OT: Real Estate / Renting / Land Contract gurus
Hello fantastic mgoblog community.
I was inspired by another posters relocation question earlier this week, and the out pouring of support they received and decided to ask my own question. I know this is not a forum for legal/real estate advice. But, we have a great community and I thought i would give it a shot.
Mods, delete if needed. Thanks everyone!
I recently started a job out of state and put my house up for sale.
We had 3 full price offers on the first weekend and accepted an offer. We were excited that things seemed to be moving in the right direction- and quickly. The house ended up appraising at +30k (!!!!!!) less than what we needed to appraise at. Our realtor, throughout the process, said it would appraise. We had the house appraised earlier this year (for a refinance) and used that info when pricing the house.
We are massively under water and are researching alternatives. Selling seems out because the loan is upside down. Renting and Land Contract seem like viable options.
Has anyone had any experience renting out their home or being involved with a land contract?
Any professionals out there have any addtional insight?
My family and I thank you for your input.
you're a doucher, bro.
You need to be careful of the obligations for each side in the contract. Management companies can sometimes be and will claim certain fees and expenses above what you expect to pay (for example who pays if an appliance breaks).
Speak with an attorney in your area and have him/her review any proposed agreements. Don't do this with a handshake.
Or do they not mind driving in for repairs from 2 states away?
You just need a good relationship with a local handyman, who can either fix stuff themselves or call the appropriate person.
That's how my prior landlord managed my rental. I never saw the guy, but he had a local handyman who would fix random things that broke and when something was beyond his skill level, the owner would call a local plummer...
This is correct. You'd only need a management company if you had a bunch of properties and the complexities were too much to deal with.
if you transfer the house to an LLC, the mortgage holder can and probably will call the loan due since the entity they loaned the money to no longer owns the house.
BEFORE you transfer the property into an LLC's name, be sure to talk to a lawyer and make sure that the transfer does not violate/cause a default of the terms of your mortgage/Deed of Trust. If it does violate, it could potentially cause an immediate default of your loan.
A management company isn't required, but is sometimes helpful, as otherwise anytime/everytime there's a problem, you're going to get a call and have to figure out how to deal with it from afar. At least for minor problems, management company will be able to take care of it without getting the go-ahead from you. As others posters mentioned, don't sign any agreements with management company without review from local attorney.
is not determanitive. relist the property and a different appraiser for a different buyer will get you a different number. also, your realtor needs to work for his/her money, and that means they need to be able to accurately articulate why one lame appraisal ki-boshed the sale of a house that had 3 full price offers. sounds like one appraiser, picked at random, screwed the pooch.
renting out your house, especially from a distance, is a risky path. most will trash your residence. also, if you do rent the house you need to scrupulously follow the michigan landlord-tenant laws about what the lease must and must not contain.
land contract can work, but it doesn't solve your problem of having a mortgage on the 'old' house while you acquire new housing. if you get a substantial downstroke though, it can give you some financial cushion in case the would-be purchasers go sideways on you, and it can give the purchasers sufficient incentive to treat the place right and want to follow through with the deal.
We did a refinance and Green Tree Servcing picked the appraiser. After that was done, QuickenLoans picked up the loan.
So far it has been a positive experience. I recommend hiring a realtor that does a lot of house rentals, but be very picky about selecting a tenant. How responsible your tenant is will determine whether you have a positive or negative experience.
Also, keep in mind you will have to claim rent as income on your taxes.
Feel your pain.
We bought a place in Plymouth near the peak of the market (2004-ish) for $300K. We were planning on staying in Michigan forever.
Ended up doing a fellowship at Cleveland Clinic. My in-laws decided to then leave for LA...thus my wife had no more family ties, so we kept our place in Plymouth for a year on the off-chance we would return after fellowship.
Long story short: our house did not appraise, either. We rented out the place for three years, and sold it last year.
Tips:
1) Property management company: handled the contract, background check, etc. Lucked out in our renter was getting a housing stipend from FoMoCo; he was a European exec who liked our place...3 year contract, 6 mo notice to leave.
2) Change your insurance policy to cover yourself for liability; LLC for liability may be overkill
3) Contact your city tax office: once it's a rental you lose your homestead exemption (and taxes go up)
4) Keep records! For tax purposes, rental income - (mortgage & taxes & management fees & expenses & depreciation) = taxable income.
