All About: Comps

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The process of capitalism teaches us that the value of any good is assessed by the amount that a buyer is willing to pay to obtain it; and so it is with housing. With new homes, that amount is largely influenced by the materials used in the construction and outfitting of the home, the value of the land on which the home sits, and the cost of the labor hired to enact the actual construction. With used homes, the valuation is not so clear cut, so the value of these homes is typically assessed using a real estate tool known called a “comparable,” popularly known as a “comp.” Today we’ll discuss the nature of comps, and how they are used in the home buying (and selling) process.

All About Comps

Understanding the process of using comps in the real estate market is more important today than ever before.

What are comps, exactly?
Comps are data collations that give a good idea of what the going market rate is a for a home of a particular size, offering particular amenities, in a particular area. The reports are called “comparables” because they pull information on sales of homes comparable to that which is being sold (or bid upon by a buyer).

Where does the information come from?
Information on recent sales is pulled by an agent or a buyer from a real estate listing service, such as the “Multiple Listing Service,” also known as the MLS. Researchers can create reports based on comparable sales in a target area, for a targeted size of home, then use that information to establish a sales price (or bid) most likely to reflect current valuations. Whether these prices are too low or too high are influenced by a variety of factors, including consumer demand.

How do researchers decide which homes to use in the comps?
Anyone assembling data for comps has to use what is available; this means that in areas with relatively low sales volume, the comp data will be heavily influenced by the few sales that have occurred. In most cases, however, sales are frequent enough to reflect the true value of a home in a given place. Comp data will be composed of recent sales information for homes that most closely reflect the home for sale: square footage, number of bedrooms, size of lot, amenities like a pool, and even the quality of the local school district.

What’s the best way to use a comp?
Comps can be assessed in a number of ways, but one useful barometer is the “cost per square foot” for homes in a given community. For example, if the comps show that average cost per square foot in a certain neighborhood is $245, but a particular home is listed at over $300 per square foot, a buyer would want to examine the reasoning behind the increased price and decide whether or not the cost makes sense. Sellers offering relatively typical homes in a neighborhood can also use the price per square foot as a launching point for setting their sales price, deciding whether or not that price should be raised or lowered as appropriate for the size and condition of their own property.

Are there any drawbacks to comps?
Comps are a straight-forward and easy to understand tool for valuation of property, but anyone using a comp should be sure that the comp is both recent and properly compiled. Values and pricing shift often in real estate—sometimes seasonally, sometimes month-to-month—so an outdated comp can give an inaccurate picture of the state of the market. Likewise, comps that don’t adequately cover recent sales (or that include sales of dis-similar homes) may also give skewed results. Prepared properly, however, a comp can give both buyers and sellers a good idea of what a home is truly worth.

Cheap and Easy Decorating for Fall

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If you’re like most people, you get a sort of nostalgic feeling come the onset of fall, a whistful desire to mark the passing of another summer, and a wish to welcome autumn’s crisp days and falling leaves. Here are some simple tips to help you create inviting fall décor without a major investment of time or money.

Cheap and Easy Decorating for Fall

Tips to help you create inviting fall décor without a major investment.

• These days, the selection of decorative gourds at stores and supermarkets is phenomenal. Whether bumpy or smooth, round or pear-shaped, green or red, it’s easy and economical to assemble and eye-catching display using these picture-perfect pods. Simply place gourds on a seasonal placemat (a brown, orange or red mat will do), add a small vase of orange and yellow flowers, and a small votive candle, and you’ve captured the essence of the season for pennies on the dollar.

• Decorative items are falling from the sky—literally—this time of year. The brilliantly colored leaves that define the season are free for the taking, and gathering them can be a fun family activity and healthful hike all in one. Select only dry leaves that are in good condition. Use them in wreaths, bundle them like bouquets and place in vases, or scatter them along a mantle or display table.

Trees are also the source for another fabulous fall décor item: sticks. After the first fall storm, a brief walk around the neighborhood should yield you some sturdy but stately sticks, that, when placed together in a vase, can create an artistic and poetic centerpiece. You can also bundle the sticks together, tie in the middle, then lay behind a mantle or table display for a rustic hint at autumn’s homey evening fires.

• Don’t forget to raid your cabinets, drawers and closets for interesting items to add to your fall décor. Metallic candle holders evoke an old-timey sense of the season, while wooden trays or bowls can hold gourds, leaves or pinecones. One famous designer even made a stunning mantle display out of various vintage nut-crackers, along with artfully assembled walnuts, almonds and brazil nuts. Why not try a variation with apples, corks and vintage bottles?

Finally, just remember that the arrival of fall is all about comfort, warmth, and the traditional abundance felt after the completion of the harvest. You don’t have to spend tons of time or money to evoke this spirit. Just taking the time to enjoy each other’s company, snug in your beautiful new home, will contribute to your own family’s sense of autumnal joy… with no decorations required!

New Home Dream? Or Distressed Nightmare?

