Blog

The Importance of Being Earnest

February 8, 2014 By Rick Jarvis

My goal is to hopefully shed some light on what the difference is between pre-approval and pre-qualification so you, the buyer, can know what level of financial disclosure YOU should expect or ask for. I would hope no one would want to enter a transaction to purchase a home without the end result being a successful transfer of the property from a seller to a buyer. Therefore, when initial data is supplied from a home-buyer related to their income, assets, and credit reputation, a lot of latitude, at times, is granted on the accuracy of the information. Some lenders will, at minimum, access a credit report and verify history as well as amount of obligations and monthly payments. However, most income and asset information is exchanged initially on a ‘trust’ basis for accuracy in order to generate the coveted “lender letter”.

There are some very important fundamentals for the buyer to understand as it relates to pre-qualification versus pre-approval. If you are looking to purchase a home and in your recent history (yes, I am going to leave “recent” a little vague as it may vary relative to specific circumstances), you have:

Non-continuous employment,
claim unreimbursed expenses from your employment,
file self employed and have no idea how your accountant calculates your tax,
derogatory credit reporting(s);
or have unusual sources from some recent money transactions (unusual meaning anything other than employment related).

You might want to exchange some very detailed information with your mortgage loan officer. I would suggest a Pre-Approval process. This will or should involve the completion of a mortgage loan application and disclosure package with a property address “to be determined”. The lender will fully process and approve a loan application subject to ratified purchase agreement and subject property appraisal. Typically, lenders will do this without a charge, or a with very minimal charge. Because income and assets are validated and the loan is fully processed and underwritten, the action would create a “Pre-Approved” buyer. Hence, the language and wording should reflect “Pre-Approval”.

Chris Owens with Southern Trust Mortgage has a full range of second home and investment property loan products.

Here are links to the other articles in this series about Lender Letters:

Why is the Lender Letter Needed?

February 8, 2014 By Rick Jarvis

The purpose of this blog series is to help you know what the difference is, what you should be asking for based on your circumstances, and to help all parties realize a successful transaction. One of the reasons Listing Agents will review a Lender Letter with a fine tooth comb is because it is a critical component to a seller’s decision to accept a purchase agreement and, in essence, remove their home from the market while the borrower pursues the financing.

There are not many agents who have not had an experience where a borrower produces a lender letter, then as the loan application progresses, something turns out to be different that was a foundation to the expectation indicated in the letter. For an agent and seller, this means lost marketing time or possibly even losing their potential purchase. Because some bit of information was withheld or possibly a loan officer did not ask the right questions, people’s lives could get turned upside down.

Privacy laws will prevent the loan officer, for the most part, from saying anything outside of the content of the letter. Therefore, “trust” and “reputation” of the loan officer and even his or her mortgage company can play a big role in the presumed credibility of the letter and you as a potential borrower. Presumption the loan officer has asked the right questions, proceeded with the correct level of due diligence, or has created a trust relationship with you to be forthcoming and complete with your personal finances, becomes absolutely vital to the success of the transaction.

Here are links to the other articles in this series about Lender Letters:

Yesterday, Today or Tomorrow…Which Matters Most?

January 24, 2014 By Rick Jarvis

As the snow melts, the flowers begin to bloom and the birds (and bugs) emerge, so do For Sale signs. The spring market is when the large number of homes in our marketplace will transact. Sometimes it is January and sometimes March, but once the weather breaks and summer vacation seems almost reachable, the buyers and sellers emerge and begin their mating dance to see who sells what to whom and for how much.

It will happen again this year.

It happens every year (well, except 2009, but that is a different story.)

So we know houses will change hands…but for how much? That is the question everyone wants to know.

Valuing Housing

What Realtors are taught about helping sellers establish values has not changed in the several decades I have been in this industry. We were/are taught to find three recent sales which are similar in size, features age and geography and use some blended average to establish a price. The sales upon which the value is based are called COMPS (short for ‘COMParable Sales) and can be found by searching in the local MLS or public tax records.

