In a new report released by the U.S. Census Bureau, studies have revealed states that are increasing their population despite the fact of a daunting recession. Fortunate for those of us based here in Austin, TX, Texas was the leader in population growth for the decade (bringing in 3.9 million people) and for the year (adding 478,000.) Wyoming was a very close second.
Other states that seemed to show low numbers—and even numbers in the negative—were, coincidentally, states that were most plagued by housing busts and job loss. Rapid development early on in the decade in states like California, Arizona, Florida, and Nevada were compacted due to the heavy toll the housing crisis has taken on those areas. For instance, California is feeling the harsh regional effects in their many once-booming developments.
So what does this mean for the FSBO? Well, the more you know about your state’s housing climate the easier it is to make an informed decision of when would be the best time to sell. These figures run almost parallel to other state stats like job loss and foreclosure rates, so if you’re from Michigan, Maine, or Rhode Island (who were the only three states to shrink in the annual population study) you’re probably well aware that things aren’t doing so hot in the housing market. Selling a house in a dilapidated market is tough, and right now for a considerable few states out there, the going is getting tougher. So be aware. States’ economies and population growth are in a constant state of flux and in the world of For Sale by Owners, timing is everything.
(To see a detailed column on the Census Bureau’s statistics, click here.)
Archive for December, 2009
New Study Show States on the Rise
Wednesday, December 30th, 200912 Reasons You Should(n’t) Use a Realtor
Monday, December 28th, 2009For many of those involved in real estate, the prospect of simply going it alone and bypassing the assistance of a realtor remains out of the question. Some feel helpless in the face of the real estate industry. Others find comfort in dealing with professionals and experts. Well, why not be your own professional?
If you Google, “Why use a realtor”, countless websites will come up with a list of reasons why you should use a realtor. Realtor.com is indicative of all the available information out there so I’ll use their 12 reasons of why you should use a realtor, and hopefully show you how easy it can be to sell your home For Sale by Owner. Below, I’ve hashed through the first six:
1. Your REALTOR can help you determine your buying power
When dealing with a realtor, you will fill them in on your current financial standings (i.e. savings, credit, debt) and from there they will determine your “buying power”. Essentially, what all of these calculations come down to is your debt to income ratio (DTI). This is the amount of debt you currently hold in respects to how much money you bring in. This is simple economics. Depending on your DTI and your credit rating, lenders will decide what you can afford to pay monthly on a mortgage. Let’s say that your monthly expenditures (this includes gas, food, education costs, bills), including a $1,500 mortgage, would be somewhere near $4,500 (because your kids go to private school). Well, if you are only bringing in $3,225, then obviously you cannot afford to take out that big of a mortgage for your house. This is where educating yourself is really important so you know to shop within your price range. Sure, a realtor’s financial knowledge would be helpful to determine your buying power, but it’s no task that someone who is aware of their own financial standing cannot perform.
2. Your REALTOR has many resources to assist you in your home search.
This may have been the case years ago, but since the development of online real estate and the rise of the Multiple Listing Service, any amenities that were once the privilege of qualified real estate agents, are now available to everyone through public domain listing services found at sites such as Yigdigs.com. Through these sites, you can get home reviews, pictures, and a comprehensive listing of the property of your interest, all listed by home owners themselves.
3. Your REALTOR can assist you in the selection process by providing objective information about each property
Objectivity is important in the buying and selling of houses. When selling a house it’s important to have an unbiased idea of what your home is really worth. Too often, homeowners price the home at what they think it’s worth, when it’s a considerable amount less. Of course, buyers’ agents can offer a great deal of insight into a particular property. Perhaps they are experienced in dealing with the neighborhood, or perhaps they have dealt with the property before. Either way, it can be quite an asset to have a knowledgeable real estate agent assisting you. But in the end, when has a real estate agent picked the house that you are going to live in? Ultimately, the choice is yours. Assuming that you would make the right decision in the first place for your own good, there’s no reason that the buyer can’t make an informed decision on their own. This will add a little more responsibility on behalf of the FSBO to provide accurate and reliable information about the property, so that there are no grey areas for the buyer.
