Could Rising Home Prices Impact Your Net Worth?

Learn how to determine your current net worth and how an investment in real estate can help improve your bottom line.

Among its many impacts, COVID-19 has had a pronounced effect on the housing market. Low home inventory and high buyer demand have driven home prices to an all-time high.¹ This has given an unexpected financial boost to many homeowners during a challenging time. However, for some renters, rising home prices are making dreams of homeownership feel further out of reach.

If you’re a homeowner, it’s important for you to understand how your home’s value contributes to your overall net worth. If you’re a renter, now is the time for you to figure out how homeownership fits into your short-term goals and your long-term financial future. An investment in real estate can help you grow your net worth, build wealth over time, and gain a foothold in the housing market to keep pace with rising prices.

What is net worth?

Net worth is the net balance of your total assets minus your total liabilities. Or, basically, it is what you own minus what you owe.²

Assets include the cash you have on hand in your checking and savings accounts, investment account balances, salable items like jewelry or a car and, of course, your home and any other real estate you own.

Liabilities include your total debt obligations like car loans, credit card debt, the amount you owe on your mortgage, and student loans. In addition, liabilities would include any other payment obligations you have, like outstanding bills and taxes.

How do I calculate my net worth?

To calculate your net worth, you’ll want to add up all of your assets and all of your liabilities. Then subtract your total liabilities from your total assets. The balance represents your current net worth.

Total Assets – Total Liabilities = Net Worth

Keep in mind that your net worth is a snapshot of your financial position at a single point in time. Your assets and liabilities will fluctuate over both the short term and long term. For example, if you take out a loan to buy a car, you decrease your liability with each payment. Of course, the value of your asset (the car) will depreciate over time, as well. An asset that is invested in stocks or bonds can be even less predictable, as it’s subject to daily fluctuations in the market.

As a homeowner, you enjoy significant stability through your monthly real estate investment, also known as your home mortgage payment. While the actual value of your home can fluctuate depending on market conditions, your mortgage payment will decrease your liability each month. And unlike a vehicle purchase, the value of your home is likely to appreciate over time, which can help to grow your net worth. Right now, your asset may be worth significantly more than it was this time last year.³

If you’re a homeowner, contact us for an estimate of your home’s market value so that you can factor it into your net worth calculation. If you’re not a current homeowner, let’s talk about how homes in our area have appreciated over the last several years. That way, you can get an idea of how a home purchase could positively affect your net worth.

How can real estate increase my net worth?

When you put your real estate dollars to work, it’s possible to grow your net worth, generate cash flow, and even fund your retirement. We can help you realize the possibilities and maximize the return on your investment.

Property Appreciation

Generally, property appreciates in one of two ways: either through changes to the overall market or through value-added modifications to the property itself.

1. Rising prices

   
   

   This type of property appreciation is the one that many homeowners are enjoying right now. Buyer demand is at an all-time high due to a combination of record-low interest rates and limited housing inventory.⁴ At other times, rising home prices have been attributed to different factors. Certain local conditions—like a new commercial development, influx of jobs, or infrastructure project—can encourage rapid growth in a community or region and a corresponding rise in home values. Historically, home prices have been shown to experience an upward trend punctuated by intermittent booms and corrections.⁵

   
   

2. Strategic home improvements

Well-planned and executed home improvements can also impact a home’s value and increase homeowner equity at the same time. The type of home improvement should be appropriate for the home and in tune with the desires of local buyers.

For example, a tasteful exterior remodel that is in keeping with the preferences of local home buyers is likely to add significant value to a home, while remodeling the home to look like the Taj Mahal or a favorite theme park attraction will not. A modern kitchen remodel tends to add value, while a kitchen remodel that is overly expensive or personalized may not provide an adequate return on investment.

Investment Property

You may be used to thinking of investments primarily in terms of stocks and bonds. However, the purchase of a real estate investment property offers the opportunity to increase your net worth both upon purchase and year after year through appreciation. In addition, rental payments can have a positive impact on your monthly income and cash flow. If you currently have significant equity in your home, let's talk about how you could put that equity to work by funding the purchase of an investment property.

