Clouds, followed by doom and gloom...The day of reckoning is here folks. Did you really think home prices would go up 15% per year for ever?
The retail market no longer exists: I know this sounds like a bold statement, but for the near-term it is the reality of our situation in Happy Valley. Between the Buena Vista auctions, foreclosures and short-sales there just is no market for "full retail" pricing. The huge volume of distressed homes in our area far out paces the current level of demand. Even using demand numbers from the peak year, 2005, there are more active listings than can be absorbed. So, why would a qualified Buyer (very rare right now) buy your home for $700,000 when they can get a similar bank-owned home for $500,000?
Buyer's above $417,000 are rare: One of the most severe consequences of the mortgage melt-down is the extreme cost of "Jumbo" loans. In the past Jumbo loans (above $417,000) were usually priced about .25% above conforming loans, and sometimes at PAR with conforming loans. In the current market place it is between 1.5% and 2.0% higher. On a $500,000 mortgage that can equate to an extra $835 per month! Many Buyers in this range are waiting for Jumbo Loans to retrace to their historical spread. Thus, these Buyers are on the sidelines.
100% financing is gone: Most first-time home buyers utilized some sort of 100% financing product to get into their homes. Now that a minimum of 3% is required, the market for starter homes has slowed dramatically. Why is that important in Happy Valley...the "move-up" Buyers that would normally be buying into our neighborhood are having a hard time selling their homes. If they cannot sell their starter homes, they can't move up to our homes.
What does this mean for us? This year is not the year to sell your home. If you must:
1) Hire a local experienced Broker who will be brutally honest with you.
2) Price aggressively.
3) Make yourself easy to do business with.
4) Expect that you still may not sell your home this year.
Thursday, April 3, 2008
Wednesday, April 2, 2008
The rebound is just around the corner, right???
That light at the end of the tunnel??? Well my friends, that is a TRAIN!
Without going into reams of numbers, stats (stats don't lie, Statisticians do) and a history lesson, I am just going to explain with the simple Theory of Supply and Demand.
We all understand that as supply goes up, prices come down and as supply goes down prices go up. Oil has been responding to that lately, as has corn, wheat and gold.
Real Estate Supply is: Developable land and/or finished property.
Real Estate Demand is: Willing and able Buyers (both consumer and Professional).
Let's look at supply: Inventories of listed homes are approaching 1-year nationally, well above the 3-month average we saw during the boom years. Not figured in that number are a lot of the REO (Bank owned) homes that are not listed, but actively for sale. Also, National Homebuilders are only listing a few token homes per development (maybe 10% of their finished inventory) to diminish the appearance of having too much standing inventory. Homebuilders are still building new homes at a rate FASTER than they are being purchase, further bloating the standing inventory.
1) Inventory is way outpacing current demand.
2) Inventory is UNDER reported.
3) Inventory is trending HIGHER.
Let's look at Demand: We often talk of finding a "willing' and "able" Buyer. With consumer confidence at 20-year lows, many potential Buyers are just not "willing" to jump into a declining market. Those that are "willing" are often unable. The continued tightening of lending standards and rising mortgage rates have rendered many "willing" Buyers UNABLE. During the boom an abnormally high number of qualified Buyers became homeowners, effectively taking a decades worth of demand and crunching it into a few years. Stealing from future sales to close sales "today".
1) Demand is rapidly declining.
2) Those Homeowners who have defaulted will be locked out of home ownership for 7 years.
3) Many first-time Homeowners are underwater and unable to move up the housing chain.
4) New Buyers are locked out of the credit markets.
5) Builders do not want to buy new land as they cannot dispose of their current product.
We are currently in a period where Supply and Demand are quickly moving in opposite directions. In very liquid assets the price moves quickly in response. In non-liquid assets, such as Real Estate, it takes much longer for the price shifts to show up in the national numbers. We are at the onset of a long and protracted decrease in Real Estate values.
Without going into reams of numbers, stats (stats don't lie, Statisticians do) and a history lesson, I am just going to explain with the simple Theory of Supply and Demand.
We all understand that as supply goes up, prices come down and as supply goes down prices go up. Oil has been responding to that lately, as has corn, wheat and gold.
Real Estate Supply is: Developable land and/or finished property.
Real Estate Demand is: Willing and able Buyers (both consumer and Professional).
Let's look at supply: Inventories of listed homes are approaching 1-year nationally, well above the 3-month average we saw during the boom years. Not figured in that number are a lot of the REO (Bank owned) homes that are not listed, but actively for sale. Also, National Homebuilders are only listing a few token homes per development (maybe 10% of their finished inventory) to diminish the appearance of having too much standing inventory. Homebuilders are still building new homes at a rate FASTER than they are being purchase, further bloating the standing inventory.
1) Inventory is way outpacing current demand.
2) Inventory is UNDER reported.
3) Inventory is trending HIGHER.
Let's look at Demand: We often talk of finding a "willing' and "able" Buyer. With consumer confidence at 20-year lows, many potential Buyers are just not "willing" to jump into a declining market. Those that are "willing" are often unable. The continued tightening of lending standards and rising mortgage rates have rendered many "willing" Buyers UNABLE. During the boom an abnormally high number of qualified Buyers became homeowners, effectively taking a decades worth of demand and crunching it into a few years. Stealing from future sales to close sales "today".
1) Demand is rapidly declining.
2) Those Homeowners who have defaulted will be locked out of home ownership for 7 years.
3) Many first-time Homeowners are underwater and unable to move up the housing chain.
4) New Buyers are locked out of the credit markets.
5) Builders do not want to buy new land as they cannot dispose of their current product.
We are currently in a period where Supply and Demand are quickly moving in opposite directions. In very liquid assets the price moves quickly in response. In non-liquid assets, such as Real Estate, it takes much longer for the price shifts to show up in the national numbers. We are at the onset of a long and protracted decrease in Real Estate values.
Who is really in Foreclosure
The papers and news are full of stories of "2 million American Families losing their homes". If you listen to Congressional testimony on CSPAN it sounds like each and every home in foreclosure has the perfect American family about to have their dream ripped from them. Well....the truth is for from the perception....
1) Speculators: This group makes up the vast majority of early foreclosures and accounts for the 100,000's of vacant homes scattered across the country. They were purely playing a financial game, and when the tide turned...they bailed. Estimates are that fully 40% of the foreclosures currently reported are speculator activity. This group was comprised mostly of amateurs who lacked the knowledge and resource to properly function in the heavily leveraged Real Estate market. They artificially drove up demand, and the feverish bids drove prices to unsustainable levels. Think "Flippers". This group will be almost totally purged out of the market by early 2009 and will represent an ever declining share of foreclosures.
2) Investors / Private Builders: This group, who normally carves out a business in Real Estate using a more conservative approach to buying, selling and developing found themselves up against a huge wave of speculators who were bidding up the cost of the Real Estate that they needed to sustain their livelihood. Many started making bad decisions based on the "new" market realities. Initially they all profited handsomely, but when the market suddenly ground to a halt in 2007 they were left holding the bag on 100,000's of properties that they suddenly couldn't move. Many Investors / Private Builders use local banks to fund their projects. I know of two regional banks here in the Northwest that are on the verge of failure because of the non-performing loans to Builders and Developers. This group initially started to heavily discount their product to get any funds out that they could, driving down prices in their locals. Now that the markets have seized up, they are going into foreclosure by the droves. It is estimated that they account for 25% of the outstanding foreclosures. This segment will continue to falter and should be a larger segment of the foreclosure market for the foreseeable future.
3) Marginal Individual Homeowners: Enticed by ever easing lending standards and the perception that housing prices would go up in perpetuity. This group represents those that either should NEVER have become homeowners because they just did not have the financial means to do so (Liar Loans), or who bought much more house than they could actually afford (Pay-option ARMS). This group was sold on the American Dream and the chance to create 10's of thousands of dollars of wealth. This group also was blinded by greed and shares culpability. They only listened to what they wanted to hear, did not ask the tough questions of their Realtors and Mortgage Officers and turned a blind eye to the fact that every financial transaction contains risk. This group makes up approximately 30% of the current foreclosure market. This group will also be purged from the market by the beginning of 2010 and will see an ever decreasing share of the foreclosure number.
4) Traditional Homeowner: This group (Good credit, fully employed, has 20% or more equity) has benefited from the huge run up in prices and either cashed out through the sale of their home or tapped equity lines to get cash. Traditionally they rarely go into foreclosure (usually caused by job loss, divorce or death). Currently they make up only about 5% of the foreclosures. But, as prices rapidly deflate, the economy continues to cool and tighter lending standards make it more difficult for future Buyers to come into the market their numbers will soar. By 2010 this group should account for over 50% of active foreclosures.
5) National Homebuilders: Why am I talking about this group? They don't go into traditional foreclosure, right? Because they represent the single largest threat to home values over the next 2 years. Many are technically insolvent, only fighting of Bankruptcy through fiscal maneuvering. Once a major (my bet is Centex) goes BK, there will be a cascade effect. We are already seeing bulk land deals from the likes of Lennar, KB Homes and Centex where they are selling off lots in the $10,000 to $20,000 range. They continue to build homes at a rate faster than they are being absorbed. Once a large one goes into receivership, the value of their finished homes will plummet as they are sold off in a REAL auction, not these bogus auctions that we have been ready about, but a no-reserve highest bid wins...PERIOD type of auction. Once this starts, those traditional homeowners who thought they had 20-30-40% equity may find that they are under-water on their homes and that giving the keys back to the bank may be a better solution.
Bottom line, the current wave of foreclosures is not really affecting the solid homeowner, in fact most foreclosures are vacant homes held for investment or pure speculation. But, this first round of bad loans will have a prolonged effect on the market and put the rest of us at jeopardy....
1) Speculators: This group makes up the vast majority of early foreclosures and accounts for the 100,000's of vacant homes scattered across the country. They were purely playing a financial game, and when the tide turned...they bailed. Estimates are that fully 40% of the foreclosures currently reported are speculator activity. This group was comprised mostly of amateurs who lacked the knowledge and resource to properly function in the heavily leveraged Real Estate market. They artificially drove up demand, and the feverish bids drove prices to unsustainable levels. Think "Flippers". This group will be almost totally purged out of the market by early 2009 and will represent an ever declining share of foreclosures.
