“Desktop Valuations” are a quick way to look at the potential value of a home, but they do not take many factors into consideration, and some of the things they DO use to determine a value should not be used!

I answer questions on the Zillow site, and so many times the questions come from a place of, “Why, in my townhouse community where the houses are very much the same, is my neighbor’s worth $XXX and mine is worth $45,000 less despite mine being an end unit with an additional bump-out?”

That is a very good question, and one that doesn’t have a good answer. The algorithm takes into account the taxes you pay and when the house last changed hands. If a house hasn’t changed hands in some time, the taxes generally are lower, and that would bring the “value” of that house down. That just doesn’t seem right, does it?

Next to this is an example of the “range” of value for one house I found. If a professional real estate agent walked into your house and told you they thought it might sell for somewhere between $391,000 and $740,000, would you feel comfortable that the agent knew your market?

How about the houses “for sale nearby.” Do these look like they belong together as a picture of a particular Towson community to you? They seem to be a random selection of homes that happen to be in the same zip code.

The biggest issue is the quality of the Baltimore Zestimates.

As you can see here, Baltimore Zestimates are within 5% of an actual sales price only 42.6% of the time. They are within 10% of an actual sales price 66.4% of the time. They are within 20% of a sales price 83% of the time. These are with a median error of 6.1%.

Think about what that means.

On a $400,000 sales price, the Zestimate may show $380,000 or $420,000 — but again, that is only 42.6% of the time.

To get above 50%, you have to go within 10% of the actual sales price. So on that same $400,000 house, a Zestimate 66.4% of the time will be from $360,000-440,000.

To get to the closer 83%, you have to bring that out to 20% of a sales price. That could drop the Zestimate down to $320,000. Would you as a Baltimore seller be happy with that if your house were truly worth $400,000? How about a homebuyer? Would a Baltimore homebuyer be happy to pay $480,000 for a house that is really worth $400,000? Probably not. And the buyer’s mortgage company most likely wouldn’t let it happen, because an actual appraisal would most likely be close to the true market value of $400,000.

And don’t forget — that is with a median error of 6.1%, or approximately $24,000 give-or-take, on that $400,000 house.

Real estate everywhere is LOCAL. Hyper-local even.

Baltimore real estate values can be different street-by-street!

For a true understanding of your house’s value, don’t count on automated valuation websites. Contact me for a true idea of you Baltimore house value. I’d love to help!

Would you like to know more and see additional Zillow issues in the Baltimore area? See my past posts on incorrect Towson Zillow Zestimates for details.

A home inspection, usually, is a VISUAL inspection of a property, running water & systems when they can be run.

What does that mean?

It means that the inspector can’t break through walls, can’t take things off or apart, or ruin the house in any way. He or she will often take the cover off of the electrical panel to inspect that the wiring is correct in there. He or she will generally go around the outside of a house to evaluate if water is running away or toward the house. If the washer and dryer are staying, and the water is on, the inspector generally runs them to see if it runs.

In general, things the inspector can SEE are checked. Dishwashers, stoves, exterior foundation, pipes that can be seen, walls that can be seen, and electrical outlets are often tested.

What can’t an inspector do? See in the walls or under ground, or remove a wall or floor to see behind. It makes it hard to see if there are problems behind them. Are there leaks in the pipes in the walls or under ground? If he or she can’t see them, it is hard for them to discover.

Roofs are an issue that come up often — what is the age? What is the life expectancy? Unless the actual age is known, the inspector most likely cannot determine exactly how long the roof will last. He or she can make estimate ranges based on what he or she sees.

A home inspector does not always walk on the roof. There are many slate roofs in Baltimore, and, in general, slate roofs are not walked on for fear of breaking the tiles. An inspector can look at it with high powered binoculars, but many inspectors also do not specialize in slate roofs.

If the pitch of the roof is too high for the ladders the inspector has, he or she also won’t be able to walk on the roof. Again, high-powered binoculars can be used to assess the condition of the roof.

