Series: 20 Best-Kept Real Estate Secrets, Part IV

Now that the summer has wound down, it's time to get back to the grindstone and finish off our series with the final five tips for buyers.  Get those pencils up & ready!

6.  Avoid Sleeper Costs
Owning a home comes with a price, and most buyers are unaware of the financial impact a home can have on a budget.  Besides the obvious fix-it issues and DIY projects, things outside of your home can add up, also.  When purchasing, ask your Realtor if the area you are looking in is due for a tax increase.  Are there any special tax assessments you should be aware of?  One of the best exercises I suggest for renters is to live with your "future amount" even while renting.  For instance, let's say your rent is $1,100 per month, but the homes you are looking to purchase sit in the range of a $1,600 monthly mortgage payment - save the extra $500 per month and see how well you fare.  You might even - gasp - save that extra $500 per month for a downpayment!

7.  Don't Get Emotionally Attached
To all you right-brain thinkers out there, this one's a doozy.  As a Realtor, you see it all the time - a young couple walks into a beautifully staged home.  One loves it ("the Lover"), one hesitates ("the Logic").  Enter the guilt trip from the Lover as to why the Logic needs to even think about it, start an argument, make the Realtor uncomfortable, and everybody walks out mad.  Sound too familiar?  Unfortunately for the Lover, buying on emotions will break your heart in the end.  All buyers need to understand that there is a HUGE difference between emotions and instincts - you're buying a home, not dating it.  If you're going to be attracted to anything, get attracted to the logistics of the home...not the pretty outfit it had on the first night you met.

8.  Let's Get Physical
And, no, I don't mean the Olivia Newton-John song.  I mean give your prospective home a physical.  ALWAYS hire an inspector to go beyond skin deep - they are your "i" dotter and your "t" crosser.  All home inspectors now must be licensed in Illinois, so take advantage of that - they will be the ones that can tell you whether the homeowner did a band-aid job or truly fixed an issue.  It generally costs less than $200, but can be worth thousands of headaches solved.

9.  Research Before Bidding
Your Realtor should know there is a secret science to bidding.  There are two major things your opening bid should be based on: 1) what you can afford, and 2) what you truly believe the property is worth.  Is it an aggressive price?  Is your offer within 10% of what other homes sold for in that neighborhood?  Your bidding should depend on what the market is doing, and your Realtor should be the expert.  Here's an added tip - every seller respects a bid that's an oddball number (like $359,367) and takes it more serious...it shows you've done your homework.

10.  Stalk Your Neighbors...
...in a good way.  When seeing a home during an Open House, everything is perfect.  But that is during a quiet weekend.  Drive through the neighborhood during the week to get a real feel for it.  In my opinion, you should see a prospective home at least once in the morning, around noon, and at night to really learn the neighborhood.  Look for amenities - does the area have sufficient street lights?  If you have a young family, is there school bus stopping nearby?  What about public transportation?  Even if you don't have a family, buying a home in the right school district could affect your value up to 20%.  It's definitely something worth considering.

Series: 20 Best-Kept Real Estate Secrets - Part II

Welcome back to the Series of the Summer!  Let's take a look at the buyers today, shall we?

BUYING SIDE
1.  Keep Your Money Where It Is
Congrats on the new BMW that will match perfectly in the driveway of that home you have an offer on - unfortunately, the car might be the only place you have to live in once the mortgage underwriters see that on your credit.  Loan Status: DENIED.  In the 3-6 months leading up to the purchase of a home (no matter what the price is), don't change anything in your financial DNA.  Lenders want to see a complete and risk-free paper trail, so keep your assets where they are.  The age of technology we live in doesn't leave much room for error on your end, so don't try to paint that "false picture" by randomly shuffling your birthday cash advances you convinced your grandma to send you into your "New Home" account.  It won't get you very far.

2.  Get Pre-Approved
Chances are, any Realtor that is worth your time will make sure you have a pre-approval letter from a lender.  This is done for a few reasons:  1) to make sure you aren't falling in love with a home that is out of your price range, and 2) to make sure you aren't using the Realtor as a tour guide.  It's also good to remember the difference between a "Pre-Qualification" and a "Pre-Approval."  A Pre-Qual only requires basic information, and generally does as much good as spinning a "Wheel of Fortune" to see what they will give you - unreliable.  A Pre-Approval requires an actual mortgage application and financial background, giving the lender a pretty clear picture of what you're capable of.  So go ahead - flex those financial muscles and show 'em what you got.

