What if That's All There Is?

If you're selling your home or thinking about selling your home, your biggest question is probably "when will prices get back to where they were?"

According to a new study by Moody's and Fiserv the answer, in Virginia, is after 2023. They recently published a study showing, by state, when housing prices would rebound to their 2005-2006 peaks. Virginia is in the worst category in this study with prices not rebounding for over 12 years. If they're right we likely won't even see any sizeable increases over the next five years.

Note that I'm not saying they've got it right. None of the financial institutions or economists did a very good job of predicting what's happened to the economy or real estate in the last few years.

But you should ask yourself, what if...

What if they're right? How does that change the decisions I'm making for myself and my family? If you've been staying in place assuming that a return to higher prices was just a year or two away, do you now just go ahead and sell?

My two cents, for what it's worth, is that appreciation will be miniscule for at least the next three years.

By the way, in case you're wondering, Maryland beat us. Prices there are expected to return to their peak between 2018 and 2022. (If you're curious about any other states, let me know and I'll get you the numbers.)

Pro Bono

After hearing some examples around the country of other real estate professionals pitching in to help some distressed sellers, I've been moved to do the same. I won't make a huge difference in our local real estate market. But perhaps I can make a huge difference in the life of a few local families.

So, effective immediately I'm going to be taking on one pro bono client each quarter. This will be a seller, someone with their back up against the wall. While I can waive my fee, I can't do the same for the cooperating broker. So this is not a transaction with no commission. But I'll waive my half.

If you know someone who's stuck, who feels hopeless, have them get in touch with me. This offer will only apply to owner-occupied properties, not investment homes. And, unfortunately, I'll have to limit it to one per quarter as I still need to make a living!

But I look forward to the opportunity to help!

VA Compromise Sale

Thanks to Lenn Harley at Homefinders.com for bringing this to my attention.

For those homeowners with a VA loan who find that they owe more than what they can sell the home for, the VA has what's called a Compromise Sale.

From their web site:

If the borrower is unable to sell the property for an amount that is greater than or equal to what he/she owes on the loan, including closing costs, VA may pay a “compromise claim” for the difference in order to allow the private sale to go through. The borrower can sell the property to a buyer who gets his/her own financing or to a buyer who wants to assume the loan. However, with a compromise assumption, the lender does have to agree to have the amount of its guaranty reduced by the amount of the claim payment.

 This program does not automatically relieve the borrower of all obligation for the shortfall. However, they may be able to wrap the deficiency, closing cost assistance for the buyer and the real estate commission into a loan at a very favorable interest rate.

There are detailed instructions for both the homeowner and the real estate agent on the web site. It may not be the perfect solution, but it'll be the help some families need in order to move on.

Bad Real Estate Photos

A little fun, first of all today. It's BAD real estate photo day!

Warning: This house may make you dizzy! At least looking at the photo could!

I wonder what they didn't want me to see? Or was this taken by one of those nocturnal real estate agents?

"Red sky at morning, Buyer take warning?"

While these are so ridiculous they're funny, they're a lot less funny if it's your house! It's almost impossible to over emphasize the importance of good photos online. It can be a tough market to sell your home. Having photos like these is shooting yourself in the foot!

And, lastly, a bit of blatant self-promotion.

The Fauquier Times Democrat ran a story today on my new property management business, as well as my thoughts on the local market.

Cutting Your Losses

Robert Bruner, the Dean of Darden School of Business at UVA has a blog that I often find interesting. His latest entry is based on a quote by the famed investor Bernard Baruch "If you have made a mistake, cut your losses as quickly as possible."

He talks about the difficulties of doing that in the business world, specifically using the AOL/Time Warner merger as an example. But one of the points he makes about why it's so difficult seems applicable in real estate as well.

He talks about "sunk cost" thinking. In other words, a seller says "I bought this place for $400,000. I'm not selling it for less than that."

The problem becomes that if you really do need to sell there's no guarantee you can hold out long enough for prices to go back up, or even to stabilize. If you're a seller who's moved on and you're paying two mortgages, how long can you continue doing that?

If you refuse to lower the price or let an offer get away for $10,000 difference, what happens when it's still on the market six months from now and you've paid that much more out in mortgage payments and prices have continued to fall?