2) Investors / Private Builders: This group, who normally carves out a business in Real Estate using a more conservative approach to buying, selling and developing found themselves up against a huge wave of speculators who were bidding up the cost of the Real Estate that they needed to sustain their livelihood. Many started making bad decisions based on the "new" market realities. Initially they all profited handsomely, but when the market suddenly ground to a halt in 2007 they were left holding the bag on 100,000's of properties that they suddenly couldn't move. Many Investors / Private Builders use local banks to fund their projects. I know of two regional banks here in the Northwest that are on the verge of failure because of the non-performing loans to Builders and Developers. This group initially started to heavily discount their product to get any funds out that they could, driving down prices in their locals. Now that the markets have seized up, they are going into foreclosure by the droves. It is estimated that they account for 25% of the outstanding foreclosures. This segment will continue to falter and should be a larger segment of the foreclosure market for the foreseeable future.
3) Marginal Individual Homeowners: Enticed by ever easing lending standards and the perception that housing prices would go up in perpetuity. This group represents those that either should NEVER have become homeowners because they just did not have the financial means to do so (Liar Loans), or who bought much more house than they could actually afford (Pay-option ARMS). This group was sold on the American Dream and the chance to create 10's of thousands of dollars of wealth. This group also was blinded by greed and shares culpability. They only listened to what they wanted to hear, did not ask the tough questions of their Realtors and Mortgage Officers and turned a blind eye to the fact that every financial transaction contains risk. This group makes up approximately 30% of the current foreclosure market. This group will also be purged from the market by the beginning of 2010 and will see an ever decreasing share of the foreclosure number.
4) Traditional Homeowner: This group (Good credit, fully employed, has 20% or more equity) has benefited from the huge run up in prices and either cashed out through the sale of their home or tapped equity lines to get cash. Traditionally they rarely go into foreclosure (usually caused by job loss, divorce or death). Currently they make up only about 5% of the foreclosures. But, as prices rapidly deflate, the economy continues to cool and tighter lending standards make it more difficult for future Buyers to come into the market their numbers will soar. By 2010 this group should account for over 50% of active foreclosures.
5) National Homebuilders: Why am I talking about this group? They don't go into traditional foreclosure, right? Because they represent the single largest threat to home values over the next 2 years. Many are technically insolvent, only fighting of Bankruptcy through fiscal maneuvering. Once a major (my bet is Centex) goes BK, there will be a cascade effect. We are already seeing bulk land deals from the likes of Lennar, KB Homes and Centex where they are selling off lots in the $10,000 to $20,000 range. They continue to build homes at a rate faster than they are being absorbed. Once a large one goes into receivership, the value of their finished homes will plummet as they are sold off in a REAL auction, not these bogus auctions that we have been ready about, but a no-reserve highest bid wins...PERIOD type of auction. Once this starts, those traditional homeowners who thought they had 20-30-40% equity may find that they are under-water on their homes and that giving the keys back to the bank may be a better solution.
Bottom line, the current wave of foreclosures is not really affecting the solid homeowner, in fact most foreclosures are vacant homes held for investment or pure speculation. But, this first round of bad loans will have a prolonged effect on the market and put the rest of us at jeopardy....
Wednesday, February 13, 2008
How to chose a Mortgage Broker
I don't know who is more hated...a Used Car Salesman or a Mortgage Broker. Both suffer from the reputation of not being honest and forthright in negotiating. So, how to chose one who is.
1) Education: All Loan Originators in Oregon are required to go through the same basic training and continuing education. Beyond that...its a free-for-all. Ask your Loan Originator prospects what formal education they have (AA, BA, MBA). Ask them if they have ever applied their education in traditional business. Look for a Lender with a strong background in business, finance, contracts and taxation.
2) Experience: Try to find a Lender who not only has broad experience and many years of transactional history, but specific experience to YOUR needs. If you need a VA loan make sure your lender knows them inside and out, and preferably, is a Veteran! Verify that your Lender knows what he/she is doing.
3) Reputation: Your Mortgage Broker shops your loan to multiple Banks. The better Brokers with good reputations and a strong history get better deals from the banks, and can therefore get you better rate/terms. Be sure the Lender you chose is very reputable and is on good terms with the banks they originate for.
4) Full Disclosure: There are three basic areas where Brokers take money from your pocket:
1) Pass-through costs. These include credit reports, appraisals, courier, underwriting, Escrow, title and impounds (Taxes and insurance). These are not allowed to be marked up and should be the same from Broker to Broker.
2) Broker fees. Origination, Broker fee, Processing fee. These all vary wildly from Broker to Broker. A 1% origination and up to $495 for processing are considered fair.
3) Rebate or YSP. This is the biggy...this is what the bank pays back to the Broker for your loan after closing. The higher the rate the Broker gets you to commit to, the higher the rebate payment they will receive. On the norm most reputable Brokers will try to make about 1% in rebate. A good Broker will tell you what their target rebate is so you can balance all fees and costs while evaluating your loan options.
Reasons not to hire a Mortgage Broker:
1) They are a friend, family member or some other associate. That in and of itself is not a reason to hire someone.
2) They tell you what you want to hear and push a loan product that they want to sell. You are paying for quality advice based on your unique financial needs.
3) It is always the right time to refinance....WRONG. A good Broker turns away a lot of applicants because the timing is not right (Rates, credit, LTV and other considerations).
4) They are super busy, so they must be good. If they are that busy, when will they help you? There is an art to locking in the best rate and watching the markets. Make sure they are not swamped and unable to attend to your file.
Reasons to hire a Mortgage Broker:
1) Personal reference from someone who you trust.
2) They thoroughly evaluate your situation before offering a product.
3) They are not stretched too thin with other clients.
4) They fully disclose all costs and show you how much they will make on your loan...including Rebate/YSP..
Hiring the right Lender can make a huge difference in the outcome of your transaction. They can save you thousands of dollars and make the process much easier. Buying /selling or refinancing a home will probably be the largest single financial endeavor you undertake in your life. Make sure the Lender you hire is the best suited to your needs.
Some common Lender tricks:
1) "No closing costs": This is a lie. All loans have costs. Any Lender can pay those costs for you, but MUST charge a higher interest rate to get a larger rebate from the bank to cover them. Most loans with 'no closing costs' have an interest rate 1% higher than a traditional loan.
2) "We have the best rates". This is a lie. All Brokers have access to the same rate sheets and can offer the same rates in any apple-to-apple scenario.
3) "Now is the best time". Maybe...maybe not. Each financing scenario is unique. Where it may be perfect for Client A to refinance right now, client B may actually benefit from waiting.
1) Education: All Loan Originators in Oregon are required to go through the same basic training and continuing education. Beyond that...its a free-for-all. Ask your Loan Originator prospects what formal education they have (AA, BA, MBA). Ask them if they have ever applied their education in traditional business. Look for a Lender with a strong background in business, finance, contracts and taxation.
2) Experience: Try to find a Lender who not only has broad experience and many years of transactional history, but specific experience to YOUR needs. If you need a VA loan make sure your lender knows them inside and out, and preferably, is a Veteran! Verify that your Lender knows what he/she is doing.
3) Reputation: Your Mortgage Broker shops your loan to multiple Banks. The better Brokers with good reputations and a strong history get better deals from the banks, and can therefore get you better rate/terms. Be sure the Lender you chose is very reputable and is on good terms with the banks they originate for.
4) Full Disclosure: There are three basic areas where Brokers take money from your pocket:
1) Pass-through costs. These include credit reports, appraisals, courier, underwriting, Escrow, title and impounds (Taxes and insurance). These are not allowed to be marked up and should be the same from Broker to Broker.
2) Broker fees. Origination, Broker fee, Processing fee. These all vary wildly from Broker to Broker. A 1% origination and up to $495 for processing are considered fair.
3) Rebate or YSP. This is the biggy...this is what the bank pays back to the Broker for your loan after closing. The higher the rate the Broker gets you to commit to, the higher the rebate payment they will receive. On the norm most reputable Brokers will try to make about 1% in rebate. A good Broker will tell you what their target rebate is so you can balance all fees and costs while evaluating your loan options.
Reasons not to hire a Mortgage Broker:
1) They are a friend, family member or some other associate. That in and of itself is not a reason to hire someone.
2) They tell you what you want to hear and push a loan product that they want to sell. You are paying for quality advice based on your unique financial needs.
3) It is always the right time to refinance....WRONG. A good Broker turns away a lot of applicants because the timing is not right (Rates, credit, LTV and other considerations).
4) They are super busy, so they must be good. If they are that busy, when will they help you? There is an art to locking in the best rate and watching the markets. Make sure they are not swamped and unable to attend to your file.
Reasons to hire a Mortgage Broker:
1) Personal reference from someone who you trust.
2) They thoroughly evaluate your situation before offering a product.
3) They are not stretched too thin with other clients.
4) They fully disclose all costs and show you how much they will make on your loan...including Rebate/YSP..
Hiring the right Lender can make a huge difference in the outcome of your transaction. They can save you thousands of dollars and make the process much easier. Buying /selling or refinancing a home will probably be the largest single financial endeavor you undertake in your life. Make sure the Lender you hire is the best suited to your needs.
Some common Lender tricks:
1) "No closing costs": This is a lie. All loans have costs. Any Lender can pay those costs for you, but MUST charge a higher interest rate to get a larger rebate from the bank to cover them. Most loans with 'no closing costs' have an interest rate 1% higher than a traditional loan.
2) "We have the best rates". This is a lie. All Brokers have access to the same rate sheets and can offer the same rates in any apple-to-apple scenario.
3) "Now is the best time". Maybe...maybe not. Each financing scenario is unique. Where it may be perfect for Client A to refinance right now, client B may actually benefit from waiting.
How to chose a Realtor
Not all Realtors are created equal. In fact the vast majority of licensed Realtors are not full-time professionals, but rather part-timers looking for a quick buck. They lack experience, education, focus and industry knowledge. So...what to look for:
1) Education: All Realtors in Oregon are required to go through the same basic training and continuing education. Beyond that...its a free-for-all. Be wary of Realtors who dazzle you with industry designations like; GRI and ePro, but have little to no formal education. Ask your Realtor prospects what formal education they have (AA, BA, MBA). Ask them if they have ever applied their education in traditional business. Look for a Realtor with a strong background in business, finance, contracts and taxation. All very important aspects of every Real Estate transaction.