1. Long-term or traditional rental

   
   

   A long-term rental property is one that is leased for an extended period and typically used as a primary residence by the renter. This type of real estate investment offers you the opportunity to generate consistent cash flow while building equity and appreciation.⁶

   
   

   As an owner, you don’t usually have to worry about paying the utility bills or furnishing the property—both of which are typically covered by the tenant. Add to this the fact that traditional tenants translate into less time and effort spent on day-to-day property management, and long-term rentals are an attractive option for many investors.

   
   

2. Short-term or vacation rental

Short-term rentals are often referred to as vacation rentals because they are primarily geared towards recreational travelers. And as more people start to feel comfortable traveling again, the short-term rental market is poised to become a more popular option than ever. In 2020 alone, in the thick of widespread travel bans, the short-term rental platform Airbnb’s market share of the hospitality industry reached as high as 41 percent.⁶

Investing in a short-term rental offers many benefits. If you purchase an investment property in a top tourist destination, you can expect steady demand from travelers while taking advantage of any non-rented periods to enjoy the home yourself. You can also adjust your rental price around peak demand to maximize your cash flow while building equity and long-term appreciation.

To reap these benefits, however, you’ll need to understand the local laws and regulations on short-term rentals. We can help you identify suitable markets with investment potential.

 WE’RE HERE TO HELP

Ready to calculate your personal net worth? Contact us for an easy-to-use worksheet and to find out your home’s current value. And if you want to learn more about growing your net worth through real estate, we can schedule a free consultation to answer your questions and explore your options. Whether you’re hoping to maximize the value of your current home or invest in a new property, we’re here to help you achieve your real estate goals.

The above references an opinion and is for informational purposes only.  It is not intended to be financial advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources:

1. National Association of Realtors -
   https://www.nar.realtor/newsroom/housing-market-reaches-record-high-home-price-and-gains-in-march
2. Forbes -
   https://www.forbes.com/advisor/investing/what-is-net-worth/
3. The Washington Post -
   https://www.washingtonpost.com/business/on-small-business/your-net-worth-is-americas-secret-economic-weapon/2020/08/20/70df5b92-e2d4-11ea-82d8-5e55d47e90ca_story.html
4. Bloomberg -
   https://www.bloomberg.com/news/articles/2021-04-09/home-prices-soar-in-frenzied-u-s-market-drained-of-supply
5. Federal Reserve Economic Data -
   https://fred.stlouisfed.org/series/MSPUS
6. Propmodo -
   https://www.propmodo.com/what-the-growing-short-term-rental-market-means-for-multifamily-real-estate/

3 Things to Know about Buying New Construction

Imagine your first weekend in a new home; a home without nasty smells leftover from the previous occupants, no smudged baseboards and a sparkling clean refrigerator that has never held leftovers. The only thing you need to do this weekend is relax and enjoy your new home. Sure, there are other reasons to purchase a newly constructed home rather than an existing one but let’s take a walk through the purchase process so you know what to expect from the minute you step into the new home community’s office.

The Real Estate Agent

New home communities are typically laid out so that visitors are herded into the builder’s office before they reach the model homes. The person that greets you here is usually the builder’s real estate agent. Read that again: the builder’s real estate agent. Although she may be a perfectly fine person, full of wit and charm, she is not your real estate agent, nor should you entertain fantasies of how easy the process would be if she were. The best way to avoid the temptation and any pressure the agent may try to place on you is to mention that you’re working with a real estate agent. Ethically, the builder’s agent must back off trying to recruit you as a client. The builder pays the real estate commissions so there is no reason not to have your own representation during the purchase process and many reasons to have it. Real estate agents have what are known as “fiduciary” duties to their clients. The duties for the buyer’s agent are different from those of the seller and believe us, they do conflict. Think of it as being represented in divorce proceedings by the same attorney that is representing your spouse. Not a good idea.

The Lender

The builder may also have a preferred lender and you will no doubt be urged to use it to finance the purchase. Unlike the real estate agent, there is nothing inherently wrong with using the builder’s lender, as long as you’re being offered a good deal. The advantages to using the builder’s lender include the fact that it may have appraisers who are familiar with the new community. Never feel that you have to use the builder’s in-house lender; you are within your rights to use any lender you prefer.

The Builder

As in most professions, there are good builders and there are those that take short cuts or do a lousy job.

If you aren’t familiar with the builder, do some checking on his or her background. Start with the Better Business Bureau in your area and then check public records for lawsuits against the builder. There is a lot more to buying a newly-constructed home than an existing home. Carefully choosing your real estate agent and then investigating the builder will go a long way to helping the transaction run smoothly.

