When the Sales Price Isn’t The Market Value
October 14, 2009
I was doing some market value research the other day for a little Central Tucson house, in a price range where home buyers wanting to use FHA financing tend to look.
I had two decent comparable sales to use – but I noticed one sold to a buyer who used FHA. And that’s a huge flag that more research needs to be done in order to use that sale as an indicator of market values.
See, many FHA home buyers in Tucson ask for closing cost assistance, if not also down payment assistance. And those are in the form of credits directly to the Buyer at close of escrow, which isn’t recorded as part of the sales price but comes directly off the Seller’s bottom line – the Seller actually walked away with less money than what the sales price would indicate.
It’s easier to understand with an example.
Let’s say you just sold your home for $200,000. With a regular home buyer, you’d get a check for $200,000. (We’re simplifying here for the example, and disregarding other sales costs and loan amounts.)
If you had an FHA buyer who needed 3% of the purchase price towards their closing costs, you’d get a check for $194,000.
If you had an FHA buyer who needed 3% towards closing costs and 3% towards their down payment, you get a check for $188,000.
The assistance just comes off the Seller’s bottom line. And if a Seller is willing to take less in the form of closing cost and down payment assistance, then it’s the same as if they sold their home for that lower value. Paying $12k in closing cost assistance is the same as taking $12k less for the house.
So if I’m using that house to find market value, and the seller took what equates to 6% less than what the sales price indicates, then clearly, that impacts market value.
The sales price isn’t always the whole story. There are all kinds of credits that can happen on the back end of the transaction that aren’t necessarily reflected in the record of the sale in the Tucson MLS. You always gotta do the research.
What Kind of Financing do Central Tucson Home Buyers Use?
October 6, 2009
I was talking to someone the other day about the current market in Tucson and about home buyers having more cash than before, and using more FHA financing than ever before. Clearly, there’s been a large change in home financing rules. In my recent experience, I’m helping people buy homes here in Central Tucson largely with FHA financing – or with cash.
So I ran some numbers this morning. Because that’s what I do.
So far, in 2009, the financing for closed home sales in Central Tucson break down like so:
- 263 cash transactions, with an average sale price of $144,401, which is 30% of the sales.
- 342 conventional loan transactions, with an average sale price of $223,091, which is 39% of the sales
- 246 FHA transactions, with an average sale price of $157,661, which is 28% of the sales
- Compare that to 2007, where cash transactions were 13% of the market, conventional sales were a whopping 82% of the market, and FHA was a mere 2% of sales in Central Tucson.
And in 2005, FHA was just 1% of the Central Tucson market. (Conventional was still 82% and cash was 14% of sales.)
Big shift? Yes indeed. The cash is back – but it’s quiet cash and those folks are picking up the bargains, many of them investment properties. And FHA is bigger than ever. If you’re trying to sell a home in Central, it might behoove you to make sure the house will meet FHA financing requirements. Otherwise, you’re cutting out a large chunk of the home buyers out there today.
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