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Buyers today have an inventory of new and used homes that is truly expansive, offering great selection and myriad choices to home shoppers. One option buyers can consider is “distressed” housing, which, as the name suggests, consists of properties brought to market by the financial distress of the previous owner. Foreclosures and short sales, with their ultra-low prices, can seem like a great deal. However, price and value do not always equate, and these distressed properties can be distressing indeed—often hiding behind quick cosmetic fixes the reality of a home with functional and structural issues.

No money down new homes for sale

If you are a first-time buyer unsure as to whether to buy a new or resale home, take a moment to read LGI Homes' First-Time Homebuyer Guide.

Think about it this way: when you dream of owning your own home, do you dream about spending months dealing with contractors, who rip apart your walls in an effort to modernize the structure? Do you dream of living with tarps and dust? Are you longing to fill your time reviewing bids, contacting carpenters, and haggling out details with the workers who show up to the job? How about weeks without a kitchen as the antiquated plumbing is re-done? Cold showers, anyone?

Unlike a brand new home—which has been built to current code, with the most modern materials, and has no wear and tear—a distressed home may be twenty, forty or sixty years old, and showing its age. Electrical systems may be outdated, previous owners may have taken shortcuts on a remodel, the roof may need to be replaced, or the foundation may have cracks. Even if the home has been relatively well-maintained, there may be issues in the walls of which the owner was unaware, such as mold, rotting, or insect damage. Your term as the home’s owner may be plagued from beginning to end with repairs, expenses and frustration.

More likely, your dream of homeownership is a little more serene. It probably plays out like this: turning the key in the door, and stepping into a light, bright and clean home that has brand-new electrical, plumbing and HVAC systems, as well as mint appliances. The paint on the walls is perfect, the carpets are brand-new—and you don’t have to think twice about problems lurking in the walls, because the home has been built only recently by a homebuilder awarded for the consistent quality of their materials and workmanship. Instead of dealing with the frustrations of repairs, remodels and renovations, you can focus instead on furnishing and decorating a home that is truly safe and sound.

Here at LGI Homes, we may be biased, but we believe that homebuyers are served best by finding true value in one of our new home communities. Our owners are never bogged down by the threat of unknown issues, and they have the time and freedom to enjoy their new home, instead of worrying about what problem will pop up next. In every one of our affordable communities, individuals and families are buying homes and living a dream of homeownership that is free from anxiety, stress and worry. That, we think, is priceless.

All About: Refinancing

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While many of the customers we help here at LGI Homes are first-time homeowners, some are seasoned property owners who are attracted by the high-quality, affordable homes in our new homes communities. Often, those homeowners are interested in learning more about refinancing their current properties—and interest in refinancing has surged recently, thanks to current rates lingering at historic lows. In deference to those customers, we offer this next installment of the “All About” series, with the basics on mortgage refinancing.

Mortgage Loan Refinance

Refinancing your home can be beneficial, but you must first understand the process and know if you can maintain the terms of the new loan.

What does it really mean to refinance?
In essence, refinancing means you’ll be taking out a new loan (at a lower interest rate), which you will use to repay your original loan (which had a higher rate). This is a smart financial move when, as now, interest rates are well below the rates that were prevalent when you took out your original loan.

How do I know if refinancing makes sense for me?
One of the rules of thumb regarding refinancing has always been that the interest rate on your new loan should be at least two percentage points below that of your original loan (e.g., down to 4% from 6%). However, it may still make sense to refinance even if you won’t see a two percent drop, depending upon your timeline for staying in your home.

How does the length of time I plan on staying in my home factor into refinancing?
While the two-percent interest rate drop is a good general rule, if you’re planning on staying in your home for a protracted length of time, refinancing may be a good move. You simply have to calculate what your monthly payment savings would be by moving to the new, lower, rate and then calculate how many months it will take for those savings to recoup the costs associated with refinancing your loan. If you’ll still be in the home once those costs are recouped, refinancing probably makes sense for you.

What are the costs of refinancing?
Much like when you purchased your home, you will have costs associated with the generation of, preparation of, application for and dispersal of your new mortgage loan. The refinancing process typically also includes an appraisal of your home, which is an additional cost. These costs, which are paid for at the closing of your refinancing mortgage, can amount to thousands of dollars, depending upon the principal involved.

How do I know if I will be able to refinance my loan?
The answer to this question is tricky, as many current homeowners looking to refinance may or may not be “underwater” (owing more than their home’s current assessed value). Some homeowners have paid hundreds of dollars towards the refinancing process, only to have their home’s current appraisal show that they are, indeed, underwater. Most lenders, of course, balk at lending more than the collateral put forth for the loan (the home) is worth. You can do your research and crunch some numbers in order to come up with an estimate of what your home may sell for if you put it on the market today. If you owe less than that, you can be reasonably assured that your refinance will be approved.

Remember: real estate is highly local, so you may find that your own home in your own community has retained much of its value. If so, refinancing to today’s incredibly low interest rates may be one of the best financial moves you can make!