5) Learn more about depreciation. Pain in the arse, but helpful when you sell the place. If you are still underwater at the estimated price of the home at the time of declaration that it is a rental, when you sell (as we were), for a declared rental property, the loss is deducted from your earned income and NOT a capital gain.
PS Find a professional for taxes, do your own dilligence, yada yada
GL!
Other than that the other people's suggestions about taxes, depreciation, and landlord insurance are all spot on.
A lot depends if you are a nervous person or relaxed when issues happen. It can be stressful if you allow it.
I don't know much but I do know that my eyes tell me there are many, many, many houses out there without familie s(or people) in them. This observation leads me to believe that the housing market won't truely recover for years (I am basing this on supply and demand, I know taht many empty houses aren't on the market but long term I just think there are so many houses that we don't truely value them for what they are worth; i think houses, even now at reduced rates, are only truely worth 60-70% of there stated value)
I do know that the big mortgage lenders (Bank of America, Wells Fargo, etc...) have thousands of properties that they've recovered through foreclosure that they are holding on to. Point is, there are a ton of vacant foreclosed properties that will at some point hit the market and when they do, the supply will increase causing prices to decrease as a result.
If not, maybe you should pay for an appraisal or two to see what it's actually worth instead of trusting your realtor (and then fire him/her if the appraisals are consistently off).
Disclaimer: I'm a big fan of firing realtors.
Well, we are the sellers. So, it wasn't our realtor who got the appraisal.
And, no, nothing was found. When we got our appraisal earlier in the year it was before two inexpensive houses on our street sold. Both sold in the last 5 months and are impacting our price greatly.
In this case, I'd still want to fire your realtor--the listing agent--for not doing the comps correctly, and so not setting the price in accord with what could actually be gotten.
It really depends on where you are and what your market is like. If you are in Los Angeles the strategy for getting around this I think is different than if you are in Ann Arbor.
That being said what you should do...
1. Have the buyer find another lender who will do their own (another) appraisal. Some banks are more risk averse and will have accordingly tighter appraisals. Other banks are hungry for deals so will 'appraise' things at the sales price to get the deal. I know from recent dealings that Citibank was very tight fisted. Wellsfargo or Bank of America appraised things on value no problem. Look into working with a smaller local mortgage broker as well. Sometimes they can be more personal and responsive.
The buyer SHOULD be working with multiple lenders to get the best appraisals (not stymie their deals and lose the house they want) and potentially get the best terms on their loan. Just because you are pre-qualified with a particular lender does not mean you need to close a loan with them. Most homebuyers don't realize this and don't do this.. and just go with their bank and take whatever is offered which is a mistake IMO. Sure it is a pain in the ass to go through the paperwork and provide all the documents to multiple entities but they really ask for the same stuff by in large. So just make duplicates of everything as you go and when you want to throw another hat in the ring, drop the file on them and let them do the work for your business. I digress....
2. Go with/contact the other buyers again for the same reason that they may have other lenders and therefore better appraisals. Also one of these buyers may really like the property and may have the extra cash to cover the difference. You never know. The fact that you had multiple full price offers in a short period of time bodes well for you.
Your agent should be able to contact the other offers quickly. You should do both #1 and #2 at the same time. If your agent can't do this, Think about finding another agent. Or better yet do a for sale by owner. i did and it went great.
3. Otherwise just sit for a few months. Appraisals lag an upticking market as mentioned above. If you legitimately had the interest in your property now, you will have the interest later.
It doesn't really matter what your/the seller's appraisals are. It only matters what the buyer's/lender's appraisals are. Getting your own appraisal is only useful for helping determine price. But you (or your agent) can easily get this by looking at recent comparables sold in your area because this is the bedrock of how an appraisal is done - looking at recent comparables in your area. Finally I am also a big fan of firing your agent. It's always good to pull the rug out from someone or at least make sure they know thay you have no problems doing it.
and ignore the anonymous juvenile douchebag(s) who rate helpful suggestions as flamebait.
Thanks Don :)
Ah.
We are south of Ann Arbor. Probably too far for ya. :(
Emailed you, btw.
