Practical Rhode Island guidance for buying, owning, protecting, improving, and selling your home.
Category Archives: Buy Smart™
Make confident Rhode Island buying decisions from financial preparation through closing. Explore current guidance on credit, financing, inspections, property risks, offers, negotiations, and the local professionals who help protect the process.
It’s economy 101 – when supply is low and demand is high, prices naturally rise. That’s what’s happening in today’s housing market. Home prices are appreciating at near-historic rates, and that’s creating some challenges when it comes to home appraisals.
In recent months, it’s become increasingly common for an appraisal to come in below the contract price on the house. Shawn Telford, Chief Appraiser for CoreLogic, explains it like this:
Home Appraisals 2021
It’s economy 101 – when supply is low and demand is high, prices naturally rise. That’s what’s happening in today’s housing market. Home prices are appreciating at near-historic rates, and that’s creating some challenges when it comes to home appraisals.
In recent months, it’s become increasingly common for an appraisal to come in below the contract price on the house. Shawn Telford, Chief Appraiser for CoreLogic, explains it like this:
“Recently, we observed buyers paying prices above listing price and higher than the market data available to appraisers can support. This difference is known as ‘the appraisal gap . . . .’”
Why does an appraisal gap happen?
Basically, with the heightened buyer demand, purchasers are often willing to pay over asking to secure the home of their dreams. If you’ve ever toured a house you’ve fallen in love with, you understand. Once you start to picture yourself and your furniture in the rooms, you want to do everything you can to land the property, including putting in a high offer to try to beat out other would-be buyers.
When the appraiser comes in, they look at things a bit more objectively. Their job is to assess the inherent value of the home, so they’re going to study the facts. Dustin Harris, Appraiser Coach, drives this point home:
“It’s important for everyone to understand that the appraiser’s job in the end is to remain that unbiased third party, to truly tell the client what that home is worth in the current market, regardless of what decisions have been made on the price side of things.”
In simple terms, while homebuyers may be willing to pay more, appraisers are there to assess the market value of the home. Their goal is to make sure the lender isn’t loaning more money than the home is worth. It’s objective, rather than emotional.
In a highly competitive market like today’s, having a discrepancy between the two numbers isn’t unusual. Here’s a look at the increasing rate of appraisal gaps, according to data from CoreLogic (see graph below):
What does this mean for you?
Ultimately, knowledge is power. The best thing you can do is understand appraisal gaps may impact your transaction if you’re buying or selling. If you do encounter an appraisal below your contract price, know that in today’s sellers’ market, the most common approach is for the seller to ask the buyer to make up the difference in price. Buyers, be prepared to bring extra money to the table if you really want the home.
Above all else, lean on your real estate agent. Whether you’re a buyer or seller, your trusted advisor is your ally if you come up against an appraisal gap. We’ll help you understand your options and handle any additional negotiations that need to happen.
Bottom Line
In today’s real estate market, it’s important to stay informed on the latest trends. Let’s connect so you have an ally to help you navigate an appraisal gap to get the best possible outcome.
Joe is a Licensed REALTOR, providing Residential Real Estate Services in Massachusetts and Rhode Island and Income Property Advisory Services nationwide.
Joe is 2018 President of the Rhode Island Association of REALTORS. Member, Board of Directors, National Association of REALTORS®.
Joe has worked with many 501(c)3 corporations as a Broker and volunteering his time, skills, and services.
Current Rhode Island homeowner guidance: This archived article may contain dated examples or requirements. For current practical guidance, visit the Rhode Island First-Time Homebuyer Roadmap.
In the maze of forms, financing, inspections, marketing, pricing, and negotiating, it makes sense to work with professionals who know the community and much more. It is always best to use an Experienced local REALTOR® who serves your area. The REALTOR® is the “Hub” of the transaction and will refer clients to the best lenders, home inspectors, closing/escrow companies, and moving companies. A good REALTOR® will know who is experienced, professional, licensed (when necessary), insured and provides great service to his/her clients.
In the maze of forms, financing, inspections, marketing, pricing, and negotiating, it makes sense to work with professionals who know the community and much more. It is always best to use an Experienced local REALTOR® who serves your area. The REALTOR® is the “Hub” of the transaction and will refer clients to the best lenders, home inspectors, closing/escrow companies, and moving companies. A good REALTOR® will know who is experienced, professional, licensed (when necessary), insured and provides great service to his/her clients.
2. Get a Mortgage Pre-Approval
Most first-time buyers need to finance their home purchase, and a consultation with a preferred mortgage lender is a crucial step in the process. Find out how much you can afford before you begin your home search. You will need a mortgage pre-approval before you can submit an Offer; we will show you homes as soon as you receive a pre-approval. **In Fact, due to COVID many Sellers instruct listing agents to only show their home to individuals that are pre-approved for a mortgage.