2) Experience: Try to find a Realtor who not only has broad experience and many years of transactional history, but specific experience to YOUR needs. Currently short-sales are all the rage. If you think you qualify for a short-sale make sure the Realtor you chose knows how to execute them and has experience with them. Or, say you are an investor who needs to do a 1031 exchange. Verify that your Realtor knows what he/she is doing.
3) Area Knowledge: Many Realtors will claim to service very large geographic areas. I can guarantee that their specific knowledge of neighborhoods will be nominal and they will have extreme difficulty physically servicing listings or Buyers who are far from their place of business. Chose a Realtor who lives in the local area, or at a minimum does a lot of business in the area and knows the local market thoroughly. A Happy Valley Realtor would be a bad choice to sell a home in Beaverton...
4) Reputation: The wrong name on your listing can scare away many Buyer's Agents. Quality Realtors do not like doing business with the group of Brokers who don't follow the industry ethical standards and generally create problem transactions. If an unreputable Realtor is submitting offers on your behalf as a Buyer, the Listing Realtor will be more likely to counter back with tighter contract terms, larger earnest money and even a higher price to protect their client from possible problems during the transaction.
Reasons not to hire a Realtor:
1) They are a friend, family member or some other associate. That in and of itself is not a reason to hire someone.
2) They tell you what you want to hear. You are paying for the truth and quality advice, not for a "Yesman".
3) They offer you a financial incentive. It is illegal in Oregon for Realtors to give financial kickbacks to clients.
4) They are super busy, so they must be good. If they are that busy, when will they help you?
5) They have a Team. Teams' often play bait and switch and stick you with less experienced members of the Team, while the Principals focus on marketing to new customers.
Reasons to hire a Realtor:
1) Personal reference from someone who you trust.
2) They tell you the bad with the good during your interview.
3) They are not stretched too thin with other clients.
4) They seem to understand your specific Real Estate needs and demonstrate expertise with your particular type of transaction.
Hiring the right Realtor can make a huge difference in the outcome of your transaction. They can save you thousands of dollars and cut the time it takes to complete a transaction by months. Buying or selling a home will probably be the largest single financial endeavor you undertake in your life. Make sure the Realtor you hire is the best suited to your needs.
1) Education: All Realtors in Oregon are required to go through the same basic training and continuing education. Beyond that...its a free-for-all. Be wary of Realtors who dazzle you with industry designations like; GRI and ePro, but have little to no formal education. Ask your Realtor prospects what formal education they have (AA, BA, MBA). Ask them if they have ever applied their education in traditional business. Look for a Realtor with a strong background in business, finance, contracts and taxation. All very important aspects of every Real Estate transaction.
2) Experience: Try to find a Realtor who not only has broad experience and many years of transactional history, but specific experience to YOUR needs. Currently short-sales are all the rage. If you think you qualify for a short-sale make sure the Realtor you chose knows how to execute them and has experience with them. Or, say you are an investor who needs to do a 1031 exchange. Verify that your Realtor knows what he/she is doing.
3) Area Knowledge: Many Realtors will claim to service very large geographic areas. I can guarantee that their specific knowledge of neighborhoods will be nominal and they will have extreme difficulty physically servicing listings or Buyers who are far from their place of business. Chose a Realtor who lives in the local area, or at a minimum does a lot of business in the area and knows the local market thoroughly. A Happy Valley Realtor would be a bad choice to sell a home in Beaverton...
4) Reputation: The wrong name on your listing can scare away many Buyer's Agents. Quality Realtors do not like doing business with the group of Brokers who don't follow the industry ethical standards and generally create problem transactions. If an unreputable Realtor is submitting offers on your behalf as a Buyer, the Listing Realtor will be more likely to counter back with tighter contract terms, larger earnest money and even a higher price to protect their client from possible problems during the transaction.
Reasons not to hire a Realtor:
1) They are a friend, family member or some other associate. That in and of itself is not a reason to hire someone.
2) They tell you what you want to hear. You are paying for the truth and quality advice, not for a "Yesman".
3) They offer you a financial incentive. It is illegal in Oregon for Realtors to give financial kickbacks to clients.
4) They are super busy, so they must be good. If they are that busy, when will they help you?
5) They have a Team. Teams' often play bait and switch and stick you with less experienced members of the Team, while the Principals focus on marketing to new customers.
Reasons to hire a Realtor:
1) Personal reference from someone who you trust.
2) They tell you the bad with the good during your interview.
3) They are not stretched too thin with other clients.
4) They seem to understand your specific Real Estate needs and demonstrate expertise with your particular type of transaction.
Hiring the right Realtor can make a huge difference in the outcome of your transaction. They can save you thousands of dollars and cut the time it takes to complete a transaction by months. Buying or selling a home will probably be the largest single financial endeavor you undertake in your life. Make sure the Realtor you hire is the best suited to your needs.
Wednesday, January 9, 2008
Short Sales - Buyer Edition
Many investors are thinking there may be some good buys in short sales...there are...but there are also some important hurdles to be aware of:
1) Just because a Realtor has listed a property and advertised it as a short sale, does not mean it really is...
a) Has the Seller completed a short sale package and received tentative approval from the lender?
b) Is there a second or HELOC and have they been contacted and given approval?
c) Are there any other liens that could encumber the transaction?
2) Are you willing to jump through hoops and wait for up to 180 days?
a) Banks are currently swamped with requests and can take up to 30 days to respond.
b) You may plan to use financing, but the rate/terms you banked on may change radically during the negotiations. I recommend at least 60-day locks.
c) They may drag their feet for 20, 30, 60 days...then say no.
How do you package an offer that banks will accept:
1) Hire a Realtor familiar with short sales.
2) Have him/her prepare your own BPO to support your offer price.
3) If possible offer cash.
4) Limit contingency to the bare minimum to protect you.
5) Submit all documentation together, complete and legible.
Short sales can offer good value, but for the average person looking to buy a Principal residence I would say they are not your best option. Leave them to Investors.
1) Just because a Realtor has listed a property and advertised it as a short sale, does not mean it really is...
a) Has the Seller completed a short sale package and received tentative approval from the lender?
b) Is there a second or HELOC and have they been contacted and given approval?
c) Are there any other liens that could encumber the transaction?
2) Are you willing to jump through hoops and wait for up to 180 days?
a) Banks are currently swamped with requests and can take up to 30 days to respond.
b) You may plan to use financing, but the rate/terms you banked on may change radically during the negotiations. I recommend at least 60-day locks.
c) They may drag their feet for 20, 30, 60 days...then say no.
How do you package an offer that banks will accept:
1) Hire a Realtor familiar with short sales.
2) Have him/her prepare your own BPO to support your offer price.
3) If possible offer cash.
4) Limit contingency to the bare minimum to protect you.
5) Submit all documentation together, complete and legible.
Short sales can offer good value, but for the average person looking to buy a Principal residence I would say they are not your best option. Leave them to Investors.
Short Sales - Sellers Edition
Determining if you qualify:
Many Sellers are under the false impression that just because they are underwater on their mortgage they can do a short sale.. That is simply NOT true. If you made a bad investment and have the means to cover the loses, the bank will expect you to either keep making payments as prescribed in your mortgage, or cover the losses of the sale through your other assets. Do not expect the bank to take losses while you walk with assets...including IRA, 401K, other properties or tangible assets. You MUST be effectively insolvent to get a bank to agree to a short sale.
How to get started:
Find a Realtor knowledgeable in short sales and have them help you pull together a short sale package. The package will differ from institution to institution.
1) You will need to send a written request and authorization for your Agent/Broker to discuss the loan(s) with the Servicer.
2) You will need to provide a complete accounting of your finances (Income, assets and liabilities) and a letter of hardship detailing why you feel a short sale is appropriate.
3) Your Broker will need to do a BPO.
What will the short mean for you:
1) You will be able to stay in the home during the process.
2) The bank may accept smaller payments during the marketing time.
3) You may be able to negotiate the limitation of derogatory comments on your credit report.
4) Sellers cannot get ANY cash from the proceeds.
What can trip you up:
1) Some Lenders will compare your original loan application to what you claim on your financial disclosure package. If there are discrepancies, they may go after you for loan fraud (Say you did a stated income loan, claiming a $150,000 a year income, but you provide your pay stubs and only show $100,000 in income).
2) The second mortgage. Don't forget about the second or HELOC.
3) Other recorded liens against the property that could encumber the transaction.
4) Buyer patience. The process can take months. Be sure your Buyer has the time and patience to wait it out.
Short sales can be very complex and there is no one formula, as each transaction is its own animal. Do not attempt to do it on your own. You cannot get paid on it anyway, so bring in an experienced Realtor to guide you through. The Bank will pay their commission out of the sale proceeds.
Many Sellers are under the false impression that just because they are underwater on their mortgage they can do a short sale.. That is simply NOT true. If you made a bad investment and have the means to cover the loses, the bank will expect you to either keep making payments as prescribed in your mortgage, or cover the losses of the sale through your other assets. Do not expect the bank to take losses while you walk with assets...including IRA, 401K, other properties or tangible assets. You MUST be effectively insolvent to get a bank to agree to a short sale.
How to get started:
Find a Realtor knowledgeable in short sales and have them help you pull together a short sale package. The package will differ from institution to institution.
1) You will need to send a written request and authorization for your Agent/Broker to discuss the loan(s) with the Servicer.
2) You will need to provide a complete accounting of your finances (Income, assets and liabilities) and a letter of hardship detailing why you feel a short sale is appropriate.
3) Your Broker will need to do a BPO.
What will the short mean for you:
1) You will be able to stay in the home during the process.
2) The bank may accept smaller payments during the marketing time.
3) You may be able to negotiate the limitation of derogatory comments on your credit report.
4) Sellers cannot get ANY cash from the proceeds.
What can trip you up:
1) Some Lenders will compare your original loan application to what you claim on your financial disclosure package. If there are discrepancies, they may go after you for loan fraud (Say you did a stated income loan, claiming a $150,000 a year income, but you provide your pay stubs and only show $100,000 in income).
2) The second mortgage. Don't forget about the second or HELOC.
3) Other recorded liens against the property that could encumber the transaction.
