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January 2007

Secrets to Simultaneous Real Estate Closings

Posted at 10:45 AM, Jan. 28, 2007

Are you one of the many who will need to strategically sell your home while buying your next? Click on the link below from Bankrate.com for tips.

Secrets to Simultaneous Real Estate Closings - It's a normal situation: close on both a home sale and a purchase the same day. But it's fraught with peril.

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View more entries tagged with: Bridge Mortgages, Double Mortgages, Selling, Buying, Real Estate

Facing Fears

Posted at 10:22 AM, Jan. 28, 2007

"If you listen to your fears, you will die never knowing what a great person you might have been".

-Robert Schuller

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View more entries tagged with: Fears, Listen, Risks, Dream

What is in Store for 2007?

Posted at 10:43 AM, Jan. 26, 2007

Discussions at a recent sales meeting at my brokerage firm confirmed for me the predicted outcome for 2007 will be another year of reality. While 2006 was the year of coming off the high of quick sales and escalating prices, we as professionals were again faced with the facts that buyers and sellers were not on the same page. Many sellers, still believing their home was subject to a market shift, or better yet, not accepting there was one going on, and buyers refusing to jump the guns with offers for fear of being too haste.

What has always been the burden of real estate professionals is that the actual consumer market still lags considerably with market changes. You would think with the information age, this would not be the case. Sadly, it still is. I find many of our helpful, consumer advocated websites (so they claim) perpetuate the problem with a revolutionary attitude and less about unity.

2007 will continue to be a year of correction. Every market has one. This is ours. Thankfully, we are not experiencing severe overall losses other that false expectations. Where we cannot compromise as an industry, is setting a standard to bridge the gap between buyers and sellers. Sellers need to be educated with pricing and presentation, and buyers need to be educated with deciphering choices and realistic approaches to offers. What we cannot allow ourselves to do is coddle or enable crippling consumers. Do not take over-priced listings. If you can't make them see reason in the first place, you will not be able to later. You will only add another stone of mistrust and disgust for our profession. Sellers rarely see themselves as being at fault for the lack of success. Do not work with buyers that want to behave like jackals. If their primary goal is to "clean up", you are participating in what will most likely be a sour experience (if it actually makes it to close) for everyone involved. Fair and reasonable behavior will be respected by all.

Let's challenge ourselves as professionals to hold the higher ground and not only demand the best from ourselves, but from our clients and partners as well. May prosperity be a part of your 2007!

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View more entries tagged with: 2007, Market Conditions, Real Estate Market, Selling, Buying

The Appeal of PMI

Posted at 4:05 AM, Jan. 23, 2007

Yes, there is actually an appeal to choosing Private Mortgage Insurance over a combination loan, or “piggy back” loan. Private Mortgage Insurance, or PMI comes into play when buyers have less than 20% to put down on a home. Realistically speaking, that pretty much covers just about every first time homebuyer out there. With today’s rising housing costs, it’s almost impossible to save a traditional 20% down payment unless you are lucky enough to have been gifted from a relative.

PMI is how the lender protects the additional costs for insurance in the event you, as the buyer, should default on your loan. Keep in mind, homeowner’s insurance policies typically only cover up to 80% of the property’s value (which for this purpose represents the lender’s interest). So, in order to protect their investment, lenders are required to take out additional insurance in the amount that you, the buyer, lack.

In the last couple of years, mortgage brokers have encouraged to their clients the option of a piggyback loan. This consists of the first primary loan of 80% of the property’s value, followed by a secondary loan for the difference, minus any applicable funding the buyer brings to the table. The secondary loan was of course at a higher interest rate and depending on the program, may be subject to rate hikes. The argument being that PMI, which is a calculated amount based on the purchase amount and buyer’s down payment, is a fee that is not deductible, unlike the interest paid on a secondary mortgage. However, with rising interest rates, buyers are now taking a longer look at the pros and cons between the two.

I have always advised my clients to carefully weight the options carefully. What may seem like a no-brainer isn’t exactly the best choice. Combo loans are harder to qualify for. If you have less than perfect credit, it could very well not be the one for you. Payments with PMI may offer more attractive rates than double loans. If you happen to live in an area that is appreciating at a steady rate of 5% or more, well, PMI might be a better choice. Why? Well, say for example you have only 5% to put down, the difference between you and the 80% lenders will traditionally give is 15%. You could opt for a regular loan at 6.5% and pay for example, $150 a month in PMI, or have two loans, one a 6.5% and the second at 8%. With the first loan, in about 3.2 years you can cancel your PMI by the shear appreciation of your property. With the secondary choice, you would be required to refinance. Now granted, the average homeowner refinances within the first 3 years of ownership, it is not however, without cost. Cost that translates into premiums, closing costs and simply higher interest rates. What homeowners might seriously overlook is the debt ratio. What you were able to qualify on initially has changed. You now have more debt with a mortgage payment. Not to mention, sadly enough, homeowners incur more debt with the lack of budgeting along with the responsibility of new home, i.e. new furniture, new curtains, etc. Never assume that refinancing is your default button. Whereas paying a regular payment along with the PMI premium, after your loan to value ratio is less than 79% (most lenders buffer an additional point or two than 80%), you can request a drop and reasonably see your payment go down!

