March 2025 - The income approach to value

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     One way appraisers look at value for residential income properties is the Income Approach. It's a simple formula that divides the sale price of a comparable rental property by its monthly gross income, resulting in Gross Rent Multiplier (GRM). 

     The comparable rental properties used to derive the GRM should be recent sales (within 6 months if possible) that are as similar as can be in location, number of units, style, condition, and functionality (bedrooms) to the property being valued.

     Market rents should be used. If the comparable rental property has below market rents (long term tenants, family, etc.) they should be adjusted to market rental rates. A rental market study may be necessary if you are not familiar with rents in the area you are looking at.

     Use a minimum of 3 rental comparables. Older sales should have time adjustments made to them to bring their sale prices up to speed with any increasing values. If 4 unit sold for $400,000 and makes $4000 a month in gross rental income (before expenses & taxes), it has a GRM of 100.   

                                                                 ($400,000  / $4,000 = 100)  GRM=100

     After looking at the 3 to 5 resulting GRM's from the comparables, hopefully a trend will emerge that can then be applied to the Subject Property by reversing the equation. 

     If we find the GRM's trending at 105, we can then take the Subject Property's market rents, let's say $4200 in this case, and multiply that by the selected GRM. This gives us a proposed value based on the Income Approach.

                                                                 105 (GRM) x $4200  = $440k Value (r).

     Despite this approach, the sales comparison approach is typically a more accurate indicator of value for smaller residential income properties (2 to 4 family homes). 

     I just met a local man last month who has 96 rental units, all smaller residential type properties. If nothing is renting under $1,000 a month these days, that's pretty amazing income even if you remove half for taxes, insurance, maintenance, reserves and management.

      If you are looking to invest in, or divest from income property, and need a value, or any other assistance, fell free to contact me anytime, I'm here to help.

~Matt 

     Many buyers became discouraged over the past four years after covid when inventory levels of decent, affordable housing shrank. It was already a crazy enough market before covid. I remember two years before going to an open house where removing shoes was mandatory, and literally having to walk on top of a sea of shoes in the hallway to get into the house. Cars were parked all over various side streets. Can you imagine being an agent with your buyer? How do you explain that they will get the winning Wonka gold ticket, don't worry. 

     After the craziness of covid, and forward almost a half a decade later, our ears are getting exhausted of hearing the words lack of inventory and housing shortage. We're not going to take it anymore. If we want a house, we shall get you one, whatever the kind of challenges the market is presenting. For starters, we can scroll down in my blog here to get tips and pointers for getting the winning bid on a multiple offer situation. Secondly, we can take a look at off-market options, as well as For Sale By Owners.

     Even though it is a seller's market, and no one knows what price they will actually fetch until their house is exposed to the open market for a reasonable amount of time, people still at times prefer to sell to a neighbor, friend, a friend of a friend. Why? The reasons can be many. To avoid paying a commission and save money. To avoid the hassle of going to market, the stress of dealing with showings, offers, time going by, etcetera. (Personally, those times aren't stressful for me, I thrive in them for the sake of my client's, but for a homeowner I know it can be stressful).

     So be on the look out and keep your ears open. I was just asked recently by a client to help her buy her friend's house. I had shown her several houses previously, and she was being loyal. I told her she didn't need me, and to save her money. I was very happy for her, and she was over-joyed to have found something.  I had a friend in a different market write letters to home owners in the neighborhood where he wanted to raise his family, and sure enough, someone called him from one of his letters 7 months later and sold him their house.

     Why For Sale By Owners?  Won't they receive the same competition as listed properties? Yes, if they are priced competitively. But if they are not, which is common with FSBO's, why not make an offer at market price? Most buyers won't make an offer on an over-priced home, especially to an owner with no agent. They think they are already too far apart, but you never know. The FSBO might realize it's the only offer they are getting. Brining comparables also helps with this.

     Estates are another avenue to explore to find off market homes. Many times executors are satisfied with receiving the appraised value of an asset, and don't need or want it to go to market.  If you see a home that looks vacant, look up the owner and write them a nice hand written note card, not a "We buy houses" post card. Express how much you love the home, and you' may be surprised. Why not knock on the door of a fixer upper and ask the owner if they ever thought about moving. (Moving, not selling. If you solve their moving problem, you help yourself).

     As you can see there are options other than traditional, MLS homes. If you want to explore off-market property opportunities, give me call, and we'll come up with a strategy to get you a place to call home. If it's an investment property you want, we can look at some of the same strategies or others...LET'S DO THIS!!   