4) Buyer patience. The process can take months. Be sure your Buyer has the time and patience to wait it out.
Short sales can be very complex and there is no one formula, as each transaction is its own animal. Do not attempt to do it on your own. You cannot get paid on it anyway, so bring in an experienced Realtor to guide you through. The Bank will pay their commission out of the sale proceeds.
Short Sales - Q&A
Many people have asked me about short sales lately, so I thought I would put together a quick Q&A:
Q. What is a short sale?
A. A transaction where the proceeds are insufficient to cover all costs and liens.
Q. Can any Seller do a short sale?
A. No. You must prove financial need. The bank must first say OK...then you need to find a Buyer and complete the transaction before the auction date.
Q. Are there restrictions to Buyers making offers?
A. Generally no, but the banks look at many factors, not just offer price.
Q. I saw a listing advertising a short sale, does that mean that a short sale is pre-approved?
A. No. Many Realtors and Sellers do not pre-complete the short sale package and the bank does not have knowledge. Also, even if the bank has indicated they will "review" short offers, does not bind them to accept any offer.
Q. Are short sales always a good buy?
A. No. Many short sales are in that position because the previous Buyer over-paid, or the property has other issues!
Q. Are short sales always difficult?
A. No, but much more intensive than a standard transaction. An experienced Realtor who knows how to present the package on behalf of the Seller can go a long way to make the transaction easier. Also, all banks handle them differently and each one is its own animal.
Q. Are short sales a good idea for the average Buyer?
A. Yes and No. Depends on your appetite for difficulty and how long you are willing to wait. It may take 120 days to complete...or it might get yanked from you at the end.
Q. What is a short sale?
A. A transaction where the proceeds are insufficient to cover all costs and liens.
Q. Can any Seller do a short sale?
A. No. You must prove financial need. The bank must first say OK...then you need to find a Buyer and complete the transaction before the auction date.
Q. Are there restrictions to Buyers making offers?
A. Generally no, but the banks look at many factors, not just offer price.
Q. I saw a listing advertising a short sale, does that mean that a short sale is pre-approved?
A. No. Many Realtors and Sellers do not pre-complete the short sale package and the bank does not have knowledge. Also, even if the bank has indicated they will "review" short offers, does not bind them to accept any offer.
Q. Are short sales always a good buy?
A. No. Many short sales are in that position because the previous Buyer over-paid, or the property has other issues!
Q. Are short sales always difficult?
A. No, but much more intensive than a standard transaction. An experienced Realtor who knows how to present the package on behalf of the Seller can go a long way to make the transaction easier. Also, all banks handle them differently and each one is its own animal.
Q. Are short sales a good idea for the average Buyer?
A. Yes and No. Depends on your appetite for difficulty and how long you are willing to wait. It may take 120 days to complete...or it might get yanked from you at the end.
Buyer forecast for 2008
You are entering a great window that will last at least 18 months. Take advantage of it, but with caution.
1) Sit down with an EXPERIENCED Lender who will clearly and openly disclose all fees and costs. Make sure that the rates and terms that they discuss are based on your FULLY documented income, a RECENT credit score and true cash reserves. Get pre-qualified, and check in with your Lender weekly to ensure that the program you want to use is still offered.
2) If you have challenges that prevent you from getting the best rate/term available on the market I would recommend not buying now, but spending some time cleaning up your credit, building cash reserves and building time of employment. The credit crunch is making it more difficult for challenged borrowers to get decent rate/term. As the fed rolls out new programs and the credit markets ease you will have more options. Plus, you do not need to worry about values going up as you repair your credit.
3) Use an experienced LOCAL Realtor. Their commission is paid by the Seller and their services can save you tens of thousands of dollars. Don't use a buddy or family member out of a sense of obligation. This is a huge financial commitment that you are making and you deserve the best representation you can find.
4) Take your time and view as many homes as you feel necessary to find the home best suited to your needs and budget.
5) Look closely at comparable sales and have your Realtor determine if the sales prices of the comps are real or inflated. Also have the realtor do listing/transactional research on the property. Find out if there is a notice of default, a recently recorded certificate of death, or divorce filling. All factors that could influence Seller motivation.
6) Be aggressively low in your initial offer, but not so low that you turn the Seller off.
7) Ask for a minimum 45 day Escrow, if not 60 day. Loans are taking MUCH longer to process and you may need the time.
8) Fully exorcise your Inspection rights and demand that Sellers make all necessary repairs at Sellers expense.
Finally, during the negotiations if you ever get that gut feeling that you are paying too much, or there is something wrong...STOP. Realtors only get paid when deals close, so they may get pushy to get you to sign and commit. If it doesn't feel right..wait. The home most likely isn't going anywhere, and if it does there are another 100 just like it looking for a Buyer.
1) Sit down with an EXPERIENCED Lender who will clearly and openly disclose all fees and costs. Make sure that the rates and terms that they discuss are based on your FULLY documented income, a RECENT credit score and true cash reserves. Get pre-qualified, and check in with your Lender weekly to ensure that the program you want to use is still offered.
2) If you have challenges that prevent you from getting the best rate/term available on the market I would recommend not buying now, but spending some time cleaning up your credit, building cash reserves and building time of employment. The credit crunch is making it more difficult for challenged borrowers to get decent rate/term. As the fed rolls out new programs and the credit markets ease you will have more options. Plus, you do not need to worry about values going up as you repair your credit.
3) Use an experienced LOCAL Realtor. Their commission is paid by the Seller and their services can save you tens of thousands of dollars. Don't use a buddy or family member out of a sense of obligation. This is a huge financial commitment that you are making and you deserve the best representation you can find.
4) Take your time and view as many homes as you feel necessary to find the home best suited to your needs and budget.
5) Look closely at comparable sales and have your Realtor determine if the sales prices of the comps are real or inflated. Also have the realtor do listing/transactional research on the property. Find out if there is a notice of default, a recently recorded certificate of death, or divorce filling. All factors that could influence Seller motivation.
6) Be aggressively low in your initial offer, but not so low that you turn the Seller off.
7) Ask for a minimum 45 day Escrow, if not 60 day. Loans are taking MUCH longer to process and you may need the time.
8) Fully exorcise your Inspection rights and demand that Sellers make all necessary repairs at Sellers expense.
Finally, during the negotiations if you ever get that gut feeling that you are paying too much, or there is something wrong...STOP. Realtors only get paid when deals close, so they may get pushy to get you to sign and commit. If it doesn't feel right..wait. The home most likely isn't going anywhere, and if it does there are another 100 just like it looking for a Buyer.
Seller Forecast for 2008
Let me start by saying that if you do not have to sell for the next few years...DO NOT.
If you must sell I would recommend the following:
1) Contact a local Real Estate Broker who knows and lives in the community and who plans on staying in the business through the downturn. It may take 12 months or more to sell your home and you do not want your Realtor bailing on you before your house has sold. Do not hire a Realtor because you feel obligated to a family member or friend. Hire a Realtor because they are the best qualified to sell your home.
2) Review your loan docs and all liens against the property. Be sure that your REALISTIC sales price is enough to cover your outstanding mortgage(s), pre-payment penalties if any, taxes or other liens and Escrow/title/ commission costs. If not you may need to consider a short-sale or other means of disposing of the property.
3) The days of selling "As-is" are over. Take care of the deferred maintenance, clean up the landscaping, de-clutter the inside and stage the house.
4) Remove barriers to doing business with you. Make showing the home easy. Have your disclosures filled out and readily available for review.
5) Present yourself as a Qualified Seller.
6) Pick your price carefully. Use only recent comps and expect to get less than that. Buyers do not care about what you "need" to make or "want" to clear. Buyers only care about what they feel the house is worth to them.
7) Respond to ALL offers, no matter how low-ball you feel they are. If you get a live Buyer on the line, do not let them ago until it is clear that what they are offering is truly unrealistic to what the market is doing.
Lastly, monitor your asking price. Make sure that the broader market is not lowering around you, thus making your home seem over-priced. Price is going to be the single biggest driving factor this year. I suggest that you stay ahead of the curve, not chasing it.
If you must sell I would recommend the following:
1) Contact a local Real Estate Broker who knows and lives in the community and who plans on staying in the business through the downturn. It may take 12 months or more to sell your home and you do not want your Realtor bailing on you before your house has sold. Do not hire a Realtor because you feel obligated to a family member or friend. Hire a Realtor because they are the best qualified to sell your home.
2) Review your loan docs and all liens against the property. Be sure that your REALISTIC sales price is enough to cover your outstanding mortgage(s), pre-payment penalties if any, taxes or other liens and Escrow/title/ commission costs. If not you may need to consider a short-sale or other means of disposing of the property.
3) The days of selling "As-is" are over. Take care of the deferred maintenance, clean up the landscaping, de-clutter the inside and stage the house.
4) Remove barriers to doing business with you. Make showing the home easy. Have your disclosures filled out and readily available for review.
5) Present yourself as a Qualified Seller.
6) Pick your price carefully. Use only recent comps and expect to get less than that. Buyers do not care about what you "need" to make or "want" to clear. Buyers only care about what they feel the house is worth to them.
7) Respond to ALL offers, no matter how low-ball you feel they are. If you get a live Buyer on the line, do not let them ago until it is clear that what they are offering is truly unrealistic to what the market is doing.
Lastly, monitor your asking price. Make sure that the broader market is not lowering around you, thus making your home seem over-priced. Price is going to be the single biggest driving factor this year. I suggest that you stay ahead of the curve, not chasing it.
What to Expect in 2008
I wish I could say more of the same (as bad as that was)...but I am afraid it will continue to worsen.
The macro issues facing the broader Real Estate Market continue to worsen:
1) Lending standards continue to tighten, pushing up to 50% of potential Buyers out of the market.
2) Consumer sentiment towards Real Estate continues to decrease, moving many qualified Buyers who, in a normal market, would ordinarily buy to the sidelines.
3) Banks will be Sellers this year...and aggressive Sellers they will be.
Local factors influencing the Happy Valley market include:
1) Inventory of 3 years at current sales levels.
2) Recent closed transactions and the Auction of Beuna Vista homes will provide a new round of comparables that Appraisers MUST use to value property...meaning the amount banks will lend against Happy Valley homes WILL be coming DOWN. I have personally witnessed a very large increase in appraisal reviews by the banks.