So, before you jump into the first loan that seems to fit the moment, make sure to examine the long-term effects. Consult with your loan professional and/or real estate professional to determine what is most likely going to benefit you in the long run.

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View more entries tagged with: Private Mortgage Insurance, Piggy Back Loans, Pmi

The Limited Purpose of Feedback

Posted at 12:59 PM, Jan. 22, 2007

Agents often go through lengths to secure feedback for their sellers after showings. What I like to emphasize, is that more often than not, it can be a source of unnecessary stress when it carries more weight then it should.

First, let me begin with the fact that I am referring to the challenges of fielding feedback in the city. I know from working with buyers who've shopped in the burbs, protocol is quite different. When it comes to getting tangible feedback from agents and their clients in Chicago, you end up playing a game of tag. If you can tag em', you may be lucky enough to get an opinion out of them.

Now the purpose of gathering feedback for sellers is to give them a reference to pricing and how the property is showing. But to truly understand where this can fall short, lets look at the psychology behind it. Let's start with the buyers.

Believe it or not, most buyers will know when they like something or don't like something, as a whole. As simple as that might be, that is exactly how it is described, "No, it didn't do it for me". As an agent who has worked extensively with buyers, I can tell you, wrestling any specifics can be a mental dance. They know that they don't particularly care for the property, but what tipped the scales that way, well, not so easy to decipher. Hence, when a listing agent calls to say, "What did your clients think of my listing at 123 Seller St?” I am at that awkward moment where I can offer nothing of value. As agents, we are not fielding for opinions per say, we are looking for potential problems that might prevent a successful sale.

Now unfortunately, this is an example of listings that may be undermining their own success with a bunch of small things. Larger issues such as a run down home with an asking price at the top of the market, or walking in and finding dog poop in the middle of the living room speaks for itself. These are things that cause a double take or a big "WHAT???” These are very easy points to relate to the listing agent. It’s those "can't quite put your finger on it" items that cause the indifference. I am talking about, dirty carpet, outdated paneling on the walls, cat odors, a room you can't get into because it's locked, closets stuffed to the brim, or even curb appeal that is anything but appealing. Items that become difficult for the buyer to articulate, but none-the-less, is affected by.

Now lets move on to the buyer's agents. I will admit, and I am sure I am not alone, that unless a property has one of those stand out "What are you thinking" negatives about it, or the client really expressed a liking, it is basically lost in the shuffle. When a listing agent catches me 3 days later asking what my clients thought of so and so property, I might struggle to remember anything about that listing. Lets keep in mind, it is a strong probability that I had taken my clients to view many properties that day, and potentially, they were not my only clients for the day. So, after about 20 plus properties later, remembering what, if anything, about property xyz and give any constructive feedback can be rather futile. I personally send out email questionnaires with visual reminders on my listings to help with this very problem. But I can tell you, anticipate less than 50% will ever return anything, email or phone call, with something that you can use.

Now this brings us to the sellers. Every showing they wait in anticipation like nominees on Oscar Night. "Did they like it?" "What did they say?” You can even have the misfortunate of having a seller home at the time a buyer walks through (something I strongly discourage). Lets just say that if I had a dime for every paid compliment and generated excitement buyers can create as they walk through a home, I'd be able to retire. So, this is what I try to remind Sellers as the fundamental purpose of feedback.

1. Take it with a grain of salt. Unless you are hearing a consensus of specifics such as, "they hate the bright purple paint in the living room” or "this property seems to be a bit pricey”, each and every buyer comes with their own set of needs.

2. Don't live in the past. Focus on the next showing. If you spend too much time waiting for approval from a past showing, you will ultimately be disappointed. Even if they seemed like they absolutely LOVED your home, if they are not making an offer, it’s for a reason that may have little to do with you.

3. Always keep your best foot forward. Simply applied, make sure your home is "first impression" ready.

4. Lastly, and this applies to you agents out there as well, don't ask for the truth if you can't handle the truth. If you want to know what someone thought about the property, but then get mad and defensive when you don't like the answer, don't ask.

Feedback from showings can be a useful tool, just an unreliable one. By staying focus on what can be controlled, how your home presents itself, pricing, and marketing exposure, the rest will fall into place and you will find the buyer for you.