~Matt

     It's that time of year again when many of us take a look back to see what we may have done differently, or look ahead to goals we may want to achieve. Although I am a "live in the moment" kind of guy, there is no denying I am in the Autumn of my life, and that seeing many seasons shapes one's outlook and perception of time. Wisdom they call it. 

     I'm fine with that, as long as I realize that I will never stop learning, growing and serving. The more wisdom we obtain, the more we realize of how much we don't know. Seeking answers is fine, pursuing truth is good, living truth is even better. I want to pursue excellence, but only what it means to me, not to everyone else. A personal challenge, what else is there? 

     One thing I do know. I've accumulated a vast amount of residential real estate knowledge over the last quarter of a century, including selling many homes, an apartment building in downtown Albany, and rural estate homes in Hoosick Falls and Westerlo. I've ripped homes apart with my bare hands and put them back together before plumbing was plastic parts with click snap joints. I've appraised over 2,000 homes in the Capital Region, as well as a McDonalds, a Wal-Mart and a marina complete with Manatees along the Gulf of Mexico in Florida.

     It is important to always be learning and growing, and along the way, equally important is to share the knowledge, whatever it is we've acquired. Give it away, all of it if you can. I know I am. The tiny microcosm of, miniscule speck of knowledge I've accumulated, I offer wherever I go to whom ever may need or want it, and I hope it helps, along with any other solace, encouragement and inspiration I can offer my fellow human beings while we traverse this beautiful thing called life.

~Matt

   For many, this time of year is for family, and for many others, it’s a time for missing family that are no longer with us. I know that for myself, when I look back at Christmases past, I was blessed to have had a family that loved me. Yet those fond memories don’t lessen the ache of missing those that have gone on to perform their one last earthly act, dying.

     Crying, anger, depression, lack of appetite or the opposite, and isolating ourselves can all be signs of grief as we try to readjust our lives so that we can learn to live with part of our soul missing. This can be especially true when a spouse or child predeceases us. I don’t have a magic answer. I let my grief wash over me like an ocean wave, and when it subsides it’s gone. I’m careful not to live or dwell there, as it’s not healthy, and it’s not how my loved ones who have passed on would want me to spend my time, so I honor that. 

     A friend recently asked me, how do we let go of something painful, like missing someone who is gone, or someone whom we loved treated us  badly, and I said I didn’t have the answer, and that it could be different for everyone. My default is to stay in the present moment as much as possible. I don’t want to use the present moment as a stepping stone to a future that never arrives anymore. Always striving but never arriving, it’s a terrible way to live and then look back on and ask, why? Why did I perceive my life as a struggle when they were the best times of my life, the journey, not the end. Arrive now. Now is the moment for happiness. Not when we make more money, get a better job, a better relationship, lose weight, get a degree. 

     For whatever reason, the real estate business is called real estate sales, but you don’t sell anyone a house, you guide them into a decision, and then help along the way. Or you help a home owner with setting the right price, manage showings and negotiate offers. Regardless, in the sales world, numbers are of the utmost importance. More is always better, and real estate agents are no exception about bragging how many homes they've sold. McDonalds sells the most hamburgers, but are they the best at making them? I’m not knocking McDonalds, but if I’m going to enjoy a burger, I’d just as soon go to somewhere that may sell less of them, but makes a much better one, and serves it with better experience.

     At Maloney Realty, I don’t sell the most houses, but I do sell ALL the houses I list, and I do it with honesty, integrity and results. And you’ll still save money with my discount commissions, but never have to sacrifice service. After my friend I got done talking about death, and them asking me how do I let go, they then asked me, “How come your face isn’t on your For Sale signs”?  I answered, well my good man, I never saw real estate as being about my face or about me as I did the person I'm serving.

~Matt

     The dust has mostly settled from the National Assoc. of Realtor’s lawsuit, although more lawsuits are being brought as of this writing, including one by a Broker/Realtor who says they are forced by the organization to be a member in order to access the MLS. As far as the most recent settlement in August over the transparency of commissions, two main items have resulted.

     Listing Brokers are no longer allowed to display or advertise their co-broke (cooperating commission, or what they are willing to share to a buyer’s agent for procuring a buyer for their listing) in the MLS. The second major change is that any buyer who is being represented by an agent needs to have a signed contract in place about how and how much the buyer’s agent will be paid before stepping foot into one home with the buyer. Otherwise, it seems business as usual as deals continue to happen after the previously dreaded August 17th date, when the change took place. 