3.  Draw The Line
Save the awkwardness at the Fourth Of July BBQ with the neighbors.  Get a property survey done to make sure you have a good idea of where your property lines are.  Some Realtors might say it's a nuisance, but it will be completely worth it in the end when you figure out your land actually goes back another 20 feet from where you thought.  If you don't have the documentation from the start, you could have extra legal troubles, fees, hassles, and costs down the road when your neighbor decides to build an amphitheater in his backyard that has most of rows "R" through "V" in yours.

4.  Don't Time the Market
Trying to guess when the market is at rock bottom is like trying to guess the number of jellybeans in that jar at the carnival - with some careful studying, you can be close, but you'll rarely be spot-on.  Don't obsess with it - Real Estate goes up, then down, then back up again, etc.  Instead of waiting for "THE" low, just buy "IN" the lows.  People often ask me when the best time to buy is, and my answer is always simple:  The best time to buy is when YOU find your dream home...period.

5.  Bigger Isn't Always Better
Won't your family be so impressed this Thanksgiving when they see you have the largest home in the neighborhood?  Absolutely - but future buyers probably won't.  The biggest homes in a neighborhood generally only appeal to a small audience.  Your home value (even if it is huge) will only go up as much as the other homes around you.  Real Estate 101:  Buy the worst home on the block, and make it a fixer-upper.

Again, I hope you're writing this stuff down.  Back to sellers next week!

Foreclosures and the Twin Cities

So for those who don't know, I have a brother that lives in the Twin Cities area of Minnesota.  I just recently read through this article and thought he would be interested in it.  Hopefully, you all are, too!

Since March of 2010, median sales prices of the homes in the 13-county Twin Cities metro area fell 15.2 percent to $140,000 from a report recently released by the Minneapolis Area Association of Realtors (MAAR).  Last month, distressed properties (most of them foreclosures) made up 55% of the closed sales.  Those closed sales fell 3.5%, the number of new listings coming onto the market fell 30.2%, and pending sales fell 17.6% year-over-year.

MAAR attributes these declines partly to the expiration of the federal homebuyer tax credit program that spurred sales in the Spring of 2010.  Though the outlook may seem a tad dismal, the association showed a few positive signs on the road to recovery.  The area has maintained strong corporate balance sheets, unemployment claims have slowed down, and there have been 13 months of solid job growth. 

So what does this mean to the sellers in the area?  They can expect their up-to-date home and on-time mortgage history to be compared with distressed, and more often cheaper, properties around them. 

In the metro area, sellers (including distressed properties) received around 88.6% of the original asking price last month, and was on the market for an average of 152 days, a 17.8% rise year-over-year.

According to recent comments from Realtors/Brokers in the Twin Cities, the fastest-selling properties are bank-owned because their pricing continues to be the lowest of all median prices.  The slowest-selling properties are townhomes, attributed to the low demand and high supply.

Looking into the future, worries lay beyond the Twin Cities area to the rest of the country.  Financing through the FHA is increasing as they raise the monthly mortgage insurance price, increasing interest rates seem to be looming, and the government is considering big changes to the mortgage market. 

Optimistically speaking, however, there are many buyers now realizing they can own for less than rent, and that attractive prices are here to stay for a while.

For those readers in the Twin Cities Area, including you, my dear brother, maybe it's time to start grabbing those deals.  But then again, when was the last time you listened to advice from your older bro?  =)

Loan Modification Programs - Success?

With another wave of foreclosures hitting the market, it might be time for a lot of homeowners to face a hard and difficult reality.  The big "F-word" is something nobody wants to speak about because of the harsh stigma attached to it.  When I asked some fellow acquaintances what the word "foreclosure" meant to them, some of the popular words were "poor," "dirty," and "lots of work."

That, to me, is unfortunate.  Those words place a stereotype on the millions of Americans that are going through a difficult situation, and are having to use this as a last resort.  Does that make them poor?  No.  Does it make them or their home dirty?  No.  In fact, I applaud the many people who have fought to the death to do everything they could to keep their home.

Unfortunately, the resources available to those homeowners have more bark than bite.

The Troubled Asset Relief Program (TARP) was funded by the government to help absorb the overwhelming number of foreclosures set to hit the market.  This past week, the Congressional Oversight Panel explained that TARP funds were to be used "...in a manner that protects home values, college funds, retirement accounts, and life savings; preserves homeownership and promotes jobs and economic growth; maximizes overall returns to the taxpayers of the United States."

So was it Mission Achieved?

One of the ways TARP was set to protect home values (both of those consumers in financial crisis and those who weren't) was through the Home Affordable Modification Program (HAMP).  It was supposed to prevent three to four million foreclosures.  To date, the plan is on track to help only 700,000 to 800,000 homeowners.  That would be about 25% of the goal - you be the judge.

Another program initiated to help was HOPE for Homeowners.  Established in 2008, it permitted the FHA to insure refinanced distressed mortgages.  Due to poor initial design, lack of flexibility, and reliance on voluntary principal, it was only able to help a handful of families refinance.