But does it work?

Comping Looks Backwards

What is the flaw in looking at COMPS?

Well, COMPS are past events and what we are trying to predict is a future one. Additionally, these past sales, even if recent, may still have occurred in radically different market conditions.

See the chart below measuring the rate of sales each month. Do you notice any trends?

When the rate of sales in April/May is 30-40% higher than October/November, do you think it would be wise to use fall sales to price a spring house? Probably not.

Likewise, check this out. This chart shows the amount of available housing at any given point during the year.

A buyer will have significantly more choices in October than in April…think it impacts a buyer’s behavior? You bet.

(For additional market statistics showing Days on Market, Median Prices and Ask/Sale Ratio, visit our page on STATS)

Don’t Ignore Seasonality

While no one knows what the future holds, you can look to repeating patterns in the data to help guide you. If your best comp is an October sale and you are listing your home in March, be more aggressive. Also, do not expect to have the results of April if you are bringing you home to the market it September.

The bottom line is pricing is complex and cannot be distilled into a 3 home analysis. Without looking at timing, you are making an important decision but basing it on incomplete information.

2014 Outlook for Richmond VA Real Estate

January 3, 2014 By Rick Jarvis

2013 was ________ (amazing, as expected, good, bad, awful, medium, depressing, record-breaking, thankfully behind us, the year it got better, other)…I have heard them all.

Depending on who you spoke with, any one of those terms/phrases could have been used to describe the year. Some home builders had amazing years…others not so much. Realtors, ditto. Apartment developers had it great, especially in Downtown Richmond. Commercial lenders probably did ok. Mortgage lenders made enough money in the first half of the year to make them think it was 2006 again yet probably thought the last half of the year was more like 2010.

As with almost everything in life, it all depends on your perspective. But since I am writing this on January 3, 2014, I feel as if I need to offer a prediction.

So what will 2014 bring? Lets take a look at the factors which may give us an idea.

Interest Rates

January of 2013 began with 30 year money in the mid-3% range. They stayed there until the spring when they began their gradual climb to their current levels in the mid 4’s. We enter this January with 30 year money at about 4.5% and more significantly, there was not a huge jump when the Fed announced that they would began to curtail their buydown of rates (think QE 1, 2 and 3). That is also a good thing as the market is still a bit fragile and shocks don’t go over well.

Most pundits are predicting a relatively flat year with more upwards pressure than downwards pressure. However, these markets are subject to rapid change and with the Fed no longer throwing money at the problem, the artificial tonic keeping rates down is now gone and the market will rule. While there could be an occasional dip in rates, rates above 5% (or maybe even 6%) are soon to be the new normal and the days of 4% 30 year money will be something we tell our grandchildren.

It should also be noted that more and more of the leverage in the market (which was no where to be found in 08-12) has returned. Lenders have slowly taken a more aggressive stance towards ‘loan to values’ meaning less equity is required to purchase.

The return of leverage is a key to creation of buyers and more buyers means more pressure on inventory.

Inventory

While the official numbers for December are not in yet, they will be very similar (the chart below will auto-refresh to the most recent data but at the time this piece was written, November inventory numbers were the last update.) In November of 2012 and November of 2013, the inventory count of available properties (in the Richmond region) was almost even, showing that slightly above 5,000 homes available ‘For Sale.’ While similar to a year earlier, this does not really tell the whole story. In 2013, the inventory count barely rose as the demand for housing exceeded the previous year’s demand significantly. For the most part, inventory levels in 2013 were at a multi-decade low and 50% below the peaks of 2009.

If demand is similar or exceeds the levels of last spring, inventory shortages will be even more extreme and the accompanying conditions (short marketing times, multiple offers) will be even more prevalent than in spring of ’13. These conditions came as a shock to much of the buying public and caused many to miss out on opportunities.

It should be noted that leading edge web traffic counts are currently trending anywhere from 12-18% above this time last year.

