Residential Real Estate Terms

Appraisal: An appraisal is done in all non-cash sales. It’s the process whereby the bank or credit union making the loan needs to know if the ratified contract price is justified. Banks will not make a loan if there’s evidence that price is not in-line with the fair market value. A licensed appraiser provides the bank with a report that estimates the fair market value by using recent sales in similar neighborhoods. This process gets very complicated when there are a large number of short sales or foreclosures. Fortunately that has not been an issue here in Falls Church.

Days on Market: Days on Market (DOM) is the number that shows how long a listing has been for sale or how long it took to get a ratified contract. It is not the time from initial listing to closing. Yes, DOM is a very important number. It’s almost always the second question asked by buyers……How much and how long?

[box] NOTE: Sometimes a property is listed more than once during 180 consecutive days. MLS may show a house went Under Contract in 25 days for the current listing but also show a total of 110 days. That means the house was for sale a total of 110 days. However it went Under Contract in the last 25 days. So to be accurate it makes sense to include all the days a property was listed. We have done that with DOM data here. [/box]

Foreclosure: This type of sale (known as distressed) is where the owner has legally given up their rights of ownership and the property is owned by the lien holder, almost always a bank. Banks are more anxious to get these properties off their books than a short sale (see below). The time it takes from ratified contract to closing is also much faster. A foreclosure is sold in “As Is” condition, i.e. what you see is what you get. The bank typically won’t make any repairs, excluding serious things such as mold, flooding, etc..

Home Inspection: The process where the buyer hires a certified home inspector to inspect the property looking for any significant defects, i.e. leaking roof, faulty hot water heater. Most residential sales include this contingency in the contract. Once done, the buyer can request the seller to fix any defects found. If the seller refuses, the buyer can void the contract. If the seller agrees, then all repairs must be done by the day of settlement. Sometimes both sides will agree to a dollar amount whereby the seller credits the buyer for one or more defects.

Pricing: Does It Matter? Of course it does (okay, a silly question). It’s the first thing a buyer asks when searching the inventory. Local agents (the good ones) can tell right away if a property is not well priced. Sellers that try to test the market to see if they can get “a little more” almost always end up regretting doing so. The only recent time that worked was in the go-go days of 2005-07, but those days are long gone. A an overpriced property simply drive buyers to look at other listings. An example was a 2011 listing in Broadmont, one of the nicest neighborhoods in the City. The original list price was 39% above its tax assessment, took 124 days to sell, and had several price reductions. This happened because it was overpriced from the start.

Price Break: This is a fancy term for how to price a property. Today everyone (buyers and agents) searches on-line. MLS search data show that nearly all searches are done in even increments ($25K, 50K, $100K). So a property listed at $599,999 should be priced at an even $600,000. The $1 difference is absolutely meaningless. But that pricing ensures that someone searching $600K and above won’t see it. That’s a lost opportunity as the listing may be an ideal candidate for that person(s). And of course the more viewings on-line mean more actual showings at the property. So knowing how to price a property is vital.

Price Difference: The difference between List Price and Sold Price.

Seller Subsidy: It’s a concession a seller makes to a buyer. The buyer requests a subsidy up front when making the offer. That money is often used to cover closing costs, though that’s not required. Banks usually have a limit on the amount of the subsidy (based on the amount of the total loan).

Short Sale: Is the other kind of distressed sale. Unlike a foreclosure, someone still owns the property but is in the position of no longer being able to afford it. Usually the owner contacts the bank and asks for some portion of the loan to be forgiven. Once approved, the hose is listed in MLS as a short sale. Whatever proceeds are left (after taxes, etc.) go to the bank. One way to describe it is that a short sale is a very close relative of a foreclosure. Sometimes a property begins as a short sale but does not sell fast enough such that the owner cedes their ownership rights. Soon thereafter, the house is owned by the bank and is on its way to auction or a foreclosure sale. What makes this process so difficult (i.e. slower) is it takes so much more time than a standard sale or even a foreclosure. The tradeoff is that you can get a property well below market value. Short sales are not for the faint of heart as the process can go on for a very long time.

Sold Price/Tax Assessment ratio: This ratio shows how a sold price compares to the tax assessment. It’s a good indicator of how realistically a property is priced. In Falls Church City, listings usually sell above the current tax assessed value. For more information on tax assessments, check out the City web site: http://www.fallschurchva.gov/Content/Government/Departments/AdminServ/Assessment.aspx?&cnlid=1079

Tax Assessments: Do they matter? Yes, the tax assessed value (TAV) matters more today than the peak of 2005/06 whereby most properties in the area sold consistently well above their TAV. This ratio is a good indicator of sales trends.