How to Bridge the Appraisal Gap in Today’s Real Estate Market

If you’re searching for drama, don’t limit yourself to Netflix. Instead, tune in to the real estate market, where the competition among buyers has never been fiercer. And with homes selling for record highs,¹ the appraisal process—historically a standard part of a home purchase—is receiving more attention than ever.

That’s because some sellers are finding out the hard way that a strong offer can fizzle quickly when an appraisal comes in below the contract price. Traditionally, the sale of a home is contingent on a satisfactory valuation. But in a rapidly appreciating market, it can be difficult for appraisals to keep pace with rising prices.

Thus, many sellers in today’s market favor buyers who are willing to guarantee their full offer price—even if the property appraises for less. For the buyer, that could require a financial leap of faith that the home is a solid investment. It also means they may need to come up with additional cash at closing to cover the gap.

Whether you’re a buyer or a seller, it’s never been more important to understand the appraisal process and how it can be impacted by a quickly appreciating and highly competitive housing market. It’s also crucial to work with a skilled real estate agent who can guide you to a successful closing without overpaying (if you’re a buyer) or overcompensating (if you’re a seller). Find out how appraisals work—and in some cases, don’t work—in today’s unique real estate environment.

APPRAISAL REQUIREMENTS

An appraisal is an objective assessment of a property’s market value performed by an independent authorized appraiser. Mortgage lenders require an appraisal to lower their risk of loss in the event a buyer defaults on their loan. It provides assurance that the home’s value meets or exceeds the amount being lent for its purchase.

In most cases, a licensed appraiser will analyze the property’s condition and review the value of comparable properties that have recently sold. Mortgage borrowers are usually expected to pay the cost of an appraisal. These fees are often due upfront and non-refundable.²

Appraisal requirements can vary by lender and loan type, and in today’s market in-person appraisal waivers have become much more common. Analysis of the property, the local market, and the buyer’s qualifications will determine whether the appraisal will be waived. Not all properties or buyers will qualify, and not all mortgage lenders will utilize this system.³ If you’re applying for a mortgage, be sure to ask your lender about their specific terms.  

If you’re a cash buyer, you may choose—but are not obligated—to order an appraisal.

APPRAISALS IN A RAPIDLY SHIFTING MARKET

An appraisal contingency is a standard inclusion in a home purchase offer. It enables the buyer to make the closing of the transaction dependent on a satisfactory appraisal wherein the value of the property is at or near the purchase price. This helps to reassure the buyer (and their lender) that they are paying fair market value for the home and allows them to cancel the contract if the appraisal is lower than expected.

Low appraisals are not common, but they are more likely to happen in a rapidly appreciating market, like the one we’re experiencing now.⁴ That’s because appraisers must use comparable sales (commonly referred to as comps) to determine a property’s value. These could include homes that went under contract weeks or even months ago. With home prices rising so quickly,⁵ today’s comps may be lagging behind the market’s current reality. Thus, the appraiser could be basing their assessment on stale data, resulting in a low valuation.

HOW ARE BUYERS AND SELLERS IMPACTED BY A LOW APPRAISAL?

When a property appraises for less than the contract price, you end up with an appraisal gap. In a more balanced market, that could be cause for a renegotiation. In today’s market, however, sellers often hold the upper hand.

That’s why some buyers are using the potential for an appraisal gap as a way to strengthen their bids. They’re proposing to take on some or all of the risk of a low appraisal by adding gap coverage or a contingency waiver to their offer.

Appraisal Gap Coverage

Buyers with some extra cash on hand may opt to add an appraisal gap coverage clause to their offer. It provides an added level of reassurance to the sellers that, in the event of a low appraisal, the buyer is willing and able to cover the gap up to a certain amount.⁶

For example, let’s say a home is listed for $200,000 and the buyers offer $220,000 with $10,000 in appraisal gap coverage. Now, let’s say the property appraises for $205,000. The new purchase price would be $215,000. The buyers would be responsible for paying $10,000 of that in cash directly to the seller because, in most cases, mortgage companies won’t include appraisal gap coverage in a home loan.⁶

Waiving The Appraisal Contingency

Some buyers with a higher risk tolerance—and the financial means—may be willing to waive the appraisal contingency altogether. However, this strategy isn’t for everyone and must be considered on a case-by-case basis.