4. Your REALTOR can help you negotiate
Negotiations can be intimidating, especially to those who haven’t really done so beforehand. The first thing to know: Agents don’t learn how to negotiate when they get their license—they just have experience. Notice the above bullet says specifically, “Your realtor CAN HELP YOU negotiate”. Not only are they there to help the buyer/seller negotiate, but their participation in the process isn’t even rendered necessary. For an in depth look at FSBO negotiations, see the earlier blog post, or get a look at our informative tutorial videos found here.
5. Your REALTOR provides due diligence during the evaluation of the property
In the world of real estate, due diligence is term used to describe all of the buyer’s negotiated terms when the deal is going to the closing table. This can mean certain legal and financial documents on behalf of the seller and it can also mean house inspections and appraisals to ensure quality of the property. From a buyer’s point of view, there is a considerable amount of red tape involved when getting a deal to the closing table. As online real estate orator Ray Alcorn says, “Literally EVERY document concerning the building and its operation MUST be examined.” Of course, realtors, in feeble attempts to retain clients, try to make the process sound more difficult than it really is. Due diligence really just means cooperation between the buyer and seller. The buyer wants to make sure they’re not getting the short end of the stick here—understandable. So it’s the seller’s responsibility to work with the buyer’s every whim. They need documents? Provide them. They want to inspect for termites? “I’m home all day, come any time!” After all, selling a house is a mutual operation where both parties are supposed to benefit. It’s unethical to sell a shoddy property under the guise of something better and you FSBOs should know that. The only way to be a successful FSBO is to be honest.
So while a realtor can be an asset throughout “due diligence” they’re really just acting as mediator between you, the buyer, lenders, and so on.
6. Your REALTOR can help you in understanding different financing options and in identifying qualified lenders
This particular bullet mostly refers to buyers, but sellers can take something away here. Buying a house is a huge financial decision. A lot of extraneous circumstances come into play when considering the best financial option for a particular person. Some things might look good in person but then not look so hot on paper and visa versa. So you, as the seller, have to work with your buyer, understand their financial constraints. Selling your house doesn’t have to always be decided by the price offered—although it almost certainly is. If a lower price will help someone afford the perfect house (your house), then at the very least consider the idea. Perhaps they have better credit and will more likely be able to pay the extent of their mortgage. You never know, so don’t discount offers just because they are less–but don’t sell yourself to do anyone any favors either. If it comes down to it, there are resources available online to help both buyers and sellers get the legal advice that they need. You can seek the guidance of real estate professionals or find a good real estate lawyer through Yigdigs.com’s Agent Assistance and our abundant online community of Real Estate professionals, connoisseurs, and entrepreneurs.
Market Update: Used Home Sales Still on the Rise!
Wednesday, December 23rd, 2009After October’s startling number of a 10% increase in home sales, November has proved to be a worthy follower. According to CNNMoney.com, home sales jumped again last month another 7.4% on top of October’s increase (I have heard other sources cite it at only a 7% increase.)
Many experts are asserting that this second increase is largely due to the fact that the Homebuyer Tax Credit for relocating home buyers was extended from its previous deadline in November to Spring 2010. The First-time Homebuyer Tax Credit was also extended.
But here’s the really good news for For Sale by Owners: Brand new home sales had a sharp decline in November of 11%. This means that incentives to relocating home buyers and the flexibility for many buyers to capitalize of foreclosed homes has continued to swell in the used home market. Unfortunately, it seems that First Time Homebuyers are taking their sweet time with the extension and their market has begun to stagnate (for info click here.)
Great time to be an FSBO!
The Home Buyer Tax Credit: A Clarification
Tuesday, December 22nd, 2009In November, the federal government made a tax credit available to current homeowners looking to buy a new house or relocating. This credit, called the Homebuyer Tax Credit, was extended into April of next year so as to allow those currently looking to buy a house to take more time and deliberate (after all, we saw the jump in home sales right before the tax credit was extended in November.)
A clarification is needed. This tax credit isn’t only available to first-time home buyers or “move-up” homebuyers although the rhetoric might imply the opposite. At the official Federal Housing Tax Credit webpage, the specific language is used saying that eligibility to the Home Buyer Tax Credit is restricted to those “qualified move-up or repeat home buyers”. They define “qualified move-up or repeat home buyers” as: “a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date”.
