Fredericksburg Texas

When buying or selling real estate in Fredericksburg, TX (or any other place for that matter) one often faces the prospect of having to deal with an appraisal.  An appraisal is most common in transactions involving the use of financing from a third party source (i.e. bank, savings and loan, mortgage co., etc.) and is used to determine the “market value” of the property being purchased (sold).

 

While most people would agree that the “market value” is the contract price (e.g. buyer and seller have agreed on value, ergo, that is “market”) our friends at the Texas Real Estate Commission (TREC) have devised the Uniform Standards of Professional Appraisal Practice which (of course) defines “market value” somewhat differently:

 

“Market Value is defines as: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgably and assuming the price is not affected by undue stimulus.  Implicit in this definition is the consummation of a sale as of the specified dated and the passing of title from seller to buyer under conditions whereby: (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what he considers his own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in cash or its equivalent; (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”

 

I will spare you the real world implications of terms such as “probable”, “should bring”, “fair”, “knowledgeable”, “motivated”, etc. and instead focus solely on how an appraisal can affect a real estate transaction.

 

As mentioned, if you are buying a property with borrowed money, you will be asked (forced) to pay for an appraisal.  The idea is that the property will appraise for the agreed upon purchase price and the bank will feel secure lending you the money knowing that, if the worst happens, it can foreclose and sell the property to recoup its loan.

 

The tidbit that people often overlook is that very few people borrow 100% of the purchase price from the bank.  If you put, say, 20% down, shouldn’t that affect how the bank views your “market value” appraisal?  For example, say you are purchasing a lot for $100,000 and you put 20% ($20,000) down and will borrow the balance of 80% ($80,000).  Let’s say further that the appraisal comes in at $90,000.  Should the bank loan you the money?  Should you buy the property? Yes and, that depends.  The banks $80,000 loan is “covered” and if you (for whatever reason) are comfortable paying $100,000 then go for it, if not, try to renegotiate based on the appraised value.

 

The inherent problem with appraisals is that they use old information (past comparable sales), subject to arbitrary adjustments to determine current value.  Going back to the beginning, shouldn’t “market value” be determined by what the buyer and seller agreed upon?  Isn’t it a remarkable coincident that appraisals almost always come in at, or slightly above, the contract price?

Issuing lockboxes for use in selling Fredericksburg Texas real estate should be a no-brainer for our local Board of Realtors.  The fact that local agents aren’t calling for this important change is distressing (to say the least) and, frankly, is increasing risking for the sellers they represent. Let me explain.

 

The current system employed by agents has each office keeping multiple keys (usually labeled with the sellers name and address) in a (lightly-secured, if secured at all) file or keybox in their offices.  When a showing is scheduled, the showing agent stops by and picks up a key and the agents name and date of showing is noted.  It is not at all unusual for keys to be left for agents in designated places outside of offices (unsecured) for weekend or after-hours showings.  Keys are always checked out to appraiser, inspectors, contractors, etc.

 

After the showing, agents are to return the keys where they are duly logged back in.  It is not unusual for keys to be returned late (i.e. after two or three days of riding around in an agent/appraiser/inspectors car) and/or left in “after-hours” (unsecured) locations.

 

This is the reality of how we currently do things.  I’m sure I’ll upset more than a few people by revealing this common practice but the good news is “there is a better way”.  Surely, readers of this blog can assess the mind-boggling liability this system can create.

 

Now picture a system that electronically tracks and records anyone accessing a key, when they used it, how long they used it for, if they replaced it and has penalties in place for anyone abusing/misusing the system.  The only argument left for no using this system might the rouge agents trying to show a listing (occupied) without an appointment.  That is also handled by tracking these fools who show up “unannounced” and fining them accordingly.

 

Someone please show me the downside….

I’m revisiting a topic I first touched upon in September of 06 (Inefficient) because it has dawned on me (yes…very slowly) that my agent brethren either don’t have the time to ponder such issues or they don’t fully appreciate how much easier their lives would be by embracing some much need change. I am talking, of course, about the need for our Board of Realtors and MLS to join the 1990’s and step up to a lockbox system for controlled access to properties listed for sale or rent.

 

The systems that are out there are well documented time savers to agents in that they preclude the need to pick-up and drop-off keys and they provide a “no-brainer” tracking mechanism that allows listing agents to rapidly and accurately track and follow-up on showings (thus making them look really good to their clients).

 

The most common (and, frankly, lazy) argument is that the “old-timers” don’t want it.  These are the same folks who said the internet and e-mail would never last.  Well, they don’t have to use it…duh.  Why should the rest of us waste our time because folks won’t embrace change?  Anyway, I didn’t realize that our Board was run as a democracy with every member having veto power over “change”.