Sometimes, cutting your losses is the best advice, in business and in real estate!

Stinky!

More and more often these days I walk into a house and the first impression is.....

OMG! Phew! What is that awful smell?!

Now, to be fair, most of these homes are vacant. (Over 3/4 of the homes I show these days are vacant!) And, a closed up vacant house will always start to smell, over time.

Some of the smells I regularly encounter:

• Mildew
• Mold
• Pet urine
• Cigarette smoke
• Dead, rotting animals

There are plenty of others, many of them not easily identified.

If you're a homeowner, selling a vacant home, either you or your agent should be checking from time to time to see if the home has acquired any unfortunate odors.

Keep the air conditioning running! I know you're not living there and hate paying the bills, but, believe me, what you'll net in a better offer is more than you'll lose on paying those bills.

If there are some stubborn odors, take steps to remedy them. Get rid of drapes, have carpets professionally cleaned, consider getting an air purifier.

By the way, adding really smelly air fresheners is not the same as taking care of the problem!

Remember, the sense of smell is powerful and has a major influence on our emotions. No one falls in love with a stinky house! Even if they still buy it, the price went down the minute they opened the door and smelled the place!

If you're considering putting your house on the market, consider having a friend or neighbor give you an honest assessment of what they smell when they first walk in the house. This can be a delicate area so make sure they know they have your permission to be brutally honest!

And, if your agent tells you there's an odor problem that needs to be dealt with, don't waste any time in dealing with it. There's a house down the street that smells just fine and is also for sale!

Getting Into Your House

When I want to show a listing to a buyer, I use a lockbox to enter the house. Typically, in this area (Prince William, Fauquier, Culpeper, Rappahannock and Warren counties) that generally means an electronic lockbox that often looks like this:

To access this box and get the house key out, I use an electronic device that's been updated with a special code within the last 24 hours. It's an extra level of protection for the homeowner in case my "ekey" is stolen. Within 24 hours it's essentially worthless unless you know my passwords in order to get it updated.

The other advantage of this lockbox is that I know who has shown my listings. If something is missing, left unlocked, etc. I likely know who to track down to ask about the problem.

There have always been a few holdouts who still used combination (combo) lockboxes:

These boxes require only an alpha or numeric code in order to open them and access the key. If I know the combination I could, theoretically, give that information to someone else and that's all they'd need to access the keys to your home. It's a less secure method of access. The advantage in some agents' eyes is that if someone from outside our area wants to show the house, there's no problem if they don't use the same lockbox system used in this area.

With the large number of foreclosures in our area, we're seeing a big increase in the use of these combination lockboxes. Most banks will mandate that a combo box be used on their listings. I've had trouble coming up with a good reason for this. The only thing I can think of is that they want bank personnel to be able to access the property if necessary, without a real estate agent present.

I was troubled this week to learn that a local agent had mentioned that if he's unable to show a home when his buyer clients want to see it and he can't find any other agent to cover for him, he'll simply give his clients the combination and let them go in the house on their own.

Hmmmmm! The number of reasons this is a bad idea is very long. The liability to the agent should anything go wrong, is huge. It could be that his clients are good people with the best of intentions but they have trouble getting the keys back into the lockbox. It happens all the time. It is, of course, highly unprofessional and, I'd suggest, unethical. The listing agent should definitely be making a phone call to the agent's broker at the very least, to protest this behavior.

By the way, when the agent was confronted with what a bad idea this was the response was "Everybody does it." I never got that one by my Mom. And, I'm not buying it now!

Selling Agent Bonus

A client of mine who is selling his house has decided to offer a bonus to the selling agent. These are becoming quite common in the Virginia real estate market as sellers look for a way to sell their homes quickly without giving up too much money.

I strongly dislike these bonuses. Here's why:

1. It's not about the agent! Buying a house is supposed to be about what's best for the buyer. At least if you're an agent representing the buyer. It's never supposed to be about what's best for you!

2. In too many cases, they're not disclosed. Agents must tell the buyers about these bonuses. To not disclose this information is unethical!

3. If it is disclosed, it's surely evident to the buyer that this is money that could instead have been taken off of the listing price and that, therefore, the house is overpriced. It's like the "buy the house, get a car" gimick. Any savvy buyer figures our immediately that this means the house is overpriced by at least the value of the car. (Usually more!) As a buyer's agent I'd tell my clients to knock the amount of the bonus off of the price when we make an offer.

3. If it works, what does that say about the ethics and professionalism of the agents? Would they really show a house that's unsuitable for their client, in hopes of getting the cash? Would they try to influence their buyer's decision in order to cash in?

4. Many of these bonuses come with deadlines. "Good for offer before July 1st" for example. Really?! So, if the house isn't sold by July 1st you're going to be less desperate to sell than you are now? I'm betting I can get that money out of you after that date, one way or another!

5. I don't believe it works. Bottom line, it's another gimick and these almost never work. Sellers are dealing with the savviest, best informed buyers ever, thanks to the internet. Very few are going to be taken in by this kind of thing. Let's be honest, you're offering the bonus because your house is overpriced and you don't want to lower the price. You're not fooling anyone!

Zillow is Coming!

Zillow made a big splash when they first showed up a few years back. Mostly it grabbed people because it was so much fun to enter your neighbors' addresses and see what Zillow said their homes were worth. Mind you these days that exercise is mostly depressing! And, those "zestimates" were never very accurate.

I told sellers then, and still believe, that you need to know what Zillow says about your house. Because there's a pretty good chance that potential buyers will know.

And, an article in today's Realty Times emphasizes why Zillow is continuing to gain in importance. REALTOR.com has been the big boy on the block forever. But from a technological perspective it's been a long time since they had anything approaching a technological edge. And, while, theoretically, REALTOR.com exists to serve me as a member of the National Association of REALTORS (NAR), for most of us it feels like it exists to gouge us!

While Zillow (and other sites) will allow me to upload unlimited photos, virtual tours and other good stuff, all for free. REALTOR.com charges me for everything, including having my name on my own listings! For example, to link a virtual tour (using VisualTour.com) REALTOR.com charges me $19.95. But linking that same tour to Zillow is free!

Consumers still prefer REALTOR.com, but only because not enough agents are taking advantage of the free stuff at Zillow. Trust me, that's going to change!

So, if you're a consumer and haven't yet checked out Zillow, you should. And, if you're an agent and haven't checked it out, what are you waiting for?

Ignoring a Potential Buyer

I was showing a home to a client a couple of days ago. We had just finished and were getting in our cars when someone drove up. He got out of his car and asked if I was the real estate agent. I told him I was "a" real estate agent, but not the listing agent for this property.

This gentleman went on to explain that he's been calling and leaving messages for the listing agent for months, trying to get in to see the house. All his calls have gone unreturned.

Have I mentioned that this house has been for sale for more than 450 days?

Real estate agents get discouraged too. I understand that. But a potential buyer who is this determined would certainly seem worthy of a returned phone call.

I wonder if the owner knows there's a potential buyer who's having trouble getting to see the property.

By the way, this is one more reason (if you needed one) to never, never call the listing agent on a property!

Just Because You Like It...

It's funny how you see things differently when you look at someone else's home. A surprising number of the homes I've shown in the last week have had a feature that is often less than desirable for potential buyers.

Now let me say first of all, that I have nothing against hunters. And, you should be able to decorate your home any way you choose, WHEN YOU"RE NOT TRYING TO SELL IT!

But most Americans these days are not hunters. That's true even in our area. The percentages are pretty small. And, a lot of non-hunters are going to be less attracted to a house full of dead animals hanging on the walls. You may not think it's fair. But it's the truth.

I'm not singling out only hunters. If you have a hobby that's not exactly main stream, it's a good idea to send stuff to storage. Don't leave the handcuffs on the bed post! (Even if you're in law enforcement!)

The goal here is for the buyers to identify with your house, to see it as their own. That's hard for them to do if they see something that makes them uncomfortable.

So, stash the stuffed animals. If you question whether it's appropriate, assume the answer is "no". You want every edge you can get in this market!

Appealing Property Tax Bills

With property values falling in our area, many of you have been astonished that according to the county your property value actually increased.

You should know that nothing is written in stone and that these things can be appealed. First, you should contact your county immediately to find out what the process is for an appeal. It's different in each county.

Now you need to start gathering data to support your contention. One source of help can be your real estate agent. I've helped clients in the past by putting together a current analysis of the market, including comparable home sales.

If you're doing this on your own, you're going to need to get information on what has recently sold in your neighborhood, and what it sold for. The homes you're using for comparison should me as much like yours as possible.

You should talk to neighbors about their assessments. There are a surprising number of clerical errors. If your assessment is completely out of line compared to neighbors with similar homes you've got good grounds for appeal.

Take into account factors that may decrease your homes value. What's going on in the neighborhood? Is there a heavy increase in traffic that impacts the value of your home? How abour rezoning?

Are there factors unique to your home that might affect the assessment? Do you have structural issues? Is there, for example, a crack in the foundation?

There are resources in the web that can help as you prepare your case. The Federation of Tax Administrators site has good background information on the appeals process for each jurisdiction. The American Homeowner's Association has a kit to help with this process. You can download it for free on their web site. And, the National Taxpayer's Union has a guide ($6.95) on fighting property taxes.

Lastly, I'd also urge you to remember that these same property taxes are the ones that pay for policemen, firemen, schools and school teachers, etc. If no one pays property taxes you might find you don't like the place you end up living in!

Days on Market Change

Effective today the methodology for determining how many days a property has been for sale is changing in the local Multiple Listing Service.

The indicator that is changing is something known as Days on Market Property and basically tells you how long the property has been listed for sale, Even if the sellers have changed agents or changed something about the listing, it still shows you the cumulative days on the market.

The rule has been that in order for that number to reset to zero, the property must be off the market for 180 days, essentially six months. If it is relisted after that time the counter starts again at zero. If it's relisted before that 180 days, the counter picks up where it left off. So, if you had your house for sale for 100 days, then took it off the market for two months to make some renovations and relisted it, on the first day it's back on the market it shows it's been listed for 101 days.

The new policy decreases that waiting time from 180 days to 90 days.

The rationale is that the market has changed, houses turn over more often and that the 180 days didn't accurately reflect the market. At least that's the story from the MLS.

In actuality it's motivated by unhappy sellers and their unhappy agents. Let's face it, a house that looks like it's brand new on the market is going to get more attention than a house that's already been listed for four months, or two years! And, when an offer is written, how long it's been for sale is one factor a buyer may want to consider in their offer.

Buyers are definitely the ones on the short end of this stick. The real estate agents who represent buyers can still get the information on how long the house has been for sale. But they're going to have to go that extra mile and do the research. Some of them simply won't bother. And, it becomes close to impossible for the consumer to get this information.

It seems like a short-sighted change that's been made for all the wrong reasons. Changing this kind of data point to deal with market fluctuations just doesn't seem smart. So, while they've no doubt made some sellers a little happier, I doubt they've done anyone any good in the long term.

Video, Photographs and Listings

I've been wrestling with the question lately about how to use the visual tools available to advertise listings.

First of all, there's absolutely no question that high quality photographs are essential to marketing a listing. The National Association of REALTORS (NAR) own numbers show that listings with six or more photos are viewed 299% more often than those with fewer. That's a very significant number! Which makes you wonder why another study by NAR shows that only 23% of its members own a digital camera! But I digress!

And, don't underestimate the importance of the quality of those photographs. I'm always amazed when I see photos of cluttered countertops and piles of dirty clothes in the middle of the floor! Most of us have heard for years about the importance of curb appeal. It's been important because it was the first impression the potential buyer had of your home. But now that first impression is online. Curb appeal now applies to the whole house!

Virtual tours have become important, although I suspect that, like me, most buyers find it easier to just look at a large number of photos without all the pretty music and panning back and forth!

Now we're starting to see some videos incorporated into some listings. To be honest, what passes for videos is, for the most part, nothing more than a slide show narrated by the agent with maybe a few seconds showing the agent talking. Again, really what you're getting are just photographs of the home but in a format suitable for putting on YouTube.

It's too early for there to be any hard numbers on the effectiveness of this form of advertising. But I am wondering if buyers find it any more useful than a large number of high quality still photographs.

So...I'm asking for your input. What's your preference? Do you want a YouTube movie with a series of narrated slides? Are still photographs just as effective? More effective? If you're a buyer, what works for you?

Thanks for helping me figure this out!

It's All Out There

This was in the Washington Post as part of a Q&A with one of the local REALTOR associations.

We are listing our Cascades townhouse next month and were wondering about pricing. We have lived there nine years and paid under $200K in 1999. This information is available to anyone accessing the Loudoun County Appraisal District Web site. Should we expect buyers to know this information and, if they do, should we also expect to get "low-balled" more than someone who doesn't have as much equity? Will we have to adjust our price/expectations accordingly?

I don't believe you need to be concerned with the public records and how much you purchased your home for nine years ago. The biggest issue is how big your mortgage is, and no one knows that but you and your bank. Contact a Realtor and have them do a comparative market analysis and take their advice on pricing your home to match your home type and area.

This was part of a longer article and many of the answers weren't particularly good. But this one in particular seemed worth commenting on.

First of all, you should always assume that buyers will have all publicly available information in their possession. Even if the buyers haven't thought to search out this information for themselves any decent real estate agent will be pulling the tax records and showing that information to their client. Sellers who assume they can hide some information from potential buyers are always asking for trouble. In the age of the internet, everybody knows or, at least, can know, everything!

Secondly, the buyers should not base their offer on what a seller bought the house for. Regardless of what you paid for this house, in a falling market, you are likely to get a low ball offer. The buyers know, and certainly their agent knows, that a year from now there's a good chance that the value of that home is less than it is now. It might not be worth a lot less. It's certainly possible we're near a bottom. But with that kind of uncertainty all buyers will lowball an offer and all sellers should expect to have to deal with that.

The other point I'd make here is that REALTOR associations should not have non-REALTORs answering these questions!

Townhouse in the Ocean

This one is fun!

While I was looking at the Culpeper townhouse market yesterday I stumbled across this map, helpfully pinpointing the location of the townhouse...

I have a feeling this is not really ocean front property!

It does make an important point. Sellers should take a look at their listing and make sure there aren't any obvious problems. It matters that the information is complete and correct.

Buyers have a multitude of homes to look at. They use all kinds of things to narrow their search. You don't want them to eliminate you because of incorrect information.

And, the commute from this townhouse in the middle of the Atlantic is likely to be way too long!

Short Sale Misery

I've heard a lot of talk amongst real estate agents lately, both online and in person, about short sales. And, the gist of the conversation is that they are horrendous and no real estate agent in their right mind would do them.

While I certainly understand the sentiment, I am disturbed by the remarks.

First of all, let's be clear that real estate agents are running a business. And, if the business does not make a profit it soon goes out of business. So, it's not reasonable to expect real estate agents to take on listings that will not pay them but will result in increased costs.

There are a number of reasons why it's risky to list a property where the owner owes the bank more than the property is worth. First of all, you sign a listing agreement with the owners. And, in that agreement, they agree to your fee. But the lender must agree to any contract and they have a history of voiding the listing agreement you signed with the owners and telling you what your fee will be. (By the way, it's always lower.) At that point you've already done a tremendous amount of work and it makes no sense to walk away, even if it turns out that what the bank pays you is a pittance. Something is better than nothing.

And, you'll work much harder for that reduced commission. Dealing with the bureaucracy at most lending institutions is a real pain. And, often you're dealing with both a first and a second mortgage.

The other big problem is that most short sales never happen. In most cases, especially in this kind of market, the property goes into foreclosure a couple of months later. Since lenders already have established relationships with real estate agents, you then lose the listing altogether.

All that being said, there are families who need help keeping their homes from going into foreclosure. We are uniquely positioned to perform that service. And, there are, of course, big hearted people who willingly take these risks and help these homeowners. I'd just like to see more of them.

It's interesting that attorneys don't refuse to take on bankruptcy cases our of fear of not getting paid. They get their fee up front or they don't take the case. Maybe that's what needs to happen here. Or maybe there's a retainer so the agent knows there will at least be some pay for their trouble.

I think the industry has an obligation to figure this out. I think it's in our self-interest to show we're willing to go out of our way to help. It certainly can't hurt the overall reputation of our profession!

Why Sell Now

There are a lot of sellers sitting out there wondering whether to try and sell now or to hold off, at least until spring, in the hopes of seeing a better market then.

There's some data to suggest you might as well bite the bullet and do it now. The S&P/Case-Shiller index of home prices shows that the last real estate downturn, in the late 80s and early 90s, it took about seven years for the market to recover enough the prices began to rise again.

We're only a couple of years into this one. And, this downturn may play out differently. There are certainly plenty of interested parties, especially in an election year, who would like there to be some good news on the real estate front. But it seems unlikely that two years or maybe even three will be enough to move us back to rising prices given the amount of inventory out there.

And, you'll see an increase in the number of homes selling, I suspect, long before you see that begin to push up the prices of those homes.

So, if you're wondering whether to put your house on the market now or wait for the spring market the answer is that it probably makes very little difference in terms of the price you'll get for your home. What you should consider is that, as in most years, I expect the inventory to jump tremendously in the spring and the competition for the buyers will be much fiercer.

Maybe the real question is how will your home fare against the increased competition?

Television Advertising

Another agent asked me awhile back what you do for advertising if you're not going to do print ads. It was a good question and I believe I ruminated on that previously in this space.

But a new option has presented itself recently. And I'd like to ask for your input on this one.

My broker has worked hard to negotiate some amazing rates for TV commercials through a local cable provider. The rates are low enough that they do truly make it affordable.

The question is, how effective is it? Do you still watch TV commercials? I know at our house, ever since TIVO came in the door, TV commercials are out! (Although we still stop it for the Apple Mac ads!) I suspect we're not the only ones who have changed their TV viewing habits.

And, let's face it, affordable means we're definitely not airing these in prime time.

My understanding of any form of advertising is that only with repetition can you truly expect an ad to have any impact. While these are affordable, how many would you have to run in order for it to really register in people's minds?

The big upside I see here is walking into a listing appointment and telling a seller that I can put their home on TV. Sellers like big, splashy marketing ideas, often regardless of effectiveness. (Let's face it, there's a fair amount of desperation out there right now!)

I'm still trying to determine whether to take advantage of this opportunity. But, meanwhile, I'd appreciate your input. What do you think? I'd welcome your input!

Estimated Net Proceeds to Sellers

When you sell your home and finally get that check it will not be for the full sales price amount. Even if you own your home free and clear of any mortgages, there are still fees that will be taken out before you see any money.

The agent who lists your house should go over these charges with you when they first talk to you about listing your home. You need to know what kind of money you'll walk away with (and IF you'll walk away with any) so that you can make plans for where you'll be going next.

This estimate should then be redone when you get an actual offer on the house. Especially in this market, there can be a substantial difference between what you originally listed for and what the house eventually sells for. It's in everyone's best interest to make sure there are no ugly surprises at the settlement table.

Some of the things you should expect to see on the list of estimated charges are closing fees paid to settlement companies or attorneys. This is the money they charge for preparing all the documents, communicating with your mortgage company about the payoff and for actually conducting the settlement and recording the deed.

You will pay transfer charges which are essentially a tax levied by the government on the sale of your home. In general, in our area right now, that will be $1 for every $1000 of sales price. So, if you sell for $400,000 that tax will be $400.

You will pay a commission to both the listing agent and to the agent representing the buyer.

If you have a mortgage, you'll not only pay off the existing balance, you'll also pay a partial month's interest. Because interest is paid each month in arrears, meaning in February you're paying the interest for January, there will be interest due from the partial month in which you close. How much that is will depend on what day of the month you settle.

Other charges you may pay include termite inspection fee (typically $50-$70), Closing Cost Assistance for Purchaser, and fees for well and septic inspection.

There may also be other expenses out of your pocket before settlement that you'll need to know about. If you live in an HOA there will be a charge for obtaining a copy of the homeowners association documents. (Typically about $100.) If there is a home inspection by the buyers, there may be repairs you're required to make as a result. A good estimate will attempt to give you some idea of what those might run.

This will be an imperfect document. There's never any way to know precisely each and every piece of this. But it's a great source of satisfaction to me when I get really close to that final number.

By the way, in my opinion it's a good idea to estimate on the high side. No one has ever complained at closing that they walked away with too much money! But a seller who expects more and takes away less can be a problem!