     As the Autumn Market continues here in the Capital Region, the seller’s market has softened up compared to a couple of years ago, but seller’s still have an advantage as demand outweighs supply. High housing prices have sidelined some buyer’s, while many seller’s still sit tight, not wanting to trade in their 2% - 4% mortgage interest rates for one closer to 7%. If rates do go down, spurring buyers to take action, will the increased demand only push prices higher? 

     No one has a crystal ball, but one has to search back quite a ways in the old memory to the time when it was a buyer’s market, second showings were almost always required, and homes sat on the market for 90 days easily before going under contract. Other times it could take a half a year if you priced too high. Now it’s a matter of days, or weeks at the most. But imagine this if you will…a neighborhood where there is a For Sale sign on every third house on the block, and buyers walk up and down the street choosing which one they like while sellers offer concessions to attract buyers.  There was a time.

~Matt

A.       There are several factors that go into making a strong offer to help you be among the top candidates for sellers who are selling a house in a hot market. The first and most obvious is, of course, price. If the home has been on the market less than one week, and you know there are going to be multiple offers, you are going to want to offer over asking price. How much over is up to you and what you either can afford or be willing to pay. Whatever you decide, your monthly payment should be so it is comfortable for you, and not making you stretch your budget. Escalation clauses are another way to offer the highest price without getting beat out. They basically allow you to bid in increments a certain amount higher than the highest bid up to a cap. some sellers and their agents do not like these, and will not accept them, for whatever reason. One main reason could be so that offers come in higher rather than only a few thousand than the highest offer.

 
     Speaking of price, although many appraisers do their best to defend the purchase price of a home, they can only work with the available data, or sold comparables in the marketplace. Why defend a purchase price you may ask? Because market value is what a ready and able buyer is willing to pay. If you think an appraisal may come in short, you can agree to cover the difference between the appraised value and your over listing price offer. This assures the seller you won't be canceling the deal or asking them to take less if the appraised value comes in lower than the contract price.

 
     Although it's not something I would recommend, buyers can waive their home inspection. This puts a seller's mind at ease that they won't be re-negotiating the price if something comes up during a home inspection. This tactic is best used by someone who is already familiar with home construction, and is also willing to tolerate some extra costs after they close, such as a radon remediation system should radon be found after closing. (Radon is an odorless, colorless gas that comes out of the ground from decaying rock, and is one of the leading causes of lung cancer in the U.S.), replacing rotted wood in a hidden sill plate, or mold in the attic.. Some lenders may require a home inspection, although many still rely on their appraiser to be their "eyes and ears" to note troubled spots in a home.

 
     Being flexible with closing dates is also a good tactic. Some sellers may need to stay longer than usual, and being patient with them can go a long way. Finally, a strong earnest deposit, or good faith deposit is recommended. It shows sellers you have "skin in the deal", and are less likely to walk away should buyer's remorse occur. It's a lot easier to walk away from $1,000 than $10,000. 

 
     The above tactics are not for the faint of heart, but during a strong seller's market, and available "for sale" housing being so scarce, some of the above techniques may be the difference to getting into a home, or still being in "shopping mode, or worse having to keep renting.

~Matt

A.     Yes. Starting August 17th, 2024, buyers will no longer be able to tour homes without signing some type of Buyer Broker Agency agreement. Currently, a buyer can see a home on Zillow, call an agent listed on the website (which is generally a paid advertisement), and make an appointment to tour a home without having any type of formal agreement in place.

     This will all go away in August. The types of agreements that will be in place are yet to be seen, and will likely vary among Brokers. Some may opt to have a one time showing agreement, and others may have a more detailed agreement attempting to secure a buyer into a longer term contract. 

     One thing that will be mandatory on all of these agreements are the way the buyer's agent is to be compensated. It may state a flat fee for showing so many houses, an hourly rate, or a straight commission when a sale is made. It will be up to the individual agency.

     Will buyer's really pony up the money to pay thousands of dollars out of pocket to a buyer's agent? Probably not. It appears as though a concession will be built into contracts that the seller will reimburse the buyer's agent their fee, so essentially, the buyer is still financing the buyer's agent's commission. 

     Some seller's may agree, and just up their price equal to the concession. It's all really up in the air at this point, and only time will tell how it all plays out. It should be noted, this only affects buyers and sellers who work with Realtors, and not all NYS licensed real estate sales agents and Brokers.