The chimney is an item that may or may not be covered in a home inspection. It may depend on the type of chimney and how much of the chimney the inspector can see. The inspector can note if he or she sees loose bricks, mortar, or a lack of cover.

Some inspectors have additional tools and specialities, or you may be able to hire additional specialists for a more comprehensive look at some components of a house.

Again, to recap, a home inspection usually is a visual inspection of a house. Home inspectors in Maryland should be licensed, and your copy of the inspection or contract may have that information.

For more details about buying a house in Baltimore, I’m here to help!

Photo courtesy of justinbaeder via Flicker CC

According to a Washington Post rundown of the changes, a major one is the “spot approval” that used to be acceptable to be eligible for an FHA loan. Another article goes more in depth on the issues this is causing for condo home sellers.

The agency eliminated spot approval earlier this year. Now, any condo buyer with an FHA loan must stick to an FHA-approved building. A lender, developer/builder, homeowners association or management company can submit a package to the FHA seeking approval. The change was part of a broader initiative to tighten FHA condo policy. Some elements of that initiative have been temporarily loosened through Dec. 31 to try to stabilize the condo market.Why? Condos are widely considered the market’s shakiest segment because they are popular with speculators and financially vulnerable entry-level buyers. A lot of foreclosure-related losses have come from condos, which is why industry policies have forced lenders to look more closely at the makeup of entire complexes before extending loans.

Without that FHA approval, it ties the hands of many buyers, as most would then need more money for a downpayment, which they may not have.

I did a quick spot check on Timonium condos on the HUD site where you can review FHA condo approval statuses. I was sad to see how many had expired, leaving any sellers in those buildings at a disadvantage! Of the 23 Timonium condo communities that came up when I searched 21093, 16 of them have expired. Here is a pdf of the Timonium FHA condo statuses as of today.

I have written much about the FHA Condo Recertifications, because we have so many Timonium condos that are now affected by these changes.

This is not good news, and I hope that the associations are working toward their re-certifications, though I understand across the US that many have tried and been denied over technicalities or other issues, and that the penalty for a director providing incorrect information (even if in error) faces $1 million in fines & up to 30 years in jail, so many are not willing to take on the risk.

Hopefully there will be another resolution on this matter, so affected condo owners aren’t hurt more by the inability to sell to FHA homebuyers.

The amusing part to me, is when I clicked on it, directly under the asking price is the Zillow Zestimate: $396,500. Yes, you read that right, Three hundred ninety-six THOUSAND, five hundred dollars.

Now, I realize Zillow’s algorithms have what they claim to be somewhere between a 7-11% margin of error, but this one is off by 88.27%. OFF BY ALMOST 90% OF VALUE. Hm. Think something might not be right?

Yet Automated Valuation Systems are the way banks are doing quick appraisal reviews, and no wonder they may be coming in low.

I’ve discussed the Zillow Zestimates in the past, beginning with Zillow Zestimates for Towson Real Estate May Be Misleading. I have come across a large number that were not close to a selling price of a home.

Then, I had communications with some Zillow executives, where some light was shed on why it is possible they are off in our area, which I discussed in Misleading Towson Zillow Zestimates Explained Further.

Zestimates started to complicate things further as the market began to drop, because banks began to reduce Home Equity Lines of Credit, and were using Desktop Valuations to do so. When one of my clients called his bank, his loan officer pulled up Zillow & told him that’s why it had been dropped. (See Incorrect Towson Zillow Zestimate Strike Again.)

Earlier this year, Zillow updated their Algorithms to try to correct some of the problems. For the Baltimore metropolitan area, according to the site’s “Zestimate Accuracy,” Zestimates are within 20% of an actual sales price only 78.3% of the time (with a 7.9% margin of error).

For a $200,000 house, being 20% below would bring the price down to $160,000. Above, that price (which would make a seller happy, but not a buyer or appraiser), would be $240,000. That’s a tremendous difference!

Real estate is very local. Even street-by-street or neighborhood-by-neighborhood within a zip code can have majorly different values.

