How to Not Get Screwed in Real Estate

June Stats Released: Sales strong, inventory incredible

charpster — Wed, 28 Jul 2010 16:04:20 +0000

June home closings in central Ohio continued to improve over last year, increasing by more than 10 percent to 2,315. Not only that but the number of days homes spend on the market and month’s supply are both down.

Despite that, the number of homes in contract slumped to 1,309, a 19 percent decline over this time last year. “It’s not surprising that in the wake of the home buyer tax credits, prospective home sales may slip,” said Sue Lusk-Gleich, President of the Columbus Board of REALTORS®. “But what is truly revealing is the other indicators that show the continued growth of central Ohio’s market.”

http://columbusrealtors.com/NewsDetail.aspx?ID=378

How do you know a good deal when you see it?

lschottenstein — Fri, 16 Jul 2010 14:16:19 +0000

I have a buyer making an offer on a home listed at $650,000 in Blacklick Ohio. It was built 10 years ago for $687,000. The listing agent hints from the beginning that we could probably negotiate a quick deal at $600,000. Looking at comps and homes for sale the home is a good deal under $620,000. At $600,000 it is starting to look like a very good deal. It is not a foreclosure or distressed sale so we are unlikely to get a fire sale price.

The buyer doesn’t think the price drop is enough, even though the comps show otherwise. They focus on simple averages and skew the facts to their benefit. For example, homes have dropped in price on average 20% to 30%. If you take the price they paid , $687,000, and knocked off 20% it would be worth $550,000, which is what the buyer thinks the home is worth. The problem is they are adjusting the price from over 10 years ago and just erasing any history in between. For 7 to 8 years prices increased on average 3% or more a year. Before the crash the home was probably worth over $750,000. If you take a 20% price drop on the price it was worth before the crash you end up at $600,000.

When making decisions about value you can not select facts and then view them the way you want to suit your needs. You need to look at all factors and see what the trend is. Looking at facts the wrong way won’t get you a better deal on a home. Actually the opposite. It will cloud your vision and not let you see when you are getting a very good deal. You may even end up walking away from what was a very good buy.

Why you should have your own buyers agent

lschottenstein — Fri, 16 Jul 2010 14:01:33 +0000

There are different ways home buyers approach home buying.

Group #1. This group knows it all, they don’t trust agents and want to basically be left on their own.

Group #2. They start shopping around on line, go an open house or two and basically ends up with an agent by stumbling upon someone.

Group #3. The last group takes control of the situation and hires their own buyers agent before they begin to look in earnest. They shop around, ask for referrals and use their agent from the begining to make the process easier.

The problem with the first two approaches is the vast majority of homes are listed by real estate agents and there is going to be one involved wether you like it or not. When only the listing agent is involved all the commissions are going to them and the buyer is not going to be represented. This means you would end up working with the listing agent who is hired to sell the home for as much money as possible and protect the best interest of the seller. The other problem is these buyers are not truly in control of the situation. Think about it. You end up doing all the work, driving around, finding a home, researching information, meet the agent and work with someone who hasn’t helped you at all and is basically a stranger to you. I don’t see the logic in this approach.

The benefit of the last approach is very simple. When you hire your own agent early on you are simply in control. You have hired an agent to be on your side and protect your interest. The best part is there is no additional expense. When you buy a home with your own agent involved the same commissions are being paid except now your agent is being paid. Plus they will make your life easier, keep you focused and work for their commission.

Some buyers try to be clever and think they can save money by not using their own agent and then try to negotiate with the listing agent to lower their commission and give them a better deal on the home. In theory this makes some sense but not in practice. How would you ever know you negotiated the lowest price? When you have one agent involved you have no idea if you truly got the best price possible from the seller.

Congress Passes Tax Credit Closing Date

mhogan — Thu, 01 Jul 2010 16:16:49 +0000

The Senate approaved the Homebuyer Assistance and Improvement Act (H.R. 5623) giving home buyers who were under contract on a home purchased by April 30th until September 30th to close and claim the tax credit. Without this extension approximately 180,000 homebuyers who had signed purchase agreements would have missed the deadline.

Patience is a Virtue

mhogan — Thu, 01 Jul 2010 15:51:40 +0000

For those who wanted to take advantage of the tax credit but missed the opportunity, it may have paid to wait. Reports have shown that with fewer buyers since the expiration, sellers have had to lower their prices to entice them. Although it depends on your price point, some of the decreases in the sales price have been more than what the tax credit would have provided. So don’t feel discouraged, the deals are still out there.

May Sales statistics

lschottenstein — Thu, 24 Jun 2010 13:52:54 +0000

Locally the real estate activity for May was up significantly, 33% over May of 2009. Certainly the tax credit program had a great deal to do with this. The average sales price is now 5% higher then a year ago. The real issue is what this means and what will happen in the future. Last year many of my clients were holding off buying because they kept thinking the market would continue to drop. The tax credit is a good thing but the benefit is not large enough to erase any doubts about the market decreasing. If a buyer thinks real estate prices will continue to drop will not buy a house just because of the tax credit. But if they are thinking we are near the bottom and are confident about buying then the credit may move them ahead of schedule. I think the tax credit helped the fence sitters decide to buy now and not later in the year. This means there will be a drop off this summer. It didn’t fix the market but it did help move things along quicker. The significant increase in sales is mostly due to basic real estate economics.

1. Great deal on homes and buying opportunities

2. Great rates and the ability to lock in very low rates for 30 years fixed and not just adjustable

3. An improving economic climate.

All this translates into improved confidence in real estate as an investment, which is why sales are up.

