Why Price Isn’t Everything

Charlotte’s real estate market is nutty right now and with very little inventory on the market the chances of a home going into a multiple offers situation is exponentially higher. Especially in price points under 350k, where first time homebuyers are up against investors with deep pockets, all-cash offers, homes on the market only a day (if getting on-market at all) and general real estate debauchery.

Multiple offers. Highest and Best. What does it all really mean for the average homebuyer? Maybe not quite what you think. There’s a lot that goes into a seller selecting an offer from a pile of eager buyers, and it’s not just who offers the highest price (but yes, that’s important too).

Type of Financing

The type of financing that a buyer has can have vast implications when it comes to getting the transaction through to the closing table. FHA and VA loans are guaranteed by the government, but they also require more stringent approval processes. And because they are government-backed these processes can move slower and be more difficult to navigate. Down payment assistance programs can be another caveat within the process. A buyer would be silly not to take free money, but when that money comes with strings and stress for the seller, it might be best foregoing that money with our current market.

Buyer Liquidity aka money in the bank

Buyer liquidity is a natural extension of financing. Certain financing is geared towards helping buyers that don’t have much money to put down on a home. For example, there are VA loans that are 100% financed loans, so the buyer is bringing no money to closing. That’s great for the buyer, but what if the home doesn’t appraise up to the purchase price that’s written on the contract? The lender is only going to lend up to the appraisal price (aka what the home is “worth” in the eyes of the lender) so if the seller knows that the buyers aren’t bringing money for a down payment (or aren’t bringing much) then the likelihood is high that buyers won’t have cash to bring to cover the difference in the appraisal and purchase price. If this can’t get figured out in a timely manner then the buyer will have to terminate the contract.

Which brings us to…

Due Diligence and Earnest Money Deposits

If a buyer needs to terminate a contract the money that they have on the line is their Due Diligence money and potentially their Earnest Money. Whether or not they lose Earnest Money is dependent on when they terminate the contract (during or after the due diligence period) and certain types of financing require the buyer to receive their Earnest Money back if the home does not appraise for the purchase price (I’m talking about FHA and VA loans here).

If any of these termination scenarios were to occur, would the DD and EMD received from the buyer really be enough to compensate for the lost time and the seller having to go back to square one in selling their property? Riskier financing means more DD and EMD is needed to entice the seller to take a chance on the buyer.

Closing Date

Depending on the moving situation that the seller may be in, they may want to move very-very quickly and be done with the sale or they may want to stay in the house a few extra days or weeks to make the move-out process smoother. This can also lead in to the discussion of seller possession after closing. If, for example, the seller needs to sell their home to put money towards a new construction home they’re building they may need to close soon but then they don’t have a place to live until their home is completed and ready for move-in. A closing with seller possession after closing, also known as renting back a house after the sale, may be very-very important to the sellers. There are liability issues with the seller staying in a home they do not own for a period of time, so if this is something you’re interested in doing or offering, make sure you understand what could go wrong.

Buyer and Agent Requests

For the buyer this means other things that are requested as part of the contract. Usually it’s requesting the seller to pay a portion of the buyer’s closing costs, leaving personal property behind like a fridge, washer or dryer, or paying for a one-year home warranty for the buyer.

Requesting closing costs reduces the overall amount of money that the seller receives from the sale, and sellers don’t really like less money. Also, such a request tells the listing agent that the buyer is likely already strapped for cash because they need help paying their closing costs. It’s important to note that closing costs can’t really be financed as part of your loan amount, someone needs to pay them at the closing table. If those expenses are already tough for the buyer to cover are they really going to have money to cover an issue if the home doesn’t appraise? Likely not.

Another thing that goes into decision-making is how the buyer’s agent conducts themselves. I know, it doesn’t sound fair to be judged by someone else’s actions, but if that person is representing you and they aren’t conducting themselves in a professional manner then that’s a problem. If a seller receives two largely identical offers but one has a knowledgeable, communicative, and courteous agent and the other has a trainwreck of an agent, I have to tell the seller because it could impact the buyer’s ability to get things done in a timely and accurate manner, which could cause the buyer to need to terminate the sale.

Seller Preferences. Maybe.

This is where things turn into a grey area. It’s common practice these days for buyers to write personal letters to the sellers explaining why they love the house and why they should choose their offer over any other. Depending on the seller these may work, or they may backfire, so if you’re the buyer be careful! I had a client going through a messy divorce and they got a ton of letters explaining how the buyers saw themselves building their family with their spouse in the home. It was hard to read knowing the circumstances of the seller, who had also planned to grow their family in the home, but life ended up much different than they had expected.