3) Very large number of Toxic mortgages resetting this year. The loan to value ratio on most of these mortgages is above 100%. That means that a large number will have to be short-sales or foreclosures. Many homeowners will just chose to walk instead of making escalating payments against a depreciating asset.
4) The very abrupt end to in-flow Buyers from California.
Summary:
I fully expect prices in Happy Valley to continue downward and re-approach 2004 levels. The Spring Selling Season should see a flood of new listings hitting the market, but Buyers will sit on the sidelines and truly dictate the terms of the transactions. As we overshot on the upswing, we will undershoot on the way back down. I fully expect final Seller capitulation by the 4th quarter of 2008 and a bottom in prices the first half of 2009.
The macro issues facing the broader Real Estate Market continue to worsen:
1) Lending standards continue to tighten, pushing up to 50% of potential Buyers out of the market.
2) Consumer sentiment towards Real Estate continues to decrease, moving many qualified Buyers who, in a normal market, would ordinarily buy to the sidelines.
3) Banks will be Sellers this year...and aggressive Sellers they will be.
Local factors influencing the Happy Valley market include:
1) Inventory of 3 years at current sales levels.
2) Recent closed transactions and the Auction of Beuna Vista homes will provide a new round of comparables that Appraisers MUST use to value property...meaning the amount banks will lend against Happy Valley homes WILL be coming DOWN. I have personally witnessed a very large increase in appraisal reviews by the banks.
3) Very large number of Toxic mortgages resetting this year. The loan to value ratio on most of these mortgages is above 100%. That means that a large number will have to be short-sales or foreclosures. Many homeowners will just chose to walk instead of making escalating payments against a depreciating asset.
4) The very abrupt end to in-flow Buyers from California.
Summary:
I fully expect prices in Happy Valley to continue downward and re-approach 2004 levels. The Spring Selling Season should see a flood of new listings hitting the market, but Buyers will sit on the sidelines and truly dictate the terms of the transactions. As we overshot on the upswing, we will undershoot on the way back down. I fully expect final Seller capitulation by the 4th quarter of 2008 and a bottom in prices the first half of 2009.
Friday, September 21, 2007
What Should Sellers do?
GET REAL....
Do I have your attention? Time to stop playing around and accept that the paradigm has shifted (and not in your favor). If you own a home that you THINK is valued over $450,000 you are going to have a hard time finding a Buyer.
Happy Valley has been wildly over-built in that price range. We had a modest amount of Speculator activity in new construction that is now crashing (read - selling for a LOSS). Massive amounts of ARM's are adjusting up and property tax bills are coming due. Pre-foreclosure activity is sky-rocketing and we are just at the beginning.
Here are two facts that the industry does not want you to know:
1) Prices in Happy Valley are FALLING (retreating to 2005 values), not increasing.
2) Time on market is closer to 180 days (and growing), not the 60 days reported.
The vast majority of Oregonians cannot afford a home over $450,000. If you live in Happy Valley could you afford your home TODAY based on current rates and what you think the house is worth? Tricky mortgages are gone and it is now time to pay the Piper.
OK...so now that we understand each other...what to do??
1) Hire an experienced LOCAL Realtor who you believe will stay in the business during this downturn. Look for real education (Bachelors and/or MBA). Don't be baffled by Industry designations like; GRI, CRS and e-PRO. Often times the underlying educational base is a GED.
* Price your house correctly
2) Forget everything you think you know about the value of your home. Take a hard look at the sales comps from the previous few months. Ask your Realtor to find out what other sales incentives had to be offered. Be prepared to list your home for MUCH less than you think. If the Realtor you are interviewing tells you that they can get your more...run...very far away. They are LYING. Your listing price must reflect market reality...or it will sit.
* Price your house correctly
3) Be prepared to offer incentives to the Realtor who represents the Buyer. These Realtors have literally hundreds of homes to chose from, and often a short period of time to show their Buyers. No realistic way to show every house on the market. Offer incentives to get them to show your home. Try a BAC of 3% or higher.
* Price your house correctly
4) Make yourself easy to do business with. Properly clean, prepare and stage your home. Take care of all the deferred maintenance. Proactively provide all pertinent info to potential Buyers.
* Price your house correctly
The big thing right now is for Realtors to scream in their listings that their Seller is "MOTIVATED!". Yet, when you look at the listing the house is priced too high, the commission offered is below industry standard and other aspects of the listing make it seem that the Seller wants it done their way. Here is my advice...do not say you are motivated...SHOW you are motivated. Price, price, price...3% BAC or more, house prepped for sale. That is how you show the market you are motivated.
Even in a down market homes sell. If you want yours to be one that does you must take some pretty basic steps.
MY OVERALL ADVICE IS TO NOT SELL FOR THE FORESEEABLE FUTURE IF YOU DO NOT HAVE TO. TOO MUCH INVENTORY CHASING TOO FEW BUYERS. IF YOU CAN WAIT OUT THE DOWNTURN, DO IT.
If you MUST sell (relocation, job loss, divorce, etc) get aggressive early. Don't trip over a dollar to pick up a dime!
Do I have your attention? Time to stop playing around and accept that the paradigm has shifted (and not in your favor). If you own a home that you THINK is valued over $450,000 you are going to have a hard time finding a Buyer.
Happy Valley has been wildly over-built in that price range. We had a modest amount of Speculator activity in new construction that is now crashing (read - selling for a LOSS). Massive amounts of ARM's are adjusting up and property tax bills are coming due. Pre-foreclosure activity is sky-rocketing and we are just at the beginning.
Here are two facts that the industry does not want you to know:
1) Prices in Happy Valley are FALLING (retreating to 2005 values), not increasing.
2) Time on market is closer to 180 days (and growing), not the 60 days reported.
The vast majority of Oregonians cannot afford a home over $450,000. If you live in Happy Valley could you afford your home TODAY based on current rates and what you think the house is worth? Tricky mortgages are gone and it is now time to pay the Piper.
OK...so now that we understand each other...what to do??
1) Hire an experienced LOCAL Realtor who you believe will stay in the business during this downturn. Look for real education (Bachelors and/or MBA). Don't be baffled by Industry designations like; GRI, CRS and e-PRO. Often times the underlying educational base is a GED.
* Price your house correctly
2) Forget everything you think you know about the value of your home. Take a hard look at the sales comps from the previous few months. Ask your Realtor to find out what other sales incentives had to be offered. Be prepared to list your home for MUCH less than you think. If the Realtor you are interviewing tells you that they can get your more...run...very far away. They are LYING. Your listing price must reflect market reality...or it will sit.
* Price your house correctly
3) Be prepared to offer incentives to the Realtor who represents the Buyer. These Realtors have literally hundreds of homes to chose from, and often a short period of time to show their Buyers. No realistic way to show every house on the market. Offer incentives to get them to show your home. Try a BAC of 3% or higher.
* Price your house correctly
4) Make yourself easy to do business with. Properly clean, prepare and stage your home. Take care of all the deferred maintenance. Proactively provide all pertinent info to potential Buyers.
* Price your house correctly
The big thing right now is for Realtors to scream in their listings that their Seller is "MOTIVATED!". Yet, when you look at the listing the house is priced too high, the commission offered is below industry standard and other aspects of the listing make it seem that the Seller wants it done their way. Here is my advice...do not say you are motivated...SHOW you are motivated. Price, price, price...3% BAC or more, house prepped for sale. That is how you show the market you are motivated.
Even in a down market homes sell. If you want yours to be one that does you must take some pretty basic steps.
MY OVERALL ADVICE IS TO NOT SELL FOR THE FORESEEABLE FUTURE IF YOU DO NOT HAVE TO. TOO MUCH INVENTORY CHASING TOO FEW BUYERS. IF YOU CAN WAIT OUT THE DOWNTURN, DO IT.
If you MUST sell (relocation, job loss, divorce, etc) get aggressive early. Don't trip over a dollar to pick up a dime!
What should Buyers do?
First you should know that you are in TOTAL control, but do not let it go to your head...
Before you enter the market you need two Allies: A Lender and a Realtor
Choosing a Lender:
1) Get FULLY qualified with an EXPERIENCED Lender who will explain all of your lending options. Most of the bad-apples are now out of the business, but some are hanging on. Find a Lender who understands the market, has been around a down-market and understands finance (yes, many do not know much about finance, taxes, etc.)
2) Meet with your Lender many months before you wish to buy so you can work through any credit glitches, build up proper cash reserves and ensure that your application is clean.
3) Be prepared to provide a pre-approval letter with much more detail than in the past. Sellers want to see credit scores, verify funds to close and know that your program has been approved.
4) Do NOT walk out of your Lender's office with questions. If you are not sure about something...ask!
Choosing a Realtor:
Over the next six months thousands of Realtors will be getting out of the business. I know some who went broke this Summer listing homes that did not sell. One had 10 listings and was spending over $3,000 a month in marketing (not including her time). She sold NOTHING and is now out of money and out of Real Estate.
1) Chose a Realtor who knows the area in which you wish to buy. They will normally know of transaction details of previous sales that can help you negotiate your best deal. They will also know of homes that are coming onto the market, but have not yet been listed.
2) Chose a Realtor who is committed to the business. Remember, most Realtors have had to take second jobs or are looking to. Make sure the one you chose isn't using you as one last paycheck before bailing.
3) Chose a Realtor with REAL education. Don't be fooled by the GED carrying Realtor who baffles you with Industry designations like; GRI, e-PRO or CRS. Look for a Realtor who holds a bachelors degree and/or an MBA.
4) Finally, chose a Realtor who is not afraid to tell you the truth. Don't hire a Yes-person. They are being compensated for their ability to navigate your transaction and look out for your interests. The good ones will tell you things that you may not want to hear, but NEED to hear...listen.
*One more no-no...do not hire a Realtor solely because you were 8th grade friends or its your second cousin twice removed. Hire a Realtor for their competence.
With your trusted Lender and Realtor on your team you are now ready to hit the market:
1) Take your time. There is plenty of inventory to chose from and very little competition.
2) Negotiate, but be fair. Sellers are about to take a beating...no need to rub it in.
3) Just before writing up your offer, take a breather and really think about it.
4) Once you have an accepted offer, be very thorough with your inspections and due diligence.
Go out there and find your best deal!
