Fixing Up

How Much is Too Much to Fix up Your House?
by M. Anthony Carr
Realty Times
October 20, 2006

As with any resale product, the person trying to sell said product will usually try to make the product look as new as possible to ensure the highest profit available. In reviewing many of the homes on the market today, however, some sellers don't get that notion.

Don't make the mistake of the seller who, knowing full well that buyers were coming by, not only failed to do a fresh clean up, but also left his underwear on the exercise bike, a pan of crusty macaroni and cheese on the stove and debris throughout the yard.

There are some task items any seller should consider when selling a house. Even if you decide to sell "as is," a little soap and water could put a few more bucks in your pocket. With that in mind, let's look at what sellers should look at doing with any house they want to put on the market; what to do when you want to get a little more money; and how to compete with the Joneses when looking to prepare your home for sale.

Any House

All homes going on the market should receive a deep cleaning. This is the cleaning that you do when … well, you would never do it unless you're selling your house (or you're just an absolute neatnik. This involves scrubbing every cranny of the house. Nothing goes unscrubbed. I would suggest bringing in a professional group to get this done and plan on spending a couple hundred bucks (maybe more) to get the house ready for your new buyer.

Next, declutter the house. Go ahead and rent a huge storage unit and fill it up. Plan this with a bunch of pre-made boxes that have lids you can tape shut and label. Take extra kid's toys to charity. Donate all clothes that are even a bit too tight or out of date. Remove excess furniture (or even cover with matching covers).

Repair and paint where needed. As with most homes that have been lived in, that would be all of them. Walk through a new construction home to see what you're up against and then go and make yours look as best you can on your budget.

Landscaping. Thankfully, mulch and flowering plants don't really cost a lot of money for those who are just sprucing up. Before going out and paying for a designer-created landscaping job, start with the local garden center and get some free advice on how to spruce up on a budget. Fresh, flowering plants (even in fall and winter) can make the house look oh-so much better.

Even if you're selling as-is, the above four tips are a must. Next is where we spend a little more money.

Redecorating

Renewed color. Giving your house a makeover doesn't have to cost you a second mortgage. The first item to consider for rehab is your color selection. While the traditional advice is "go vanilla," professionally selected colors (not too bold) can make a "nice" house into a "wow" house.

Flooring is one of the best moderately priced upgrades a seller can install to make a huge difference. While I like the concept of "choose-your-own-carpet" offers in home listings, think about what else it's saying: "We're too cheap to fix up the house now, so we'll let you walk through our tattered, stained carpeting and let you get it installed the weekend after we leave." Like I said, make your house a "wow" by making that first great impression with new carpet.

Replacing dated items. Sometimes replacing certain items in the house is really more like maintaining your home instead of upgrading it. Items like windows, doors, light fixtures, faucets, door hardware, etc., need upgrading and replacing periodically. A walk down the light aisle at your favorite hardware store reveals this could be done on a budget. Nevertheless, there's nothing more gross looking than a brass light fixture that's chipping and rusting.

Keeping up with the Joneses

At some point you have to look at what the neighbors are doing and keep up or you'll lose out. If everyone in the neighborhood is ripping out the old and installing the new (kitchen, bath, carpet, doors, etc.) then you may be forced to do the same thing long before you're thinking of putting your home on the market. My wife and I are facing that right now with the kitchen. It's starting to show its age, which means before we put the house on the market in a few years, if I want the best buyer (or any buyer for that matter) the kitchen cabinets need an upgrade.

Redo, Remodel, Relax

As you look around the house, making your list of things to change before putting the house on the market, remember to create some time to enjoy your new digs before selling the place. If a sale is on your horizon and you must redo the landscaping before putting the house on the market -- do it early so you can drive home to the professionally designed flowerbeds and floral creations a few months or years before selling it to someone else.

While you want to repair, paint, remodel and add on to your house because it adds value to your home, every homeowner should especially do it because they want to enjoy the changes as well.

Published: October 20, 2006

Media Too Negative

Economists Beginning to Challenge Media's Negative Drumbeat on Housing
by Kenneth R. Harney
Realty Times
October 16, 2006


Is it a housing bust or a media-driven panic? Mike Moran, chief economist for Wall Street's Daiwa Securities America, Inc., says he's surprised that virtually nobody has challenged the constant drumbeat of negative headlines and TV news warnings of imminent crashes and home price meltdowns.

"It's really been way out of line with reality," says Moran, whose firm specializes in the bond market. When a 1.7 percent decline in the median home price nationwide sparks headlines about the "housing bust," that is "just pure sensationalism about what is going on here," he said in an interview.

The housing market "is going through a correction that's badly needed" after five years of record sales and price appreciation. "The key issue is whether it is orderly or disorderly" -- and it's clearly the former. Yet the financial press and TV news programs are "portraying it as a catastrophe."

