Understanding the appraisal

In this article, I’d like to share with you about one of the most important steps in a home sale where a lender is involed – the appraisal.

If you’ve been following my articles over this past year, then you already know our region – the Great Smoky Mountains, including Pigeon Forge, Gatlinburg, Sevierville, and the surrounding communities – are in a season of very low inventory for property sales. This is especially true of our rental and vacation cabin market. As a result, the values of these properties have increased and the market for vacation and rental cabins has climbed steadily over the last couple of years at a rate that has outpaced lender appraisal values.

Appraising the value of a property can be one of the most challenging, and probably the most stressful, aspect of the process for buyers in a market where appraisal values don’t reflect where the market is at in terms of purchase value. This is mostly because lender appraisers are looking at the value of the property in a different way than everyone else, and with a different purpose. The purpose of a lender appraisal is to determine how much the lender can sell the property for in the event of a foreclosure. So even though the buyer is paying for the appraisal, the appraiser making the determination is actually working for the lender.

Appraisal is an art, not a science

As you know, when a foreclosure is put up for sale by a lender, it’s not priced at the market value. It’s priced below the market value because the financial institution is just trying to recoup as much as they can get for the property. So appraisers have to work from that angle in determining the appraisal value for the lender, and they have to follow specific restrictions. They have to find comparable sold listings within the last 3 to 6 months. If the property is in a subdivision or resort, they must use sold properties from that particular location. Obviously, appraisers can’t go into homes that were sold and take a look around. So the most efficient method for them is to look at closed listings in the association MLS, tax records, and any photos that are included with the closed listing report. It’s a difficult job, especially when you begin to understand some of the problems with doing it this way.

First of all, the reports don’t always accurately reflect the condition of the property. Rarely do tax records identify updates to the interior of the property. Sometimes the square footage is recorded incorrectly. The cabin could be smaller or larger inside than the tax record indicates. Regarding MLS records, the photos may be out of date. That pristine looking cabin exterior in the front photo could have been taken a week after it was built… 10 years ago. Today it might be full of bee holes and in serious need of a new staining. So of course it sold two months ago for $15,000 less than the one you’ve made an offer on where the one you want to buy today has been well taken care of and doesn’t need any major updating.

Appraisers also are required to look at square footage differently than the average buyer or seller. A lot of times, people look at the total square footage to determine how big the cabin is. Even when these numbers are correct in the written record, what the lender’s appraiser is looking for is how much is “above grade” and how much is “below grade.” So maybe you picked out a cabin that has a total of 2,000 square feet, but the appraiser who looks at it notices the cabin square footage is perfectly split between two levels. So, the 1,000 square feet above the mountain’s edge in that hypothetical cabin is considered above grade and worth more than the downstairs – even when that lower level has a window facing the perfect mountain view. Any level of the cabin that is 1 foot below ground is considered basement.

So that’s how the appraiser works through the process. In my next article, I’ll share some ways you can handle an appraisal that might come in below the offer price.

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Buying property in a sellers’ market

We – like many communities around the country – are in a sellers’ market.
If you’ve discovered that finding the perfect vacation cabin or second home in the Smokies hasn’t been the dream you imagined this year, don’t fret – you aren’t alone.

We have had a shortage of properties for sale this year. Even now, there are only about 1,000 active market listings for sale in our local Great Smoky Mountains MLS association. At the same time, we have seen our number of buyers increase, but with less properties to consider, it’s definitely driven the demand, and the sales prices, up.

Winning the bid for the cabin in a seller's market isn't easy.However, if you’ve found a property your heart is set on, there’s hope. There are things you can do and ways you can approach the seller with an offer that will make them choose yours over everyone else’s. Here are few ways you can make the successful bid.

Be prepared to go above the asking price. This is just the reality in a sellers’ market. When supply isn’t keeping up with demand, the market value – what someone is willing to pay – inevitably goes up. We’ve seen a number of properties on the market sell for an amount above asking price, particularly when the property is in what agents will call a “multiple offer” situation. This is where the seller has received more than one offer, and instructed the agent to give all of the people making offers the chance to submit the very best offer they can within a set amount of time (usually a day or two). So if you had offered a little less than asking but someone else offered asking price or even just a couple of thousand dollars more, it’s more likely they will take that bid over yours.

