Preparing Your House for Sale? Avoid the Pitfalls

When you’re selling a house there are things you can control… and things you can’t.  The important thing is to recognize what the strengths and weaknesses of your house are and to have a professional indicate to you how they affect the value of your house.  Some items are obvious: road noise decreases value, granite counter tops increase it.  Others are not so easy:  What about a pool?  What about a house on 10+ acres?

Marketing your house to the specific demographic of buyer is obviously extremely important but you don’t want to pigeon-hole yourself.  Just because you’re in a great school district doesn’t mean that you can ignore down-sizing buyers or single professionals.  Instead you want to emphasize the strengths but also broaden a buyers perspective to the advantages of your house as compared to all the competition.

I’ll explain it to you in a quick story of a recent client.  I just closed with a husband and wife on a property in Oceanside that love to swim.  Husband surfs daily.  Wife is an avid swimmer for exercise.  When we first met they told me some of their basic wants and needs and the most important thing was that the house “MUST have a pool”.  You know where this is going…

They just closed on a house at the top of their price range without a private pool or community one.

As I’ve mentioned before, residential real estate is bought and sold on emotion.  As a seller you need to recognize that when you prepare to sell it.  Therefore, recognize that a house that smells beautiful and has beds made and closets organized actually does help sell it.  Open windows and show off the view or natural light.  Arrange or stage rooms to show the size and functionality.  Place a potted plant or flowers in the kitchen, at the entry, or in a bathroom.  Don’t be present during a showing and don’t give people the walking tour (“And then in 1993 I put in new baseboards throughout the kitchen.  Aren’t they beautiful?”).  People want to buy a house not walk through someone else’s and the only way to do that is to help the buyer envision themselves there without you looking over there shoulder or telling them they can’t go in that room or open that closet.  Control the things that you can control and don’t worry about the rest.

And just be glad Calvin is not living next door to you.

Record Low Interest Rates Yet Data Shows Lack of Activity. Why?

I recently read an article written by Time Magazine’s Alison Rogers discussing the recent trends within the national real estate market.  Her argument is that data has shown that while interest rates are at an all-time low (since Freddie Mac began keeping track of them in 1971) buyers still haven’t jumped in.  Her short article cites the restrictions of lenders as the main cause (albeit, not the only one).

Lending has definitely become more restrictive.  Gone are the days of people making $10/hour qualifying for $500,000 houses on “stated” income (you tell the lender how much you make, rather than any kind of documentation required).  I will also agree that the pendulum has swung to the uber-conservative where people with good income, good credit, and little debt still find getting a loan exhausting.  (Tangent story: recently had a client buy a house for his son and, as a lesson of responsibility for his son, got a loan and put his son on the title.  The father could’ve bought the house cash and nearly did when the lending got so tedious and involved.)  However, I cite many other reasons for the lack of activity in the market.  I see them as follows:

  1. Uncertainty in Where the  Market is Going:  yes, if you are a first time home buyer the tax advantages of buying a house far outweigh waiting out the market, even if it declines (see one of the Blog’s from last week: “Renting vs. Buying: The Whole Story”).  Still, it’s very hard to buy something today when it may decline in 6 months.  Psychologically, everyone wants to buy in an appreciating market where you can know for sure that the value is going up.  Those who are affected most by a declining market are investors.  Flipping a house has become very difficult unless you’ve got a lot of cash on hand and the ability to renovate at cost.  Even then, you gamble a little in a relatively shaky market.
  2. Uncertainty in the Job Market: in August of 2011 the unemployment rate was at 9.1% nationally.  Remember, that’s 9.1% of the total labor force that is unemployed but actively seeking employment and willing to work.  What that number doesn’t take into account are people who have jobs but see the guy in the next cubicle get canned.  Leah has a great job but sees Joe in the next office get laid off.  I can assure you the last thing crossing Leah’s mind is running out and buying a house.  People need jobs to buy houses and get loans and without the peace of mind of a stable job we aren’t going to see an increase in activity.
  3. Better ROI Elsewhere: return on investment (ROI) is the name of the game these days.  Got cash and need somewhere to put it?  Before the downgrade, the stock market might have been a better, albeit riskier, decision than the real estate market.  Take an above average example, Apple Inc.  At the beginning of 2009 it was selling for around $100 per share.  As of today (October 6, 2011) Apple Inc closed at $369.80 per.  Quadruple your investment since 2009?  Probably wouldn’t have happened in real estate unless you had cash.  The difference is that real estate has been a safer, longer term investment.  People that own houses and already have the tax shelter find that for bigger ROI the stock market is the way to go.

Overall, real estate is always a good investment if you’re in it for the long haul.  If you want to buy something and flip it in the next 6 months, I’d say you better have experience doing it and trust that you can get something well below market.  Buying today and holding for 5 years or more?  I can honestly say that within that time frame the market will be in a better place.  If you have questions or are interested in discusses the market, please always feel free to call or email me.

