Real Estate 101

It's been awhile since I wrote anything on this blog, and a couple of months since I've written on some of my others, but I wanted to make sure to pass on some recent observations about buyer and seller behavior I've been witnessing.

First and foremost, if you haven't heard, the last 24 months have been pretty bad for sellers hoping to sell fast, not to mention-close to their "wanting" price. I say "wanting" because that's usually a sellers starting point before you get to the asking price, then begging price, then the give it back to the bank price.

Buyers, during this time have been a little reluctant to commit to a purchase. They also have a price range. The buyer usually starts with a "wanting" price, then an offering price,followed by the "that sellers on drugs price but my wife really likes the granite countertop so we'll offer to steal it price".

What I've noticed recently though is that buyers-some-have waited a little too long to get started. Ive witnessed 3 or 4 homes in the last week that buyers wanted to write offers on, hesitated, and now that they've decided to write, have found out someone already did and the home is no longer available. Awhile back I pointed out that while there are a lot of homes on the market, there are few disirable ones.

If you are a buyer and have looked at 20 homes and only found 1 that was desirable, so did 20 or 30 other buyers. If you wait to write the offer, chances are you will be competing with hopefully only one other offer. You might find yourself completely out of luck. If you are looking at a short sale or foreclosure, you are likely to find out the sellers have submitted one or more offers to the bank already. You might be competing there as well.

Sellers are getting offers more frequently again, they are certainly having more showings which makes them more optimistic about their chances and they will be less likely to "give" it away.

Interest rate increases are still an unknown. Certainly they've only gone up in the last six months and are likely to continue their climb. The government will discontinue buying MBS in March, Fannae Mae and freddie Mac will tighten credit and lender standards further and FHA will be hiking PMI rates. Affordability will diminish at the same time demand increases. The end result may be that sellers will have to price their homes properly and perhaps aggressively in order to sell. Perhaps they will just stay put and wait for the next correction. If that happens, supply will diminish, demand might stay the same or taper off a little. But the reduced supply will most likely create competition once again.

If you think it's hard to give a seller or buyer the right advice, you're right. What I tell buyer A may be totally different than what I tell buyer B. Likewise, seller A may have a drastically different situation than seller B, so their advice will be different even though the market for both is the same.

The bottom line? Follow your REALTORS advice. Be honest with them about your needs and situation. They will help you make the right call. Listen to the national or even local media, but do not think they are more reliable than your local REALTOR.

Jim Mellen,Licensed in VA,RE/MAX Peninsula at New Town REALTORS. All rights reserved Feb 2010

In today's market, here in Williamsburg and James City County Virginia as well as the rest of the country there are many homes on the market. That is reality. However, many of those homes may not be what a buyer may be looking for. Homes are unique, every single one is unique. Even in identical units there are subtle differences in colors, materials, views etc. The trick is to have the most appealing home, with the best views, in the best condition for the best price. Hardly an easy task for a buyer or seller!

When I start my conversation with a buyer prior to getting in my car and driving all over town, I simply ask what a buyer wants in their next home-what are their expectations. I try not to let price enter too much in the decision until I find out their needs, then their wants, then their price. A buyer needing five bedrooms shouldn't look at homes with three. A buyer needing three can certainly look at homes with five.

The list of things a buyer may actually NEED in a home are fairly limited. They might include:

• Bedroom count
• Proximity to public transportation
• Bathroom count
• Bedroom location,ie needs a 1st floor master bedroom
• handicap accessibility-could be a need now or want available for later
• Price limit

However the list of wants is almost endless. Wants are only limited by price and availability. I want a brand new 2010 cadillac CTS, but I only have $10,000 to spend. I can get the Cadillac CTS, but it might have to be a 2006 model with 50,000 miles on it! But, I don't NEED a car, my old one is perfectly fine. Will the car dealer cave in and sell me a car at my unrealistic offer of $10,000 just because they have lots of cars to sell-hardly!