Get the Right Mortgage for Your Situation
There are many different types of mortgage programs out there, but as a first-time home buyer, you should be aware of the three basics: adjustable rate, fixed rate and interest-only.
Adjustable rate mortgages (ARMs) are short-term mortgages that offer an interest rate that is fixed for a short period, usually between one to seven years. After that, the interest rate can adjust every year up or down, depending on the market. These are good for people who don’t plan on living in their home very long and/or are looking for a lower interest rate and payment. I would STRONGLY advise against an adjustable mortgage now.
Fixed-rate mortgages are more traditional and offer a fixed interest rate (and thus a fixed monthly payment) for a longer period, usually 15 or 30 years, though they’re available in 20 or 25 year terms. These are good for people who like a predictable payment and plan on living in their home for a long time.
Both fixed and adjustable rate mortgages can have an interest-only payment. What this means is that for a certain amount of time during the loan term, you’re allowed to pay only enough to cover the interest portion of your payment. You can still pay principal when you wish, but don’t have to if your budget is tight. There is a myth that with interest-only mortgages, you don’t build equity. This is not necessarily true, since you can build equity through home appreciation. The benefit to interest-only mortgages is that you increase your cash flow by not paying principal.
3. Look at Homes
A quick search on our site https://www.homes4saleinri.com/ will bring up thousands of homes for sale. Educating yourself on your local market and working with an experienced REALTOR®, can help you narrow your priorities and make an informed decision about which home to choose. Good REALTORS® will ask you questions about what you want and need in a home and compare that with what you can afford. When you receive listings to consider, before scheduling an appointment drive by them to see if you like the neighborhood. The housing inventory is tight in southern New England, so don’t get frustrated if other buyers get an offer in before you, or they offer more money. That happens A LOT in this market.
4. Choose a Home
While no one can know for sure what will happen to housing values, if you choose to buy a home that meets your needs and priorities, you’ll be happy living in it for years to come. Once you and the seller have reached agreement on a price, the house will go into escrow, which is the time-period it takes to complete all of the remaining steps in the home buying process.
Don’t forget people make money in real estate when they buy it, NOT when they sell it. A good, experienced REALTOR® will help you determine the best “Value” for your situation.
5. Home Inspection
Typically, purchase offers are contingent on a home inspection of the property to check for signs of structural damage or things that may need fixing. Your real estate agent usually will help you arrange to have this inspection conducted within a few days of your offer being accepted by the seller. This contingency protects you by giving you a chance to renegotiate your offer or withdraw it without penalty if the inspection reveals significant material damage.
Remember, a Home Inspection is a “snapshot” of the condition of home on a specific day at aa specific time. Home inspectors typically don’t have access to 2/3’s of the home so they cannot be expected to inspect/observe conditions for areas they cannot see. They cannot see behind paneling, inside walls, or around boxes stacked up in a basement or garage.
You will receive a report on the home inspector’s findings. You can then decide if you want to ask the seller to fix anything on the property before closing the sale. Before the sale closes, you will have a walk-through of the house, which gives you the chance to confirm that any agreed-upon repairs have been made.
6. Funding
The cost of financing your home purchase is usually greater than the price of the home itself (after interest, closing costs, and taxes are added). Get as much information as possible regarding your mortgage options and other costs. Your Lender will take care of all of the financing details, paperwork, arrange the appraisal and keep you informed.
7. Make an Offer
While much attention is paid to the asking price of a home, a proposal to buy includes both the price and terms. In some cases, terms can represent thousands of dollars in additional value—or additional costs—for buyers.
8. Find Insurance
No homeowner should be without insurance. Real estate insurance protects owners in the event of catastrophe. If something goes wrong, insurance can be the bargain of a lifetime. Joe can recommend a good insurance agent who is experienced in working with home buyers – especially first time home buyers.
9. Movers
It is highly recommended that you use the services of a licensed, insured, experienced mover. Whether moving across town or across the country, utilize the services of a professional mover. The potential cost of moving yourself or with “amateur” movers can be significant. Damage to furniture, floors, walls, the cost of renting a truck, quilts, dollies, straps, etc, quickly add up. Then there is always the possibility of bodily injury; hurting your back or someone sustaining serious injury that could involve lawsuits.
The fees charged by a professional mover usually are less than the above potentialities.
The Moving Company by preferred Luca & Marano
10. The Closing
Before the Closing, the Buyer’s REALTOR® should arrange for a Final Walk-Through, of the house to confirm that all of the Seller’s belongings that should have been removed, and those that should remain are still in the house, and that no damage transpired overnight.
