Tuesday, July 26, 2011

For Sale By Owner: Why Going Solo May Not Be Going Smart

Some people opt to sell their own home for the purpose of avoiding the payment of commission to a real estate agent. But what most people fail to understand it the fact that selling a home is a complicated process. It can be challenging to under any kind of market condition and more so in the prevailing real estate environment.

When you choose to take the route of “For Sale By Owner” or FSBO, you are basically listing your own home. Since you are already a homeowner, you sure know the time consuming process, the complex paperwork, and a ton of legal language that was involved in the home buying process. Selling a home also involves its share of legalities, risks and liabilities. There are very few homeowners that are proficient in the ever-changing rules and regulations of real estate
sales and those that are may be able to pull off a sale on their own. However, the vast majority of homeowners do not have the in-depth knowledge and intricacies involved in selling a home.

Lack of knowledge and training in real estate transactions can hurt most FSBO sellers in many ways including failure to set the right asking price, staging the home properly, wasting a lot of time showing the home to bargain hunters or unqualified buyers, not getting professional recommendation regarding repairs and enhancing the home’s appeal, and most importantly, they miss the professional advice of an experienced real estate agent that can help them comply with the pertinent legal and paperwork requirements.

According to t
he National Association of Realtors (NAR) Profile of Home Buyers & Sellers survey, the median price for homes sold with the help of a real estate agent was 21 percent higher than for those sold For Sale By Owner without professional assistance. Nationally, 86 percent of buyers relied on a real estate agent to buy a home. NAR studies have shown that 83 percent of real estate sales happen because of agents’ contacts, past clients, testimonials, referrals, personal contacts, or family and friends.

Setting the right price is critical. Real Estate agents do this for a living and they are aware of local neighborhoods, trends, available amenities, schooling, buyers’ hot buttons and other aspects that are essential in helping sellers with the right asking price. In a typical FSBO scenario, the for sale sign in the yard is the only primary marketing channel. However, real estate agents can help sellers by listing the home in the multiple listing services (MLS) databases, periodicals, newspapers, various websites, and by spreading the word through their large network of contacts via events, blogs, social media, and member association meetings.

Over-pricing and under-pricing can also make a big impact. An over-priced home may generate a lot of initial interest, but when buyers see similar homes in local neighborhoods that are priced lower, the interest levels drop precipitously. Similarly, under-pricing can be misconstrued by potential buyers as a sign of desperation and they may try to push down the prices further with the hope of scoring a bargain.

Real estate agents are required to undergo ongoing continuous education regarding disclosures, limiting seller’s liabilities, state and federal laws, fair housing standards, environmental regulations and contractual responsibilities. The soup-to-nuts process of listing through closing of a home is considered a team effort. The team members include lenders, attorneys, home inspectors, appraisers, and repair experts. Real estate agents have the advantage of a readily available team of experts. Most people that choose to sell on their own don’t have the network or knowledge in these areas, which could expose them to unnecessary risks, and liabilities.

When it comes to negotiations, real estate agents can deal with potential buyers objectively without any emotional attachments. They can also deftly manage buyer contingency responses, timelines for appraisals, inspections, and financing issues.

In conclusion, a very small percentage of owners that sell their homes on their own are successful. However, for most people, the convenience, knowledge, expertise, ease of paperwork, professional advice, and the peace of mind that comes by working with a real estate agent is worth way more than the cost of commission.

Thursday, July 21, 2011

What Home Buyers are Asking For

This has been one of the longest real estate buyers’ markets in recent U.S. history. With the availability of an abundant supply of homes at rock-bottom prices, buyers have become very picky about their wants and needs. It has therefore become imperative for sellers to not only maintain their homes in impeccable condition, but to also entice buyers with various incentives. It is as if homebuyers are able to catch fish with their bare hands and choose the biggest and the best fish from the lot!