What is a Short Sale?

In certain qualified cases, where a homeowner owes more on their home than what it is worth today, a lender may allow the homeowner to sell the property for less than the mortgage balance and accept a short sale.  A short sale allows the homeowner to sell their home to a buyer thereby avoiding a lengthy foreclosure process that can be damaging to credit and future ability to purchase real estate.  To qualify for a short sale as a homeowner you must meet three simple requirements: 1) you must have a financial hardship or a verifiable reason why you’re unable to pay your mortgage payment 2) you must insolvency, or in the eyes of the bank you must not have the cash or assets to pay off your mortgage balance and 3) you must have a monthly shortfall or verifiable financials that show that each month you can’t afford all of your monthly payment obligations including your mortgage.  If you meet these three requirements it is very possible that with the right Realtor you will be able to negotiate a short sale.

I often get questions about the timelines of short sales.  From start to finish how long does the process take?  That’s unfortunately hard to say.  It depends on many different factors.  Let’s take a hypothetical example to help illustrate this:

Let’s say John buys a house in 2005 for $500,000.  When he buys it in 2005, he does an interest only loan with a 1st trust deed (loan) with Wells Fargo for $400,000 and a 2nd trust deed with Chase for $100,000.  He does this because by staying under the $417,000 loan limits at the time he buys he allows himself to get the best interest rate at the time.

Then, the market tanks.

Today, John’s house is worth $200,000 and he just lost his job with the recession.  John needs to short sale his house.  In a normal transaction, if John were to sell his house at $200,000 today he would owe $200,000 to Wells Fargo (1st Trust Deed) and $100,000 to Chase (2nd Trust Deed).  NOTE: Obviously, John has been making payments since 2005 in this example so those numbers will be slightly less depending on the type of loans he got in 2005, how much he pays monthly and if he pays over his mortgage payment towards prinipal, etc etc, but for ease of numbers let’s leave those numbers as they are.  In a short sale, John needs to prove a hardship and prove that something bad happened (i.e. his job loss) which makes it impossible to continue making the payment.  A market change isn’t an acceptable answer.  Now, he calls up his favorite Realtor (read: and begins the process of short selling his house.

A few important things to know:

1) The short sale process doesn’t begin until there is a qualified, ready-willing-and-able buyer who has submitted an offer.  Only then will the bank begin the process.  From there, they will start by going getting a “short sale package” from the listing agent complete with John’s financials, job history, etc in order to prove that there is a hardship and that he isn’t able to afford the payment.

2) Because the process doesn’t start until there is an offer, many listing agents will under price the house in order to get it going.  For example, John’s Realtor may list the house for $170,000 in order to get offers submitted.  Once these offers are submitted the property is held in “Contingent” status.  Short sales from start to finish can take anywhere from 3-12 months and therefore most Realtors don’t count on the original buyer to stick around.  (Usually after several months, that buyer finds another house and buys it)  But, the Realtor doesn’t let the bank know the buyer is gone.  The bank looks at the offer and counters the buyer (3-12 months later) with an offer of $205,000.  Now, the buyer is gone but the listing agent puts the house back on the market (from “Contingent” back to “Active”) and increases the price to $205,000 in the MLS with “APPROVED Short Sale” in the remarks.

3) Short sales are similar to bank owned foreclosures (or REOs) in that usually the bank will not pay for repairs (including any and all termite damage repairs) and sell it “As Is”.  The advantage is that you can get property at a discount (sometimes), the disadvantage is that you can go in blind sometimes.

Short sales are complex and there are many moving parts.  I recommend you contact me with any questions and I can help you through the buying and selling side.

Selling Your House For Top Dollar

Gone are the days of getting a Realtor who just puts a sign out front, a lockbox on your door, and your house in the MLS and 4 days later you’re negotiating multiple offers.  These days you need an agent that’s working hard for you and is actively seeking buyers out.  I don’t feel comfortable giving away my trade secrets on a blog, but I will say that I spend serious money before the sale of the house on marketing and advertising in attempt to find buyers.  The key?  Every house is different and therefore the potential buyers will be too.  Trying to sale a 2 bedroom condo in Oceanside?  The key is to figure out WHO will be buying the house.  Maybe it’s on the first floor and would a great downgrade for empty-nesters.  Maybe it’s near Camp Pendelton and would get great cash flow for a military tenant and therefore would be a great fit for an investor.  Maybe it can also be a starter place for a first time home buyer or a small family.  Knowing the demographic of the buyer is step 1.  Getting your home in front of that demographic is where I come in.  I carry a badge.

Petersson Walter Paley

“Hey Steve

I just wanted to let you know how much I appreciate all the work you’ve done, trying to get this thing done.

You’ve kept your head on straight and maintained professionalism… And with this latest wrinkle, you’ve taken care of everything, even though it was my oversight to begin with.

Through it all, you’ve been a great friend… and a great agent.

I’m looking forward to celebrating the close of escrow with you.