 

With improvements in technology come improvements in the way we service our clients and they way we spend our time.  We’re not talking about tons of money, training, time etc. and Boards all across the country have proven that “security risks” are a non-issue.

“Best Retirement Bargains”--This story appears in the June 11, 2007 print edition of U.S. News & World Report.

 

President Lyndon Johnson grew up near Fredericksburg, Texas , and his widow, Lady Bird, still retains the LBJ ranch nearby. But you don't need a presidential budget to retire comfortably in this Texas hill country town.

 

Jim Mulvihill, 60, lived in Orange County, Calif. , for 42 years, working in law enforcement in Los Angeles , before he and his wife, Carol, decided to retire five years ago. "Being big-city folks, we really weren't ready to give up a lot of the amenities," he says. So, they settled in Fredericksburg , an hour's drive from both San Antonio and Austin . "It has lots of elbow room, the property here is still reasonably priced, and folks are extremely friendly," Mulvihill says. They bought 6 acres of property and built a ranch house. "That's something that is kind of tough to do in Los Angeles ," he jokes.

 

It also helps that there is no state income tax in Texas and the gasoline tax is lower than in Los Angeles . "A lot of people from California come here because they can get almost twice as much for the same dollar out here as they can at home," says Mayor Tim Crenwelge of Fredericksburg . Mulvihill concurs: "There's just a lot of things overall that are less expensive in everyday living that allows your dollar to go a lot further. They even let you park free."

 

Fredericksburg, settled by German immigrants and named for Prince Frederick of Prussia, boasts the National Museum of the Pacific War (which includes a George H. W. Bush gallery), the Lady Bird Johnson Municipal Park with an Olympic-size swimming pool open to the public for just $1 a day, a historic district with open-air pavilions, Texas Tech University at Fredericksburg, and more than a half-dozen wineries nearby. There's also an abandoned railroad tunnel—locals call it "the bat tunnel"—where aficionados of the flying mammals gather each evening from May to October to watch approximately 3 million Brazilian free-tailed bats awake from their daytime slumber and emerge from the tunnel to hunt. Prices to enter the viewing areas for seniors range from free to $3.

 

Maybe the only thing that isn't a good deal in Fredericksburg is the coffee. Says Mulvihill: "At Starbucks, it is $3.95 for a caramel macchiato no matter where you go."

 

Population: 9,504  Median home value: $118,300  Age 65 or over: 30 percent  Cost of living: 21.4 percent below the U.S. average Maximum state income tax: none State sales tax: 6.25 percent.

Experience Matters

Two decades ago, across the country, the housing market tanked. Up until this point, housing prices had seen an average and steady increase. Around the turn of the millennium, the market really cranked up and held that way for 5-6 years. Because the market was so good, new agents came in droves.  (See previous post entitled “I Get It”)

 

Just 11 years ago (1996), there were only 408,000 real estate agents, brokers and appraisers employed full and part time nationwide. Four years later that figure had increased by more than five times to 2.1 Million agents and within a year (2001) there was a further 10% increase in agents to 2.3 Million. In California alone there are nearly half a million agents (that's a mind boggling 1 out of every 52 adults in the state!) Until recently this wasn't an issue because the market was so hot and there was enough business for everyone. We competed for listings, but didn't hold onto them for long because buyers were in abundance.  No more (see previous Market Update post).

 

In the cyclical way of markets, the up-curve has now swung noticeably down. With more agents competing for a shrinking pie, median income, and their very survival, many will certainly be affected.

 

A study by the National Association of Realtors said the median income for its members fell to $49,300 in 2004, down 5.6 percent from 2002, blaming the influx of new agents for the decline. In April 2007, the NAR predicted that U.S. home prices will likely drop nationwide by 0.7% from 2006 levels. This is an unprecedented call from a group who has frequently publicized the fact that median home prices haven't declined since the Great Depression. Couple this with the current extreme caution being exercised by lenders which has resulted in a decline in eligible buyers and an increase in foreclosures, both of which are adding to the inventory of houses in an already over-stocked market.

 

For most agents, then, listings are easy to get, but they're not selling. As a result, the average agent is finding his or her personal listing inventory swelling. This is not a good thing. It means spending more money to sell each listing, which means, in turn, that agent's net income could drop still further.

 

In average times, 20% of new agents fail within their first year in business, and 80% don't make it to their fifth anniversary. These are becoming below average times, so these statistics will only get worse. The harsh reality is that there is no longer enough business to support all the agents operating in Fredericksburg, TX . Tactics are shifting and many are turning to discounting their commission to find an advantage over the dozens of other agents competing for the same clients.