Buyers are driving a hard bargain and demanding the best bang for their buck by seeking properties that are well-maintained, mechanically sound, and have an intrinsic value. As a seller, setting an appropriate asking price has become difficult because regardless of the already low listed price, buyers are bargaining hard and negotiating for various freebies.

Money is tight everywhere. Although buyers have cash to buy a home, generally they don’t have enough to buy a fixer-upper or the desire to renovate it. Another reason for this is the difficulty in obtaining a loan for home improvement. Most Realtors agree that their clients are demanding to see homes that don’t require any repairs. Banks are also seeing similar attitudes from buyers for REO properties. They expect bank-owned properties to be in ready to move-in condition.

To make their homes standout from the crowd, sellers are urged to update, repair, clean and stage their homes very well. Sellers must put themselves in the shoes of fastidious buyers and take care of every subtle nuance in their homes that may prevent buyers from giving a second look.

Given the market conditions, it’s not enough these days to have a solid, well-kept house with a great curb appeal. Buyers look for homes that have upgrades such as screened porches, home theater rooms, home offices and other goodies. Sellers are also upping the ante by offering incentives such as free flat screen TVs, gift cards and the most common contribution to the closing costs. As if this isn’t enough, some buyers are demanding tank-less water heaters, new windows, high efficiency appliances and upgraded landscaping.

Interestingly, buyers prefer homes with an open kitchen that extends into the family room without a separating wall. This is not surprising considering that the kitchen has become the most important room in the house for Baby Boomers. Many buyers are practical and environmentally conscious too. While they prefer granite kitchen countertops, they will settle for any natural composite material with a stone-like appearance.

The weak economy seems to be fueling entrepreneurship in a big way. A lot of buyers prefer to convert rarely used rooms such as the formal dining room or the living room into home offices, reading room or a space for pursuing a hobby. This makes sense because studies have shown that on an average, families use the formal living room no more than 3-4 times per year.  To make the living space feel larger, try staging a rarely used formal area, as additional useable space. 

The thrill of scoring a bargain is driving homebuyers’ demands into unchartered territories. As a seller, think outside of the box and wow the buyer. 

Saturday, July 16, 2011

Preemptive Steps to ensure a Home Sale goes through

Buying a home is one of the biggest milestones an individual or family would undertake in their lifetime. When a seller finds a buyer for their home, the ensuing deal is not a simple transaction. Many things could go wrong which could cost the seller time and/or money, and the home could slip away from the buyer as well. While some of these deal busting factors are beyond the control of either party, taking some preemptive steps could avoid mutual frustration and minimize the chances of killing the deal.

Work with a knowledgeable, local buyer’s agent.
Appraisals are the number one deal killers. Lenders are required to verify the true value of the house and they send an appraiser to determine if the house is worth the amount they are lending. Appraisers calculate the home’s value by comparing the prices of similar homes recently sold in the neighborhood. But due to the uncertain real estate market, appraisers that are not familiar with the location find it difficult to accurately figure out the home’s value because of foreclosures, short sales and constantly changing home values in the neighborhood. This could potentially scuttle the deal. The best way to prevent this is to find and work with a local buyer’s agent, one who’s very familiar with the neighborhood. They can provide comparable data to the appraisers and help them determine the home’s right value.

Read the home inspection report thoroughly
Another deal breaker that’s closely related to appraisals is home repairs demanded by the lender. The lender can demand that repairs of any issues identified in the appraisal report be performed. Before the real estate market collapsed this was not much of a problem. Lenders would typically let the sale go through by requiring the seller to escrow the repair amount and fix the problems after the sale. Lenders are much stricter these days and such liberties are a rarity. A proactive way of eliminating this stumbling block is to go through the home inspection report with a fine-toothed comb to see if there are any problems with the home.