Before you enter the market you need two Allies: A Lender and a Realtor
Choosing a Lender:
1) Get FULLY qualified with an EXPERIENCED Lender who will explain all of your lending options. Most of the bad-apples are now out of the business, but some are hanging on. Find a Lender who understands the market, has been around a down-market and understands finance (yes, many do not know much about finance, taxes, etc.)
2) Meet with your Lender many months before you wish to buy so you can work through any credit glitches, build up proper cash reserves and ensure that your application is clean.
3) Be prepared to provide a pre-approval letter with much more detail than in the past. Sellers want to see credit scores, verify funds to close and know that your program has been approved.
4) Do NOT walk out of your Lender's office with questions. If you are not sure about something...ask!
Choosing a Realtor:
Over the next six months thousands of Realtors will be getting out of the business. I know some who went broke this Summer listing homes that did not sell. One had 10 listings and was spending over $3,000 a month in marketing (not including her time). She sold NOTHING and is now out of money and out of Real Estate.
1) Chose a Realtor who knows the area in which you wish to buy. They will normally know of transaction details of previous sales that can help you negotiate your best deal. They will also know of homes that are coming onto the market, but have not yet been listed.
2) Chose a Realtor who is committed to the business. Remember, most Realtors have had to take second jobs or are looking to. Make sure the one you chose isn't using you as one last paycheck before bailing.
3) Chose a Realtor with REAL education. Don't be fooled by the GED carrying Realtor who baffles you with Industry designations like; GRI, e-PRO or CRS. Look for a Realtor who holds a bachelors degree and/or an MBA.
4) Finally, chose a Realtor who is not afraid to tell you the truth. Don't hire a Yes-person. They are being compensated for their ability to navigate your transaction and look out for your interests. The good ones will tell you things that you may not want to hear, but NEED to hear...listen.
*One more no-no...do not hire a Realtor solely because you were 8th grade friends or its your second cousin twice removed. Hire a Realtor for their competence.
With your trusted Lender and Realtor on your team you are now ready to hit the market:
1) Take your time. There is plenty of inventory to chose from and very little competition.
2) Negotiate, but be fair. Sellers are about to take a beating...no need to rub it in.
3) Just before writing up your offer, take a breather and really think about it.
4) Once you have an accepted offer, be very thorough with your inspections and due diligence.
Go out there and find your best deal!
Summer Season Summary
Well...it was UGLY....
As expected there was too much inventory chasing too few Buyers, a couple of Builders facing defaults from their Lenders, the mortgage melt-down GREATLY reduced the available mortgage products and finally Jumbo Mortgage Rates spiked in early August making loans over $417,000 much more expensive than they had been previously.
So...what was the outcome? Only a fraction of those who wanted to sell this Summer did...and those that were lucky enough to get a Buyer had to reduce asking price and increase incentives. I won't boar you with the numbers, but there are STILL 249 homes at $450,000 or higher still listed for sale in Happy Valley (not including FSBO). The Summer selling season going back four full months only saw 58 homes transact above $450,000.
As I drilled down into the numbers it was apparent that actual sales prices were at or below 2005 prices...and with such a huge supply of homes still on the market, prices are continuing to decline.
I saw multiple homes in Eagle Landing and Kensington Heights sell for LESS than they originally did two years ago.
What do I see for the Fall/Winter Season? The next six months will be far WORSE than the Summer. Still way too much inventory, hundreds of ARM's resetting and the rate of defaults in our area is escalating. Buyers are becoming very demanding and no one is willing to pay anywhere close to full price. Hold on for a long ride down...
As expected there was too much inventory chasing too few Buyers, a couple of Builders facing defaults from their Lenders, the mortgage melt-down GREATLY reduced the available mortgage products and finally Jumbo Mortgage Rates spiked in early August making loans over $417,000 much more expensive than they had been previously.
So...what was the outcome? Only a fraction of those who wanted to sell this Summer did...and those that were lucky enough to get a Buyer had to reduce asking price and increase incentives. I won't boar you with the numbers, but there are STILL 249 homes at $450,000 or higher still listed for sale in Happy Valley (not including FSBO). The Summer selling season going back four full months only saw 58 homes transact above $450,000.
As I drilled down into the numbers it was apparent that actual sales prices were at or below 2005 prices...and with such a huge supply of homes still on the market, prices are continuing to decline.
I saw multiple homes in Eagle Landing and Kensington Heights sell for LESS than they originally did two years ago.
What do I see for the Fall/Winter Season? The next six months will be far WORSE than the Summer. Still way too much inventory, hundreds of ARM's resetting and the rate of defaults in our area is escalating. Buyers are becoming very demanding and no one is willing to pay anywhere close to full price. Hold on for a long ride down...
Thursday, August 2, 2007
So...What's the Good News? - Buyer's Edition
It seems we can't open a paper, watch a news show or even talk to a friend without hearing the bad news in the market. Surely there must be some good news, right? Well, there is plenty...
1) Bad news story #1 "Mortgage meltdown"
Sure, many lenders are going under, lending standards are toughening up and fly-by-night Loan Originators are closing up shop...and we should all be VERY happy about that! What is left are much healthier underwriting guidelines, more ethical and experienced Loan Originators, better educated consumers and higher quality loan pools. Effectively, those loans written in 2007 and 2008 will be much healthier than the junk written in 2004-2006. We will see many fewer rate re-sets, lower defaults and a declining pool of excess housing inventory.
For properly qualified Buyers (Fully documented income and assets, good credit, modest down payment) Lenders are tripping over themselves to loan you money. There is still very high demand for quality mortgage backed securities. Getting a good loan with a good rate is still very easy.
* Actual Mortgage Market position = Flushing out the Toxic, re-filling with high quality notes.
2) Bad news story #2 "Prices are in free fall"
Yes, pricing are stabilizing to 2005 levels...which were PEAK prices. What does that mean? We are staying at or near our peak prices, not dropping like other markets (Las Vegas, Phoenix, Miami....). Sellers looking for another 10-20% gain over 2005 values will be disappointed, but Sellers looking at stabilizing prices with more traditional 2-3% annual gains will be happy to see our local market holding strong. Outside of a small majority that bought during the peak, very few homeowners (mostly speculators and investors) are seeing negative equity.
Buyers can now take a comprehensive look at a neighborhood and the available inventory and make an educated and informed decision on which house to buy. They also do not have to worry about trying to "time" the market as Sellers have become more realistic about current values.
* Actual sales prices are stabilizing and many asking prices have come down to support a more realistic value base.
3) Bad news story #3 "Inventory will take years to burn through"
This is one instance where national markets and local markets diverge. We do have some near-term inventory over-hang that will take a few quarters to burn through, but many builders have dramatically cut back production and new residents continue to move to the greater Portland area. This is a great time for Buyers to pick up a bargain, but it won't last. Just as the boom had an end, so will the period of excessive inventory.
* Increasing population growth and decreased builder activity will burn through our local excess inventory much faster than the national trend.
Summary:
If you are a Buyer waiting for the right time...it may be upon us.
- 30 year fixed rates are lower than last Summer
- Prices are off their highs, but showing signs of firming
- Plenty of inventory gives you options
- Sellers are negotiating
What should a Buyer do?
- Engage an experienced local Realtor who can help evaluate values.
- Get pre-qualified for your loan well BEFORE you are ready to make an offer.
- Pick a Loan Originator who will show you front end fees AND back-end "rebate".
- Negotiate WITH the Seller not AGAINST the Seller. Always let the other party have at least a small win while negotiating.
Your thoughts and/or comments are always appreciated.
1) Bad news story #1 "Mortgage meltdown"
Sure, many lenders are going under, lending standards are toughening up and fly-by-night Loan Originators are closing up shop...and we should all be VERY happy about that! What is left are much healthier underwriting guidelines, more ethical and experienced Loan Originators, better educated consumers and higher quality loan pools. Effectively, those loans written in 2007 and 2008 will be much healthier than the junk written in 2004-2006. We will see many fewer rate re-sets, lower defaults and a declining pool of excess housing inventory.
For properly qualified Buyers (Fully documented income and assets, good credit, modest down payment) Lenders are tripping over themselves to loan you money. There is still very high demand for quality mortgage backed securities. Getting a good loan with a good rate is still very easy.
* Actual Mortgage Market position = Flushing out the Toxic, re-filling with high quality notes.
2) Bad news story #2 "Prices are in free fall"
Yes, pricing are stabilizing to 2005 levels...which were PEAK prices. What does that mean? We are staying at or near our peak prices, not dropping like other markets (Las Vegas, Phoenix, Miami....). Sellers looking for another 10-20% gain over 2005 values will be disappointed, but Sellers looking at stabilizing prices with more traditional 2-3% annual gains will be happy to see our local market holding strong. Outside of a small majority that bought during the peak, very few homeowners (mostly speculators and investors) are seeing negative equity.
Buyers can now take a comprehensive look at a neighborhood and the available inventory and make an educated and informed decision on which house to buy. They also do not have to worry about trying to "time" the market as Sellers have become more realistic about current values.
* Actual sales prices are stabilizing and many asking prices have come down to support a more realistic value base.
3) Bad news story #3 "Inventory will take years to burn through"
This is one instance where national markets and local markets diverge. We do have some near-term inventory over-hang that will take a few quarters to burn through, but many builders have dramatically cut back production and new residents continue to move to the greater Portland area. This is a great time for Buyers to pick up a bargain, but it won't last. Just as the boom had an end, so will the period of excessive inventory.
* Increasing population growth and decreased builder activity will burn through our local excess inventory much faster than the national trend.
Summary:
If you are a Buyer waiting for the right time...it may be upon us.
- 30 year fixed rates are lower than last Summer
- Prices are off their highs, but showing signs of firming
- Plenty of inventory gives you options
- Sellers are negotiating
What should a Buyer do?
- Engage an experienced local Realtor who can help evaluate values.
- Get pre-qualified for your loan well BEFORE you are ready to make an offer.
- Pick a Loan Originator who will show you front end fees AND back-end "rebate".
- Negotiate WITH the Seller not AGAINST the Seller. Always let the other party have at least a small win while negotiating.
Your thoughts and/or comments are always appreciated.
Monday, July 23, 2007
What is REAL in Real Estate
The past few months I have had to explain over and over and over again some of the misconceptions in our market, true valuation models of properties and the basics of buying and selling. In this blog I want to cover a few of the most common.