Going back to homes for sale-sorry.....when I look at over 1700 homes for sale in my local MLS, and start whittling it down to certain criteria:

• Five Bedrooms
• First floor master
• Three bathrooms
• 1/2 acre
• no more than five years old
• in the Jamestown high school district

Now I only have THREE homes to choose from. Now I can look at price to see where my options are. These 3 homes are $539,000, $579,000, and a whopping $2,250,000. A buyer limited by a $300,000 price range is completely out of luck. Now they have to work backwards on their criteria. Sacrificing their needs-we haven't even touched on the wants at this point! So you can't do less than 5 bedrooms-you've got 6 kids and two adults to hide in the house. You can live with an older house, in a different high school district so start there. Working your way back to your price limitation. Options do open up for you as long as you are realistic and understand your needs vs wants.

All too often, agents eagerly jump in their car to start showing buyer homes without ever having a "reality check". I don't think I am doing a buyer any favors and possibly doing a disservice by not knowing what they need and what there threshold for disappointment will be. I hear agents showing buyers 50 and 60 homes. Only then to find out they can't find what they are looking for and they. Not surprising, they never had the conversation first.

Going back to my reality check with my buyer scenario above, these are the buyers NEEDS and available options today (08/04/2009):

• Five bedrooms
• James City County somewhere
• First floor master
• three bathrooms
• under $375,000

How many homes do we have available now? Do we have fewer choices or more? We have 0 homes now-back to the drawing board with criteria! 

The point is, this particular seller has little competition. So are they still in the same "buyers market"? Hardly-they are in a sellers market. Low supply, high demand. Do they have to negotiate the same as a seller that has 20 homes competing with them? Hardly. Are they motivated-most likely and they will negotiate. But don't show them an offer $125,000 low thinking you have the upper hand because the market in general is a buyers market.

I hope this exercise in reality helps you in selecting an agent truly looking to save you time and aggravation, and best represent you as a true Buyers Agent!

As a REALTOR in Virginia nothing would make me happier than to see everyone be able to buy a home, or stay in their home. It’s heartbreaking to see someone struggling to make their payments on time and needing to sell but unable to get out of a house they bought within the last three years. Either because the buyers can’t qualify or today’s value is below their mortgage balance.  A lot of this blame has to fall on the lenders who bent the rules and made it possible for people to “overbuy”. Of course there is sufficient burden on the borrower that "stretched the truth" on their application, or the lender who facilitated or suggested they could.There should be no rescue for them. Irresponsible people will always blame someone else for their problems and look for the easy way out.

I am adamantly opposed to any kind of write down in the mortgage to get their debt to equity down to 31%. Especially when the write down is funded by the 95% of the honest, moral and hardworking people who are struggling to meet their own obligations. There are several considerations to keep in mind when toying with this latest proposal. 1) What happens when the borrower finds the market rebounding and decides to sell in a few years. Who will reap the rewards of any gain? We see time and time again communities create affordable housing opportunities, but as soon as the prices go up, so does the for sale sign. I see the banks as getting a windfall. They wrote the mortgage, cashed the check and spent it, now the buyer gets to write down their mortgage to lower their monthly payment to an arbitrary 31% of their income. The only loser is the American taxpayer who is trying to do the right thing. 2) what other debts might be causing these people to not afford their mortgage? Do they have brand new cars or a boat in the driveway as well? Do they have brand new big screen TV’s and stereos throughout their house and a $7500 line of credit that’s maxed out at Best Buy? Did they take out an equity line to pay off credit cards only to run the credit cards back up? I have a daughter in college, a son heading there in two years and I'm driving older paid off cars. I don't take vacations and I have a job that I don't draw a weekly or even monthly paycheck for doing. Yet I seem to be able to make ends meet and at the same time spend what money I do have left for on my buyers and sellers to make their life better/easier. Thousands of REALTORS are doing the same thing and not standing in line for a hand out. The ones who are, unfortunately will be getting out of a very rewarding career that just wasn't suited for them.