Success is measured on different scales by different perspectives.  TARP was set up to help home values from being crushed under the blanket of foreclosures.  In my opinion, the only thing it seemed to do was delay the inevitable.

Real Estate Recovery?

Over the past few years, there have been thousands of news stories covering the housing market.  Through all of the statistics and advice given out, the general public must be lost.  It seems as if the outlook for the housing market changes, depending on who's eyes you might be looking through.

Harry Truman once said "It's a recession when your neighbor loses his job, it's a depression when you lose yours."  After watching this roller-coaster of an economic adjustment, this phrase rings true more and more often.

S&P's Case-Schiller Home Price Indices based on peaks and troughs in the market trends.  The have labeled the spring of 2009 the bottom of the housing market, but many experts say that another nationwide bottom - a second dip - will be announced soon.

What is interesting, in my opinion, is that the National Bureau of Economic Research recently stated that the "recession" has been over for more than a year.  According to them, the "recession" was over when the economy stopped contracting and began to expand.

So why are people not dancing in the streets?  It's simple...

Perception.

The current housing crisis continues to be "real" to the general American public when things "hit home" - literally.  It wasn't until the general American lost their job and realized they couldn't sell the home for what they owed on it.  It wasn't until their mortgage payment began increasing and they realized they couldn't refinance the loan because of a low appraisal at their current balance.  It wasn't until a listing agent sat down with them and told them what the comparable sales looked like for their neighborhood.

The Case-Shiller sees recovery as a return of home values to their mid-decade peaks.  Alan Greenspan, on the other hand, thinks recovery won't be here until housing prices rise another 10% from the status quo.

Is it easy to see how important perception is?  Every analyst and expert will shout something different about the exact definition of "recovery," which means it will only get more confusing.


If you, as a consumer, are looking for the experts to give you a date signaling the end of this market adjustment, you're searching for the impossible.  The fact is, most homeowners in America won't think the market has "recovered" until their mental target value for their home is reached.  Most buyers, alternately, won't think recovery will be here until they've been priced out at the value they recently purchased.

In every household, there is only one person who can dictate where the recovery is at to-date - you.

In the Eye of the Foreclosure Storm

The recent foreclosure statistics are making their rounds in the media, and giving a lot of people what could be seen as a false hope for the short-term future of the housing market.  Many of the headlines report that foreclosures have decreased over the last few months.  Though, technically, this is true - it is not in any way a sign that the housing market is about to slingshot back.

The issues regarding robo-signing, faulty paperwork, and other challenges have the banks trying to correct many of the problems that were brought to the surface in recent months.

For the past three (3) months, fewer than 300,000 properties are receiving foreclosure filings after 20 straight months where the total each month exceeded that same number.  And, though less foreclosures are actually hitting the active market, the percentage of loans in foreclosure rose to equal the all-time high.

Picture it like this:  Due to the overheated market between 2001-2005, foreclosures in the past few years have flooded the market.  At this point, most states (especially Judicial Foreclosure states like Illinois) have built a temporary dam to keep the market from remaining under a flood plane.  The keyword in the previous sentence is "temporary."  Those loans that are on the sidelines in foreclosure right now or facing it in the near future are about to hit the market again - and with vengeance.  The "dam" was never meant to be permanent.

Though it sounds alarming, it really isn't so bad.  The shadow of the overheated market will continue to linger in Real Estate for a while, but shouldn't stop you, as a consumer, from continuing on the path of the American Dream.  MSNMoney.com reported that, from January 2000 to June 2010, Real Estate still gave a 43% return on investment, which is more than DOW, S&P, and Nasdaq combined.

At the end of the day, check your options.  Homeownership may not be as scary as you might think.

Make An Offer

 

After hours on the internet, miles in your Realtor's car, and more homes running through your head than you know what to do with, you've found your dream.  Time to make it your own.  But where to start?

Know What's Included

Go through the contract with your Real Estate Agent and make sure that you know exactly what you're getting.  Does the dishwasher stay or go?  Are built-in shelves left with the home?  What about air conditioners?  As silly as a few of these questions might sound, the majority of issues that put a closing to a halt revolve around seemingly miniscule issues regarding what's personal property the sellers will take and what stays with the home.

Determine Your Financing and Your Own Personal Limit

In this market, buyers need to get a pre-approval letter from their lender that states you will have the funds to meet the seller's price.  There is one thing a buyer should remember - the number given to you by the lender does not have to be the number you are comfortable at.  Know your budget, and remind yourself of the expenses you'll have in addition to the monthly payment, including utility bills, property taxes, etc.  Just because a bank will give you $300,000, it doesn't mean you won't find a perfect home that costs $250,000.