Appraisers are lagging true market values for sure and it's not allowing the market to grow as it should be.
Now, when an appraisal comes in under the agreed upon sales price, the buyer has the option to bring more cash to closing to make up the difference. Obviously, the buyer knows the appraised value isn't the true market value.
Another option is to seek another buyer who would then order a new appraisal, which might come out higher. However, if the first buyer was an FHA buyer, that FHA appraisal is on the record for 6 months and a new one won't be ordered.
You could also seek a cash buyer - they won't need an appraisal at all.
Thanks blueinorion.
It was not a FHA buyer, so that the appraisal doesn't stick.
We are already bringing 30k to get out of the house, but with the low appraisal someone else would have to make up another 32k. Outrageous/disapointing.
Appraisals are terrible these days and are killing far too many deals. Your first option is to challenge the appraisal. Sometimes, the appraisor will reevaluate their work (especially if you point out some comps that might have missed or improperly used). That said, they also have an instinct to defend their work. More and more, appraisors are coming in blind without proper knowledge of the market in question.
Renting can be a great option (unless you're renting to students). The market is very strong. I have a rental house where I recently increased rent by about 20%...and had a line of potential tenants ready to sign. Hold onto the property for a while, pay down that debt and maybe you won't be underwater for too much longer.
On the plus side, if you're stuck with the house through next tax season, you can use that crappy appraisal in support of a property tax appeal.
Oops...
(side note, "flamebait"? trying to help this guy out...and thought my background as a residential landlord, commercial real estate investor and real estate attorney might be of use to him. Many apologies to the person who must be an appraisor with hurt feelings)
I own houses in Detroit where your profit margin is small due to the ridiculously high property taxes. Because so many people went through a rough patch the past 5+ years, there are quite a few home buyers who need this option because of a forecloure, bankruptcy or low credit score preventing them from securing a loan and do not have the funds for a cash only offer.
The only thing I would add is to make sure you have a very landlord/seller friendly contract. In a couple cases, we wrote into the LC that we could terminate the contract with one delinquent payment over 15 days. The LC was only for $6500 on those homes but the plan was to get the house out of our possession sooner rather than later because of high taxes in the city. We couldn't do that if people became a problem with making on time payments.
For a minute, i thought you might've been the house that my wife and I made an offer on this weekend. We are first time home owners and just made an offer on a house on SW side of AA in our favorite neighborhood, so we are very excited. Just waiting on some paper work because the family said they needed to push back the move in date and wanted more EMD. They better not screw us...
It is possible to add an appraisal clause to your sale contract that says that the sale of the house is NOT contigent on the appraisal. What this means for the buyer is that they are essentailly agreeing to cover the difference between the sale price and the appraised price with cash.
If you have three full price offers, there's a chance that one of those buyers would be willing to do this. We have been looking for a house in Ann Arbor for months, but the market is like sharks... we used this clause in our contract so that we would have a chance against "all cash" offers which have been blowing us out of the water all month. The last place we offered on had EIGHT offers, four all cash. The Ann Arbor market has exploded.
Not sure why one low appraisal would make you think you can't sell your house. If you had three offers at the ask the first weekend it was offered, its obviously priced right.
The only thing a low appraisal would do is limit the amount of the mortgage that the borrower would be able to get. If they can't pony up the difference in cash, they can either shop around for a different lender, you can reach out to the other two who made an offer and tell them the first accepted offer fell through or try to be creative with the original person.
Does your contract with the buyer have a mortgage contingency? In NY those are standard, but not sure how the rest of the country is
January 24th, 2014 at 1:15 PM ^
Fantastic article. I got a lot of helpful information and stimulating tips to survive. Real estate assistant is very important for us. It must be necessary beforehand buying any home. It also gives us great ideas for marketing and to survive our home and business. You always post informative articles and we hope you will do the same in future too.
April 28th, 2015 at 10:14 AM ^
Talk to your lender about a short sale. If that fails consider a buy and bail.
November 21st, 2020 at 11:44 AM ^
I've had a lot of problems with real estate recently. Not with investing, but with settling it. My tenant was a scam and I've lost a lot of money from it. So now I'm more carefully choosing a house for myself. With help of an apartment maintenance company, it's so much easier. It's sad that I didn't found about it sooner.