Surviving the buyers market in a sellers shoes

Surviving the buyers market in a sellers shoes

            It’s no secret that we have been in a buyers market for quite some time now.  While this can be extremely frustrating for the seller in today’s market, there are ways to prepare and triumph.  With a sound strategy in place, anyone can sell in this market; but like most things in life, it takes work, care and time.  So hike up your pants, roll up your sleeves, and let’s get that home SOLD!

Know your hold costs

            The #1 factor to be aware of in a buyers market are your monthly hold costs.  As days on market climb, your potential net descends.   As shelf life is inherently longer in a buyers market this is a factor that cannot be ignored.   When factoring in hold costs, an offer of $340,000 in your first week is greater then $350,000 6 months from list.   A $3000 monthly hold cost is a fair average for a $350,000 home.  That’s $18,000 after 6 months.  In essence, the 2^nd offer 6 months later is a relative $332,000.  If you had settled for $340,000 on the first offer you would have saved $8000!  It is imperative that you know your hold costs and factor them into all negotiations.

Get Real

            The biggest problem we face in today’s Real Estate market is the continuing effect of the bubble bursting.  While it’s unfortunate, it is, as they say, what it is.   We cannot fool ourselves into believing our homes are worth what they were in the good ‘ole days.  We HAVE to be realistic with today’s market and price accordingly.  We always want to maximize our potential dollar but pricing out of market is simply the wrong way to do so.  Understanding true market value, pricing accordingly and making your home stand out is the way to success in a buyers market. 

Market effectively and consistently

            Marketing mediums have and continue to change at a rapid pace.   A buyers market clearly carries more inventory then is standard.  Thus we need to STAND OUT from the crowd!  With so much competition around be sure to work with an agent who understands marketing to not only today’s buyers, but to your specific buyer base.  This is not the type of market where one ad in a Sunday paper is effective. There needs to be a consistent flow of effective marketing until you reach your goal.  Without it, you are going to be lost in the pack.

            We cannot control the markets we find ourselves in we can only act accordingly.  Remember that selling is possible in any market.  Make a plan, hire the right agent and your sale will be a success! 

Make sure your FLIP isn’t a FLOP

             With the market in the proverbial port-a-potty there are many opportunities available for the savvy investor.  Flipping homes has become a trend popularized by TLCA&EHGTV.  It looks SO easy doesn’t it?  Even Vanilla ICE is doing it!  A little extra coin in the savings account, a story about how you once helped your neighbor build a tree fort and you’re off.  Let’s make some money!!  

Whoa there big fella….

Ok, ok, I know you hung your new flatscreen and have every episode of “Flip this House” Tivo’d, but there may be a chance – just a chance – that you’re going to get in over your head.  Let’s get a plan in order first huh?  How about a little due diligence?  Fair enough?

Whether a certified general contractor, Donald Trump, or a driving range pro, there are variables that must be accounted for prior to putting pen to paper, or shall we say putting your money where your mouth is.  Without completing your due diligence you are simply putting yourself in a compromised situation.  You may come out unscathed, but why start off in the wrong direction when you don’t have to?

Your first concern is a true and realistic budget.  In these preparations I prefer to be overly conservative to better protect my investors and myself.   Your obvious first calculation needs to be your pre determined total budget.  Be fair and be realistic.  If you are lucky enough to have access to unlimited funds, don’t take the approach that “funds aren’t an issue”.  Funds are ALWAYS an issue, without a firm loyalty to the budget you set yourself up for nothing but failure.

We now need a “Flipping Itinerary”, and this is not the time to remember that episode when the HGTV crew flipped a house in under 24 hours.  Take into consideration actual sale timelines in your area for comparable homes – then add 30%.  Patience is a true virtue in this game, and being prepared ahead of time only makes it easier.  I’m sure you have the absolute best intentions in hand and will renovate in the most attractive way possible.  However, there are variables that can and probably will arise that you can’t prepare for.  The best way to prepare for the unknowns is to build in additional time.   Time is money, so calculate all hold costs and be precise.  Hold costs are a valuable piece of information as time progresses.