It’s important to remember that waiving an appraisal contingency can leave a buyer vulnerable if the appraisal comes back much lower than the contract price. Without an appraisal contingency, a buyer will be obligated to cover the difference or be forced to walk away from the transaction and relinquish their earnest money deposit to the sellers.⁷

It’s vital that both buyers and sellers understand the benefits and risks involved with these and other competitive tactics that are becoming more commonplace in today’s market. We can help you chart the best course of action given your individual circumstances.

DON’T WAIVE YOUR RIGHT TO THE BEST REPRESENTATION

There’s never been a market quite like this one before. That’s why you need a master negotiator on your side who has the skills, instincts, and experience to get the deal done...no matter what surprises may pop up along the way. If you’re a buyer, we can help you compete in this unprecedented market—without getting steamrolled. And if you’re a seller, we know how to get top dollar for your home while minimizing hassle and stress. Contact us today to schedule a complimentary consultation.

Sources:

1. Wall Street Journal -
   https://www.wsj.com/articles/u-s-home-prices-push-to-record-high-slowing-pace-of-purchases-11621605953
2. US News & World Report - https://realestate.usnews.com/real-estate/articles/what-is-a-home-appraisal-and-who-pays-for-it
3. Rocket Mortgage –
   https://www.rocketmortgage.com/learn/appraisal-waiver 
4. Money -
   https://money.com/coronavirus-low-home-appraisal/
5. S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index - https://www.spglobal.com/spdji/en/indices/indicators/sp-corelogic-case-shiller-20-city-composite-home-price-nsa-index/#overview
6. Bigger Pockets -
   https://www.biggerpockets.com/blog/appraisal-gap-coverage
7. Washington Post -
   https://www.washingtonpost.com/realestate/competitive-buyers-waive-contingencies-to-score-homes-in-tight-market/2021/06/02/d335b050-af2c-11eb-b476-c3b287e52a01_story.html

15 Critical Questions To Ask Your Listing Agent

Don't even think about listing your home!

Not until you ask 15 critical questions to qualify your potential agent!

Just knowing what to ask gives you the power to make an informed decision. And making an

informed decision now will save you valuable time and precious equity. You may be

surprised, even shocked, at the responses you will get.

Put yourself in the best possible position to sell your home.

Hire the agent who will sell it, not just list it!

1. Are you a full-time realtor? How many hours a week do you work on average?  ("Yes" is the only answer you should accept.) 

2. Do you work independently or do you have an assistant or team of specialists working for you?  (Most agents work alone.  Some will have a part-time assistant.  A rare few will actually have two or more assistants.)

3. Do you have a specific Home Marketing Plan that will put my home in front of all prospective buyers?(Don't just settle for a "yes".  Have the agent explain how their plan will work.) 

4. Is your home marketing plan designed to create a competitive demand for my home?  (Again, have the agent explain how their plan will work.) 

5. Does your home marketing plan include extensive internet exposure?  (If you get a "yes" ask for specific web addresses and check them out.) 

6. Do you use a professional photographer with wide-angle camera equipment and proper lighting to show off my home's best features?  (Again, ask them to explain it.) 

7. Are you or is someone from your team always available to answer questions about my home and show my home?  (With a team of professionals, you're more likely to have your needs met sooner.  If the agent without a team is ALWAYS available, she/he can't be doing that much business!  Beware of someone with too much time on their hands.) 

8. How often will I receive a comprehensive progress report that will show me where my home is being marketed and show me the feedback from the showing of my home?  (Your agent should be proactively calling and mailing you reports - not waiting for you to call to respond to your inquiries.  Ron Evans Real Estate sends marketing and feedback reports to their clients every week.) 

9. Do you have an effective system for following up on all the showings of my home?  (Feedback from agents who have previewed or showed your home is invaluable.  It gives you objective information as to how your home appears to the public.  Your agent has to get that information for you.) 

10. Do you have an aggressive plan for attracting buyers to my home?  (Once again, don't just settle for a "yes".  Make him or her explain it.) 

11. Do you have a transaction coordinator who will work on my file everyday and keep me updated until the close of escrow?  (The escrow process is time-consuming and detail oriented.  If your agent works alone, he or she will not have the time or energy to properly attend to your file when it is in escrow.) 