Misconception 1: Happy Valley Real Estate is still appreciating at 10.3% per year!!!!
RMLS puts out these numbers, and in my opinion, artificially inflates consumer sentiment. Many people use the median price point to determine "appreciation", including RMLS. Median price point is nothing more than a statistical line depicting the midpoint of value between which homes have sold over a set period of time. You can have a declining median price point and rising values, or rising median price point and declining values. As the two are not necessarily connected. The median has NOTHING to do with appreciation. Appreciation (or depreciation) is the actual change in value of an asset over time. Looking deeper into Happy Valley transactions I am seeing a RETREAT in values to 2005 values. In fact, I found MULTIPLE properties that have sold, or are sale pending in the last 30 days below their previous sale prices in 2005 ands 2006. Additionally, Craig's List is full of desperate Sellers trying to get out from under homes purchased in the last three years, many have already pre-negotiated short-sales with their lenders.
Truth 1: Happy Valley home prices are at best flat, most likely retreating.
Misconception 2: My home was appraised at $650,000, so it must be worth $650,000!!!!
Any asset is worth what another party is willing to pay for it. I don't care if the Pope himself says your house is worth $650,000, if you cannot find a willing party to pay that much, then it is not worth that much. "Value" and "market price" are not always the same thing. We may be able to do a cost approach to determine the value at $650,000 (lot, building, landscaping, upgrades). But, if the current market is not willing and/or able to pay that price, then its market price becomes lower than its appraised value.
Truth 2: Appraised value and market price are no longer the same thing.
Misconception 3: My neighbor just sold for $650,000, so my comparable home will net me $650,000.
Currently sales prices are inflated in multiple ways that are often difficult for the average person to discern. That $650,000 sales price may have been inflated by; Seller contribution to closing costs/pre-paids (often as high as 6%), pre-closing repairs / upgrades totalling tens of thousands of dollars and the inclusion of personal assets such appliances, play structures and even vehicles/RVs/boats. That $650,000 price may have included $40,000 in Seller give aways - net price actually $610,000. From this net sales price Realtor fees, Escrow costs and settlement charges must then be deducted.
Truth 3: Sales price grossly overstates Seller net proceeds.
Misconception 4: The market slowdown is just a bump in the road and we will be back to "normal" soon.
I always answer this one with a question: With your income and credit could you afford to buy your house at what you THINK it is worth? Almost 100% of the time the answer is NO! Then, I ask, who can? The pyramid is starting to crumble, and the removal of the base will reset values backward a few years.
Truth 4: This is not a bump, but a fundamental shift to a more conservative and responsible housing market.
Summary:
There were multiple changes in the real estate market that fundamentally changed value models during the early 2000's. This last year has seen the brakes applied to many of them.
1) Cheap easy credit. Not only were rates LOW, but lending standards were very lax. Rates are up steeply from 04/05 lows and Creditors are dramatically tightening standards, reducing the number of people who qualify. This means there are FEWER qualified Buyers who can afford LESS than before.
2) Speculation. Speculators helped bid up homes, particularly new construction. Those Speculators are no longer Buyers, but now desperate Sellers!
3) Market Exhaustion. So many new Buyers got into the market, and existing Buyers moved up, that we have naturally arrived at a point of respite where people are likely to sit tight for a period of time. A mid-income family who lives in a $400,000 home with a $300,000 mortgage at 5% fixed with a payment of $1,611 would not want to get rid of that mortgage to buy a $500,00 home with a $400,000 mortgage at $6.75% fixed with a payment of $2,595
4) Builder desperation. Yes, Builders horribly misjudged the demand in Happy Valley and overbuilt in the $500,000+ range. One is holding a fire-sale for their remaining 70 properties. Huge price reductions and Seller concessions are being offered as the norm.
5) Consumer sentiment. When all the news was "rosy" Buyers felt that the had to jump quickly before a house was snatched by another Buyer or the price went up another 10%. Now that the news has turned "apocalyptic" Buyers are viewing dozens of homes and negotiating every concession they can.
What can you do in this tough market?
1) Engage an experienced professional who can best market and show your home and negotiate on your behalf during a transaction.
2) Price your house correctly.
3) Make your house easy to see, and remove barriers to an offer.
4) Present yourself as a "qualified Seller", not a desperate Seller.
5) Be patient.
As always your comments on this blog are appreciated.
Misconception 1: Happy Valley Real Estate is still appreciating at 10.3% per year!!!!
RMLS puts out these numbers, and in my opinion, artificially inflates consumer sentiment. Many people use the median price point to determine "appreciation", including RMLS. Median price point is nothing more than a statistical line depicting the midpoint of value between which homes have sold over a set period of time. You can have a declining median price point and rising values, or rising median price point and declining values. As the two are not necessarily connected. The median has NOTHING to do with appreciation. Appreciation (or depreciation) is the actual change in value of an asset over time. Looking deeper into Happy Valley transactions I am seeing a RETREAT in values to 2005 values. In fact, I found MULTIPLE properties that have sold, or are sale pending in the last 30 days below their previous sale prices in 2005 ands 2006. Additionally, Craig's List is full of desperate Sellers trying to get out from under homes purchased in the last three years, many have already pre-negotiated short-sales with their lenders.
Truth 1: Happy Valley home prices are at best flat, most likely retreating.
Misconception 2: My home was appraised at $650,000, so it must be worth $650,000!!!!
Any asset is worth what another party is willing to pay for it. I don't care if the Pope himself says your house is worth $650,000, if you cannot find a willing party to pay that much, then it is not worth that much. "Value" and "market price" are not always the same thing. We may be able to do a cost approach to determine the value at $650,000 (lot, building, landscaping, upgrades). But, if the current market is not willing and/or able to pay that price, then its market price becomes lower than its appraised value.
Truth 2: Appraised value and market price are no longer the same thing.
Misconception 3: My neighbor just sold for $650,000, so my comparable home will net me $650,000.
Currently sales prices are inflated in multiple ways that are often difficult for the average person to discern. That $650,000 sales price may have been inflated by; Seller contribution to closing costs/pre-paids (often as high as 6%), pre-closing repairs / upgrades totalling tens of thousands of dollars and the inclusion of personal assets such appliances, play structures and even vehicles/RVs/boats. That $650,000 price may have included $40,000 in Seller give aways - net price actually $610,000. From this net sales price Realtor fees, Escrow costs and settlement charges must then be deducted.
Truth 3: Sales price grossly overstates Seller net proceeds.
Misconception 4: The market slowdown is just a bump in the road and we will be back to "normal" soon.
I always answer this one with a question: With your income and credit could you afford to buy your house at what you THINK it is worth? Almost 100% of the time the answer is NO! Then, I ask, who can? The pyramid is starting to crumble, and the removal of the base will reset values backward a few years.
Truth 4: This is not a bump, but a fundamental shift to a more conservative and responsible housing market.
Summary:
There were multiple changes in the real estate market that fundamentally changed value models during the early 2000's. This last year has seen the brakes applied to many of them.
1) Cheap easy credit. Not only were rates LOW, but lending standards were very lax. Rates are up steeply from 04/05 lows and Creditors are dramatically tightening standards, reducing the number of people who qualify. This means there are FEWER qualified Buyers who can afford LESS than before.
2) Speculation. Speculators helped bid up homes, particularly new construction. Those Speculators are no longer Buyers, but now desperate Sellers!
3) Market Exhaustion. So many new Buyers got into the market, and existing Buyers moved up, that we have naturally arrived at a point of respite where people are likely to sit tight for a period of time. A mid-income family who lives in a $400,000 home with a $300,000 mortgage at 5% fixed with a payment of $1,611 would not want to get rid of that mortgage to buy a $500,00 home with a $400,000 mortgage at $6.75% fixed with a payment of $2,595
4) Builder desperation. Yes, Builders horribly misjudged the demand in Happy Valley and overbuilt in the $500,000+ range. One is holding a fire-sale for their remaining 70 properties. Huge price reductions and Seller concessions are being offered as the norm.
5) Consumer sentiment. When all the news was "rosy" Buyers felt that the had to jump quickly before a house was snatched by another Buyer or the price went up another 10%. Now that the news has turned "apocalyptic" Buyers are viewing dozens of homes and negotiating every concession they can.
What can you do in this tough market?
1) Engage an experienced professional who can best market and show your home and negotiate on your behalf during a transaction.
2) Price your house correctly.
3) Make your house easy to see, and remove barriers to an offer.
4) Present yourself as a "qualified Seller", not a desperate Seller.
5) Be patient.
As always your comments on this blog are appreciated.
Tuesday, May 22, 2007
Tis' the Season...to Sell your house!
With memorial day weekend just a few days away we are officially entering the peak selling season for Portland Area Real Estate that will run through Labor Day weekend. If you had hoped to sell your home in 2007, this is the time to be on the market!
What is the market telling us so far?
a) It is a Buyer's market with prices coming in well below asking. March 2007 to April 2007 showed the first month-over price declines since 2001!
b) Inventory is WAY up. We are looking at the highest inventory levels in years.
c) Qualified Buyers are few and far between. Many investors have bailed, or become Sellers this year. With lending standards getting tighter, would be borrowers can afford less or no longer qualify. California's slowdown is meaning fewer transplants. So many people became home owners the last few years that the Buyer pool has just naturally declined.
I am a Seller, what should I do?
a) Be realistic. Expect a sales price closer 2005 comparative levels, not a premium over 2006.
b) Use competent, professional and local representation. Find a Realtor who has sold in your neighborhood recently and frequently.
c) Make yourself "easy to do business with" by removing obstacles to the transaction before they arise.
I am a Buyer, what should I do?
a) Engage a Realtor who KNOWS the area in which you want to buy. They often have information and insight to previous transactions that are not part of the public record.
b) Get yourself fully qualified with a Lender. Lending standards have changed, and continue to change. Be sure you know what you truly qualify for.
c) Be a tough negotiator, but be fair. Estranging a Seller with an initial offer that is insulting will not get you the best deal.