I am sympathetic to the layed off workers or victims of corporate downsizing. There is a need to provide assistance to these people. But there is also a way to find these people. These are not people who have been on welfare or unemploymeny for the last 2 years. These are not illegal aliens already getting assistance with health care, unemployement,housing and any other subsidy normally reserved for legal residents. There has to be a systematic and reasonable effort to find out how much people are behind on the mortgage and why. Simply a reduction in value CANNOT cause anyone to be behind on their payment and should not be considered.

I believe the housing debacle can be fixed for far less money. It will hurt, no doubt. But if we loosen the rules for investors to invest in some of these properties, there will be a great rental market for all of the people unable to afford their current obligations. If the government allocated more than 7% of nearly $800 billion toward housing (grouped with transportation), we would have some confidence in the housing market. We can’t simply make it easier and penalty free for them to stay in their home without risk.  We have all bought declining assets all of our life-cars,clothes,boats,timeshares-nearly everything we buy is a declining asset except our home. While a home should be something everyone strives to own, it’s not a guarantee or a right. It has to be earned, and that comes with responsibility and some risk.  

Jim Mellen

I find it amazing that so many average people with normal intelligence and perspective can see that this stimulus package is nothing more that a big fat liberal IOU that will never be paid back and more than likely will be just the beginning. Yet the experts, PHD's and industry professionals that were were around while this economic crisis was building, were and are responsible for fixing it.

The general consensus is that the housing industry is at the root of the problem and solution yet more, much more is being spent on health care, new governement agencies and creating a few million jobs-perhaps-over the next several years. They want to build roads again. Is the out of work wall street exec really going to put on some Timberline's and Carhardt's and lay some asphalt? If the housing crisis is at the root, don't you think it should be getting the most water?

$1,000,000 would pay 20 people $50,000 a year

$100,000,000 will pay 2000 people $50,000/year

$1,000,000,000 will pay 20000 people $50,000/ year

$880,000,000,000 will pay 1,760,000 people $50,000/year.

That is a lot of money! Now, if 10 million homeowners were behind $20,000 on their mortgage the price tag would have only been $200,000,000,000. And I doubt that there are 10,000,000 homeowners behind $20,000. Sure there may be some that are more behind, and some less behind but nobody has asked the banks to provide a number. Perhaps the banks want to continue perpetuating the myth that is is more dire than it might really be.  How hard would it be to get a number for the amount people are behind? Why has it been so hard to ask?

Now they are considering restructuring peoples mortgages. What will happen when the homeowner sells in 3 years when the value shoots up not over the reduced mortgage amount, but from todays value. Who will get the profit, the reward. Will it be the bank, the government or the homeowner who reduced his risk that gets the reward? For all of the hardworking, struggling homeowners working more than one job to honor their commitments any subsidy or rewriting of a mortgage will be a slap in the face and an open invitation to people to stop honoring their commitments and get in line for the government hand out.

When all this free money disappears the problem will still be there. We can't give the money to the states for infrastructure spending because they have been as irresponsible as the government and the homeowner who over bought.

There is no guarantee in life, there is no reward without risk. The liberal agenda has always been that there is a guarantee and right to have everything your neighbor has. We are heading down a slippery slope that is getting steeper and steeper. The bottom of the slope is now a nearly $12,000,000,000,000 deficit or somewhere near $40,000 for every breathing american assuming there are still only 300 million people living here. I'll give the government my $40,000 if they let me keep all of my income and let me take care of my family and security myself.

With $800 Billion, the government could by Microsoft, Apple, Google, Circuit City, Bank of America, Sears, Home Depot, Lowes, and probably every car dealer in the country and still have a few billion left over. Seems like a good buy and they could actually stimulate the economy-as long as we don't let the government run them. Let's find some high school graduates and a few college drop outs to run the economy. I'll bet it gets run better!

I did a search of the MLS for the last 45 days looking for how many price reductions have been posted. It seemed alot of my recent inbox emails have been from agents announcing a new or lower price on one of their listings.  This is not uncommon and a good way of getting the word out and hopefully read!