Moran got indirect support for that view from other economists, including the Mortgage Bankers Association of America's chief economist, Doug Duncan, who said "the rhetoric is just way overwrought" -- the sky is not falling in the real estate and mortgage sectors.

To the contrary, even the Federal Reserve's vice chairman believes the current correction will not be dramatic or even that long-lived, and that the housing slowdown will not have dire side effects on other parts of the economy.

In a speech that went virtually unreported by major media, vice chairman Donald L. Kohn told New York analysts that the "rebalancing" of prices to better fit current demand that is underway in many metropolitan markets is a normal, cyclical event -- not an incipient disaster. In fact, it may even be a healthy and necessary part of the cycle: "The reported declines in new home prices in a number of areas should help facilitate the rebalancing of supply and demand" -- ie, lower prices should help gradually expand the number of serious buyers looking for houses.

Thanks to strong underlying demographic factors -- new household formations and population growth -- the current down phase may be relatively short-lived, Kohn suggested. New housing "starts may be closer to their (low point) than to their peak." If one takes mid-summer 2005 as the peak of the multi-year housing boom, Kohn appeared to suggest that the low point of the cycle -- and the beginning of the eventual turnaround -- could be just over the horizon.

The latest pending home sale index from the National Association of Realtors, which showed a surprising 4.3 percent jump in the number of sales in the contract stage, but not yet closed, supports that conclusion.

Kohn also noted that other economic conditions today do not point to a deep housing price recession or bust. For example, long-term mortgage interest rates are about a point above their historic lows, the Fed itself has stopped raising short-term rates, gas prices are falling, and the unemployment rate just dropped to 4.6 percent.

The current "situation stands in sharp contrast to some past downturns in the housing market" -- in the early 1980s especially -- "that followed actions b the Federal Reserve to tighten credit conditions significantly."

"Continuing growth in real incomes should underpin the demand for housing," said Kohn, "and as home prices stop rising, help to erode affordability constraints."

How come you're reading about the Fed vice chairman's moderately upbeat speech in Realty Times rather than watching it on the evening news or reading about it in your newspaper?

Good question.

Published: October 16, 2006

The Price is Right

How To Get The Best Price In A Slowing Market
by Peter G. Miller
Realty Times
October 10, 2006

Reports across the country suggest that real estate in most areas of the country is no longer appreciating at the rates seen in the past few years. In fact, the National Association of Realtors reports that nationwide August existing home prices were actually down 1.7 percent from a year earlier.

None of this is terrible or awful unless you bought last year and must now sell. Those who have owned for a few years are well ahead in most communities.

Consider that in 2000, according to the National Association of Realtors, the typical existing home sold for $111,800 versus $225,000 in August.

So, what's the best approach to selling in today's market? Consider these five core points.

1. Buyers are scarce relative to home supply.
While sellers have called the shots for the past few years, that's no longer the case in most markets. No problem -- adjust. Make your home the most attractive, best priced property in the neighborhood.

While pre-market prep could have been ignored in the recent past, today you have to paint, clean-up and repair before offering a home for sale. An MLS photo that shows a home with a lousy roof is evidence of a property that likely will not sell quickly or at full price.

2. Remember that cash is still an issue.
While home prices may have slipped a touch, real estate continues to be hugely expensive for most buyers, especially first-timers who lack equity from a prior sale. Rather than reducing prices, offer to pay for buyer closing costs, thus lowering out-of-pocket purchaser cash requirements.

3. Choose the right broker.
When comparing local brokers, look for such markers as recent success in your neighborhood, a high level of local activity and professional education.

In a slow market picking the right listing broker becomes especially important. Why? Because a broker with a strong local history is known and respected: If he or she offers a property at a given price that value is likely to be accepted as at least within the realm of reason.

As an example, last year we sold a property that was unlike virtually all nearby properties in terms of size (smaller house), lot (much bigger) and age (older than most). In other words, not an easy house to sell because there were no practical comparables. The broker -- who had sold properties worth some $200 million in neighborhood real estate over the years -- suggested a sale price which turned out to be exactly on target.

Alternatively, let's say we used a less experienced broker, someone who was not an authority figure. The property might have sold for less because another broker might have been less credible. In effect, one of the values of using an experienced listing broker is to readily establish believable prices and terms, an important matter in a buyer's market.

4. Numbers Count.
Real estate sales are a by-product of exposure. If the odds of selling a home are 100 to one, if it takes 100 inquiries and visits to sell a property, then the quicker you get those inquires the better. No less important, if you can get more than 100 inquiries the odds of getting a top price and terms improve.

This means that when considering a listing broker you need to review the marketing plan with care. What, exactly is the broker going to do in terms of advertising, open houses, MLS placements, online marketing, broker relations, etc?