Other Indexes

The Dow began ’13 at 13,000…it begins ’14 closer to 16,500.
The NASDAQ began ’13 just over 3,000…it begins ’14 just over 4,000. As a matter of a fact, in 2007, the NASDAQ topped out at just under 3,000…meaning the market is already back above where it was before the crash.

While it is simplistic (and dangerous) to draw too many conclusions about housing demand from stock indexes, it does indicate an expectation by Wall Street that the country’s economy is in a better condition than a year ago. As confidence increases, people feel more and more comfortable with making commitments.

Another interesting note is the S and P Homebuilders Select Industry Index change in the past 12 months.

In 2013, it rose by 20%, indicating that Wall Street felt pretty good about owning the stocks of the national home builders. These feelings are primarily due to the historically low inventory levels and the fact that lot production has dropped even more significantly than the production of new homes. Lot production will be one of the next issues the market will have to address as the lead time on a new lot is 12-18 months.

Summary

Overall, the pressures on housing are largely (and strongly) positive with historically low rates and tight inventory.

While the interest rates have risen, compared to historical norms, they are still ridiculously low. Almost all of the national economic predictions are indicating a 5% increase in house prices. When you look at the conditions locally, it could be even greater as the supply of housing is restricted by factors that do not exist in many other markets. Those who wish to enter the market in 2014 need to be cognizant of the fact that selection, especially in mature or fixed areas will be low and any opportunity to purchase a quality home should be taken very seriously.

Citizen 6 New Homes in Richmond VA

December 30, 2013 By Rick Jarvis

I have long held the belief that the best real estate developments are ‘about something.’ The Citizen 6 Project is certainly ‘about something.’

A development can be about location, design, size, views, layouts, schools, neighborhood, proximity, affordability, exclusivity, history or any other number of reasons. The best ones appeal to a specific segment of the market very powerfully and the poor ones do not. Those which hold value the longest are also the ones who appeal to their market in a superlative way.

The Citizen 6 project is a group of six new homes built along Floyd Avenue in the Fan district of Richmond VA. Located along the 2600 block of Floyd, near the Virginia Museum of Fine Arts and Carytown, Citizen 6 offers its owners an amazing combination of attributes sure to make this powerful contributor to Richmond’s real estate landscape for decades.

< Download the Brochure here >

The first thing you notice is the look of the homes. Professionally designed with a decidedly modern aesthetic, the homes of Citizen 6 will be recognizable by all. Richmond’s architecture, especially in our older neighborhoods, is generally traditional period architecture. One of Richmond’s most talented architects was enlisted to ensure that Citizen 6’s striking and sleek exterior envelope will both contrast and compliment the existing housing stock of such an important Richmond neighborhood.

For developers, it is hard to find opportunities to develop in neighborhoods where development is not pioneering. Most redevelopment occurs in areas where redevelopment is needed due to blight or obsolescence. For Citizen 6, this is exactly the opposite. The site was underutilized and replacing a vacant parking lot and small ‘non-period’ office building with 6 new homes was a far higher use of the property. The fact that this site is located a mere 4 blocks from both Carytown and The VMFA, as well as so many other amenities inherent in the Fan means that the new residents will be met with one of Richmond’s most pedestrian-friendly neighborhoods on the day they move in, not years or decades later.

Lastly, the ability to own a new home, with the latest technologies and materials is many’s dream. It is rare to find new construction in a neighborhood whose average home is approximately 100 years old. Citizen 6 offers precisely that – the best in materials and techniques in and amongst the best amenities a century old neighborhood can provide.

While the reasons listed above are important, there are other reasons why Citizen 6 is important. The appeal of the modern design, the open and flowing interiors, the first and floor master suites, off street parking, the potential for Floyd Avenue to become a ‘Bicycle Boulevard’ and the responsible/green building methods are some others.

We are pretty excited to be a part of the project.

The Importance of Being Earnest

Here are links to the other articles in this series about Lender Letters:

Why is the Lender Letter Needed?

Here are links to the other articles in this series about Lender Letters: