Saturday, December 29, 2007 - Buyers With A Home To Sell, Part 2

Yesterday I told the story of an offer that was contingent upon the buyer selling her house. The buyer didn't want to risk putting the condo on the market without a sure place to go.

The seller didn't want to take his house off the market unless the buyer made a good-faith effort to sell her condo.

The answer for the seller was easy, he rejected the offer.

But what's a buyer to do? The big fear, of course, is that the buyer will successfully sell their property and then have no place to go. The idea of having no place for the family to live is downright scary for most people.

While there is always risk in buying or selling a home, a good agent will minimize the risk to the buyer by inserting a contingency into any offers on that buyer's home. It makes the contract contingent upon the buyer finding a house to buy.

We call it a "house of choice" contingency. It's so standard, we even refer to it as "HOC". It goes as follows:

"The Contract is contingent until (Deadline) to allow Seller to enter into a contract of sale to purchase another home of Seller's election. This provision and the Contract will remain in full force and effect unless, prior to the Deadline, Seller, upon written notice to Buyer shall declare the Contract null and void."

Voila. If the buyer can't sell his old property by the deadline, he simply cancels the contract (or negotiates an extension on the Deadline) and ends up with nothing worse than a cleaner house and some inconvenience.

Once the buyer's house is under contract (with that contingency firmly in place), then a seller will take a serious look at any offers the buyer may write.

So, what's that sequence of events again?

1. 1) Homeowner puts his house on the market, noting that he will be inserting an HOC contingency (see? you're picking up the lingo already!)
2. 2) Homeowner accepts an offer on his house and then writes an offer on the house he wishes to buy, this time putting in a contingency that his old house must go to settlement before he can settle on the new house.
3. 3) Seller of new property feels secure in taking his house off the market, knowing that the buyer's house is already under contract and therefore the risks are greatly reduced.

It's not perfect, of course. Contracts fall apart for many reasons, but at least no one ends up homeless.

(C) Susan Pruden.

Friday, December 28, 2007 - Buyers With A Home To Sell, Part 1

In August, an offer came in on one of my listings. The buyers were extremely well qualified and had made a low offer -- one that probably could have been successfully negotiated to become an actual contract. Except for one thing.

The buyers needed to sell their current home in order to purchase my client's property. They lived in a condo and weren't willing to put it on the market until the sellers agreed to their offer. They wouldn't commit to a price for their condo, nor discuss the terms that they would be offering. Their agent said that she thought they would price it aggressively, but that they hadn't decided on a price.

This indecision on the part of the buyers soured my clients and they rejected the offer, inviting the buyers to re-submit their offer once they had a firm offer on their condo.

Shortly after that, the buyer called me directly and asked why their offer wasn't accepted. I explained the risks that her offer presented to the seller and suggested that she go ahead and put her property on the market. She said that she was unwilling to disturb her family until she had a sure thing lined up. She said that cleaning and preparing the property for market was too upsetting for her children.

Let's look at the risks from the sellers' viewpoint:

1. They'd be taking their home off the market while the buyers tried to sell their condo.
2. If the buyers couldn't sell, the market might be worse when the contract fell apart.
3. Even though technically the sellers can continue to try and sell their property, in reality agents seldom show properties that are contingent in this manner. I don't know why this is, but they don't.
4. The buyers' attitude was the final straw for the sellers. The sellers felt that the buyers were unreasonable in their reluctance to take the necessary steps to sell their condo.

The sellers offered to reconsider the offer once the condo was on the market, but the buyers refused to take that step. Those buyers are still in their condo, by the way.

So, in the end, the sellers were afraid of taking their property off the market while the buyers tried to sell their condo. The buyers were afraid of putting their condo on the market without a contract in place on their new home.

Sounds like the perfect catch-22, doesn't it? Stay tuned for the buyer's side of things. 

(C) Susan Pruden.

Wednesday, December 12, 2007 - Latest Mortgage Woes

Last week, a credit score of 620 was enough to get buyers the best interest rates. Today you most likely need a credit score of at least 680 and a downpayment of at least 30% to be offered the best rates. Anything less than that will cost you.

You've probably been hearing a lot about "subprime" mortgages. Well, with this move by Fannie Mae and Freddie Mac, a lot of prime borrowers have just become subprime borrowers. Even though these rules don't take effect until March 1, 2008, some lenders are already imposing surcharges on borrowers.

Kenneth Harney wrote an excellent article detailing the new surcharges in Saturday's Washington Post Real Estate section.

I forsee a lot of borrowers going back to FHA and VA loans in the very near future. A 30% downpayment is out of reach of many buyers who have excellent credit. FHA interest rates are not credit score driven (of course, this is subject to change) and the downpayment is only 2.25%. Of course, the maximum loan amount with an FHA loan is lower than the maximum for a conventional loan.

FHA loans pretty much disappeared when the market got so crazy a few years ago, but I think they will be back with a vengence very soon.

(C) Susan Pruden.

Saturday, December 8, 2007 - Waiting For the Perfect Time to Buy

A buyer recently told me she was waiting to buy a house. She had a plan and had been working it diligently for over a year.

The plan was to save enough money for a decent downpayment, wait for an expected promotion and increase in salary in early Fall, then start looking in October, be under contract by November and in her new home by Christmas.

Everything went exactly as it should. Her downpayment is earning interest in a money market and her new position in her firm came through on schedule. But she's not buying a house. She's not even looking.

So what changed? The market did.

The more she hears about sales prices plummeting, foreclosure rates rising, and interest rates dropping, the more she feels compelled to wait.

Wait for prices to drop further. For interest rates to go down even more.

She says she feels paralyzed by the fear that she'll pay too much. She asks me (and everyone else) if we've hit bottom yet. She's convinced that the perfect deal is on the horizon, but she's just not sure where that horizon is.

She's even afraid to go look at houses, afraid she'll fall in love with a house and buy too soon. Intellectually, she knows that prices aren't dropping by any huge amounts in the neighborhoods she likes -- softening yes, but certainly not plummeting.

When asked what the "bottom" looks like, she doesn't hesitate, "It's that point where prices and interest rates go as low as they're going to go."

I pointed out two things. One, the only way to recognize "bottom" is when things start going back up again. Bottom is only known through hindsight. Two, interest rates and house prices rarely work in tandem. They are much more likely to pass each other, each following its own path. Each hitting its lowest point at the exact same time seems more fantasy than reality.

There are downsides to waiting that are seldom pondered.

As prices start their inevitable climb upwards, sellers will be less likely to negotiate on price, closing help, repairs and other concessions.

As prices go up, buyers anxious to buy before they go up too far are more likely to end up in a bidding war.

Prices go up because demand increases. increased demand leads to fewer homes on the market. Fewer homes on the market lead to higher prices and less choice. And the cycle starts all over again.

When is a good time to buy? Now. Interest rates are excellent, sellers are more inclined to negotiate, and there are plenty of houses to choose from.

(C) Susan Pruden.

Tuesday, December 4, 2007 - My Old Jeans and Your Old House

What do my old jeans and your old house have in common? For anyone to want to buy them, they'll need some work! And "old" has nothing to do with age -- I've seen 2-year-old houses that look like they've been lived in for 20 years!

To all of you sellers who have put money into fixing up your house to put it on the market and are now having to reduce your price -- you didn't waste your money! You may not make back what you put into it, but you may be one of the few to actually sell your house!

Anything sellers can do to repair, update and neutralize puts you in a better position to sell your house. Period. In a sea of "average", whatever you do to make your house stand out (okay, in a positive way, please!) will help your house be the one that sells.

Forget making it sell for more than anyone else's. In this market, the one that sells is way ahead of the crowd. If you are doing the improvements, repairs and neutralizing to get a better price, you're likely to be disappointed. If you're doing it to get the house to sell, you've got the right idea!

The only houses that are selling today for higher than average prices are those houses that are truly above-average themselves. A new counter-top in a kitchen that has a harvest-gold refrigerator and 10-year old stove and dishwasher does not make for an above-average kitchen. An above-average kitchen is one that has been thoughtfully and tastefully updated from top to bottom. One that looks as if there were a plan in mind, rather than the buckshot approach to updating.

An updated kitchen in an otherwise dated and shabby house will not bring top dollar, either. At least three-quarters of the house has to shine for it to be above average and the kitchen and baths had better be included in the updates.

For most sellers, it isn't cost-effective to remodel or revamp the whole house, so you'll have to price it to reflect the condition. And believe me, what is comfortable for you to live in is not what buyers want to buy. They were probably comfortable in their old home as well.

My oldest jeans are my most comfortable, but I can't imagine anyone wanting to buy them, in their current conditon, at any price! A lot of work would have to go into those jeans to make them attractive to anyone else. I either have to fix them up or forget selling them.

It's the same with your house.

(C) Susan Pruden.