 

Agents positioned as desperate, are desperate. The fact of the matter is, however, there is an exclusive subset of agents in Fredericksburg, TX who not only are NOT giving their time, money and pride away, they are charging and GETTING more from both buyers and sellers. Only in the absence of value does price becomes an issue. If you're agent is not showing you value, they should expect to discount their fee.

 

As it has been months since my last post, some have been wondering what I’ve been up to.

 

Oh nothing much, just opening a new business, Rubicon Real Estate Services,  (including the remodel of a long-unused/neglected office suite), revamping my website, St. Mary's School Council business, family, etc., etc.

 

It’s been a busy past few months.  As you might note from my most recent post, it’s also been a good time to be “distracted” from the Fredericksburg real estate market.  Despite current market conditions; however, I’m glad to be on my own and have been very busy.

 

While it may be tempting for me to recount the trial and tribulations of opening my own real estate brokerage, I will spare you the gory details and simply say…I’m Back…!

YTD SALES ANALYSIS
GILLESPIE COUNTY RESIDENTIAL (OVERALL) & STONE RIDGE (SUBMARKET)
(As of 5/15/07)

GILLESPIE COUNTY RESIDENTIAL:

SALES FIGURES:
• 2006 YTD total unit sales = 106;
• 2007 YTD total unit sales = 65 (a decrease of 38.6%);
• 2006 YTD sales approximately $25,000,000;
• 2007 YTD sales approximately $21,000,000 (a decrease of 16%);

INVENTORY:
• There are currently 243 actively listed residential units;
• Current sales velocity equates to a 486 day supply of homes;
• Historic (mean) time on market has averaged 180 days;
• This data can be interpreted to mean that a “seller’s market” exists when the supply of homes is less than 180 days and, conversely, a “buyer’s market” exists when the supply of homes exceeds 180 days.

PRICING STATISTICS:
• 12.3% of homes currently available are priced below $150,000 (30 units);
• 37.8% of homes currently available are priced between $150,000 and $299,999 (92 units);
• 25.9% of homes currently available are priced between $300,000 and $499,999 (63 units);
• 14.8% of the homes currently available are priced between $500,000 and $949,999 (36 units);
• 9.0% of the homes currently available are priced between $950,000 and $3,550,000 (22 units);

• 76.13% of all units are priced below $500,000 (185 units);
• 90.95% of all units are priced below $950,000 (221 units);
• On average (YTD) 15 properties per week are being reduced in price.

SOLD UNITS-TIME ON MARKET SUMMARY:
• The weighted average DOM for homes priced <$300,000 YTD is 131 days;
• The weighted average DOM for homes priced between $300,000 and $450,000 is 97.8 days.
• Weighted average is skewed by the fact that there were nearly five times the number of homes sold under $300,000 as there were in the higher range.

STONE RIDGE:

SALES FIGURES:
• 2006 YTD total unit sales = 5;
• 2007 YTD total unit sales = 3 (a decrease of 40%);
• 2006 YTD sales approximately $1,829,000;
• 2007 YTD sales approximately $1,284,900 (a decrease of 30%);
• Original List Price / Sold Price ratio is averaging: 97.42%;
• Final List Price / Sold Price ratio is averaging 97.88%;
• Weighted average sold price per square foot is $160.00


INVENTORY:
• There are currently 14 actively listed residential units (Not including FSBO’s);
• YTD average DOM is 139 days;
• Six of the homes listed have been on the market over 180 days (257 days on average);
• Eight of the homes listed have been on the market less than 180 days (61 days on average);

PRICING STATISTICS:
• 21.4% of homes currently available are priced between $250,000 and $350,000 (3 units);
• 50% of homes currently available are priced between $350,000 and $450,000 (7 units);
• 28.5% of homes currently available are priced $450,000 or greater;
• 42.8% of the homes currently listed have had price reductions (one or more) averaging 6.12%. Of the six homes that have had price reductions, 4 have been on the market over 180 days;
• Weighted average list price per square foot is $158.20

UNSOLD UNITS-TIME ON MARKET SUMMARY:
• The average DOM for homes priced from $250,000 and $350,000 YTD is 143 days;
• The average DOM for homes priced between $350,000 and $450,000 is 193 days.
• The average DOM for homes priced over $450,000 is 64 days.
• Given that only three homes have sold YTD, sold DOM is statistically irrelevant.

INVENTORY PIPELINE:
• There are currently six (6) unsold lots available in various Stone Ridge phases;
• Phase VII of Stone Ridge will bring an additional thirty-five (35) lots to the market within the next 4-6 weeks.