Make sure your mortgage is preapproved
Get your financial house in order at least one year before shopping for a home. This includes obtaining credit scores and reports, saving up for the down payment and performing any other financial repairs. An import aspect of this step is to get preapproved for a mortgage and not just prequalified. Prequalification is merely a written statement by the lender about the buyer’s estimated borrowing ability, which can be obtained by simply making a phone call to a lender. Preapproval is a more formal process in which the buyer is required to submit their detailed financial information such as bank statements, employment verification, salary slips, tax returns and W2s. Although lenders can back out of it, a preapproval provides conditional approval of the mortgage.

The importance of title insurance
The home inspection report identifies tangible problems with the interior and exterior of the house. But what about dangers that could lurk in the background like unknown liens on the house? There could be an unsettled claim between the seller and a contractor that was hired in the past or a claim on the home by the seller’s creditors. Lack of appropriate permits can also put the brakes on a sale. Many homeowners are known for doing remodeling projects on their own and many fail to obtain necessary permits because of their costs. The sale may come to a grinding halt if the home inspector cannot prove if the remodeling job was done according to building and fire code. Since many of these problems can surface after the sale has gone through, it is imperative to purchase title insurance for the home.

Monday, July 11, 2011

What goes into a written offer

Buying a home is not only one of the biggest investments a person makes in his or her life, but the amount of paperwork and legalities involved are also enormous. A written offer is the final and one of the most important aspects of the home buying process.

Once you have found your dream house and you are ready to pull the trigger on purchasing it, what comes next is a written offer. Although it sounds simple, a written offer is a legally binding contract which can have serious legal and financial implications if done incorrectly.

All the paperwork that’s involved in the formal written offer is prepared by the buyer’s real estate agent. The agent will get input from the buyer for payment terms, contingencies, and legal protections. It is very important to be knowledgeable about what goes into this document.

The starting point of a written offer is the price the buyer is willing to pay for the house. Other factors include the method of funding the mortgage, the down payment amount, earnest payment, and closing costs, inspection of the home, conveyances, terms of cancellation, any repairs to be performed by the seller, timeline of events leading to the closing, mediation, etc.

The following terms are typically included in a written offer according to Freddie Mac:

Proposed purchase price
It is a good idea to discuss the offer price you are proposing with your agent because they can figure out the prices at which similar homes were sold in the area, market conditions, overall condition of the house, supply and demand, etc. Too many people make the mistake of low-balling their first offer, hoping the seller would come back with a slightly higher counter offer. This strategy can backfire if the seller feels insulted by the low offer and refuses to make a counter offer or if another buyer makes a better offer and purchases it while you are waiting to hear from the seller.

This includes things you'd like the seller to help pay for, such as portions of the closing costs, home owners warranty, and other expenses.

This includes any personal property that the seller may leave behind such as kitchen appliances, washer or dryer. These items must be clearly itemized and listed in the written offer.

Home inspection contingencies
The written offer must clearly state that you would proceed with the sale only if the home inspection comes out clean. Many surprises can show up after a home inspection such as mold, radon, termites, etc.  You must determine if you would ask for a reduction in the sale price and do the repairs on your own or if you want the owner to repair them before the sale is made.

Earnest money
Earnest money is a deposit the buyer offers to show their seriousness about purchasing the house. Earnest money is usually held in escrow and applied to the buyer’s closing costs at settlement.

This covers how long the seller has to respond to the buyer’s offer before the offer is no longer binding. If the seller accepts the offer outside of this time limit, the offer may no longer be legally binding

Mediation and arbitration
These are legal methods for handling contract disagreements between the buyer and the seller.

Tuesday, July 5, 2011

Picking between a New and Existing Home

One of the biggest dilemmas potential home buyers face is the decision whether to purchase a new one or an existing home. Although many factors influence this decision, it is strictly a matter of personal choice and circumstances. There are pros and cons to both and this must be taken into consideration in the early stages of the planning process.

