Can my home depreciate in value?

In general property values tend to rise over time. One statistic that I have seen that explains real estate appreciation very well is that real estate tends to appreciate about 1% more than the inflation rate. If inflation is 3% in the long term, you might expect 4% appreciation for real estate in the long term. The logic is easy to follow… if the cost of materials goes up, then the price of new construction goes up. If you add to the increasing cost of materials, the increasing cost of land, it is logical to see that real estate usually goes up in value. They are making any more land, so it is increasingly hard to come by. In Portland we have seen lot prices double in the past few years.

Owning a home in a good location makes it much easier to assume value will remain steady or increase. In the Portland metro area we have seen a steady increase in value over the past few years, 5 to 10% per year or more.

It is possible for a property to depreciate in some cases. Property values dropped from 2008 to 2011 due to the great recession. Also if there is not any land tied to the house… like a floating home, forest service cabin or manufactured home in a park, homes can depreciate.

Are older homes as good of a value as newer homes?

The value in a home is determined by location, condition and size generally speaking. An older home in good condition would be worth about the same amount as a newer one of the same size in the same area. Some buyers prefer older homes and some newer. It is really a personal thing.

Many of the older homes that come on the market in Portland have been extensively remodeled; however, it an older home comes on the market that has not been remodeled, it would be worth considerably less than a new or remodeled home nearby. Older homes may have “issues” like underground oil tanks, radon gas in the basement, lead based paint, not much insulation, single pane glass windows. So if you buy an older home, you will probably have to deal with some maintenance issues, and you may need to do a big upgrade.

It really comes down to priorities of the buyer. Some people want an older home in an established neighborhood close to downtown. Others want a large new home in a development with the amenities like a gourmet kitchen, walk in closets, big bedrooms and large luxurious bathrooms. For buyers with a considerable budget, infill homes might be the way to go… a super nice new home close to downtown with a neighborhood feel.

What are closing costs?

For buyers, closing costs are the fees incurred when purchasing a property. Typical closing costs in our local market include: a loan fee, an appraisal, pre-paid taxes, pre-paid insurance, half of the escrow fee, some title insurance fees if a loan is involved and recording fees. On the buy side, closing costs and prepaid expenses average 2 to 4% of the purchase price.

When you sell real estate, you would expect to pay a real estate fee (listing fee) and title fees. On average you might expect to pay about 6% to sell you home.

What does FSBO mean?

FSBO means For Sale By Owner. Some owners choose to sell their homes without the assistance of a listing agent. FSBO sellers are trying to lower their selling costs. Sometimes this works, and sometimes it doesn’t. One thing is for sure, working with a professional REALTOR will help you to reach the broadest segment of the market. After all, over 80% of real estate transactions include the services of one or more REALTORS.

Many FSBO sellers are expecting the buyer to have a REALTOR, and are willing to work with you and your agent… you may see the term “courtesy to broker” on FSBO flyers.

What is a Broker?

A broker is an individual who is licensed to represent clients in the buying and selling of real estate. Principal Brokers have a separate certification which allows them to manage other brokers and/or run their own company.

What is a contingency?

A contingency is a condition that must be addressed before closing on a real estate transaction. Typical contingencies include financing contingencies and inspection contingencies. In Oregon, language about the inspection contingency and financing contingency are built right into the real estate agreement. For example, a buyer usually has about 10 business days to do his or her inspections. If the property has defects, the buyer can request repairs. If the seller refuses, the buyer can back out of the transaction. Another contingency, the financing contingency usually runs the entire length of the real estate agreement. If they buyer cannot get a loan, the he or she may not be able to buy the house. This is why it is very important to get a pre-approval letter from a reputable mortgage broker or banker.

Another type of contingency that is less common in a seller’s market is a contingency to sell one’s own home before closing on the new home. If the seller needs the proceeds from the sale of his or her “old” house, he or she should disclose this fact to the seller as a contingency.

What is Debt to Income Ratio?