Preferred by Luca & Marano
The closing process, also known as “settlement” or “escrow,” is increasingly computerized and does vary in different areas. In practice, closings bring together a variety of parties (Buyer and Seller, Closing/Escrow Representative, and sometimes a Seller’s Closing Attorney) who are part of the real estate transaction.
10. Post Closing
Don’t forget to have the utilities, internet access, landline telephone service etc switched into your name. It is much easier to switch service while it is still “on” compared to after it has been terminated.
Joe is a Licensed REALTOR, providing Residential Real Estate Services in Massachusetts and Rhode Island and Income Property Advisory Services nationwide.
Joe is 2018 President of the Rhode Island Association of REALTORS. Member, Board of Directors, National Association of REALTORS®.
Joe has worked with many 501(c)3 corporations as a Broker and volunteering his time, skills, and services.
In 1963, Martin Luther King, Jr. inspired a powerful movement with his famous “I Have a Dream” speech. Through his passion and determination, he sparked interest, ambition, and courage in his audience. Today, reflecting on his message encourages many of us to think about our own dreams, goals, beliefs, and aspirations. For many Americans, one of those common goals is owning a home: a piece of land, a roof over our heads, and a place where we can grow and flourish.
If you’re dreaming of buying a home this year, start by connecting with a local real estate professional to understand what goes into the process. With a trusted advisor at your side, you can then begin to answer the questions below to set yourself up for homebuying success.
1. How Can I Better Understand the Process, and How Much Can I Afford?
The process of buying a home is not one to enter into lightly. You need to decide on key things like how long you plan on living in an area, school districts you prefer, what kind of commute works for you, and how much you can afford to spend.
Keep in mind, before you start the process to purchase a home, you’ll also need to apply for a mortgage. Lenders will evaluate several factors connected to your financial track record, one of which is your credit history. They’ll want to see how well you’ve been able to minimize past debts, so make sure you’ve been paying your student loans, credit cards, and car loans on time. If your financial situation has changed recently, be sure to discuss that with your lender as well. Most agents have loan officers they trust and will provide referrals for you.
“Financial planners recommend limiting the amount you spend on housing to 25 percent of your monthly budget.”
2. How Much Do I Need for a Down Payment?
In addition to knowing how much you can afford on a monthly mortgage payment, understanding how much you’ll need for a down payment is another critical step. Thankfully, there are many different options and resources in the market to potentially reduce the amount you may think you need to put down.
If you’re concerned about saving for a down payment, start small and be consistent. A little bit each month goes a long way. Jumpstart your savings by automatically adding a portion of your monthly paycheck into a separate savings account or house fund. AmericaSaves.orgsays:
“Over time, these automatic deposits add up. For example, $50 a month accumulates to $600 a year and $3,000 after five years, plus interest that has compounded.”
Before you know it, you’ll have enough for a down payment if you’re disciplined and thoughtful about your process.
3. Saving Takes Time: Practice Living on a Budget
As tempting as it is to pass the extra time you may be spending at home these days with a little retail therapy, putting that extra money toward your down payment will help accelerate your path to homeownership. It’s the little things that count, so start trying to live on a slightly tighter budget if you aren’t doing so already. A budget will allow you to save more for your down payment and help you pay down other debts to improve your credit score.
A survey of millennial spending shows, “68% reported that shelter in place orders helped them save for their down payment.” Danielle Hale, Chief Economist at realtor.com, also notes:
“If there is any silver lining to the current economic landscape, it’s that mortgage rates are hanging around record lows…Additionally, shelter-in-place orders helped many who were fortunate enough to keep their jobs save for a down payment — one of the largest hurdles of buying a home. The combination of low rates and the opportunity to save is enabling many millennials to move up their home buying timeline.”
While you don’t need to cut all of the extras out of your current lifestyle, making smarter choices and limiting your spending in areas where you can slim down will make a big difference.
Bottom Line
If homeownership is on your dream list this year, take a good look at what you can prioritize to help you get there. To determine the steps you should take to start the process, let’s connect today.
Joe is a Licensed REALTOR, providing Residential Real Estate Services in Massachusetts and Rhode Island and Income Property Advisory Services nationwide.
Joe is 2018 President of the Rhode Island Association of REALTORS. Member, Board of Directors, National Association of REALTORS®.
Joe has worked with many 501(c)3 corporations as a Broker and volunteering his time, skills, and services.
