With the summer upon us, the strongest time of year to sell homes in many U.S. markets is here. School is out, and many of your employees are likely choosing to sell their homes now so that they can move before the start of the new school year. However, there are some pitfalls to be aware of that could delay your employees’ relocations. Make sure you’re paying attention to these areas:
1. FHA Buyers
We recently wrote about FHA appraisal guidelines and the potential impact they can have on relocating employees. While FHA loans afford buyers who do not qualify for conventional loans the opportunity to purchase homes, in some respects, they can negatively impact the transferee homeowner. For example, because FHA requires that the property meet minimum standards of safety, security and soundness, the homeowner may be forced to pay the cost of repairs without the benefit of negotiating the sales price, which the employee has the possibility to do with a buyer who is securing a conventional loan.
Even more concerning, however, is that when an FHA appraisal is conducted on an employee’s property, that appraised value remains in effect and is tied to the employee’s property for 120 days. This means that if the homeowner declines the offer from this buyer, and the only other buyer who submits an offer within 120 days of the appraisal date is an FHA loan applicant, then the same appraised value is intact. There is no further opportunity to obtain another (potentially higher value) appraisal until after 120 days from the date of the first appraisal. For example:
FHA Buyer #1 puts an offer on a property and has the house appraised. Thirty days later, the sale falls through. Fifteen days after that, FHA Buyer #2 puts an offer on the property. FHA Buyer #2 is bound to the appraised value that was conducted by FHA Buyer #1.
There is one exception to this rule: if FHA Buyer #2 uses a different lender than FHA Buyer #1, and FHA Buyer #2’s lender cannot obtain the original appraisal from FHA Buyer #1’s mortgage lender, then the lender can order a new appraisal.
Therefore, in markets where FHA loan buyers are prevalent, the transferee homeowner may either have to settle for a lower net sale price than he anticipated, or he may be delayed in selling his home to wait for a higher sales price. Which brings us to our second pitfall.
2. Overpriced Homes
While the spring market leading into summer tends to reflect the highest home prices in many markets in the U.S., the time leading up to the end of summer and into autumn tends to show lower home sale values, as homeowners are anxious to finalize their home sales and relocations prior to the start of the new school year.
Historic data shows that homes that languish on the market for extended periods of time frequently sell for less than if they had been priced aggressively from the very start.
So in our example above with the FHA buyer, the transferee home seller can realistically expect to sell his home for less as he waits for the expiration of the FHA appraisal, although he may not have as many repairs to complete before closing if he is able to secure a conventional loan buyer.
3. Overdue Replacements, Repairs and Updates
While Lexicon would typically not recommend making significant updates to bathrooms or kitchens in preparation for the sale of a home (why not let the new owner design how they want these rooms to look, and either price the home accordingly or provide an allowance?), replacing major components may be a strategy that entices a buyer to make an offer or may result in a higher net sales price. We’re talking about an HVAC system or a roof that may be close to the ends of their lives.
Making sure a pool or hot tub is professionally cleaned and the filter system is working properly will also make a good impression on the buyer. Small repairs to cosmetic damage throughout the home, such as the walls or faucets, may freshen the appearance and encourage an offer. Updating the landscaping and improving the property curb appeal give the impression to the buyer that the home is well cared for. Letting these items slip because the employee is preparing to relocate could cause significant delays in securing a buyer. Some companies encourage their employees to complete these repairs by including an allowance in their policies to minimize the employees’ out-of-pocket costs.
4. Hiring the Wrong Real Estate Agent
Although employees may feel compelled to hire their friend, neighbor or the spouse of a work colleague to list the property, this real estate agent may not be the best person to sell the home quickly and for the highest possible price (besides, does your employee really want any of these people to know the details of their finances and personal information?).
That person may also not be well-versed in the relocation process and may ultimately preclude the employee from receiving the full extent of the policy benefits. For our clients, we recommend using a Lexicon network real estate agent who can provide the homeowner (as well as you and your company) the peace of mind that someone knowledgeable about the local market and on relocation matters has the employee’s best interest at heart.
While avoiding these pitfalls will not guarantee a high-price, quick sale on the employee’s property, making sure the employee has a realistic perception of the market and how his home fits into the market will prevent a lot of catch-up work later trying to find the right buyer for the property. Lexicon is here to help our clients’ employees navigate through the home sale process, and we’d be happy to help you, too!