Do anything you can to make your offer the most appealing. Going above asking price, particularly in a multiple offer situation, isn’t a guarantee you will win the bid. What matters the most is which offer looks to have the strongest chance of making it to closing. Can you buy the property with cash? If you can, that is usually the offer that will win. If not, then you will need to consider some other ways to make the offer more appealing. Get prequalified with a lender who will provide a letter. These days, lenders can get prequalification within five minutes, and most have an app where you can do it from the ease of your cell phone. Have a larger down payment or offer a higher escrow. Agree to take the property “as-is.” “As-is” is a real thing that happens frequently these days, but it doesn’t mean you’re stuck with the property if there’s something seriously wrong. You can still order a home inspection and go through the normal procedures, and if your inspector finds a problem that the two parties can’t resolve a way to fix, you can still will walk away from the purchase. Most sellers and their agents understand that if it is a serious issue with the property, it will have to be addressed if you decide not to buy the property after all. So that tends to make the seller a little more open to negotiating the repairs for those types of issues. And lastly…

Don’t wait to make the offer if it’s the one you really want. This is the hardest part of the home search for many buyers. Buying a home or cabin is a big decision and most people, understandably, want to take some time to think on the decision before they make an offer. Impulsive buying really goes against human nature, and rightly so. Unfortunately though, time is of the essence these days. While you’re sleeping on it, someone else is making an offer that could be accepted by the seller. It’s not uncommon for a buyer to miss out on the cabin or home they really want because they didn’t want to make an offer immediately.

The bottom line is, it’s a sellers’ market and will continue to be so for the foreseeable future.

Going into the home search with that understanding in mind will make the process of finding a home in a sellers’ market much less stressful for you and give you the edge in making the best, most attractive offer you can in order to win the bid for the home or cabin you really want.

Make this 2-bedroom cabin your vacation home

For our March “House of the Month,” we’ve selected this beautiful 2-bedroom cabin in Parkside Village.

2-bedroom cabinNow you can own your own perfect getaway with this cozy two bedroom and two bath cabin smack dab in the center of Wears Valley! It’s located just minutes from town and offers easy access to either Townsend or the National Park. This is a mountain lover’s dream!

Well maintained and newly stained, this 2-bedroom cabin’s open floor plan will offer you the chance to relax with family and friends or enjoy a nice game of pool in the downstairs game room.

You can learn more about this 2-bedroom cabin here.

Turn this into your cash-flow nest egg today! Contact me at 865-765-6157 or call my support line at 865-654-2111 to visit this 2-bedroom cabin.

Buying smart as a real estate investor

The most common type of phone call we receive from buyers looking for real estate in our market usually starts out something like, “I’ve never really owned vacation rentals before but I want to buy one with great rental history!”

real estateI always tell them, “Awesome, you want to become an investor! I can definitely help you with that!”

The conversation then turns to identifying what exactly they are looking for in an investment property and what their budget is for buying real estate. Once we have those parameters figured out, the next point to focus on is understanding what their long term plans are with buying real estate. Always be looking for real estate property with the expectation that you will sell at some point.  This is the first, most important step in the process of buying real estate. We have found that it is fairly common for investment cabin owners to relist their cabins within five or so years.  Either their investment strategies evolve leading them to buy other cabins or to invest in other ideas, or life happens and their focus on where they want to spend their investment dollars changes. So, always buy with the sale in mind. What does that mean? Well, it means there are several criteria you want to do your best to meet as you search for the best investment.

  1. It’s got to be in a great location. Location is everything, as I’m sure you know. You’ve got to buy something in a great location. You can change almost anything about a home but you can’t change the location. You can’t move a house if it’s in a bad location. So how do we define “great location?” Well, in the Smokies, a great location is generally something that has a beautiful view of the mountains, is close to attractions, and is relatively peaceful. If your investment property doesn’t meet at least some of those criteria, it had better offer something incredibly unique that renters will find appealing.
  2. Buy the lowest priced property of the best quality on the block. You definitely don’t want to own the most expensive home or cabin in the resort, and the reason is this: when you get ready to sell, you will have a hard time getting that piece of real estate to appraise for what you want from it. Appraisers look at similar properties in the same area of the property for sale as much as possible, and often times a property that is priced higher than the ones around it sold for has trouble getting approval for the price you are being offered. Without an appraiser’s stamp, a lender won’t be able to authorize the deal unless the buyer is willing to pay the difference up front. Most buyers using a lender usually can’t (or won’t). By going after something that is less expensive, you have enough room to maneuver as it appreciates in value.
  3. Buy as high quality of property as you can afford. People are always looking for the best deal, and I personally love helping them finding someone else’s mistake that they can turn into a win. But even with that goal it’s important to remember that the cheaper something is, the more you will have to spend to turn it into a gold mine. You want to buy real estate property with good bones that will hold up better without much maintenance. On that subject, don’t buy something with an outdated, obsolete floor plan. You want to buy something that can be changed to keep up with the interior design trends. So buy something with potential to be great without having to completely rebuild from scratch.