For the past several months I have been hearing from my colleagues, consumers, and “talking heads” on the business channels on cable, that there is a coming “correction”, “downturn”, and even the dreaded “R” word; Recession. Bollocks! I say. Has there been a relenting of the continued pressure to increase prices? Yes, there has. However, that does not mean that prices are in decline, or will be any time soon.
Recall the basic laws of economics; Supply and Demand. We still have a tight supply and demand is very strong. In many parts of the country, and especially in most of New England, there is much less than six months of supply. (Six months of supply is considered to be “Balanced.”)
The reason that the pressure to push prices higher has relented a bit is that inventory has increased slightly. So if the level of inventory went from 3.5 months to 4.4 months, there are more houses for buyers. However, we are still far from a “Balanced Market”.
How do we know that this Demand will continue if the Fed raises interest rates? The reason that higher interest rates will not be detrimental to the real estate market is that REAL wages are increasing and new job creation is outpacing forecasts.
There were 230,000 new jobs created in September versus a Wall Street forecast of 180,000. Additionally, demographics support continued strength in the housing market. The number of millennials in the “Purchasing Pocket” ( most people buy their first home between 30-34 years of age) has been and will continue to increase.
This sustained demand and the continued increase in wages bodes well for the housing market. If the housing market is healthy that will create a thriving economy at-large because many more people will see increases in their income. Every time a new house is sold $60,000-$75,000 of income is injected into the local economy. That will help legions of small businesses.
Coming real estate “Bust”?…I think not. The data doesn’t support that claim.
Joe is a Licensed REALTOR, providing Residential Real Estate Services in Massachusetts and Rhode Island and Income Property Advisory Services nationwide.
Joe is 2018 President of the Rhode Island Association of REALTORS. Member, Board of Directors, National Association of REALTORS®.
Joe has worked with many 501(c)3 corporations as a Broker and volunteering his time, skills, and services.
Many things have been said about the millennial generation (Born 1981-1996) over the years. The negative generalizations that are frequently applied to this generation in the media are “entitled,” “narcissistic” and “lazy.” (Incidentally, they are tired of being blamed for just about everything.) However, there are some facts worth considering
In 1992 In 2018
Average Home Cost:
$80,626 >$265,000
Average Student Debt:
$5,200 >$35,000
Average Family Income (after taxes)
$59,000 $86,419
Fixed Mortgage Rate:
9.71% 4.65%
Today the average home costs 300% more, student debt averages almost 700% more but family income is only 46% greater than in 1992. The good news is that the average fixed rate mortgage is about half what it was in 1992. Unfortunately, the average millennial, due to high student debt, has a credit score of 625 (per NerdWallet) so they may not qualify for the lowest mortgage rates available. A Millennial today is worth 21% less than his 1983 counterpart while the net worth of a 60 year old is twice what it was in 1983. So young folks are getting poorer while older folks are getting richer. Is it any wonder that New Home Creation by this generation after graduating from post-secondary educational institutions has been delayed 2-3 years? The Quick Answer is “No”. These are the contributing factors that support the statistics that show millennials are worse off than their parents.
GOOD NEWS: This generation is not willing to engage in profligate spending like some preceding generations. They are more likely to move back home to save money to pay down student debt. Contrary to messages on late-night comedy shows, they do not want to move back home into their parents’ basement to play video games. In fact, my personal experience with Millennials is that they are not likely to purchase a home for a price as high as their mortgage pre-approval will allow. Other generations frequently spend every dollar that their pre-approval will permit. It is not uncommon for millennial buyers to have a mortgage pre-approval for an amount that is 10-20% greater than what they actually want to spend. Why? these buyers witnessed first hand when friends, neighbors, or family members were unemployed, and/or under-employed, and had to Short Sale their homes, or worse, experience a foreclosure. That experience is still very fresh in their memory, so they are willing to take the steps necessary to lessen the chance that they will have such a traumatic experience.
Can anything be done to mitigate this situation? Possibly. The National Association of REALTORS® has a Federal Policy Position that would provide tax relief to student debt holders and employers who assist their employees’ student loan debt burdens. In addition, the National Association of REALTORS® supports policies that provide tax relief to those borrowers with forgiven student debt. We need to convey to our political representatives in Washington DC that there are things that can be done to address the student debt issue…if we work together.
Not all is “gloom and doom”. This is the most educated generation, and the most tech-savy generation, in history. As the economy rebounds real wages will increase, and due to their fiscal discipline, these consumers will be well-positioned to save money at a rate that has not been seen “in generations” 😉
The millennial generation is fantastic for the housing industry because their shear numbers indicate that demand for homes will not abate for years. So all of my REALTOR® colleagues across the country can rest assured that the demographics favor a sustained positive environment for home sales. For everyone else this is also good news because when the housing market is strong the economy is not likely to falter.
