Appraisals: A Limiting Factor

As prices rise in the area and multiple offers are made on new listings, it's important to remember that, unless the transaction is for cash (meaning that there is no outside financing for the purchase), there will be an appraisal done before the lender will approve a loan. The appraisal is paid for by the buyers, but it is really for the benefit of the lender to ensure that the amount advanced to the borrower is covered by the security of the property value.

Appraisers are licensed and must follow strict guidelines in valuing properties. So, even if the seller receives offers that are far above and beyond the price they asked for the property (or even hoped to obtain), there will be no settlement without an appraiser agreeing that the price agreed upon by the sellers and buyers is a fair market value. Real estate agents are taught that the test of market value (and its definition) is the price a seller will take and a buyer will pay in a fair and open market and an arm's length transaction (arm's length means that there is no reason for the price to be other than market value, such as selling a property to a relative and not under any duress). Under this definition, the contract price, however high it may be, could be considered to have set the market value for that property at that time in that market.

However, appraisers can't see it that way. They must use closed comparable sales, nearby (usually, within one mile) and recent. If there aren't comparable sales for your contract sales price, the appraiser may not agree with the price. In the event of a low appraisal (the appraisal is lower than the contract price), the buyers and sellers will have to try to negotiate a new price or the contract will fall apart if the buyer can't get a loan commitment based on the low appraisal.

Sellers, be aware of this concern. It's better to get the best price you can that is supportable to an appraiser than to agree to a possibly fairy-tale price that could cause then entire transaction to fail.

Why Should Sellers Jump into This Market?

It's been a long haul for the real estate market these past five years, but things are looking up for sellers this year. The entire DC Metro region is experiencing price appreciation, listing inventory is at historic lows, and buyers are out looking for their new home. So, why are sellers failing to put their houses on the market? The answers I get to this question generally come down to, "I'm not in a hurry and want to wait until there is more appreciation."

Here are the reasons this may not be the wisest choice:

What Do You Gain From Waiting?

1. We are all hoping that prices will appreciate during the next few years as the economy recovers and housing supply (especially in our area of North Bethesda) doesn't keep up with the population increases, but waiting to sell a property that has equity in it removes the potential to invest the funds in another appreciating property or in some other investment vehicle entirely. If you are familiar with the stock market, you understand the old adage that it often doesn't pay to be a "market timer" to try to capture the top or bottom of a market trend. Calculate what your proceeds will do for you today vs. what you think they can do for you in a future market.

2. If other sellers take the same position, there will be more houses on the market next year, which could dampen appreciation next year. If that happens, you would have lost a year for little increase in value.

3. Do you have some other place you'd rather be living? If so, what is the value in your life to waiting for a future event rather than proceeding with your goals and aspirations sooner?

Buyers Are Motivated Now

1. Interest rates are at historic lows, meaning that your buyers can afford more on their income. It is widely posited by economists that the time for these rates is limited. As the economy strengthens, banks will raise their rates. They are itching to do this, since none of them likes making 3.25% loans for 30 years. Higher interest rates are strongly correlated to pressure on price appreciation.

2. With few houses from which to choose, buyers are finding themselves competing when they make their offers. This forces them to make the best offer they possibly can (and quickly, too!) if they want to find a house they would like to buy. Their willingness to negotiate to better terms for the sellers is enhanced. 

Each person's circumstances are different, and all of the factors need to be weighed based on that person's priorities, be it financial or based on lifestyle choices or, as is usually the case, a combination of the two. Sometimes, it's helpful to examine motivations to act now or to wait with a trusted adviser. I hope that the options and conditions that I have outlined above are useful in your decision-making process. 

A New North Bethesda Civic Association

The Greater Farmland Civic Association (GFCA) is now up and running, having had two general meetings, adopted bylaws, and poised to elect officers at the general meeting on March 13. It creates a community out of four defunct associations...Old Farm, Tilden Woods, Walnut Woods, and Hickory Woods. These neighborhoods are geographically located west of the Luxmanor Civic Association (LCA), east of I-270, and south of Montrose Road (which is also the boundary with the City of Rockville). The entire area is served by Farmland Elementary School and is in North Bethesda. GFCA now encompasses 971 properties, and the association is actively seeking input from residents for an upcoming directory and for membership. Dues for membership are $25 annually, which will entitle the member to a vote at meetings and access to the directory.

Committees have been formed and are still growing, with involvement from members being encouraged and solicited. Information about the community can be found at www.GreaterFarmland.org.

Historically, Tilden Woods was built by Community Builders between 1962 and 1964 as a "country-style" home in the woods just north of Bethesda. Most of the homes are split levels, bi-levels, and ramblers, with some colonial style homes, all in the 2000-2500 square foot range. Some of the homes have carports (which, over the years, have often been converted to 1-car garages or sunrooms), with many having off-street parking. Lot sizes range from around 9,000 sq. ft. to 13,000 sq. ft. There are approximately 260 homes in this neighborhood.

Old Farm was built between 1963 and 1966 by Kettler Brothers. There are over a dozen home styles, most of them colonials of varying sizes and layouts. Most of the homes have garages, predominantly 1-car. The lot sizes tend to be around 8,000 to 11,000 sq. ft. There are nearly 500 homes in Old Farm.

Much of Walnut Woods was built around the same time as Old Farm, but there were several builders and many building styles. Most are colonials, but there are a few ramblers. A number of these homes were built by the builder Groover-Cooley, which is renowned for quality construction and plaster walls. The "newer" (it's all relative) homes have 2-car garages. In the 1980s, Hickory Woods was built on lots closest to I-270. The neighborhood names of Walnut Woods and Hickory Woods, advertised by the builders and known by the residents, are not recognized in the legal descriptions, so the legal subdivision name for both of these neighborhoods is Montrose Woods. It is not too uncommon in Montgomery County for the developer/builders to name a subdivision with a different name than that in the public records. For instance, the community we all know as Windermere is in the public records as Heritage Walk.