In the prevailing real estate environment, the biggest difference between new and existing homes is price. The price difference between new and existing homes is growing, both regionally and nationally. According to SalesTraq, the median price of existing homes was $108,000 and $195,950 for new ones. The gap between new and existing home prices in Las Vegas widened to $88,000 in March 2011, compared to $7,000 in 1996. Although differences vary, the stark difference in prices between new and existing homes is a common scenario nationally.

In addition to factors such as price, distance from work, neighborhood, schooling, amenities and resale value, there are many other pros and cons that must be considered to make it easy to decide between a new or existing home.

New Home
Pros: you usually get a builder’s warranty which covers construction and appliances. It’s your own brand new home. You can customize, paint and decorate it anyway you prefer. It may have more energy-efficient design, building materials, and appliances. You may be able to negotiate with the builder to thrown in various options. New homes are built to updated building and safety codes. The electrical system may be wired to handle today’s technology demands such a home theater. The new subdivision may have modern recreational facilities and amenities. You definitely have less maintenance than an older home.

Cons: New homes can cost a lot more than existing ones because of the increase in costs associated with land, materials, and labor. In a down market, it may be difficult to sell your existing home to help you pay for the new home. Your commute to work may be longer because new homes are usually constructed on the outskirts of the city or suburbs. The schooling system in the new neighborhood may not be as good as ones is established areas. You may pay higher property taxes to expand utilities and other services to a new area with fewer inhabitants. Landscaping can be expensive. The homeowners’ association fees may be higher than an older subdivision.

Existing Home
Pros: An existing home may be a lot cheaper than a new one. You may have many more choices of types of home as well as locales. You may be able to find a house in a desired neighborhood or a good schooling system. Landscaping costs are generally lower. You may get more bang for your buck in terms of quality of workmanship in a home that was built when land, labor and material costs were lower. You may have more living space, more land and more distance between houses. If the yard has mature trees, you’d benefit by having a cooler home and lower air conditioning bills in summer. The home may have a renovated kitchen and other goodies such as a finished basement. Appliances and window treatments are often included.

Cons: Older homes are generally less energy-efficient and may have leaky doors and windows, which means higher cost for heating and cooling. The house may require expensive repairs. Appliances which are no longer under warranty can fail anytime requiring immediate repair or expensive new purchases. The styling, d├ęcor, and flooring may be outdated. Building materials can be harder to match or replace.

The best way to decide if a new or existing home is best for you and your family is to make a list of what you are looking for in a home, your budget, preferred location and other factors that are important to you.

Tuesday, June 21, 2011

Foreign Buyers Recognize Value of Homeownership in the U.S.

Foreign buyers are capitalizing on the slump in the U.S. housing market by purchasing homes here in large numbers. The U.S. has been the top destination for foreign buyers for a long time. The increase in foreign real estate investment by $16 billion indicates that the U.S. still continues to be the most attractive destination for foreign buyers.

Here are some hard facts to validate this. According to the National Association of Realtors’ (NAR) 2011 Profile of International Home Buying Activity, the total residential international sales in the U.S. for the past year ending March 2011 equaled $82 billion, up from $66 billion in 2010. But more importantly, the average amount paid by foreign buyers was $315,000, whereas the domestic average was $218,000. However, 45 percent of international purchases were under $200,000.

Here are some reasons why international buyers prefer to purchase homes in the U.S. The U.S. is generally considered a safe and stable environment for investments. Properties here are a lot cheaper than most markets in Europe. Unlike many other countries, real estate investments in the U.S. have historically achieved a higher long-term appreciation. Since many international students come to U.S. universities for undergraduate and higher education, many parents believe it makes practical sense to buy rather than rent homes for their kids. Many temporary foreign workers in the high-tech field also find it more economical to buy a home rather than leasing apartments.