The market continues to change everyday, one day good news, later in the day bad news only to be followed up with a different twist offering good news or renewed optimism.

Anyway, almost 20% of our active inventory witnessed a price reduction in the last 45 days. I know for a fact-because I was a party to it-one had a price reduction taking it below the point I had written an offer months earlier. Why? I continue to offer sellers proof that quite often, your first offer is often your best, do not let pride get in the way, and leave the emotions at the door. It is simply a business transaction-look at the bigger picture!

There's no way to prevent the need for the occassional price reduction. It happens at the grocery store, the gas pump, and the department store. The assumption is the house was overpriced. A home is priced for the current market conditions based on past verifiable information and future optimistic projections. If I hope to sell a home within 60 days, I have to look at the absorption rate. How many similar homes are on the market and for how long have they been on the market. If my market time for a $300,000-$325,000 home based on current inventory and tracking is 18 months, why would you want to price it at $320,000? Price it at the bottom of the range today. Don't wait 6 months and do a price reduction (or three price reductions!)

Pricing a home is tough. It's your home and your biggest investment. I want you to get as much as you can for it as quick as you need to sell. But if you get a buyer who as written an offer at 90% of your asking price, perhaps you want to think it over long and hard before rejecting it or countering back at full price.

It's often written,blogged,speculated that Real Estate agents are only in it for the money, and don't care-just in it for a paycheck. Unfortunately, until you've dealt with an agent for sometime, written or received a few offers that haven't worked out do you know the true character of your agent. Perhaps a little more trust and communication is all that is needed! And work with an experienced full time REALTOR. This is not the market to hire your best friend who just got their real estate license!

Savvy buyers and investors are always looking for "the deal". They want to buy low and sell high.  Who doesn't? A short sale, pre foreclosure is one way of getting a good deal on a house, most likely below market value.

A pre-foreclosure or short sale is one where the seller of a home is trying to get out from underneath a crushing mortgage, prior to losing it in a foreclosure.  A foreclosure will have a far greater impact on your credit score than a short sale, so it is the best option for people heading for big financial trouble but not quite there yet. A short sale is one where the lien holder accepts less than what is owed to release the deed/deed of trust.

There are numerous things to consider when looking at these homes. More often than not, the process has been started long before you see the listing online. In order for a seller to seek short sale approval, the seller will need to get in touch with their lenders short sale or loss mitigation department and complete a "work around" or hardship package.  This will give the lender an idea of why the situation has developed. Included with the package is a request for a pretty in depth financial disclosure. Where does your money come from and where is it all going. You'll also need to provide them with a hardship letter. It's tough to concede you may not be a good saver and spender-especially having to document it for a stranger.

That's the first part. Then you'll need to provide them with an offer to buy the house, including a HUD1 statement detailing the closing costs for both the buyer and seller and a net amount to the lender.  This is a critical step in securing a short sale approval.  A lender will obviously want to break even, but may be willing to accept a loss. How much of a loss depends on a myriad of factors including the lenders tolerance for loss.  The lenders want to clear up any "bad debt" as quickly as they can so they can continue to receive "new" mortgage money.

For a buyer of short sale property, the two things you need are patience and patience!  Lenders are not a ready and willing seller in the traditional sense. There may be several departments and people involved in the approval process. Banks are different than Realtors.  They don't like to negotiate, they may not be the best communicators, and the information they need and want sometimes requires a little mining!  Lenders are not emotionally connected to anyone involved or the outcome.  While you may think you are doing them a favor by taking the "bad debt" off their hands, the debt individually is not a significant factor in their portfolio.  They may have millions of dollars in bad debt they're sitting on. Do you think the $10,000 or $20,000 the seller is behind really affects them? Not too much.

Buying a short sale is a great way to get a house below market value, but it's not for everyone, and not every Realtor is adept at handling and negotiating the process on your behalf. Ask for referrals before spending a few months on the process with a Realtor who does not fully understand the process.  Like anything else, experience matters.