Remember, the goal in real estate investing is to make money with the property, both on the front end over the years as you rent it and on the back end when you sell it for a profit. If you’re not striving to reach those two goals, it might be someone else buying your mistake instead!

Next month, I’ll take you through some of the strategies I encourage my buyers to use once they’ve found the “diamond in the rough” so that remodeling the home increases their profits rather than cutting into it.

In the meantime, if you have any questions about the local real estate market, my team and I are always here to help and answer questions.

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Whether you’re buying or selling, the time to get started is now

If you’ve been thinking about buying or selling your home or cabin, now is the time  – whichever side of the process you are on.

buying or sellingFor sellers, it’s the right time to sell because you can ask for a higher price these days. The number of properties – including homes and vacation/rental cabins – is low, creating a market where those properties that are priced competitively will sell for very close to asking price and very quickly, too. It has also meant an increase in sales prices as people are willing to offer more to get the home they want and face a greater number of buyers competing for less inventory. We’ve seen properties with offers on them within as little as three days of being listed, and usually at or above the asking price of the cabin or home.

For buyers, it’s the right time to buy because interest rates are still relatively low and down payment terms are reasonable. If you are considering a cabin as a second home property, you should also talk with your accountant because it’s been reported that second homes are still eligible for some tax deductions that were removed from other types of home ownership in the tax bill the federal government adopted at the end of 2017. National outlets such as realtor.com are telling us to expect the rates to reach 5 percent before the end of the year, so the longer you wait, the more it may cost you in the long run. Of course, buyers who are working with lenders are getting some tough competition from buyers who are willing to bring cash to the table, so that’s something to keep in mind when making an offer on a home or cabin.

If you’re a buyer, another thing to consider is that homes are continuing to increase in value. So, if you wait another year, you’re going to pay more for the same square feet or the same house than you would right now. However, you don’t want to panic or settle for something that you don’t love, but waiting to start the search isn’t a good idea.

If you’re preparing for the process of buying or selling and want to learn more about the local market, need help determining the value of your property in order to sell it for the most appropriate price, or need help finding the best second home/investment cabin to buy, we are here to answer any questions you may have.

Your Sevierville dream home is waiting!

This custom built one of a kind upscale log and brick dream home provides stunning mountain views of the Smoky Mountain National Park! This dream home is inspired by the natural wonders of the surrounding area with its grand logs and handcrafted finishes throughout.

dream home

Nestled on more than 12 acres, it is the perfect retirement home, second/vacation home, or overnight rental! With three bedrooms, two full baths and two half baths, this nearly 4,000 square foot home utilizes a large open floor plan encompassing a great room with kitchen and dining areas perfect for hosting guests and family. You will be dazzled by the gorgeous wood floors, tongue and groove throughout, custom build all brick fireplace, hand carved wood, and cathedral ceilings with wall of glass. The custom kitchen has stainless steel appliances, striking artistic solid wood bar top, granite counters, custom cabinet finishes, large pantry closet, and tree rack to display all of your mugs! Enjoy your morning coffee in the dining area while taking in the views or take a step right out onto your over-sized back deck to experience all of the peace and quiet nature has to offer.  The master suite with fireplace perfect to cozy up to on those cold nights, jetted tub and shower, walk in closet, and private entry to laundry.

All of this home’s bedrooms are on the main floor, leaving the roughly 1,000 square foot basement the perfect place to entertain yourselves! Take a trip downstairs to your very own cinema – a fantastic state of the art theater! You will love the workshop with room for all of your tools and plenty of space to work in could also be a game room. This property has been meticulously maintained and is truly turn key ready! Though located in a private setting, you’re just minutes from Highway 66 and 10 minutes from the businesses, entertainment, and fun that our region has to offer!
You can view more details about this dream home here.

To schedule a visit to see this dream home, call me at 865-765-6157 or my support line at 865-654-2111.

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Sky Harbor ranch home could be a perfect vacation getaway

For our featured “House of the Month,” we’ve chosen this wood-sided ranch home.

ranch homeThis beautiful three bedroom, two bath ranch home located in Sky Harbor is the perfect place for a vacation home! With its open concept floor plan, this more than 1,700 square foot house encompasses the living, dinning kitchen and game room with beautiful handcrafted wood fireplace to center the great room.  You and your guests will enjoy the full size pool table with bar and entertainment area. Outside, you can enjoy the privacy of the deck as you relax in the hot tub or have supper inside the screened-in porch.
To learn more about this ranch home, click here.

To schedule a visit to see this ranch home in Sky Harbor, call me at 865-765-6157 or my support line at 865-654-2111.

New home near downtown Sevierville, Gatlinburg

This immaculate new home in Sevierville is our featured “House of the Month.”