Examine the Home Carefully

Before making an offer, estimate major improvements or renovations the home will need to undergo.  Check for more serious issues, such as moisture in basements or turned-up edges in wood flooring.  Discuss with your Agent possible issues the seller might fix before closing, or decide to do the repairs yourself.

Make A First Offer

Contrary to what most homebuyers believe, the first offer is not only determined by the dollar amount you would like to pay, but also by comparing listing prices and final sales prices of other comperable homes in the area.  Buyers should typically offer 5%-10% below the list price to show their serious inclination to purchase. Do not make an extremely low offer unless you are prepared for outright rejection.

Decide on Earnest Money

Some sellers determine a buyer's ability to back up their offer by their Earnest Money Deposit.  The cash you have included with your offer shows good faith.  The earnest money should gover about 1%-2% of the purchase price, and will be used later toward your downpayment.

Consider Contingencies

A contingency is a condition that the purchase offer will only go through if certain issues or demands are met.  Common contingencies are that the home must pass a professional home inspection, or the buyer's current home must first be sold before they can purchase the one in question.

Be Patient

After the first offer, most buyers can expect a counteroffer.  Counteroffers will go back and forth between buyer and seller until both parties agree upon a deal that satisfies their needs.  Be patient!  If you are over-anxious, you run the risk of showing the sellers that you'll be willing to go higher than your offer.

All of the items above should be discussed with your agent.  He or she should know how to handle all of these situations to make sure you're getting the best deal out there.

So buckle up and enjoy the ride!  In the end, it could land you your dream home.

Waiting for Home Prices to Fall?

Yes, the whirlwind of the real estate market has kept many people on their toes wondering what will happen next.  There are a lot of buyers that are waiting - and watching - in hopes that they will catch a good home at the lowest price it will ever be at.

Unfortunately, waiting for the rock bottom price of a home is like trying to plan a space shuttle launch - a lot of factors go into it.  If you are a buyer, you naturally want a guarantee that you are getting the best price possible.  Waiting, however, is not the best decision.  KCM Blog, a popular real estate blog, recently pointed out that there is a major difference between the "price" of a home and the "cost" of a home when it finally comes down to mortgages.

Allow me to show you their example.

The National Association of Realtors reported that home sales rose 15.4% in the 4th quarter of 2010, and also showed that home prices remained stable during the year.  Most buyers would be happy that home prices have not increased.

HOWEVER...

Interest rates during the last 90 days have risen from 4.17% to 5.05%.  This might not sound like a lot, but KCM illustrates it very simply.  "The price is the same, it just costs more."

Take a home that costs $170,000 over a 30-year fixed rate mortgage:
...@ 4.17% interest, monthly payments equal $828.36

...@ 5.05% interest, monthly payements equal $917.80

By sitting on the sidelines for the last 90 days, the purchaser loses:
- $89.44 per month
- $1,073.28 per year
- $32,198.40 over the 30-year life of a mortgage.

At the end of the day, even if prices fall another 10% this year, the cost of the home will increase if interest rates rise more than 1%.  Buyers should stop worrying so much about the price of a home and should be more concerned with the cost of the home that is dictated strictly by the interest rate.

Caution vs Fear

Depending on the person being asked the question, the answers regarding the housing market will drastically vary.  In the recent months, the housing industry has been on shaky ground.  This new "Market Adjustment" is just that - getting us back on track to fair market value.  With that said, I think it is important for both buyers and sellers to distinguish the difference between caution and fear.

"Fear," by definition, is an unpleasant emotion caused by the believe that something or someone is dangerous, likely to cause pain, or a threat.  On the other side of the coin, "caution" means care should be taken to avoid danger or mistakes.

Do we all see the difference?

The media has historically done a bang-up job instilling fear into the hearts of the general public.  Sometimes, rightfully so.  Headlines surrounding the housing market in recent months have tended to show the economy in a negative light, making people hesitant to make a move.  However, whether you're buying or selling a home, don't let fear paralyze you and prevent you from making a sound decision.  As Real Estate professionals, it is our fiduciary duty to ensure that every decision you make is one in a positive step toward a financial and personal future with your home.  Any agent that makes you feel any different is not even worth your time.  Always remember that we are with you every step of the way.

Here is the bottom line: the market will be just fine.  Regardless of what you're hearing in the media or from your friends/family, a Gallup poll just released said that 67% of Americans think this is a good time to purchase a home.  The idea of American Home Ownership is still alive and well - and it's up to you as a consumer to make an educated decision about where you truly want to be.


And if you're still a little freaked out, drop me a note.  We can solve the housing market together.  One way or another, somebody has to.