Joe is a Licensed REALTOR, providing Residential Real Estate Services in Massachusetts and Rhode Island and Income Property Advisory Services nationwide.
Joe is 2018 President of the Rhode Island Association of REALTORS. Member, Board of Directors, National Association of REALTORS®.
Joe has worked with many 501(c)3 corporations as a Broker and volunteering his time, skills, and services.
As was widely expected, The Federal Reserve raised interest rates, and indicated that they will continue to do so throughout the year. This actually indicates that things are good in our economy… a positive sign that consumers are spending money, and prices are being pushed upward by the forces of supply and demand. Interest rates are like a “brake system” on a train, when things start moving too fast apply the brakes, to slow the train down. Likewise, when the economy starts to “move too fast”, prices are getting pushed higher (Inflation) so a slight increase in interest rates will temper, or slow down, these price increases. Inflation, like our debt, diet, and data, needs to be managed so it doesn’t become a problem. Which was why The Fed repeatedly lowered interest rates during the depths of The Great Recession – to spur economic activity (buying stuff.)
What will this mean for me? If you have a 30 year mortgage of $250,000, at a fixed interest rate of 5%, the monthly payment (not including taxes and insurances) would be about $1,342. A rate increase to 5.25% would raise your monthly payment by about $35. Most consumers spend more than that on coffee every month. Will that be detrimental for some consumers? Probably. However, rising incomes, should mitigate that affect. The US unemployment rate is 4.1%, and Full Employment is considered to be about 5%. Many economists believe that this dynamic pushes wages higher so (theoretically) more people should be able to afford the extra $35/month.
If you are considering Selling your house, you should act sooner and not later. Inventory is tight, so there is not much competition at this time; but more people may list their homes for sale increasing the competition. You best option is to contact a Full Time, Experienced, REALTOR® to get the answers to your questions for your situation. Feel free to call me, Joe Luca at 401-580-9797. All questions are welcomed and answers are free and without obligation.
Joe is a Licensed REALTOR, providing Residential Real Estate Services in Massachusetts and Rhode Island and Income Property Advisory Services nationwide.
Joe is 2018 President of the Rhode Island Association of REALTORS. Member, Board of Directors, National Association of REALTORS®.
Joe has worked with many 501(c)3 corporations as a Broker and volunteering his time, skills, and services.
This past week I came across two separate indications about what may happen to the residential real estate market in southern New England, and elsewhere, in 2015. The first was actual data that demonstrated that while sales were down in 2014 compared to 2013, the prices had risen close to 5%…and this is in Rhode Island, traditionally one of the “lagging indicators” of all states and historically one of the last to exit from economic downturns. See the below:
Rhode Island has been hit especially hard since the last downturn because the unemployment rate has been one of the highest in the nation, and it has been ranked last by CNBC on several occasions for business attractiveness. Next I read the predictions for interest rates from several different sources and they all indicated that rates are going up from .3% to 1.2% by the 2015 4Q.
So to extrapolate: In a “worst case scenario”, if the price of a house increases from $200,000 to $210,000 AND interest rates increase 1.2% (NAR) the monthly payment excluding taxes and insurance would increase from $948/mo today to $1,143/mo at the end of 2015. That is an extra $2,340/year, $35,100 over 15 years, and a whopping, uncompounded, $70,200 over 30 years. Wouldn’t it be better to have that money in your retirement account, or use it for a vacation home? Since we have been at historic lows for a few years, and prior to the downturn the “Fantastic Rates” were well over 5%, this is not that outlandish. It is also not outlandish to think that we will not be returning to rates this low for generations since prior to 2010 we had never had rates in the 4% range (BankRate.com.) So what do you think is now a good time to buy or sell a home??? If you have questions about buying or selling a home, email Joe@JoeLucaRealEstate.com or voice/text at 401-580-9797.
Joe is a Licensed REALTOR, providing Residential Real Estate Services in Massachusetts and Rhode Island and Income Property Advisory Services nationwide.
Joe is 2018 President of the Rhode Island Association of REALTORS. Member, Board of Directors, National Association of REALTORS®.
Joe has worked with many 501(c)3 corporations as a Broker and volunteering his time, skills, and services.
Joe is a Licensed REALTOR, providing Residential Real Estate Services in Massachusetts and Rhode Island and Income Property Advisory Services nationwide.
Joe is 2018 President of the Rhode Island Association of REALTORS. Member, Board of Directors, National Association of REALTORS®.
Joe has worked with many 501(c)3 corporations as a Broker and volunteering his time, skills, and services.
REAL wages are increasing and new job creation is outpacing forecasts.