International buyers are very picky when it comes to their buying preferences. The buying decisions were primarily influenced by four factors: proximity to their home country; convenience of air transportation; climate and location. Florida, California, Texas and Arizona have been the darlings of international buyers for the past five years, mostly because of their balmy winters. 31 percent of foreigners prefer to by homes in Florida, which is the top destination. California comes in second with 12 percent, followed by Texas with 9 percent, and Arizona with 6 percent. There is a distinct pattern of buying preference among various ethnic groups. Florida is preferred by Canadians, Europeans and South Americans. Asians have historically chosen the West Coast and most Europeans prefer the East Coast. Mexican buyers seem to prefer the Southwestern region.

People from 70 countries purchased homes in the U.S. this year, which are 17 more than the year before. Canadians dominated the foreign buyers with 23 percent. China came in second with 9 percent. India, the U.K. and Mexico were tied for the third place. These five countries accounted for 53 percent of foreign transaction in 2011.

As far as statistics are concerned, 28 percent of Realtors reported working with a foreign buyer in 2011. 55 percent served at least one international client. Eight percent of Realtors obtained 50 percent or more of their transactions from foreign buyers. 61 percent of foreign buyers bought a single-family home while 36 percent purchased a condo, apartment or townhouse. 62 percent of international transactions were made by paying cash. The biggest hurdle for foreign buyers continues to be the availability of financing, with 32 percent reporting this as their primary reason for not buying a home. In addition to financing, foreign buyers cited legal, tax and immigration as other factors that prevented their real estate purchase.

Tuesday, June 14, 2011

Mortgage Rates at Lows for Year

Amidst the continued weak economy, mortgage rates have dropped for four weeks in a row to their lowest point this year, according to Freddie Mac’s Primary Mortgage Market Survey that was released on June 2, 2011.

Rates on 30-year fixed-rate mortgages averaged 4.55 percent with an average 0.6 point for the week ending June 2, down from 4.71 percent last week and 5 percent a year ago.

The 30-year fixed-rate mortgage hit an all-time low in Freddie Mac records dating to 1971 of 4.17 percent during the week ending Nov. 11, 2010, and so far this year has ranged from 4.71 percent in early January to a high of 5.05 percent in February.

Rates on 15-year fixed-rate mortgages averaged 3.74 percent with an average 0.7 point, down from 3.89 percent last week and 4.36 percent a year ago. This is a new low for 2011, but it is well above the all-time low in records dating back to 1991 of 3.57 percent, set in November.

Rates on 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 3.41 percent with an average 0.6 point, down from 3.47 percent last week and 3.97 percent a year ago. The 5-year ARM hit a low in records dating to 2005 of 3.25 percent in November.

Rates on the 1-year ARM loans averaged 3.13 percent with an average 0.6 point, down from 3.14 percent last week and 4.07 percent a year ago.

Some analysts are anticipating an upward movement in mortgage rates. Mortgage applications have been rising, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. Also, the number of borrowers looking to refinance is currently at its highest level since the second week of December. Mirroring the steady decline in rates, refinancing activities have increased 35 percent over the past seven weeks. However, refinancing is only at 50 percent the level it reached during the fall of 2010, when mortgage rates fell to their record lows.

Despite an uptick in refinance activities, the low mortgage rates haven’t been good enough to nudge the weak housing market. According to the National Association of Realtors, fewer people bought previously occupied homes in April. Sales fell to a seasonally adjusted annual rate of 5.05 million units, which is far below the 6 million homes a year that economists consider a healthy housing market.

Despite the lackluster housing news, Freddie Mac’s Vice President and Chief Economist Frank Nothaft highlighted one positive observation.   "Households have been strengthening their balance sheets over the past year," he said. "The New York Federal Reserve Bank reported that the serious delinquency rate (90 or more days delinquent plus foreclosures) on first mortgages and closed-end home equity loans balances fell to 7.46% in the first quarter from a peak of 8.89% the same period last year. This suggests there may be fewer distressed sales later this year." Distressed houses have accounted for a much higher than normal share of all homes on the market for the last year, and a reduction in their number would help stabilize home prices, which have been falling since last summer.