If you would like an accurate Towson home value estimate, please contact me. I can help you anywhere in the Baltimore real estate market area, or if you are in a different state, I can refer you to an agent anywhere across the country.

Brian Picker, one of my mortgage partners from 1st Mariner Mortgage, announced the return of the program and his company’s involvement in it.

Here are particulars on the grant qualifications from the information he sent over to me:

Details:

•            First Time Buyers Only (cannot have owned a home in the last 3 years)

•            Income Restricted to 80% of the area Median Income, based on Family size

-            All occupants over 18, income considered. Example – (1 person = $45,000 2 person = $52,000, etc.)

•            5 for 1 Matching Funds – UP TO $7500 Grant.

-            Buyer would need $1500.00 in the deal to get maximum allowed $7500.00.

*   Forgivable Grant over 5 years – pre-closing housing counseling required.

*   Funds CAN BE USED as Down payment requirements – for F.H.A. Loans

If you have been considering buying your first home in Towson or anywhere in the Baltimore real estate area, contact me, and Brian & I can help you figure out if this program will work for you!

Appraisals done by people in general are both objective and subjective, which means that often if you had two professional appraisers come to your house, you would likely get two different price opinions, if they did not have a target price to go from.

Computerized appraisals are just that. It uses transactional data information but does not take updates and other ancillary details into consideration. According to the Wall Street Journal article by M.P. McQueen,

Automated valuation models were pioneered by Yale economist Robert Shiller, who developed the first systems in the early 1990s. While arguing that these appraisals are more objective than human appraisers, Mr. Shiller and others say that in some situations the models may be providing unrealistically low values, prompting lenders to reject loan applications or lend less money on particular properties.

I have to question as to whether the data is similar to those used by Zillow Zestimates to find value. Baltimore County Zillow Zestimates have been well off in many situations, and the disclaimers on their site are many. Their CEO & CFO explained their data issues to me, and I discussed them in my post about misleading Towson Zestimates.

If owners have tax credits or have lived in the property for a long time, that can easily skew results, creating an incorrectly low “appraisal” or Zestimate.

So, if you are looking to refinance your Baltimore County home, be aware of computerized appraisals.

Thank you, Brian!

From Brian Picker, 1st Mariner Mortgage:

Big news as older FHA condo projects were set to expire yesterday which would have been a nightmare for getting them all re-approved by HUD in a timely manner.  In light of this HUD extended the expirations dates out based on when the original project was FHA approved.

FHA Condominium Project Approvals Expiration Dates Extended:

FHA announces extension of condominium project approvals with an expiration date of December 7, 2010. Provided below are the extension dates based on five-year time frames with the exception of those condominium projects with original approval dates from 1972 -1985.

Initial Project Approval Dates     Current Expiration Date        New Expiration Date

1972 – 1980                              December 7, 2010               December 31, 2010

1981 – 1985                              December 7, 2010               December 31, 2010

1986 – 1990                              December 7, 2010               May 31, 2011

1991 – 1995                              December 7, 2010               July 31, 2011

1996 – 2000                              December 7, 2010               August 31, 2011

2001 – 2005                              December 7, 2010               September 30, 2011

2006 – 2008 (Sept)                    December 7, 2010               March 31, 2011

The extensions were granted to reduce the impact of processing and reviewing the number of project approvals expiring at the same time while recognizing current housing market conditions.  Lenders and/or other interested parties are encouraged to begin the re-approval or recertification process as early as possible as it is not anticipated that any further extensions of project approvals will be issued.

The Condominium look-up page and the FHA Connection databases were updated on December 7, 2010 and now reflect the extended expiration dates.  The links to the sites are:

Condominium look-up page: https://entp.hud.gov/idapp/html/condlook.cfm

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I have written much about the FHA Condo Recertifications, because we have so many Timonium condos that would be effected by these changes. Luckily, it appears, if they haven’t been recertified, they have some time to do so!

On December 7, 2010, the FHA condo recertification process must be completed by each individual condominium complex in order to be eligible for homebuyers to receive FHA financing in their building.

