In real estate it has always been about “location, location, location”, and then along comes REO.  Now it’s about “price, price, price”.  We all know that “price” sells; it always has but let’s not get too carried away.  There is a “great price” and then there is a “ridiculous offer”.   It is so tempting in these challenging times to see just how low the seller/bank will go.   This is not about throwing a dart at a price on the wall.  It pays to work with an agent who understands the subtlety of appraisals, the net carry value (what is owed the bank by the previous owner), the value of the neighborhood, etc.  If you are serious about a foreclosure, do your homework.  Make an offer that makes sense.  Demonstrate to the seller that you are a serious buyer not just a bottom feeder.  When the seller knows you are serious, thoughtful negotiations will begin.  Throw out low ball offers and the seller will more than likely come back to you at full price.  A good deal is a good deal for everyone involved in the transaction.  The buyer wants to feel like they got a good value at a great price.  The bank wants to feel like it has done its fiduciary duty and accepted the best deal it could, under the circumstances, for its stockholders.

With that being said, there was some good news about the buying process this past week. 

The National Association of Home Builders will be tackling four issues that are critical to the housing sector which comprises more than 15 percent of the GDP.

 (1)   The NAHB is calling on congress to extend and enhance the $8000 first time home buyer tax credit.  They are calling for an extension of the bill to November 30, 2010 and make it available to ALL buyers of principal residences.

 (2)   Correct the faulty appraisal process.  The inappropriate use of distressed and foreclosed sales as comps in determining home values is hurting home values and killing home sales.  NAHB is urging Congress to work with housing and federal regulators to adopt and enforce clear, concise regulatory guidance that will allow appraisers to develop realistic valuations based on sales that are truly comparable.

 (3)   Improve housing credit conditions.  The NAHB is calling on Congress to urge regulators and the banking industry to end the stranglehold on acquisition, development, and construction loans that has emerged as a major impediment to the housing recovery.

 (4)   NAHB will also co-sponsor Net Operating Loss (NOL) relief legislation in Congress.  This would help prevent further layoffs in building and other industries hit hard by the recession.

One-third of U.S. consumers polled this week by Gallop indicated that they believe home prices would rise in the next 12 months.  And the recent Standard & Poor’s/Case Shiller home price index backs up this sentiment, as it reported the eighth consecutive monthly increase in home prices.  Yet analysts predict that home prices might fall again during the second half of 2010.

So how do you determine a home’s value during such an inconsistent market?  That’s a big question that NRT Development Advisors regularly receives when counseling clients about home pricing strategies.  Our answer: Comps.

Comps allow sellers and buyers to compare “apples to apples” and determine the price of what such a home   could realistically sell for in the current market.

Below are the top five factors you should consider when selecting comps:

• Size – This includes the number of bedrooms and baths, additional rooms such as a study or playroom, number of garages and lot size.
• Square footage – Cost per square foot is an important measure in determining a home’s value. For example, if your home’s value per square foot is $250 and the average per square foot of nearby similar recently sold homes is $275, it shows that your home is valued less per square foot than nearby similar homes.
• Features –Look for the presence or absence of similar characteristics, such as chimneys, decks, walk-in closets and oversized bathtubs. And don’t forget about energy-efficient upgrades, including appliances and insulation.
• Exterior features – This includes brick, siding, gables and more.  Brick homes are typically worth more than homes constructed with other materials.
• Foundation – Is the home built on a basement or slab?  Homes on a basement are typically valued higher because there is more room for expansion.

By analyzing the current listing prices of competition and final prices of recent comparative closings, sellers can appropriately price their homes to make them an attractive option, and buyers can know that they’re getting a fair deal on a purchase.

Appraisals are becoming the next big challenge facing developers trying to sell their inventory. Distressed bank assets and aggressive short sellers are setting the standard for value in many projects.

Many developers still struggle to find ready, willing and able buyers. Now, even when you have found that elusive buyer that is financially qualified and ready to close, your work has just begun.

The new problem:  the appraisal comes back reflecting three recent foreclosures that were sold at prices well below the negotiated contract price. As a representative to the seller you  may argue the condition of the foreclosures was poor or point to other comparable sales at higher prices but usually the end result is a low appraisal and a dead deal. Buyers are unwilling or unable to move forward if the property appraisal does not meet or exceed the purchase price.

We need to consider that ready, willing and able buyers can and should influence the value of Real Estate. Using only the very most distressed sales as a baseline for true value will only continue this downward pressure on pricing.