So clearly, this tax credit isn’t resigned to those who wish to purchase a more expensive residence. RealtyTimes.com writer, Bob Hunt agrees.
“Whichever direction you move, financially, you may still qualify for the new tax credit available to current homeowners. It is unfortunate that the credit has too often been characterized as a credit for “move-up” homeowners. The phrase carries the implication that the new home must cost more than the sale price of the former one. Indeed, even the November 6 White House Press Release said that the credit would be available to qualified homeowners who “wish to step up to a new home.” Same implication. So, it is worth emphasizing that the credit is equally available to homeowners who are moving down, cost-wise.”
Sometimes jargon can get in the way of the true meaning of things, and this case is no exception. Implied is that homebuyers must increase the financial cost of their residence when, in reality, the only stipulation is the clause addressing principal residency. You can move from your mansion into a downtown loft as long as you meet eligibility. Thanks, Bob, for the clarification.
A NYTimes Case Study
Monday, December 21st, 2009In a recent article, NY Times hints at some changing tides—which is good for the FSBO. An article, titled, “Agent or No Agent?”, written by Harvey Araton, takes a case study of two New England home sellers, one using a realtor and one selling their house For Sale by Owner (for a detailed read, you can jump to the article here.)
The article hints at the ever-growing attitude in embracing the FSBO philosophy. According to Steve Murray, editor of Real Trends, due to advances in information technology, younger people, under the age of 35, are more likely to opt for do-it-yourself home selling. The thoughts of multitasking and taking risk don’t act enough of a repellent to keep them from venturing out into the world of FSBO.
In fact, one of the case studies, a man of 55, directly cites that he opted for a realtor simply because he didn’t find himself “Internet savvy”, nor did he “have an iPhone”.
This brings up an interesting point: As more and more of the younger generation move on in life and begin to invest in real estate, will we see more people going for For Sale by Owner due to the wealth of information out there online?
This writer doesn’t think that’s necessarily the case. Just as the younger generation is growing up, the older generation, who witnessed the rise of the Internet and the personal computer as a means to perform all tasks in daily life, are becoming well acquainted with that lifestyle—even the president has a Blackberry. So if you don’t find yourself particularly “Internet savvy”, don’t fret. Selling your home yourself is much easier to wrap your brain around than it seems. And there really is so much information out there to get plenty of helpful input from. Just remember to educate!
The TRUE Cost of Home Renovations
Sunday, December 20th, 2009As I discussed in an earlier column, a huge part of upping the value of your home comes in the refurbishment and refinishing of old fixtures and appliances. This can add a modest amount to the selling price of your home, or make that asking price look much more appropriate. However, should you want to do something more extravagant to your property—a “renovation”, if you will—then it might be good practice to be aware of how much your renovations really cost and how much they will add to your home.
In a recent study by the National Association of Realtors (NAR), the cost of home renovations was measured up to their respective return values. Unfortunately, on average, a typical renovation that might cost somewhere near $30,000 will only return approximately 63.8% of it’s cost, meaning that there’s a margin of loss around $10,860. That’s quite a loss to cut. What’s worse is that in the four years that the NAR have been conducting this study, the average percentage of returns has steadily dropped.
For FSBO’s, this creates the importance of choice. When considering renovations on your home to improve its selling cost, it’s crucial that you deliberate exactly what you are going to do, and how that will improve your financial situation. For instance, according to a CNNMoney.com’s Les Christie, the most cost effective jobs are not kitchen or bathroom renovations (in fact, those are the least cost effective), but “smaller-scale, lower-cost renovations that improve the exterior appearance of homes”. Effecting buyers’ first impressions will have an immediate impact upon their considerations for your asking price. These renovations, such as adding vinyl siding to the exterior, or replacement with fiber-cement are cheaper and, on average, have somewhere near an 80% return. Not a complete return, but a considerable more than 2009’s average.
This decision becomes even more important if the seller is looking to sell right away. Those low-cost renovations that have higher returns will be your best financial bet to beef up your selling price without wasting time and money on a renovation that won’t give back. Of course, if you are hedging your bets for a future sale, you can look at it like you’re getting a $50,000 renovation for less than half the cost.
