Page 12 - December 2021 Issue.indd

DOLLARS AND SENSE by Tolbert Rowe

The Risks of Purchasing a Home in Today’s Overheated Market

recently had an interesting email website. https://sdat.dat.maryland.gov/ No one wants to pay more for a product
exchange with an avid reader RealProperty/Pages/default.aspx. Here than they need to. We are Americans
of Dollars and Sense regarding you can see what value for tax purposes and we love to get a deal. The worst
I the risks of purchasing a home the assessment office considers the feeling in the world is to see a product
in today’s overheated market. More value to be. This value is determined you recently purchased go on sale a
specifically, how can you determine every three years which makes it not week after you bought it. An even worse

whether you are paying too much dependable or accurate for current feeling is buying a home and watching
for a property, either in a competitive market conditions. its value go down like it often did in
situation with other offers, or paying the 2010 to 2014.

Property assessments come out in
listing price of a home?
January and are based on sales data The residential real estate market has
In last month’s article I made the case accumulated over the previous three evolved from a point where prices paid
that “value” of a product, in this case years. Properties up for assessment were reflected as a percentage of list
a home is determined by what price a in January 2022 were last assessed (asking) price to a multiple of list price.
buyer is willing to pay and what price a in January 2019 using sales data By this I mean that up until early to mid-
seller is willing to accept. This meeting of accumulated from the previous three 2020 houses tended to sell at prices lower

the minds establishes “value”, which will years, back to 2016. This is data that is than list price. Sales were reported as a

be supported by an appraisal if fi nancing not relevant in a market that has seen percentage of list price which would be
is involved. Lender’s (a third party in double digit increases in value the last 100%. If a property was listed at $100,000
the transaction) will need confi rmation several years. and sold for $96,000 it was reported as
from a licensed appraiser that the Information from SDAT also shows selling at 96% of list price. In many cases
property value (sale price) is supported what a seller paid for a property and if a property sold at 100% of list price the
by comparable homes that have sold in when they purchased it. When I hear seller was providing concessions for the
the area within a specified time frame, a prospective buyer tell me that they buyers, such as credits toward buyer’s

preferably 6 to 9 months. closing costs.
think a house is overpriced because
Obviously when no lender is involved the seller only paid so much for the Since mid-2020 the market has moved
because the buyer is paying cash, there house 2 years ago, I cringe a little. If a from one where prices paid were
is no need for a third-party appraisal. house is overpriced, it will sit on the generally less than asking price to one

Those who purchase real estate for cash market without offers. In today’s market, where prices paid are higher than asking

have already established what they if it is priced appropriately it will sell, price. This has not occurred since the
consider the value of the property to be and in many cases, it will sell quickly early to mid-2000’s where demand
by the price they are willing to pay. You making what the seller paid two years was driven by the availability of “easy
could also use publicly known value ago irrelevant. What is relevant is what money” mortgage programs. Lenient
information through the MD Dept. someone is willing to pay today. underwriting requirements meant that
of Assessments and Taxation (SDAT) anyone could and did qualify for a
mortgage, regardless of their ability to
“Your Mortgage Consultant Since 1985” repay the loan. This is not the case with

today’s underwriting guidelines.
Purchase or Refinance It is beginning to look like price increases
are starting to slow down a bit. Will a
slowing down of price increases be an
indicator of real estate values peaking
and then beginning a slow decline or
will it be a plateau where prices level off
115 E Dover St. Ste 3 - Easton, MD and remain stable for a period of time?
tolbert@baycapitalmortgage.com C. Tolbert Rowe, Personally, I am a plateau person and
www.baycapitalmortgage.com NMLS Vice President/Lending will attempt to justify my reasons for
182844
believing so.
410-819-3005 / cell 410-310-3520

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