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View more entries tagged with: Selling, Real Estate, Feedback, Sellers, Agents

Buying "AS IS"

Posted at 1:12 PM, Jan. 17, 2007

I have recently come across a trade article where a lender was advising investors, namely new ones, about what not to buy. As you may have guessed, properties listed “AS IS” were one of them. I find this to be a serious misrepresentation about what buying "AS IS" is really about. Allow me to elaborate.

First, let us define what selling "AS IS" means, which is, the seller of the property is not open to negotiating any credits or repairs. What is critical for buyers to understand is how it translates to their rights. You as a buyer still reserve the right to get a home inspection. This is a separate contingency, which I would never advise a buyer to waive unless they were buying for the land only. When you buy "AS IS", you can still get the home inspection and determine whether or not based on what is found, if you wish to continue with the purchase. And let me tell you, I have been in transactions that even thought there is an "AS IS" clause, if something is found that could be a deal-breaker, many a seller have made exceptions to that particular item.

Representing several modest investors and buyers I have found "AS IS" properties to be no or more less scary then other properties on the market. Part of what needs to be taken into consideration is each properties individual circumstance.

For example, understanding why a seller is listing the property "AS IS" is a useful first step. What buyers need to know is that most estate sales will be sold this way. Since the seller has passed on, or is no longer able to make executive decisions regarding the sale of their home, selling becomes the responsibility of the executor and/or children of the seller. In all fairness, the person who is now selling the home cannot in good faith represent the condition of the home, which is why Illinois Property Disclosure Law exempts estate sales from having to disclose any know latent or material defects. The same applies to foreclosures. Banks and other lending institutions are not required to be held accountable as to the condition of the home because they have only a monetary interest. Simply put, they haven't lived in the home to know the sink in the kitchen leaks or the water heater is on its last leg. This is what is known as selling "AS IS".

In cases other than the two listed above, you have sellers who may already be marketing their property at a very reasonable price, therefore, do not want to take a hit with any additional costs that cut into their bottom line. For example, if a home is older you can pretty much anticipate that there is going to be things in need of attention. But this is true for any home, even new construction. As a buyer, it is up to you to determine how that relates to your overall costs. I have had cases where sellers offered home warranties, and unless it’s an item that is outside the scope of the warranty, they did not want to have to factor additional costs for repairs or credits. Or, an "AS IS" clause can pop up if there is a gap between what the buyer is willing to pay and what the seller is willing to sell at. Quite often, the seller will concede to the drop in asking price, but will make sure the buck stops there! Lets not forget the buyers who ask for things such as decorating credits and light switches to be installed. No one likes to feel taken advantage of.

So here are some helpful tips to buyers with "AS IS" properties.

1. First and far most, what is the asking price? Is it below market value? Is it representing only the value of the land and not the home on it? If you come across a really good price on a home like that, be prepared the seller is not going to leave a door open to credits or repairs.

2. What is the overall condition of the home? When you walk through the home, does it look like it’s been well cared for? Is there anything that stands out as a red flag such as watermarks, a roof in disrepair, etc? If a seller has been diligent about the upkeep of their home, you can feel better about structuring an offer and paying for an inspection.

3. Don't skimp on the inspection. Choose an inspector that has experience with older homes (if that's the case) and make sure you purchase all eligible options such as roof (if its not included) etc. You can even choose to hire a structural engineer and/or architect, to act as an additional opinion as to any serious problems the home might have. I find it can be worth the additional expense. However keep it mind, none of these people are Superman and can see through walls. If the potential problems are not reasonably accessible, they will not be inspected.

4. Make sure your agent structures the terms of your offer to allow sufficient time for the inspection. 10 days is ideal especially if you consider bringing in other professionals.

5. If something of concern does pop up in the inspection, have your agent ask for an extension to allow time to get some estimates for repairs. More often than not, buyers perceive smaller issues to be more costly and grossly under-estimate others. When you have tangible figures to work with, you can get a better idea if the property will fit your budget.

6. Is the seller offering a home warranty? If it’s an older home, consider having your agent ask for it. If one is provided, ask for a copy to review exactly what is and is not covered under the policy.

7. If you are tight on cash, focus on properties that need only cosmetic updating. If they are in livable condition, you can make your updates along the way without going broke. Think of it this way, your electrical, plumbing and structural issues will run you the most money. So if you pick a home that has many flags in those areas that need immediate attention, you better have a very deep pocket.

8. Lastly, keep in mind that all deals are not for everyone. Other investors such as developers and tradesmen can afford to take on properties in serious disrepair without the same overhead expense as you or I would experience. Know what your plan is and be prepared for unexpected surprises. Check out future blogs on investing and fixer-uppers for more details.

Overall, buying a property marked "AS IS" can be a very good fit as long as you do your homework first.

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View more entries tagged with: Estate Sales, As Is Properties, Investing, Older Homes

There is Gold In Them Hills...