I had another client who got their offer accepted because both the buyer and the seller were veterans. The seller felt so strongly about supporting a fellow veteran that they took a more-difficult VA loan as opposed to a conventional loan.

Seller preferences can get sticky if their preferences could appear to be a violation of fair housing laws. Choices based on the buyer’s race, gender, family status, etc. are highly discouraged by real estate professionals so we’ll try to keep these details out of the discussion if at all possible. When I talk to a seller about selecting an offer and personal details about the buyer are invovled in the submission I forewarn the seller than I will remove photos or information that could violate fair housing. If this is a problem for the seller then we have another issue entirely.

New Construction… Now What?

The purchase of a new construction home is exciting, with lots of time for anticipation of moving in to your new home. It feels like the builder rep becomes your new best friend, you get to pick out your packages and upgrades so everything can reflect your style (if the home isn’t already built or spec’d of course!), so with all of the excitement it’s important to keep in mind that there are pitfalls that you’ll want to avoid along the way.

Builder-Specific Contracts

Most if not all builders in the area use their own purchase contract forms. Why? Because it allows them to closely control the process, while being very forgiving to the builder and not very friendly towards the homebuyer. Example, there’s often a clause that the builder can delay construction for any reason and must simply begin the construction process on your lot within one year. That does not read that they’ll hand over a fully constructed home in one year, but merely start the build in one year. Regardless of when they tell you that the expected completion date is.

It’s extremely important to know and understand the contract terms that you’re signing and what your rights are if something goes wrong. Many builder contracts mandate the use of arbitration instead of legal action in a court of law. It’s important to know what this means before you find that you need to sue the builder. This might seem like something that wouldn’t happen often, but there are some very good lawyers here in Charlotte that spend their days only litigating with residential new home builders.

If you decide that the contract is too skewed in the builder’s favor and don’t want to agree to the contract there is little that you can do to still purchase the home. Using their contract is like the price of admission to the ballpark just to play the game. If you want the house, you will have to take on the risk.

Homeowners Inspections – pre and post drywall

Even if you’re buying your home new, there could still be issues that you would want to be aware of before closing, so I always, always, always recommend having an inspection done. And not just one inspection for new construction but TWO. The first is called a pre-drywall inspection. This is when everything has been framed, utilities have been installed and the walls are just about the be closed up. Having an inspection completed at this point allows the inspector to view areas of concern that are normally hidden behind drywall, meaning that they can see more potential issues. Just because a home is new doesn’t mean that it was built correctly, so buyer beware.

Once everything is completed I recommend having a traditional homeowners inspection. This is when the inspector will go through and look at everything they can to ensure it was built the way that it should’ve been. They will also find things like loose door molding and other random things that you’ll want the builder to fix prior to closing.

Environmental testing

Though a house might be new there’s still good reason to test things like water quality and whether or not the home has high levels of radon gas. Even if a geographical area isn’t know to have issues with radon there are some building materials that may be included in the house that might spike levels and that’s an important thing to know before you move in. Example, granite, though trendy in both kitchens and bathrooms, can be known to emit high levels of radon, so know your stuff and get a test.

First Year Warranty

Many builders will offer a warranty on their homes at the 12 month after closing. The builder will do a walkthrough with the owners and fix anything that may have broken or settled during the first year that you’ve lived there. This is another GREAT time to get a full home inspection. This gives you a full report with issues listed and pictures provided for the builder to then go and fix. I recommend scheduling a home inspection around month 11 so you’re prepared for the builder’s walkthrough. I also recommend keeping a running list of items you corrected taped to the inside of a kitchen cabinet. You might forget about that kitchen cabinet that doesn’t close quite right and miss having it fixed without you needing to call a fix-it person.

Sales Process

For builders this is a business, and they treat it as such. They are very savvy, so it’s important that you have someone on your side to represent you and your interests. Plus, it’s good to have someone that understands the builder’s sales process. Sales people have quotas to meet on a monthly and quarterly basis, so sometimes there’s more wiggle-room in the price than people realize. They have a purchase price listed but what they don’t tell you is that they likely have a range of prices they’re willing to accept if it means making a sale. You’ll have more luck negotiating on price if you buy already built inventory home, but if homes are slow to sell they might make an exception if you’re looking to go under contract on a to-be built home. You never know, so ask! And if you have any questions or changes that the sales staff agrees to, be sure to get it all in writing before signing and giving your deposit.

