Understanding Escrow and Due Diligence

Today, more than ever before investors are looking for unique and innovative ways of increasing their annual income especially through investments in commercial and residential real estate. One aspect of this type of investment that often does not get enough attention is that of escrow and due diligence. When a purchase is imminent it is important to note that money will change hands in a relatively short amount of time. When money is about to change hands it is well worth understanding all of the intricacies of escrow a due diligence. Keep in mind it is always recommended to know as much as possible about the property you are about to purchase as is feasible. This can ultimately save an investor time, trouble, and money over the short and long-term.

Ordering a Survey

One aspect of purchasing investment commercial property in Atlanta is that of having a survey ordered. This is actually part of the due diligence process and should not be overlooked. The survey is a very important aspect of making this type of purchase. Especially considering the fact that it offers valuable information including everything from the location of the primary building to even boundary lines. It also offers details on improvements, easements, and location of a secondary building if one exists. Another important aspect of a survey is that it can provide valuable information related to utilities such as telephone, gas, and water. With so much to offer it is clear to see why overlooking the all-important survey can be a big mistake for commercial real estate investors in the Atlanta area.

Proper Documentation

In addition, when it comes to escrow it is best to work with an escrow officer who will be considered a 3rd party or neutral party that will be overseeing the transaction. An escrow officer is essential in helping to transfer the deed as well as all funds. In essence, escrow officers make sure that both parties are thoroughly protected through all stages of the transaction. Keep in mind that the final closing escrow documents are composed of a number of different important elements. This includes everything from a title affidavit to a bill of sale as well as a quitclaim deed. These documents may also include items such as warranties, contracts and other essential documentation.

Why You May Want to Cash in on Your Second Home

When stay-at-home mandates were enforced last year, many households realized their homes didn’t really fulfill their new lifestyle needs. An office (in some cases two), a media room, space for children to learn, a gym, and a large yard are all examples of amenities that became highly desirable almost overnight.

Zelman & Associates recently reported that sales of primary residences grew by 9% in 2020. That increase in demand was met by the lowest supply of homes for sale in history. High demand and low supply caused prices to skyrocket over the past twelve months. Here are three home price indexes released most recently that show how home values have risen:

  • FHFA Agency House Price Index shows a 13.9% increase
  • CoreLogic Home Price Insights Report shows an 11.3% increase
  • S&P Case-Shiller U.S. National Home Price Index shows a 13.2% increase
  • Prices increased by double digits in every region of the country and in 19 of 20 major metros. Chicago was the only exception, where prices still rose by 9%.

What does this mean to those who purchased a second home during the pandemic?
Many people didn’t want to give up a home in the city or close to their office. Instead, they purchased a larger second home farther away and moved there to stay safe and have more space. According to the same Zelman report, sales for second homes rose an astonishing 27% in 2020.

That large second-home retreat on a lake or in the mountains would demand a higher price than the average house. Let’s assume a buyer purchased such a home for $500,000. Assuming the middle 13.2% appreciation shown above, that home would now be worth about $566,000.

Those who bought second homes to improve their lifestyle during the height of the pandemic, or those who just wanted to be in a safer environment, also made a great investment.

What should these homeowners do now as the pandemic is receding, and the economy is reopening?
The buyers of those second homes now have a decision to make. Many will move back to the original home they still own (the one that’s closer to work, friends, and family). Should they keep the second home? That could depend on answers to questions like these:

Now that you may have to go back to the office (at least a few days a week) and students are required to physically attend school, would you still use the second house enough to warrant the expenses of an additional home?

Would you go to the second home on most weekends, or would you return to the movie theater, attend sporting events, eat out at fine restaurants, or spend your time traveling again?

Bottom Line
If you purchased a larger second home during the pandemic, you were able to make day-to-day life much easier for those important to you. You also made it much safer. However, with those goals already accomplished, you now need to decide whether to continue paying the extra expenses or sell the house and cash in your profit. If you decide selling makes sense, let’s connect today to discuss the value of your second home.