Renovation is a tricky thing. It almost inevitably will result in some sort of financial loss, but given the state of the property, it might be necessary to get the house sold. So FSBO’s, be smart! Take everything into consideration when attempting a renovation so you get the most bang for your buck.
Closing the Sale!
Thursday, December 10th, 2009Closing a sale is, perhaps, the easiest of the steps in selling a house For Sale by Owner—hence the brevity of this post. By this time, all of the hard work is behind you and much of the responsibility now lies on the back of your buyer. Your safest bet is to be accommodating and cooperate with the buyer/buyer agent to ensure a smooth close.
If you’ve reached this part in the For Sale by Owner process, then, hopefully, you’ve received an offer to your liking and you’ve decided to move ahead with a particular buyer. Both the buyer and sellers’ mutual interests are solidified in the signing of the sales contract which obliges each party to go ahead with the transaction as long as the property holds up to its specified expectations. At this point, it will be your job as the FSBO to accommodate all the needs of the buyer.
It is common practice for a series of inspections to take place so as to ensure the quality of the home and the property. The buyer will usually pay for the costs for these inspections which include, termite inspections, electrical, plumbing, appliance inspection, land surveys for properties in more rural areas, and roofing inspections. An appraisal is included as a double check, to make sure that the home’s value is congruent with the selling price. If not, either renegotiation or the mortgage lender will go back on their loan offer and you will lose the sale. That’s why professionalism within your business practice is important because if you deceive the buyer, it will come out in the closing process and could cost you thousands of dollars.
Once past the inspection process, most of the work is up to the buyer/buyer agent and the mortgage lender. All you have to do is be present to sign all of the appropriate documentation. It may be wise to have a title agent or attorney to handle the logistics of closing.
This is what we in the real estate world call the “closing table”: the desired position of anyone embarking on a venture in real estate. Once you’re here, all the hard work of research, staging, marketing will pay off as you are handed a check for your sale. Congratulations, you’ve made it!
Another Perspective
Monday, December 7th, 2009The great thing about this vast, connected universe of blogs, tweets, and posts is that you can get a diverse picture on any topic. Concerning real estate, I posted a couple of weeks ago that housing prices were on the rise and that it was a tempting time to sell a home now that the housing market was considered “on the rebound”. Then, in Dec. 2nd’s “Market Update” column, I mentioned that the hushed rumor of a recovering market was a fleeting trend—due to foreclosure rates and other determining factors. I think “preparedness” was a key motif in that particular post.
We have examined the seller’s perspective in the matter, and since Yigdigs.com caters to both sides of the buyer/seller business relationship, I figured it was high time that we tried to see it from the eyes of an investor. Well, I have come across the buyer perspective thanks to a very informative post by Investment Advisor, Stephen T. Goldberg, in a Yahoo! Real Estate column titled, “Don’t Buy a House Yet”. Sounds pessimistic, I know. But Mr. Goldberg had some enlightening insights into the buyer’s state of mind.
If you look at market fluctuations in the past, Mr. Goldberg says, housing markets typically don’t rebound as quickly as some recent calculations have predicted. Perhaps it was overly excited realtors trying to pump up the market on the heels of recent rise in home prices, or maybe even a product of some big real estate companies’ conspiracy—not to go all Big Brother with tone here—that have gotten the idea out there that the market is ripe for the picking. It is not supposed to last.
According to the books, a housing bust, which is a decline of 15% over 5 years (what we are in right now), has occurred regionally over 21 times since 1968. Stephen cites that while many busts were followed by booms, most of the lulls lasted a great deal longer that expected, despite their residual booms.
And while it may be tempting to jump back into the market because of certain incentives and talk of a “boom”, it might not be a good investment in the long run. The last thing we need is for the market to fall out from under the buyers’ feet.
In the end, I think Mr. Goldberg’s advice is something to consider: “True, the tax credits and low mortgage rates make buying a house tempting today. But if you buy into a slumping housing market, those incentives won’t add up to much. So while the worst of the real estate decline is surely behind us, the odds are strong that you’ll be able to buy later at the same price — or a lower one.”
It’s a positive message overall and certainly gives good perspective to the buyer’s dilemma. FSBO’s, take note.