Investor Offers

Charlotte is full of people looking for investment properties, whether it’s to rehab and resell, or to rent out and earn monthly income. It’s tough out there, so investors can be aggressive in finding and purchasing properties. Some will knock on doors and offer cash for a home, others will network to find people who are thinking of listing their home for sale.

Cash offers, sight-unseen, no repairs, quick close. There are definitely up-sides to selling your home to an investor. There are still some things that you’re giving up and some areas to be aware of along the way.

Remember: investors do this all the time. You don’t.

Before entertaining an offer from an investor, know what your house is worth, aka know what recent similar sales in the area closed at. Do your research online, call a few Realtors, and get some price opinions. Be upfront that you’ve already received an offer. Many Realtors will do a full presentation on listing your home including comps to try and win the listing if you elect not to go with the investor offer.

A good Realtor will graciously answer a few quick questions knowing that this is a people business, whether you sell with us or not. Keep in mind that real estate transactions can get very complex without warning, so even though you’ve received an offer it’s still a good idea to hire a Realtor to counsel and represent you in negotiations. If you have more than a quick question or two, I really recommend hiring someone. It won’t be free, but it will be worth it if something goes wrong.

Once you have an approximate idea on what you home is worth, you can better assess an offer from an investor. Some investors will tell homeowners that they’ll pay them the tax value for the home. Know that even though Mecklenburg County increased property assessments last year, this value is still below what a home would sell for on the market. Part of that is because the County struggles to move assessments up too quickly for fear of upsetting taxpayers and these assessments were done months or even years ago, so the value is outdated no matter what. Therefore, the tax value is artificially low and likely outdated, which is great for the investor and not great for the seller who would like to receive the best price.

If the investor is offering to purchase using cash that means that they can likely close quickly and they will not need to get approval from a lender. This means no bank appraisal to worry about and oftentimes a much smoother transaction. Because cash is so quick and much easier to close, they will often offer slightly below value. If you’re looking to close quickly without a lot of fuss, this can be well-worth the decrease in price.

Oftentimes, investors want to purchase a home ‘as is’ because they don’t really care what the condition of the home is. They have a team of people who will fix anything that comes up and quite honestly, they don’t want a homeowner making repairs that they could do cheaper and to their own specifications. This means a little more risk to the investor because they aren’t 100% sure what they’re buying, but it means no repairs to do and that the seller preserves their sale price by not having to compensate a traditional buyer in lieu of needed repairs.

At the end of the day, an investor offer is an offer and it’s important to weigh the pros and cons of the decision, and also to compare to other offers that may come through on the market if you were to list a home traditionally. Just because an offer knocked on your door (in this case, quite literally) doesn’t mean it’s the right one for you and your family. So remember to be as objective as you can in your evaluation, and do what’s best for you, your family and your particular circumstances when evaluating a market offer or an investor offer.

Tax Time is Coming!

It can be daunting to figure out what documents you need to give your CPA or tax preparer in regards to your home, mortgage and real estate investment properties, so I’m here to make your preparation a little bit easier by answering some common questions I get.

Q: I own a house that I live in full-time as my primary residence, what are the basic documents you need each year?

If you have a mortgage, you should get a form 1098 from your mortgage lender showing the total interest that you paid during the year in Box 1. If your lender pays your property taxes on your behalf (aka you ‘escrow’ for your taxes) then your real estate taxes for the year should also be on this form (check out Box 10).

If you handle paying your own property taxes then you’ll also want to locate a copy of your tax bill. If you can’t find the original copy that was mailed to you around September, then you can look it up on the county website by your address.

Q: I bought or sold my house in 2020, do you need anything additional?

Yep! We’ll want a copy of the Closing Disclosure (CD) that you signed at the Closing Attorney’s office when you bought and also when you sold. Your costs to close on the home may be deductible on your taxes whether you are the buyer or the seller in the transaction. Also, depending on when during the year you purchased or sold the home there may be some information relating to the proration of property taxes that we’ll need to take into account when preparing your taxes.

If you sold your home we may ask you for a copy of the CD from when you originally purchased it. This can appear tedious, but please know that if we’re asking for this it’s very-very important. We’re calculating how much gain you earned on the sale of your home. If you sold your home for much more than you originally purchased it for, there are exclusions for the gain with the amount of the exclusion being tied to whether or not you’re married for tax purposes. We may also ask you for a listing of improvements you made to the house during the time that you owned it. These expenses can help to minimize how much of the gain you have to pay taxes on.

Q: I refinanced my house, how does this impact my taxes?

