

After pulling and reviewing copies of the tax record and deed, a listing appointment was scheduled and I went out the next day to meet with him.  Upon arriving I covered Working With Agents with him and he proceeded to let me know why he wanted to sell.  As it turned out, he had purchased the home for his son to live in while the son looked after him.  The only problem was his son didn’t want to move back to Burlington so my client was moving to Texas to live with him.  He further explained that he was tired of living alone after his wife took him for half of everything he owned. I listened with empathy and promised I would do everything I could to help him sell his home for the best possible price so he could make the move to Texas and be with his son.  

After the second week his home was on the market, it was placed under contract with a financially qualified young couple.  Approximately four weeks later we met the buyers for the first time at the closing table. The first question out of the attorney’s mouth to my seller was, are you still married?  I was thinking this was just a formality and how could this man be married after explicitly telling me about how he had been taken for half of everything he owned? Then he replied yes he was still married.  

After hearing his answer my jaw dropped and I looked across the table at the young couple and their agent, looking at me as if they had just seen a ghost.  We were all taken aback and speechless, except for the attorney. The attorney asked if his wife was still in town to which the seller replied she was. He then asked if he had her phone number and that if he called her, did he see any reason why she would object to coming in to sign the deed?  To which he replied I don’t think so. As good luck and fate would have it, the attorney was able to reach his wife and fifteen minutes later she came in to sign the deed.  

After the closing successfully ended, I asked the attorney how he knew my seller was still married since the public records showed that my seller was the sole owner of record.  The attorney said that he handled the closing of the home when my seller bought it and knew he was married. My seller assumed that since he bought the home without his wife, that it was his to sell without her.  After hearing my seller’s sad story about being left by his wife and that he was the sole owner of record, It never crossed my mind to ask the magic question of whether or not he was still married. After this close encounter, I no longer assume that someone isn’t married just because they have settled up and parted ways.

If you have any questions about what you will need for a home closing,or if you are ready to buy or sell, call  Mary Staton or Bert Ward - they’ll be happy to answer any questions.  

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What’s In a Name?

How does one decide what name to choose when going out on their own to start a new business?  After all, it may be the easiest yet one of the most difficult decisions to make when starting a company.  I was faced with such a decision while in my late twenties with my parents supporting my decision to make a move from a career in credit and collections to real estate.  It all started when my wife and I bought our first investment property and formed a company named Black Diamond Capital, LLC. The name was suggested by my father because of my love and passion for snow skiing.  Not giving it a second thought, I agreed that the name was perfect. A few years later I went into the real estate appraisal profession and started my own appraisal company. A name change was in order but I didn’t want to drop the company name that my father came up with.  As a result, the new company was named Alamance Appraisals-Black Diamond Capital, LLC – DBA as Alamance Appraisals. Several years later when I opened up my own real estate firm, another name change was in order so the company was renamed to Alamance Appraisals-Black Diamond Real Estate, LLC. – DBA as Alamance Appraisals, and DBA as Black Diamond Real Estate.  

Now that you know the story behind the name Black Diamond Real Estate, what about my nickname, Bert, where did it come from and how did it stick?  Some forty years ago or so, when I was a kid, my parents hired George DeLoache to teach me how to play tennis and look after me and my brother when they were not home.  George was the best, not only did he teach me a lot about tennis, he even took me to his family’s outlet store, when it was located across the interstate, and gave me a Peter Frampton screen print t-shirt.  Simply put, George was cool and someone I very much looked up to. So being his sidekick, he one day out of the blue just started calling me Bert. I thought how creative and original, I now had my own identity since I was being called everything from Bob, to Rob, to Robert.  I didn’t know any Berts and my father goes by Bob, my cousin goes by Rob, and I felt being called Robert was just too long of a name. Being called Bert was perfect. Next thing I know, my best at the time, Bubba, started calling me Bert along with his parents and grandfather.  From there the nickname stuck and took off by the time I finished middle school. I’ll still answer to any of those names, but my friends call me Bert, and I go by Bert when I meet new people. 

If you are ready to buy or sell, call  Mary Staton or Bert Ward - they’ll be happy to answer any questions.  

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