The debt to income ratio is a metric that is used by lenders to determine your ability to manage your debt payments. Lenders pay very close attention to debt to income ratios.
Banks love it when you have a low debt to income ratio, and they may reward you will a loan to buy a home and maybe even a preferred interest rate.
You debt to income ratio is the sum of all of your recurring debt including credit card minimum payments, student loan payments, car payments and the mortgage on your home, including principal, interest, taxes and insurance (piti). For example, if your monthly debt service payments come to $2,000 and you income is $6,000 per month then you would have a 33.3 debt to income ratio. Banks should respond well to this number 

What is the RMLS (Regional Multiple Listing Service)?

The RMLS is an online database of all the active, pending and sold listings that are listed with Realtors. A RMLS listing is a complete outline of your property including description, basic information and pictures used by Realtors to showcase properties. Having a RMLS listing ensures maximum exposure for your home and is another value working with a Realtor brings.

What is a REALTOR?

A REALTOR is a member of the National Association of REALTORS and generally a licensed broker or agent who is licensed to conduct real estate business on behalf of their clients.  REALTORS are held to a high standard of ethics and continuing education to maintain their membership in the National Association of REALTORS and their state licenses.

What is an escrow officer?

An escrow officer is a neutral third party that walks everyone through closing. The escrow officer is in communication with all parties involved in the transaction and works for the title company where the earnest money and such is being held until closing. The escrow officer facilitates closing the sale and will help when you sign documents.  In Oregon, escrow officers are generally work for title companies.  Escrow and Title services are provided by the same company.

What is a Homeowners Association?

A HOA or Homeowners Association is a non profit organization that manages a community, typically new construction and condos. Most homes with an active HOA will pay a monthly fee to help maintain common areas such as pools, parks and more.

What is the difference between being pre-qualified and pre-approved for a loan?

A pre-qualification is a verbal guesstimate as to what you can afford when purchasing a new home. A mortgage broker will ask you your monthly income and expenses and give you a general idea of home much you can afford without doing a hard check.

A pre-approval is a hard amount as to what you can afford after important financial information is reviewed. this includes looking at bank statements, tax returns and pulling a credit report. A pre-approval letter is necessary when presenting an offer on a home.

What is Title Insurance?

Title Insurance protects the lender and the buyer from any disputes that may arise over the title of the purchased property.  It is literally an insurance policy that kicks in if someone comes to you after the sale as says that you owe them money because you are the owner of the property.  I recall that in one transaction a buyer found out after closing that there was a lien against his home because of an unpaid water bill.  It was for $900.  The title company did not find this unpaid bill in their title search, so when it was brought to their attention that there was a lien against the house, they promptly paid the utility company.

What is the difference between a “Listing Agent” and a “Buyers Agent”?

Sellers hire a Listing Agent to market and sell their property. A Listing Agent prepares the RMLS listing, flyers, holds open houses, places a lockbox on the home and creates any marketing. Sellers typically pay 5% for real estate services that is divided equally between the Sellers and Buyers Agents.

Buyers hire a buyers agent to help them purchase a home. A Buyer's Agent shows buyers homes and helps them write offers and navigate the purchasing process. Buyers pay nothing to work with a buyer's agent, but will pay a Sellers Agent when selling the home.

All REALTORS have the capacity to be both a Sellers and Buyers agents. Some brokers have teams of agents that work with them and therefore have designated Buyers and Sellers Agents.

Why should I work with a REALTOR?

Working with a REALTOR is a smart move in any market. Right now Portland is a Seller's market making it even more important as a buyer to work with a professional. A REALTOR can pull comps, show properties, and guide you through the buying process while offering the experience necessary to get the deal done.  

As a seller, you might be leaving a lot of money on the table if you do not employ a professional REALTOR to assist you. REALTORS usually list properties in the RMLS and we spend a great deal of time and money marketing properties. This can make a big difference in the sale price.

Overall, REALTORS with experience in up or down markets have the ability to offer advice and guidance throughout the buying and selling process.  In my own case, I have been selling real estate in Portland, and I have been involved in about 300 transactions.  I would say that I have seen it all, but I still run across strange situations that I have not encountered in my 12 year history.  It is my experience that helps me keep deals together in spite of adversity.