12. Will you provide me with the names and contact information of at least three recent clients? (Get this list and call the folks.  Listen to what they have to say.  Ask them what kind of service the agent provided, how long it took to sell their home, how frequently did the agent communicate with them, etc.) 

13. What is your list-to-sale ratio?  (A low list-to-sale ratio indicates that the agent could not sell the house promptly or could not keep the client happy.) 

14. How many homes did you sell in the past 12 months? How many homes did you sell in the past 3 months?  

15. Do you attend professional courses and seminars on a regular basis  (Agents who regularly attend such courses often learn things that other agents use in other markets.  They develop contact and share good ideas that can benefit you.)

I'd love to speak to you and answer these, and all of your, questions. If you're considering selling your home, let's connect today.

10 Advantages of Listing Your Home With Ron Evans

A.  Superior Knowledge and Experience, Target Marketing and Personalized Representation of your Home lead to:

1.  High Sales Price I am a full time real estate professional with several years of local real estate sales experience. I preview, show, market and sell property throughout Orange County, on a daily basis. I stay up-to-date on current market trends. By comparing your home, both with computerized MLS details AND with my years of experience and knowledge, I can most accurately set as high an asking price for your home as possible, and be sure you are not leaving money on the table.

2.  The Best Buyer for your Home through Target Marketing With experience comes knowledge. I have a good idea of the type of Buyer(s) who will be most attracted to your home. I highlight and emphasize the hot points to attract these Buyers, to help find the BE$T buyer for your home.

3.  Protection for You and Your Equity I have a wealth of knowledge to draw from, to take you through the escrow process and guide you through the contracts and required disclosures. Each escrow has the potential to present challenges, some major. I have the experience to recognize a potential problem and head it off at the pass, long before it can affect you and your pocketbook. I have the know-how and experience to protect you and your equity.

4.  Fewer Low Appraisals After getting your high sales price, I need you to keep it! I know which comparable sales will best support your high sales price. I work extensively with the appraiser to meet that goal. (Three examples: appraisal went from $792K to $830K; another from $700K to $749K with the comparable sales and detailed explanations I provided the appraiser. Another, where appraisal came in at $1,297,000 and I justified the price of $1,350,000 to the Buyer who continued and closed the sale. This Seller put an extra $53,000 in their pocket!) 

B. Expert Representation of your Home to the Buyer Community Helps you get Top Dollar!

5.  Agents with Neighborhood Knowledge I know the area- I live here! With first-hand knowledge of the community and neighborhoods, Buyers get their questions answered quickly and informatively by holding and building interest in your property. Neighborhood tracts, builders, floor plans, neighborhood characteristics, demographics, homeowner associations, community attractions and events, shopping and restaurant recommendations, best commuter routes & times, local organizations; I have the answers to questions most often of interest to Buyers.

6.  Schools: I have the resources to assist Buyers regarding local schools. As a parent of school age children, I know how important schools are to the buying community. I have first-hand knowledge of many of the schools, and access to the information Buyers want. 

7.  Getting You Top Dollar I stay informed and I do my homework. With detailed knowledge of area home sales, pending sales, homes on the market, current market conditions and future market trends, I can accurately and helpfully explain your pricing to prospective Buyers and their agents.  This helps get you a higher price.

8.  Credibility Having your home represented by a top producing real estate team with a top real estate company adds credibility to your listing. Buyers and their agents have a higher level of trust and confidence knowing an experienced professional will be handling the transaction. 

C. Not Just a REALTOR® - A Dedicated Professional Real Estate Team Makes a Difference:

9.  Respect within the Brokerage community. There are a few REALTORS® within our local real estate community who stand out as true professionals; who are fair, honest, hard working and with whom you would welcome doing business in the future. I have been told I am such REALTOR®, and I hold that title with extreme honor. Not only is it a great compliment; more importantly it means the homes I represent are seen in a positive light and in the end, our Seller's benefit.

10.  Dedication When you make the choice to work with Ron Evans, I take this responsibility seriously. I owe it to you to get you the highest price possible, with the least amount of hassle - to provide excellent service, and always respect your investment and your needs. Your business is extremely important to us, and greatly appreciated. I strive to earn your future business and referrals. I can only do this through your complete satisfaction and recommendations. I am dedicated to serving you. Thank you for your trust!

I would be honored to speak with you and answer any questions you may have. Contact me today, to get started.