There is an application and process that must be completed in full for the building’s recertification to have the opportunity to be approved. Thank you to Dan Plunkett, of Prosperity Mortgage, a part of the Wells Fargo Home Mortgage company for sharing the two forms they must use to submit for approval.

One is the FHA New Condo Approval Process for condos that have never been approved for FHA financing in the past. These would usually be newly built units.

The other is the FHA Recertification Project Submission Form for developments that were approved before and need to go through the certification process again, which would be most condominiums.

The good news for most Timonium condo owners, most of the ones in the area have already been recertified. I wrote about the updated Timonium condo approvals in August, and even more have been added to the HUD site since.

During these confusing times, it is best to have an agent and a mortgage specialist who understand the muddy waters. Contact me if you are considering selling or buying a Timonium condo. My team of professionals can help!

*Since writing this, HUD & FHA have extended the FHA condo recertification deadlines. Here is more information about the FHA condo recertification deadline extensions.*

To recap the top three reasons to buy a house:

1) Homes have never been more affordable.

2) Mortgage rates are at rock bottom and won’t stay there forever.

3) Prices are trending back up.

Two more good reasons to buy a home now:

4) Sellers are motivated.

5) Lenders are back in the game.

And then the final two of seven:

6) Ownership Costs are Dropping Below Rental Costs.

Graph from "7 Great Reasons Now is a Great Time to Buy a House"

Though homeowners have other costs such as HVAC repairs, carpet replacements and the like, ownerships costs are now dropping to a level where even including these items, it is still cheaper than renting in many cases.

Rents have still been on the rise while interest rates and house prices have dropped. Keep in mind also that most of the time the interest you pay on your mortgage is tax deductible, so that brings it even lower over the long run!

7) Home Ownership Remains at the Core of the American Dream. People, in general, want to own their own home. Also, rent is subject to being raised every year, while a fixed mortgage is not. Taxes and insurance would really be the majority of any change in monthly payments in your mortgage, and you can build equity in your house. Meanwhile, rent is just money thrown away over the long run.

Graph from "7 Reasons Now is a Great Time to Buy a Home"

The recent decline in home sales was predictable due to the expiration of the $8,000 Home Buyer Tax Credit. Summer sales were lower than normal because of the spike in purchases earlier in the year.

Fall is trending back to normal, and before we know it, prices will be trending upward over the whole Baltimore real estate market area.

What does this tell us? The time to buy a home in Baltimore is NOW. Contact me so I can help you take advantage of these Seven Reasons!

To recap the top three reasons to buy a house:

1) Homes have never been more affordable.

2) Mortgage rates are at rock bottom and won’t stay there forever.

3) Prices are trending back up.

Numbers 4 & 5:

4) Sellers are Motivated. There are more houses on the market than there are buyers. This creates a ”Buyer’s Market”. This is where we are now in the Baltimore real estate market as well as the rest of the United States. Across the US, the average supply is 12.5 months, meaning that for all of the homes currently on the market, it would take over a year to sell them all. What does this mean for buyers? Sellers who need to sell, NEED TO SELL. They may take a reduced price, or give concessions to make their home stand out above the rest and get it sold faster.

Short sales and foreclosures have been adding to this mix, with 32% of home sales since the beginning of 2010 being distressed. So many sellers are making their homes nicer, with lower prices, to attract buyers to their homes. What buyers may have had to compromise on before, many don’t have to now!

5) Lenders are Back in the Game. After awhile of very strict lending standards, and some banks not lending at all, many are now reentering the purchase market. Standards are still strict, and much more documentation is required of buyers, but if you have steady income, decent credit, and can afford payments, banks most likely are going to give you a loan! My friends from both Wells Fargo Home Mortgage and First Mariner Bank tell me they have many more programs opening up to so many more buyers than even a month ago. This shows the confidence these lenders have in the marketplace!

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With the extremely low interest rates right now, low house prices and high number of homes on the market, plus these two important reasons of sellers being motivated and lenders more willing to lend money, now could be the best time possible to buy a house in Baltimore. Contact me and I will help!