Matt

A. There are a ton of articles on the class action lawsuit against the National Association of Realtors (NAR). Much of the main stream news unfortunately is blatant "misinformation".  Since there is so much information out there, I won't play legal scholar here in this blog, but will try to give you what I believe to be an accurate as possible synopsis.

It has been a long standing tradition that when a Realtor collects a commission from a home owner for listing and selling their home, they give part of that commission to a cooperating broker, many times one from a different agency or firm. 

     The dispute arose because sellers of real estate were asking their listing agent, "If the buyer's broker represents they buyer, why am I paying their commission?" Some brokers may have been responding, "Because it is a requirement of our Realtor Association to offer a cooperating fee". This may or may not be the actual case because this practice varies by state and region. Here in the Capital Region of NYS, this has been more of a long standing tradition than a requirement. The concern focused on what are called “anti-trust” issues that brokers were colluding on price (commission) fixing. Since commissions were always negotiable, this was never the case, however NAR decide to settle the lawsuit to prevent their members Realtor Brokers) from getting sued.

     Rather than go into all of the “ways it used to be”, I will sum up how it will be moving forwards. Starting in July of 2024, there will be no more cooperating offers from listing brokers to buyer brokers. All buyer brokers will be required to be paid directly by their buyers. This may come in the form of seller concessions, where the buyer asks the seller to contribute to the buyer’s closing costs. Buyer’s closing costs may include the buyer broker’s commission.

     When in negotiations, a buyer, in order to pay their broker, may ask for concessions from the seller. The seller may decide to raise the purchase price in the amount of the concession, or they may not. It is all negotiable.

Although buyer’s may see this as a new, added expense, it in reality is not. They were always paying for the buyer’s broker to get paid as the fee comes out of the proceeds of the house for which the buyer is providing the money, their money.

     The bottom line is the days of real estate agents showing homes without a contract in place for how they will get paid are over. The MLS will no longer be a portal where commissions and fees are discussed between brokers, and will strictly be a market place for homes for sale.

Matt

A. The short answer is, no, not always. There are other terms in a real estate contract that may be more appealing to a home seller than just price, such as the earnest deposit, financing, home inspections, and closing dates. Let’s review these real quick.

     The earnest deposit, also known as a good faith deposit, is the amount that typically accompanies the offer, or is given shortly after an offer is accepted. This is meant to reassure the seller that the buyer has "skin in the game", and won’t walk away from the deal on a whim without consequence or financial penalty. This deposit is returned to the buyer when an item that came up in the inspection can’t be negotiated, or the buyer isn’t able to obtain financing as agreed upon in the contract. If the buyer does not have a legitimate reason however, the seller may be entitled to keep the deposit if the buyer tries to back out without good cause. If two offers are basically equal, the one with a higher deposit is better since it is easier for buyers to walk away from $1,000 than $10,000. This is especially true if the buyer waives their inspections, is paying cash, and has no other recourse to get their deposit back.

     Buyer financing also plays a role. The most common types of payment for a house are FHA or conventional financing, and cash. Although cash is perceived to be preferrable, a substantially higher offer that is being financed can still be better than cash, since the seller is getting a certified bank check at closing either way. When the price is close or similar however, cash may be the better option since there is no mortgage contingency to fall through. FHA mortgages benefit the buyer since they require less money down, but they can present problems during the appraisal if the home needs certain repairs such as painting.

     Home inspections are another term to consider. If you had an offer that was $5,000 less, but the waived inspections, would you take it over the higher offer? Sometimes it can be worth it to not have the hassle of haggling over items that are found during an inspection. One way to head off this problem is to get a pre-listing home inspection.

     Finally, closing dates can play a role. If a homeowner needs to stay in their home for a longer period of time for whatever reason, an offer of less money, but allows the seller to stay in their home for an extra month might be worth it since they would be laying out that expense somewhere else on a short term rental until their next home is ready.

     One more thing worth noting is the appraisal. During times of a seller’s market, when multiple offers can bid the price upwards, making an appraisal questionable, buyers who are willing to make up the difference between the appraised amount, and the price they agreed to pay can also be an important item to consider versus a buyer who won’t agree to doing so. 

     In conclusion, any one of these items, or a combination of them all, such as waived inspections and a cash offer with a strong earnest deposit may be a better offer than one with a higher price but with FHA financing, inspections, and a weak earnest deposit. Lean on your Realtor to help you decipher offers being presented to you to find the best one that suits your needs when selling your home.

Matt