My outlook for the 2007 selling season in Happy Valley:
Many Sellers will be very disappointed this year with the offer prices, or total lack of offers. There will be many homes that do not sell at all. Builders carrying unsold homes at huge costs will initially be the most aggressive and further drive down values. Sellers who MUST sell because of financial issues, relocation or life status changes will also be very aggressive and help to bring the broader market down. Buyers will end up steering the ship. Those that do buy this year will have the pick of the lot and plenty of time to fully explore all of the inventory and their options. Buyers will be setting the terms for the transactions this year.
What is the market telling us so far?
a) It is a Buyer's market with prices coming in well below asking. March 2007 to April 2007 showed the first month-over price declines since 2001!
b) Inventory is WAY up. We are looking at the highest inventory levels in years.
c) Qualified Buyers are few and far between. Many investors have bailed, or become Sellers this year. With lending standards getting tighter, would be borrowers can afford less or no longer qualify. California's slowdown is meaning fewer transplants. So many people became home owners the last few years that the Buyer pool has just naturally declined.
I am a Seller, what should I do?
a) Be realistic. Expect a sales price closer 2005 comparative levels, not a premium over 2006.
b) Use competent, professional and local representation. Find a Realtor who has sold in your neighborhood recently and frequently.
c) Make yourself "easy to do business with" by removing obstacles to the transaction before they arise.
I am a Buyer, what should I do?
a) Engage a Realtor who KNOWS the area in which you want to buy. They often have information and insight to previous transactions that are not part of the public record.
b) Get yourself fully qualified with a Lender. Lending standards have changed, and continue to change. Be sure you know what you truly qualify for.
c) Be a tough negotiator, but be fair. Estranging a Seller with an initial offer that is insulting will not get you the best deal.
My outlook for the 2007 selling season in Happy Valley:
Many Sellers will be very disappointed this year with the offer prices, or total lack of offers. There will be many homes that do not sell at all. Builders carrying unsold homes at huge costs will initially be the most aggressive and further drive down values. Sellers who MUST sell because of financial issues, relocation or life status changes will also be very aggressive and help to bring the broader market down. Buyers will end up steering the ship. Those that do buy this year will have the pick of the lot and plenty of time to fully explore all of the inventory and their options. Buyers will be setting the terms for the transactions this year.
Monday, March 26, 2007
Selling Strategies in an over-supplied market
How do I set my house apart from the pack?
1) Price your home correctly. Forget the 20% year-over-year price gains. They were based on apples to oranges comparisons anyway and further driven by loose money and lending standards.
a) Look at actual closed sales comparables. Call the parties to those transactions and find out if there were any Seller concessions that further reduced the actual net price to the Seller.
b) Just because your neighbor listed their home at $XXX,000 does not mean you should too. Many homes are currently listed much higher than current market values.
c) Consult sites like Zillow.com, but do not accept it as gospel. Call MULTIPLE Realtors who specialize in your area and ask them for a market analysis. Take what they say with grain of salt, as most will tell you what you want to hear to get the listing...
d) Don't base the asking price on what you want to make. Sellers do not set final price and terms...Buyer's do....and Buyers could care less what you need to net.
d) After you've done your research and consulted local professionals pick an asking price that is truly reflective of recent closed sales and then modified for your homes pluses and minuses.
2) Prepare your home for viewings.
a) Take care of the deferred maintenance.
b) Get rid of pet damage and odor. You may not even realize that your home has pet odor. Have a non-pet owner come over and ask them for an honest answer.
c) Get rid of the clutter. You are moving anyway...get an early start!
d) Stage the house for Buyers, with more modest tastes and color tones. If you are not a design guru, spend the $150 for a consult.
3) Demonstrate to Buyers that you are a "Qualified Seller". During the boom times, Sellers only wanted "Qualified Buyers" to submit offers...now the game has changed and Buyers want to know that you are serious.
a) Hire quality local representation, not your cousin "Lola" who just got her license last week. Hiring a Broker who lives in and knows your community, as well as being known and respected by other local Brokers is the single most important decision in choosing a listing Broker.
b) Make it easy to see your home. Try to put as few limitations on showing times as possible.
c) Have your disclosures complete and available to Buyers to preview when they come view your home.
d) Be quick to respond to inquiries and offers.
While it is going to be a challenging year for Sellers, many homes will change hands this year. Do you want to be one of them? Follow some of the basic guidelines, set realistic expectations and you should be OK!
1) Price your home correctly. Forget the 20% year-over-year price gains. They were based on apples to oranges comparisons anyway and further driven by loose money and lending standards.
a) Look at actual closed sales comparables. Call the parties to those transactions and find out if there were any Seller concessions that further reduced the actual net price to the Seller.
b) Just because your neighbor listed their home at $XXX,000 does not mean you should too. Many homes are currently listed much higher than current market values.
c) Consult sites like Zillow.com, but do not accept it as gospel. Call MULTIPLE Realtors who specialize in your area and ask them for a market analysis. Take what they say with grain of salt, as most will tell you what you want to hear to get the listing...
d) Don't base the asking price on what you want to make. Sellers do not set final price and terms...Buyer's do....and Buyers could care less what you need to net.
d) After you've done your research and consulted local professionals pick an asking price that is truly reflective of recent closed sales and then modified for your homes pluses and minuses.
2) Prepare your home for viewings.
a) Take care of the deferred maintenance.
b) Get rid of pet damage and odor. You may not even realize that your home has pet odor. Have a non-pet owner come over and ask them for an honest answer.
c) Get rid of the clutter. You are moving anyway...get an early start!
d) Stage the house for Buyers, with more modest tastes and color tones. If you are not a design guru, spend the $150 for a consult.
3) Demonstrate to Buyers that you are a "Qualified Seller". During the boom times, Sellers only wanted "Qualified Buyers" to submit offers...now the game has changed and Buyers want to know that you are serious.
a) Hire quality local representation, not your cousin "Lola" who just got her license last week. Hiring a Broker who lives in and knows your community, as well as being known and respected by other local Brokers is the single most important decision in choosing a listing Broker.
b) Make it easy to see your home. Try to put as few limitations on showing times as possible.
c) Have your disclosures complete and available to Buyers to preview when they come view your home.
d) Be quick to respond to inquiries and offers.
While it is going to be a challenging year for Sellers, many homes will change hands this year. Do you want to be one of them? Follow some of the basic guidelines, set realistic expectations and you should be OK!
Monday, March 5, 2007
Happy Valley Real Estate Update
2007 is shaping up to be the year of reality for Happy Valley. After enjoying a long run of strong growth and appreciation, we are settling into a period of market adjustments and value stagnation.
Median value: While RMLS shows year-over-year a 19.8% value gain, we need to look into this number and the definition of median to determine what is really happening. In HV our median has been rising predominately because of the bigger and more elaborate homes being built and sold by Developers, NOT by re-sale of existing homes. When a large segment of homes sold are new, the median can be carried upward without truly reflecting the re-sale appreciation of existing homes. A better measure would be the re-sale price appreciation for an area.
Market Reality: Your home may not have appreciated as fast as you think it has...
Toxic Mortgages: I have been asking clients recently if they could afford to buy their current home at today's valuation. I have been hearing a lot of no's. Many of the financial tricks people used to get into their home to begin with are backfiring. Banks have dramatically tightened their lending requirements, leaving many homeowners who MUST refinance with no product option. These people are electing to sell their homes. We are seeing a rush to market by investors and toxic mortgage holders who are trying to get out from under their homes before they lose them to foreclosure. In the past three years fully 1/3 of all new loans in the greater HV area had an interest only payment option and are adjustable.
Market reality: Many homeowners are going to try to sell this year, flooding the market with inventory.
New Development: The amount of new construction in HV has been incredible the past three years, and continues today. Problem being, Buyer's who can afford the McMansions have dwindled, leaving builders with a large glut of unsold homes. At this point supply is outpacing demand.
Market reality: Builders are offering huge incentives and cutting prices to move inventory. This makes your used home less attractive and less valuable to potential Buyers.
The Good News: While I expect this year to be challenging as we burn through some excess inventory, the toxic mortgage hang-over and general market malaise. HV is still a very attractive market to many looking to buy in the greater Portland area.
Market Reality: If you price your home correctly (Based on recent SALES comps, not listing prices), market your home appropriately and demonstrate to the Buying market that you are reasonable and a "Qualified Seller" you should be OK. As a Seller you need to be clear that it is now a Buyer's Market. When pricing your home understand that it is not your Realtor, an appraiser or even you that sets the value of your home...its the Buyer!
I encourage your responses.
Median value: While RMLS shows year-over-year a 19.8% value gain, we need to look into this number and the definition of median to determine what is really happening. In HV our median has been rising predominately because of the bigger and more elaborate homes being built and sold by Developers, NOT by re-sale of existing homes. When a large segment of homes sold are new, the median can be carried upward without truly reflecting the re-sale appreciation of existing homes. A better measure would be the re-sale price appreciation for an area.
Market Reality: Your home may not have appreciated as fast as you think it has...
Toxic Mortgages: I have been asking clients recently if they could afford to buy their current home at today's valuation. I have been hearing a lot of no's. Many of the financial tricks people used to get into their home to begin with are backfiring. Banks have dramatically tightened their lending requirements, leaving many homeowners who MUST refinance with no product option. These people are electing to sell their homes. We are seeing a rush to market by investors and toxic mortgage holders who are trying to get out from under their homes before they lose them to foreclosure. In the past three years fully 1/3 of all new loans in the greater HV area had an interest only payment option and are adjustable.
Market reality: Many homeowners are going to try to sell this year, flooding the market with inventory.
New Development: The amount of new construction in HV has been incredible the past three years, and continues today. Problem being, Buyer's who can afford the McMansions have dwindled, leaving builders with a large glut of unsold homes. At this point supply is outpacing demand.
Market reality: Builders are offering huge incentives and cutting prices to move inventory. This makes your used home less attractive and less valuable to potential Buyers.
The Good News: While I expect this year to be challenging as we burn through some excess inventory, the toxic mortgage hang-over and general market malaise. HV is still a very attractive market to many looking to buy in the greater Portland area.
Market Reality: If you price your home correctly (Based on recent SALES comps, not listing prices), market your home appropriately and demonstrate to the Buying market that you are reasonable and a "Qualified Seller" you should be OK. As a Seller you need to be clear that it is now a Buyer's Market. When pricing your home understand that it is not your Realtor, an appraiser or even you that sets the value of your home...its the Buyer!
I encourage your responses.
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