Open Mouth, Insert Foot

mhogan — Fri, 11 Jun 2010 18:20:23 +0000

While setting up a showing for a condo, the listing agent was giving me some information about the property. At the end of this conversation he said “The seller is M-O-T-I-V-A-T-E-D. Make an offer, no matter what it is, just make it, even if you think it’s really low.”
I was a little suprised that he would give out such advice over the phone to any old agent that called him up. A comment like that could cost that seller a lot of money.

We didn’t make an offer on that property but had we done so you can be sure it would have kept extra money in my buyers pocketbook.

A termite story

lschottenstein — Mon, 07 Jun 2010 12:30:08 +0000

I was representing a buyer who was in contract to buy a 1950’s ranch house with an older finished basement, complete with red shag carpet and cheap brown paneling starting to peel off the walls. His plan was to gut the basement and refinish it. During the home inspection we actually saw live termites behind the paneling. Here is the fun part of just representing one side and simply trying to get them the best deal possible. The first thing we did was negotiate to have the seller treat the house for termites. Due to the situation we were able to have the seller pay for an extended warranty. Finding termites in the home you are buying is not always a bad thing. This way you can have the seller pay for the problem. If you don’t have termites now doesn’t mean you won’t have them soon so finding them during the inspection allows you to deal with the problem.

To insure there wasn’t any structural damage the seller paid to have the basement gutted. This was a benefit to my client since he was going to have to do that work anyways. So now he is ahead of the game. I love to negotiate when there is nothing to lose so I told the listing agent , “Part of the value of the home was the finished baseent. The price we are paying includes a finished basement and now it isn’t finished. I would like for the seller to compensate my buyer for the lack of a finished basement” The seller ended up paying my buyer another $3,000 as compensation for not having a basement.

We had no downside since my buyer was going to buy it regardless if the seller compensated him or not. If the seller said no we were no worse off. My job as his buyer’s agent is to get him the house at the best deal possible so I thought why not at least try.

If I was the listing agent I could never suggest it. If I was a dual agent and representing both sides I could also not propose this kind of solution. This is why I only represent one side during a transaction and never both at the same time.

Long term prospects for market look very bright

lschottenstein — Wed, 19 May 2010 17:15:00 +0000

I thought this article gave an interesting prospective about longer term growth for home owners.

By Robert Freedman, senior editor, REALTOR® Magazine

With the housing recovery still fragile, it’s hard to look ahead with anything but caution. However, the long-term prospects for the market are “incredible,” FHA Commissioner David Stevens told REALTORS® yesterday in the opening forum of the 2010 NAR Midyear Legislative Meetings & Trade Expo.

Young households today represent a demographic block larger than even the baby boomers, and their entry into the housing market promises to help build “an incredible real estate market in the future,” said Stevens. But first the housing market must move from recovery to stability and then to long-term growth, and that will only happen if investors regain confidence in the mortgage market. And for that to happen, the mortgage market must be reformed to reward transparent financing structures.

Stevens credited NAR’s role in helping Congress and the administration stabilize the market through its support of a “mosaic” of pragmatic policies, such as:

• The Federal Reserve’s $1.25 trillion dollar investment in Fannie Mae and Freddie Mac mortgage backed securities, which helped keep interest rates historically low.
• The home buyer tax credit, which has so far been taken by 2.2 million households for $16 billion in total returns
• The federal government’s foreclosure prevention efforts, which have helped 1.1 million households.

That mix of programs has led to today’s housing recovery but the job won’t be finished, he says, until the federal government steps out of the picture and the market stands on its own. “We constantly talk about exit strategy,” Stevens said, referring to the administration’s goal of unwinding its mortgage-market interventions.

To help protect the recovery, Stevens urged REALTORS® while they’re in Washington this week to convince lawmakers to pass FHA reform legislation under consideration in the House as soon as possible. That legislation, H.R. 5072, would enable FHA to lower the upfront mortgage insurance premium and instead fold a higher annual premium into the loan, a change that would align FHA with the approach used in the private sector. The legislation would also give FHA more tools for clamping down on bad lenders.

The changes in the mortgage insurance premium are needed to help FHA improve its financial picture and restore its reserves to its congressionally mandated level. Not having the authority it needs to change its premium structure “is costing FHA $300 million a month in money it’s not getting,” he said.

“You are the recovery,” he told the packed room of REALTORS®. “Now we’ve got to finish the job.”

Buyers not fazed by tax credit expiration

lschottenstein — Mon, 10 May 2010 17:46:23 +0000

The expiration of the home buyer tax credits won’t deter optimistic households who believe the market is improving, according to a survey released last week.

More than 90 percent of those surveyed believe the home buyer tax credits have helped both first-time buyers and the overall housing market, but 65 percent say that the end of tax credits won’t reduce their personal interest in buying a home.

Over the next five years, 79 percent expect real estate prices to increase and 20 percent expect prices to rise substantially. Only 12 percent believe prices will decrease. Among renters, 75 percent believe owning a home is a better long-term choice for them than renting.

The majority of consumers also believe that homeownership is a good investment, with 75 percent saying it is better than stocks or bonds, 72 percent preferring it to mutual funds and 74 percent saying it surpasses savings accounts.

(Source: Prudential Real Estate and Relocation Services, Inc.)

One factor that will help the value of homes is the lack of new construction over the last several years. As we continue to have growth but the supply becomes limited this will eventually help with home values. I certainly have noticed a change over last year in the perceptions of buyers. Last year most my buyers were nervous about values continuing to drop. Now none of my buyers are expressing this anxiety.