Question: Bob, I enjoy your columns and sometimes take your advice. One of your columns suggested when looking for a home, try going to open houses. I have decided to sell my condo and buy a house. However, the houses I've seen at Sunday open houses seem vastly overpriced for the neighborhood where a friend recently bought one for much less. How can I determine the true value of a house?
Answer: The market value of houses is determined by recent sales prices of comparable nearby residences. A home's asking price is the seller's asking dream price. It is usually higher that the actual market value, although occasionally a home is correctly priced and will sell near it's asking price.
Before making a purchase offer on a home you want to buy, ask the realty to prepare a written comparative market analysis (CMA). The cma is the same form that the listing prepared for the seller when the home was listed for sale. It shows recent sales prices of comparable homes nearby currently for sale. After adding and subtracting values for the pros and cons of the subject house you can arrive at an intelligent purchase offer price.
However, be sure your offer bid contains a contingency for obtaining financing/mortgage. The lender's appraisal is an added safeguard against paying to much for your home.
But such an appraisal safeguard is not applicable in a new subdivision tract where there are no comparable sales other than the brand-new homes. In new tracts, the builder usually has a loan commitment from a mortgage lender so it is very difficult to determine if the new homes are worth the asking prices.
Question: We are receiving conflicting advice about buying our new home. Last (2005) summer, we were very fortunate to sell our home for virtually all cash (except we had to pay off our mortgage balance of about ($15,000). We have contracted to buy a replacement home with the closing scheduled the last week of June.
Our debate is whether we should take the cash from our home sale and invest it all in our new home. We will then need a mortgage of only about $50,000. Other alternatives involve paying 10, 20, or 25 percent down payments. Our mortgage company agent advises us to pay 25percent down and get a 75 percent "easy qualify" mortgage. My husband owns his business and could use the left over cash to expand it. But I would feel more comfortable with a small mortgage. What should we do? Barbara.
Answer: I get very nervous when I hear about people having big equities in expensive homes. Having virtually all of your eggs in one basket is not a brilliant idea. A better alternative is to share the risk with a mortgage lender.
That is why I recommend conserving cash when buying a home (or any investment property) unless you get a big advantage for paying cash, such as a large discount. Your mortgage broker is giving you good advice to make a 25 percent down payment so you can get an "easy qualify" 75 percent mortgage without much documentation. Since your husband is self-employed, this eliminates the need for him to provide financial statements. Another advantage is you will then have cash to invest in his business. The way the market is today you should get a pretty good buy?
Have a real estate question? Write, call, fax or e-mail:
Bob Jeffries, Realtor,
Century 21 Birchwood Realty, Inc.
4040 Del Prado Blvd., Cape Coral, FL