Remember that the marketing plan which works for one property may not work for another. Plans need to be specific to local markets, to particular homes and for current market conditions. The thinking that seemed so good last year may be inappropriate this year.

5. It's a business deal.
With some frequency I see homes priced for reasons that won't work:

The property must sell for this price because I need $400,000 for the next home. The truth: Prices are established by the marketplace, not seller needs.

Similar homes in a different neighborhood command a particular price, therefore my house should sell at the same price. The truth: What happens elsewhere is irrelevant. What happens in the immediate neighborhood is what counts.

The Flombacks got $800,00 for their home so I should be getting at least that much. The truth: This is not about the Flombacks and should not be about seller ego. The real issue is about bricks and mortar. The Flombacks may have an objectively better house.

The buyer's offer requires that we leave the washer and dryer -- it's an insult. The truth: Homes reflect our psychological identity, who we are, our social status, etc. But the marketplace reflects supply and demand. Leaving a washer and dryer may be a lot cheaper than not getting a sale for months on end.

This home would have sold for $500,000 last August and we will not accept a lower price. The truth: It's not last August. It's now and the marketplace reflects current supply and demand.
Sellers can be successful in any market so go forth and market -- but do it right.

Published: October 10, 2006

Buydowns

Mortgage Rate "Buydowns" Can Sell Houses in Slow Markets
by Kenneth R. Harney
Realty Times
October 9, 2006

To help move at least some of the unsold houses glutting local markets, lenders are beginning to look "back to the future" for financing techniques that worked in the tough times of the 1980s.

One creative technique is known as a mortgage rate "buydown." Rather than lower the asking price on a house by thousands of dollars, a seller can offer a discounted rate package that lowers' purchasers' effective interest costs and monthly payments during the early years of their loans.

The most popular form of buydown in the 1980s was a "3-2-1" on a fixed rate 30 year mortgage. During year one of the new purchaser's mortgage, the seller agrees to pay 3 percentage points of the interest rate on the mortgage note. During the second year, the sellers pays 2 percent, and in year three the seller pays 1 percent. After that, the purchasers pay the full note rate.

To see how this works in practice, and why it can be a triple win -- for the seller, buyer and the realty agent -- consider this example. Say a seller has had her house on the market for months at $210,000 with no serious offers. She could cut the asking price, say to $200,000, to stimulate some bids. Or, more creatively, she could advertise a "3-2-1" buydown -- essentially subsidizing any qualified purchaser's mortgage payments during the first three years.

Here's how it would work, according to an active proponent, Joseph Lipes, president of Connecticut-based Family Choice Mortgage Corp., who ran the numbers for Realty Times. The sale would be for $210,000, not $200,000. Assume the going 30-year fixed mortgage rate is 6.5 percent. The purchaser applies for a 95 percent ($200,000) mortgage.

In year one, the purchaser's 6.5 percent rate would be subsidized down to 3.5 percent by the seller, creating a monthly payment of $898.09 for the purchaser, instead of the full $1,264.14 principal and interest. The seller's outlay for the subsidy would come to $366.05 a month, or $4,392.56 for the full year.

In year two, the purchaser would be paying at a 4.5 percent rate or $1,013.37 a month. The seller's contribution would be $250.77 per month or $3,009.20 over 12 months.

In the third year, the purchaser would be paying at a 5.5 percent rate, or $1,135.58. The seller would contribute $128.14 a month for a total of $1,542 for the year.

During the course of the three years, the home seller would pay a total of $8,999.44 in rate subsidies, according to Lipes. "So rather than have the sellers lower their sales price from $210,000 to $200,00" -- which might not strike potential purchasers as all that interesting -- "the sellers keep their price at $210,000 and pay $8,944.44 for the three year buydown," a savings of more than $1,000.

"As long as the house appraises for $210,000, it's a win" for the seller, the buyer, and even the realty agent who's commission will be slightly higher because of the higher sale price. Even more important for the Realtor: the house gets sold, in part because the buydown concept can be very attractive to certain purchasers, especially those with tight budgets that will be stretched in the first several years paying for new furniture, appliances and the like.

Lipes points out that Fannie Mae guidelines permit purchasers to qualify for the mortgage at the "bought-down" rate -- 3.5 percent in this case -- provided it's a primary residence and the purchaser has a 660 FICO score minimum (680 for self-employed individuals.) On sales of second homes or investment properties, the rule requires qualification at the full note rate.

Lipes says, "Buydowns have no hidden pitfalls such as negative amortization loans, payment-shock ARMs or others." It's all straightforward, easy to understand, and most important of all in sluggish markets: It's a novel approach in the eyes of many potential buyers today, and it really works.

Published: October 9, 2006