Posted at 5:29 PM, Jan. 12, 2007

There has been several articles in circulation lately about the Buyer's Market we are currently experiencing. Of them, I find the behavior analysis to be the most interesting. One recently described how buyers are now moving forward with actual earnest instead of watching from the sidelines. I can't help but picture buyers watching the real estate market as if they were watching the stock market. Looking for that bottom, then Buy! Buy! Buy! Its like those of the old west waiting with their pitch axe for the pioneers before them to yell, Gold!

What I think perhaps is being overlooked is the fact that buying real estate is neither gold-digging or playing the stock market. Buyers should focus on whether or not they are prepared to buy, regardless of the market conditions. Unless you are looking for deals and steals as an investor, buying a home represents far more than gaining quick wealth. It represents people. It represents hope in a better future.

If you happen to be looking for perfect timing, well, don't. There is no such thing. The only right time is the time that reflects your needs and circumstances. Look for a home that best serves you. How many times are we driven by "sales" and purchase things that quite frankly, we justified buying based on it's price? How many articles of clothing hang in your closet that seemed like a steal at the time but really just don't fit into your lifestyle?

Of course it is smart to shop around and of course it makes sense if you can buy a better home at a good price. Just don't approach it with a bargain hunting mentality. When you find that right home for you, structure your offer wisely and approach the situation neither foolishly or arrogantly, your new home will always feel like money well spent.

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View more entries tagged with: Bargains, Buyers Market, Buying A Home

The Three P's of A Sale

Posted at 5:18 PM, Jan. 12, 2007

You will see a lot of gimmicks in today's market where sellers and agents alike are desperate for buyers' attention. I prefer to stick to simple, yet effective methods. Ones that I think, transcend any market condition and will create opportunity.

First Rule: Presentation. This is a must. Now when I say presentation, I am referring to staging, not decorating. Staging is the process of depersonalizing a home, decorating is personalizing. Future buyers do not wish to purchase your style. Not to mention, style is subjective. What you may think is beautiful and charming someone else can think is trashy and obnoxious. Your ultimate goal is to sell your space. By carefully planning a home's presentation can easily determine how buyers receive it.

Need proof? Okay. Let's take food for example. I am throwing a dinner party for people whom I don't have a personal relationship with. I decide that I am going to serve fish. However, instead of placing it on a lovely platter with an arrangement of vegetables, lemons and a sterling silver serving fork, I place it on a paper plate, whole (head, eyes and all) and require my guests to use their hands to serve themselves. Now there plenty of fish lovers who don't mind digging in since they know the delicacies that lie under-neath. But there are many of those who cannot get past how something looks to know how truly wonderful it is. Think this is extreme? Well, I can tell you from experience that most sellers have little awareness of how their home is perceived. Pet smells, dirty dishes in the sink, garbage that is noticeable, dirty clothes on the floor, piles and piles of stuff in every corner and closet that spell one thing to a buyer: dirty. Bottom line is, you would not sell your used car without detailing it first, why would you sell your home any other way? Are you willing to chance that you will find that selected buyer who can look past your home's distracting appearance?

Second Rule: Preparation. This is actually a spin off from the first rule. Preparation applies in a few areas here. First, is with presentation. You negate staging your home if the condition of it is less than reasonable. You will save yourself a lot of headache and a lot of money if you fix those items before listing your home. Loose tiles, replace caulking in the bathroom, leaky faucet, broken window, etc. In regards to larger projects, such as a older roof or mechanics, discretion here is the operative course of action. If you are unable or unwilling to address problems such as these, then be up-front. Either offer a home warranty or credit as a means to avoid dragged out negotiations after an inspection.

The other application to the preparation rule is having all necessary documents and receipts handy. If you own a condo or belong to a homeowners association, have a copy of your minutes, declarations and by-laws, budget and board contact information handy. If its a room or area that goes with your property, make sure its accessible. If you have up-graded or repaired/replaced something of significance in your home within the last 5 years, showing receipts can dispel any concern a new buyer might have.

Last Rule: Price. This is perhaps the largest pill to swallow. You will eventually cost yourself more money to list a property high and reduce it's price than to price it correctly in the first place. A home's price should reflect current market conditions, not what it is you need to net, not what your bank says it's worth, not the many wonderful memories you've collected over the years, not by all the improvements you have done, not even what your neighbors received for their home. The successful pricing of your home may take these factors into consideration, but is not determined by them. What a buyer is willing to pay will ultimately decide the value of your home, and what a buyer is willing to pay is determined by perceived value.

The bottom line to it all, you will get out what you put in. By investing in the process of preparing your home for sale, you ultimately increase your chances of a successful outcome for both you and the buyer.

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View more entries tagged with: Staging, Presentation, Pricing, Selling