Working with Buyers
Friday, December 4th, 2009For the next installment in our step-by-step blog for the process of selling a home For Sale by Owner, we’re going to look into the world of sales negotiations.
One of the most difficult and stressful parts of selling a home For Sale by Owner is the negotiation process with a particular buyer, or, if you’re doing things right, many buyers. For the inexperienced, like all of us are at one point, you might find yourself in a little bit over your head in dealing with offers. But fear not! Negotiating with buyers is not as hard as it sounds especially if you understand a few selling basics—tricks of the trade if you will.
When dealing with a buyer you will either be dealing with the buyer directly, or you will be dealing with a buyer’s agent, which is a realtor who has found the listing and proposed it to the buyer. Either way, your approach should be the same.
Competition
You should really get familiar with your newest and best friend: competition. In the form of many buyers, competition will up the selling price of your home. If you’ve done everything right up to this point (i.e. proper staging, marketing, advertising, etc.), and you’ve observed how the housing market behaves in your area, you should have found yourself with many buyers competing bids for your home. Of course, not every market supports that. If you’re market behaves differently, then you might not have buyers knocking down the door to make offers. You might only be looking at a few timid offers from two potential buyers. In this case, use competition to stir up the punch a bit.
Buyer 1: “Hello. This is Buyer 1. I was calling to see what you thought of my offer.”
FSBO: “Hi Buyer 1. It’s a good offer, a little bit below my asking price though. We’ve had a few other offers come in that were also currently considering.”
FSBO has just let Buyer 1 know that he/she is not the only offer on the table and that the other offers are very much competitive with their current offer. Even if you only have one other offer on the table, it’s a smart sales approach to inspire a little competition in your buyer if it doesn’t come naturally. Of course don’t push your potential buyer to the point of losing a descent offer, but don’t act as if your desperate—that is a telling sign that buyer’s agents will surely pick up on to lower the asking price.
Now as far as fudging a little in sales negotiations to inspire some competition, that’s about as far as I’m willing to go. It’s important to maintain a level of professionalism, honesty, and responsibility throughout this process of selling real estate, especially when doing it yourself. (After all, it was dishonest business practices that got the housing market into trouble in the first place, right?) Many websites out there are suggesting to home sellers that they belie their true feelings and act like a stoic. Nothing can rush them. No auxiliary circumstances can persuade them to make a deal without first consulting other buyers concessions. I even read some advice that suggested the FSBO create a fictional, absent party that denies offers, making the FSBO look like the reasonable counterpart. This, I think, is too far. It is too much charade, and too much risk to take after properly researching and preparing you home to sell.
When buyers approach you with a particular offers, that offer will either meet your asking price or be less than the asking price depending on market conditions. If home prices are on the decline, then typically, if the buyer is smart, they will offer lower.
Defining Your Price
If you’re at this point in the For Sale by Owner process, you undoubtedly have already set your asking price for what you home is valued at. If you felt market conditions were in your favor, perhaps you increased the price a bit to see if anyone offered to meet it. If you are obligated to sell your house in a timely fashion, then you probably priced it lower to sell it sooner. Either way, it’s important for the seller to be very clear on two distinct items: your asking price and your bottom line.
Let’s say that, ideally, you would receive $175,000 for your property. In that case you might want to ask for a figure near $185,000 making your bottom line $170,000. Typically, buyers and agents will try shave a little off the top and renegotiate from there. With a higher asking price, you can negotiate down with the buyer and still get the ideal sum. But, if offers aren’t quite stacking up, then it’s safe practice to be prepared for a bottom line price so you have a point you are willing to negotiate down to. This is merely a measure of preparation. The less surprises you have in the negotiations, the smoother they will go.
When considering offers from different buyers, it’s really up to you. Does it meet your desired price? If so, then consider other things, like the amount of the down payment and closing costs. Those can sometimes offer extra incentives to sweeten deals that might not be from the highest bidder.
In the end, you want your negotiations to run as smoothly as possible and make it easy for both parties to get what they want out of the deal. Always conduct yourself with professionalism. Since you won’t have a broker to escort you through the process, it’s all the more important that you, the FSBO, assume the responsibilities to the full extent.