            It’s renovation time!  The hands are dirty and the journey has begun.  We’ve stuck to our itinerary and our budget is in tact, this isn’t so bad!  While you sink into the rehab be sure to always keep quality in check.  Just as you got this wonderful idea to flip, chances are high that your buyers are watching the same program.   Today’s buyer is incredibly savvy, researching on line is second nature to most, if you try to “cheat” you will probably pay for it in one way or the other.  So make sure your permitting is correct and deeds and liens are cleared.  A great idea for a little extra money is to have an inspection done on the home by and unknown source.  These inspections are in the $300 range and will save you a lot of headaches in future negotiations.

            Flipping can be fun and it can certainly be profitable.  Just be sure to keep your ducks in a row and remember, in the end, it’s business; and you need to be prudent.

– Home buying 101-

Get your priorities in order!!

            Man I hated that phrase when I was young!  However, if you are in the stages of purchasing your first home, it’s sound advice.  Many first time homebuyers go into the purchase process without laying out a predetermined game plan of their true wants and needs. And with the amount of inventory on the market today, that’s like giving your kids the keys to Toys R Us and saying “pick one”.  Without a sound “plan of attack” in place you may be quickly overwhelmed and end up making bad choices; like picking a Yo-Yo instead of a trampoline.  

First things First

            Right off the bat you need to decide what your #1 priority is in a home and why.  It can range from school system to the type of kitchen installed.  This will give you and your agent a base to start with.  These parameters can obviously change at anytime, but it’s the best way to get started.  With this base created we can start our home search with defined parameters, reducing the overwhelming effect today’s inventory levels can have on you.  This will also allow you to quickly get on the road and into some homes instead of sitting on Realtor.com for months.

Patience is a Virtue

            Now that we “have our priorities in order DAD” we need to give ourselves time.  The best way to do this is to remain calm…. Just chillax!  Patience is the name of the game when purchasing in this market – we are no longer in the “bidding war” days of homes being sold within hours.  This market is full of inventory and you need sufficient time to do your due diligence.   Give yourself 3-9 months depending on your situation to search and understand the market.  I always remind my buyers that you won’t know a great deal when you see it if you have had nothing to compare it to.  So be sure that you view enough property to really understand fair market value for your particular wants and needs.  r

Do you really need that?

            I often see buyer frustration when wants and needs are to “tight”.  What I mean by tight is that the buyers may be unwilling to budge a bit from their wants and needs.   We need to keep in mind that the average homeowner lives in their first home for only 8 years.   You may be able to “scrap” or hold off on a few of your original parameters in trade of something else.  For example, if you can part with a pool, you can usually get more space or an upgraded home for a similar price.  If you have small children that wont be attending school for 5 years or more, it may be worth it to get a larger/nicer home in a lower rated school district.   Rationalizing these wants and needs in an honest format is a great way to acquire the best home available in your budget.

            Keep these tips in mind, remember to stay patient and I assure you….YOUR PERSITANCE WILL PAY OFF!!

Closing on your own?

Closing on your own?

            When asked by the general public my thoughts about selling or buying on your own, I often give this exact answer – “I have no doubt that you can find a home or a buyer on your own, the doubt I have is if you can get past the closing table without professional help”.  The closing process is truly the meat and potatoes of any Real Estate transaction; we are not simply taking the home to the register and swiping our card.  While you may decide to sell or buy on your own, there are many factors that you need to be aware of.

            The closing maze can be a long, confusing and daunting process.   You will start to hear references regarding terms you may have never heard before.   “The funds aren’t seasoned” – “It’s still in Underwriting” – “The package hasn’t been processed” – “The estopple hasn’t arrived” – etc.   These events can and will cause great stress if you don’t know how to handle them, especially if you don’t even know what they are!  This is certainly not the time to cross your fingers and hope for the best.

            Staying abreast of these issues is crucial if you plan to close on time, or at all.  Any one of these issues or other unknown factors can easily prolong or destroy a closing.  By gaining knowledge of the process or simply working with a professional you put yourself in a much more protected state.  A great idea is to calendar all events taking place from date of contract.  Be sure your escrowed funds are deposited in time and accounted for, that appraisal and inspection issues are handled properly and in a timely manner.  You also want proof that title is “cleared to close” prior to loading the moving truck.  Small issues in a transaction can have drastic ripple effects, it’s imperative that you keep your ducks in a row until the last page is signed and notarized.

            While truly closing on your own is possible today, I highly advise against it.  Forms from your local office store or something you found on Google is not going to give you the peace of mind and protection you need in a Real Estate transaction. Due to the fact that most Real Estate transactions have multiple facets to them, it can be intimidating to try to “solve the puzzle” on your own.   To help ease that intimidation factor it’s best that you hire a title agent to conduct your closing.  Either buyer or seller can choose the title agent depending on how contract was drafted.  If you can’t choose, be sure to familiarize yourself with the agent chosen and be sure to start a friendly rapport.   The agent understands the process fully and in most cases is happy to answer any questions that may arise.  Remember, the title agent is here to provide a service, be sure to put that service to use.

            The closing maze is one that you may think you can tackle on your own, but let’s all remember the recent story of the woman who needed to be rescued in a corn maze.  It looked easy at first.

Renovate or Depreciate?

Renovate or Depreciate?

            With the market in its current condition many homeowners are contemplating renovating their home vs. selling their home.   With equity lines quickly becoming the next word to be deleted from Webster’s dictionary, this decision is much more difficult then it was just a few years ago.   Will I recoup my costs?  Should I just buy a renovated house?  Can I rent my house and then buy?  Do I want to go through a renovation?

            The first question a homeowner should ask him/herself is – “what is true Fair Market Value for my home?”  This can be a daunting exercise, as it requires total honesty with your self.  As we all know, most homeowners feel their home is worth much more then it is.  To be sure you have a realistic idea of what F.M.V (Fair Market Value) is for your particular home be sure to do the right research.

TIP – ZILLOW is wrong, call a Realtor.

            Now that you have a fair idea as to what you can expect to obtain in this market you must calculate your projected renovation budget. If you want to recoup your rehab costs in the sale of your home you must be sure that anticipated appreciation is in line with your budgeted amount.  For example, if a F.M.V of $300,000 home has a $30,000 kitchen renovation that home needs to appreciate by 4% each year for 3 years to “repay” the renovation. A more conservative equation may be to calculate using your current appreciation along with your anticipated renovation budget.  This will give you a better understanding of how long you will have to remain in the home to have the home pay for the kitchen.   If the number makes you cringe – it’s time to sell.

            We are currently in a remarkable buyers market.  The option of selling and purchasing may work for you, even if you have to sell at a loss.  If you have to take $25,000 to the closing table to sell your home but then obtain a dream home for $50,000 under F.M.V – it’s a relative wash.  Being able to “roll” a new kitchen and/or bath renovation into a mortgage is also very attractive, giving better rates and longer terms on the money “spent”.   There are tremendous deals to be had; while you contemplate it’s always worth taking a look at new inventory as well as meeting with professionals. 

Short Sales, Foreclosures and REO’s….., oh my.

Short Sales, Foreclosures and REO’s….., oh my.

            The Real Estate market has become a jungle entangled with unknowns; whether it be a foreclosure or REO many of today’s buyers don’t know what they are getting themselves into.  Without an available mapping system to explain each and every transaction on a case-by-case analysis, most are left in the dark. Without access that “map” or a firm understanding of each and every listing you approach you can easily put yourself at risk.  It’s not as easy as just finding the perfect house anymore.  If you are home shopping be sure you or the Realtor you are working with knows what’s what. 

Short Sales

            We have all heard the term short sale by now, it’s almost as common as Charlie’s “Winning”.  A short sale is in essence when the homeowners mortgage lender allows said homeowner to sell their residence at a lower price then currently due on their original mortgage.  If you are underwater, the bank will take the loss.  As common as this transaction has become, many buyers still don’t understand the full story involved.  Many short sales can still be a waste of time, but there are others that CAN be great deals, you need to map it out.  The most important factor to look for is if the short sale is approved or not.  Listing agents will advertise this, if they don’t you can simply call them and ask how far along the process is.  This will give a fair barometer on your chances of success.

Foreclosures

           

            A true foreclosure is a court sale, so generally you won’t see foreclosures as listed property.  (This may be argued as some counties do now pre-advertise the sale prior to auction)   When purchasing at the courthouse, you may hear that the sale is on the “Courthouse Steps”, you will need to pay the entire portion of the purchase in cash within 24 to 48 hours depending on County.  This will take this option off the table for most homebuyers, as this is an investor-saturated world.  We all know cash is king.   However, if you are looking at a home that was a foreclosure be sure to ask about open liens prior to making an offer.  You don’t want to find out 25 days in that there is an open electrical permit and the home can’t close without inspection and possible code violations.  $$$  It adds up.

REO’s

            An REO is a bank owned home, which may make you say – then REO is a dumb name… it stands for “Real Estate Owned” – as in Real Estate owned by the bank.  This means that the previous owner either could not sell short, or the bank would not allow it.  In some cases the bank may want the home back due to equity involved, if they stand to make some money – trust me they’re taking it.  Some REO’s however are homes that no one else wanted.  My first question when viewing an REO is “why is it here” as in why has someone else not grabbed it yet.  The owner couldn’t sell, the courthouse vultures didn’t bite and now the bank is sitting on it.  Unless you are ready willing and able to do significant home repairs, you may want to leave these to the investors. 

            There are plenty of wonderful “standard” sales on the market today, and the short sales and foreclosures of 2009 and 10 have lowered values significantly.   Be sure to always look for the best deal, just remember the best deal isn’t always a short sale or the like.   If you have any questions about this article or anything at all Real Estate related please email me at rick@rickrapp.com

Maintenance = Money!!

Maintenance = Money!!

         In this disaster of an economy we are all looking for ways to not only save money, but also how to MAKE money.  As homeowners, we are all Real Estate investors and should act accordingly in regard to maintaining that investment.   Just as you would hope to have full faith and trust in how your board of directors maintains the company representing your shares, you should be giving the same attention deserved to your own personal investment.  This attention will always pay off in the long run, proper maintenance of any and all investments is rule #1 for any investor, and as a home owner – that’s what you are!

           

            How often do you see a homeowner whom rarely maintains their home out in the yard cleaning up and have the instant assumption – “they must be selling”.  While an enigma to me, it’s a very common occurrence.  Notwithstanding that the thought process is on par and intelligent from a home seller prospective; It is somewhat penny smart and dollar stupid.  Not for the assumption that you won’t get your “rehab” costs back at closing, but simply for the overall fair market value that has been lowered due to the past neglection of beautification.  (yes I made up “neglection”)

            It’s the simple theory of “Sum of its parts”.  It’s easy to picture a great home in a rotten neighborhood; the value of that home will differ significantly if it were simply sitting on a different lot in a neighborhood of maintained homes, correct?  This added value is a non-controllable situation from a homeowner’s perspective; the only controlled factor is the homeowner’s own personal property. 

            Unfortunately we cannot push a homeowner to maintain their home, what we can do however is set an example.  We can maintain our own homes to the best of our ability and hope that our neighbors will follow suit.  A community with a higher percentage of maintained homes simply holds a stronger combined fair market value.  This is why maintenance = money!!  Whether we are selling now or in 30 years, the better we maintain our property, the higher our community’s fair market value will be, resulting in a higher average price per square foot when we are ready to sell!

            If there is anything to love about Hurricane’s, for me it’s the way communities and neighbors come together in a time of great need.  Neighbors helping neighbors is always a great American feeling.  Keep that feeling alive all year long by maintaining your property, not just for you – but for your community!  It’s a selfless way to MAKE MORE MONEY!!