The costs you paid to close on the new loan may be deductible for tax purposes, so please provide a copy of the Closing Disclosure (same as above). If you took out a line of credit (also known as a second mortgage) on your home, the costs to set this up and the interest you pay might be deductible for taxes but only if you used the money to expand or substantially improve your home.

Did you take a LOC on your home to pay off credit card debt or something outside of home improvements? Then it’s not deductible on your taxes.

Q: I have a rental property, what do you need to include it on my taxes?

Assuming that you don’t own the rental property within another entity, the income and expenses will be included on your personal tax return. We’ll want a schedule showing all of your rental revenue and all of the related expenses you paid for the property during the year.

If you made any improvements or repairs that cost over approximately $500 and have a useful life greater than one year, (for example: a kitchen remodel, a new furnace, new roof, etc.) we’ll want a listing of those items and amounts paid as well. Instead of claiming the expense deduction all in one year, we will claim the expense ratably over the next few years that you theoretically use the improvement.

Q: I currently rent, does this impact my taxes?

Nope, renting does not give you any tax benefits. There are no writeoffs for renters like there are for people who own their home. This could be a really good reason to look into buying a home instead of dealing with increasing rental prices on a yearly basis.

Q: I have a question about real estate and taxes that you didn’t answer here. What do I do?

Reach out to your tax professional or shoot me an email at erincoffey@kw.com I will try to answer general questions as best I can. Please note that anything I say here is not to be construed as tax advice. If you have a question about your specific tax situation it’s best to reach out to someone who has all of your details, I’m only discussing general ideas and information here.

Broken Hearted

I’ve been going back and forth for the past few days about whether or not I would write about this here, and ultimately I’ve decided that this space is here for me to be a multifaceted and dynamic human with personal heartbreak and struggles behind my professional persona. As humans we bond through the common ground of our imperfections and our struggles, not our perfectly-curated social media lives. Isn’t it odd that we spend so much time stressing over perfection when it isn’t what brings us together in support of one another?

I’ve known for some time now that I would soon be losing Snoop Dog, my beloved Italian Greyhound that I’ve had since I was 19 years old. Knowing that a loss is coming doesn’t make it any easier to handle. On Sunday, the day I had been dreading came true and things moved much quicker than I had anticipated.

I thought that I would have control over timing and saying goodbye, but I didn’t. At 11am with him wrapped in our favorite blanket, laying next to me in bed as I made one of a million different phone calls of the day, Snoop stopped breathing and my world came to a crashing halt.

Snoop has been the constant presence in my daily life for over 15 years. Since picking him up from the breeder at 12 weeks old, he has been connected to me at the hip, usually quite literally. He has been my stage 5 clinger, best friend, cuddle buddy, partner in crime, chief invader of personal space, bed warmer, blanket stealer, the list can go on and on. He was the unwavering emotional support as I walked through the good and the bad of my life. I thank him every day for watching over me as I battled the most difficult depression of my life as I lost myself and my marriage, to then stand alongside me as I built myself back up again piece by piece. He was the only one with me each day and each moment in a little downstairs apartment in Asheville as the deepest, darkest emotions took hold of me and all I could concentrate on was continuing to breathe in and then back out again. He was the one thing that I brought from my old life in Rochester to my new life here in Charlotte.

Anyone who knew Snoop, knew that he was so much more than a dog. He was a feisty ball of energy that would make sure I knew his feelings on everything and everyone that we encountered. He had a huge personality and he always stood his ground. He knew how to joke and be silly, and always made me laugh. He loved a good puzzle but would only perform tasks for treats, and even then they needed to be good ones. If they weren’t up to par he would let me know. He was the only dog I’ve known that could be passive aggressive when he didn’t get his way and it cracked me up. Every. Single. Day.

Last year as I noticed his physical decline I got him his very own pitbull. He was NOT happy about it and he let it be known until he realized 1- she’s soft and warm to cuddle with, 2- he could boss her around and 3- she came into our lives to takeover as my canine caretaker. He no longer had to push himself to keep a close eye on me and make sure that I was ok. She took over as my shadow as I worked on projects at my home, became my hiking buddy and my protector from fierce predators like the Amazon delivery guy and any man who dared to take me on a date.

Words cannot begin to describe how much I miss my guy and the vast impact he’s had on me and my daily routine. Even the simplest task of opening the fridge door to make breakfast has ended tearfully as he would’ve been right under-foot letting me know that he was present and ready to steal anything that he could possibly reach out of the deli drawer. It has only been a few days, but I know that this sadness will be lingering. I miss my guy and I miss the joy he brought to our home.

Rest peacefully Mr. Man, until we meet again.