If you are looking for a home near the Smokies to move into, you won’t want to miss seeing this 3-bedroom, 2-bath all brick new home built new homejust last year!
This new home has all the latest upgrades and is move in ready! Outside, the lot’s landscaping is decorated with plants native to Tennessee! Inside, the meticulously maintained with dark wood look laminate floors throughout home, the gorgeous granite counter tops, and stainless appliances in kitchen create the perfect “at-home” feeling. The home’s high ceilings and open concept floor plan is perfect for entertaining family and friends.
The downstairs area provides for the perfect man cave, at home gym, second den, or room for your next large project! The large over-sized 2 car garage and work space perfect for all your tools!
Best of all, this home is close to downtown Sevierville and just 15 minutes from Gatlinburg!
You can view more details about this home here.

To learn more, or to schedule a visit at this new home, call me at 865-765-6157 or my support line at 865-654-2111.

Cabin, home values continue to rise in the Smokies

Almost a year ago, our region was devastated by wildfires that began in the Great Smoky Mountains National Park, and swept across our local communities. Since then we’ve been working to rebuild, but we still have a long way to go. The December fires that destroyed hundreds of homes and cabins and cleared property of trees have also caused home values to increase.

Where we are with home values

As we approach the last quarter of 2017, we continue to have a shortage in available real estate listings in our market. This shortage is driven largely by the result of the fires, but also as a result of having a larger pool of buyers than sellers. We have seen a shift from a buyer’s market to a sellers’ market. This means that home values have continued to rise. The overall increase has been around 16 percent, but there are pockets of appreciation that are much higher – even up to 30 percent. Properties with higher increases in sales price include highly sought after cabins, places full of amenities, homes and cabins with amazing mountain views, and new construction projects.

With the rapidly changing real estate market, we’ve begun to experience a bit of crisis with appraisals. When an appraiser considers a home’s value, one of the most important components in the comparison is the sales price of similar properties. However, as prices rise, yesterday’s sold “comparables” went for less than what a buyer is willing to pay today. That means that appraisers have the unhappy job of finding something whose home value directly compares with what is being appraised in a very short time period. This is a very difficult task. However many buyers understand the nature of this situation and have been willing to pay over the “appraised” value. They are confident that what they are buying is worth the price they are paying. Usually they are confident because they have lost several contracts to more aggressive buyers who were willing to bid over the asking price.

This can be very disconcerting to conservative buyers who find it difficult to push past yesterday’s home values. It is also difficult if they purchased a home or cabin in the last few years when buyers were king. Foreclosures and short sales were plentiful and you always offered less than list price and most of the time won the contract. For us in the Great Smoky Mountains market, those days are again behind us – and will hopefully remain so.

Where we’re going with home values

While currently the purchase of an older home or cabin is still less than the cost of building a new one, my expectation is that we will see prices continue to rise into 2018 until we reach a place that the new construction and the older property values meet.

Despite an increase in home values, building is still more expensive than buying.This brings me to what is happening with those who lost homes in the December fire. The first thing we saw was a group of buyers entering the market to repurchase what was lost as soon as they were able to settle with their insurance company. Most buyers reported very cooperative insurance companies and had very positive experiences. They repurchased home and investment cabins in the first quarter of 2017 and have settled in. However, there were many home owners and many more cabin owners who waited to decide whether to build back or buy again. They have now settled with their insurance company and have gotten quotes to rebuild. They have run into some various obstacles to building, though. Some found they were underinsured, while others learned the cost of building is much higher than they expected. For still others, the lot is not as desirable as it once was because what made it attractive was burned, whether that is the natural landscape around the cabin or a popular locale, and may not return for a number of years. Hardest of all for some cabin owners was the discovery that the home they had now falls under new code upgrades making the home either very expensive to be rebuilt to meet those codes, or unable to be built because it wouldn’t be in compliance at all. Therefore, we have a new group of buyers who are entering the market. These buyers have been a part of pushing the inventory down and the prices up.

What does this mean for sellers and buyers? It makes it a good time to sell, as home values are higher and competition is less. Will prices continue to rise? I think so. But they may slow down after this wave of buyers. So if you’re a buyer planning on purchasing within the next two years I would recommend speeding it up. Go ahead and try to lock down what you desire, though you should not panic! Wait for the right property but don’t be so picky and drag your feet that you end up paying 30 percent more in a year from now. Try to keep in mind that no property is perfect. There are always compromises… just like with life.

I love the quote I brought home the other day, “your life doesn’t have to be perfect to be wonderful!” It’s true of your life and true of property!

As always, we are here to help at any time with any of your real estate questions or concerns.