The Housing Crisis Is Over!

That’s what I hope to be telling my clients in the coming days and weeks, anyway. Why, you ask, when all of the press has been so negative about the housing sector for so long? Well, Congress, of all people, has done something this week that might actually pull us out of this mess. Unbelievable!

You see, this week the US Congress passed (and the President has agreed to sign into law) the Housing and Economic Recovery Act of 2008. This new (or not so new, as you’ll read) law is an enormous step forward that will benefit hundreds of thousands of current & potential homebuyers nationwide. Below are some of the key points of the bill:

It includes a first-time homebuyer tax credit. Buyers who are purchasing for the first time (or who haven’t owned property in the last three years) can qualify for a tax credit of up to 10% of the purchase price of their new home, capped at a maximum credit of $7,500.00. Now, of course, there are some stipulations. These are that the buyer must purchase their home between April 9th, 2008 & July 1st, 2009 and the home must be the buyer’s primary residence. The credit phases-out if the buyer earns more than $75,000 in income as an individual or if they earn $150,000 as a married couple filing their taxes jointly. This is a tax credit, and not a tax deduction, so your income taxes will actually be reduced by the full amount of the credit. Pretty cool, huh? Of course, what Uncle Sam giveth, he also taketh away. Specifically, you’ll repay the tax credit back in the form of a fixed amount with no interest added over a 15 year period. So, this is really an interest-free loan. Oh, and by the way – if you sell your home before the 15 year repayment period is up, you’ll owe the balance of the tax credit on your income taxes for the tax year in which the home was sold. But hey, who couldn’t use an interest-free loan right about now?

Wondering what impact this tax credit will have on the housing market? Well, it could be significant. Our economy & housing markets were in the doldrums back in the 1970’s, too. Anyone remember the Carter years? Anyway, in 1975, Congress passed a similar law (The 1975 Housing Act) which created a 5% tax credit, capped at $2,000 for first-time home buyers. 535,000 people took advantage of that tax credit and became new homeowners as a result. Sales increased 10% nationally and the inventory or new homes on the market was cut from a 10 month supply to fewer than 6. The 2008 legislation could boost the number of homes sold to 700,000, or 10%. Additionally, the government plans to offer a tax deduction of up to $500.00 ($1,000.00 for joint filers) for state and local property taxes in 2008 for tax filers who claim the standard deduction & don’t itemize their taxes. Nationwide, about 50% of homeowners stake the standard deduction, so this applies to a lot of people.

Another key point of the new Housing Act is the permanent increase of loan limits for FHA, Fannie Mae & Freddie Mac loans. What this means, in a nutshell, is that buyers can buy a more expensive house and still receive the favorable interest rates of “conventional” loans. This means more buying power. In King County, the loan limit will move up to more than $522k. That means a buyer can now buy a home with a mortgage of $522k and pay the same lower interest rate s/he would have paid on a loan of $417k last year. This will incent more people to buy that next, larger home – a segment that’s been really hard hit in our region lately. As this sitting inventory moves and as more first time buyers pick up the sitting condos & entry level homes the market will once again begin to pick up steam – and prices will be back on the rise.

Foreclosures have been at near-record levels nationwide for the last year to 18 months. I myself have been listing & selling foreclosed homes for Countrywide Home Loans over the last year and the pace at which they are assigning new homes to me has been quickening lately – nearly one new assignment every week over the last month.

Knowing that this is a big problem nationwide (and much bigger in most of the rest of the country vs. here in Washington), Congress is addressing this issue, too. The new Housing Bill will provide assistance to more than 400,000 homeowners who are in danger of foreclosure. Of course, there are a few rules here, too. Principally, they are that the owners must live in the home and it must have been financed between January of 2005 and June of 2007; they must be spending at least 31% of their gross income on their mortgage payments and their home will need to be re-appraised to determine its current value. On the positive side, lenders will have to write-down the value of the loan to 90% of the home’s current value and the FHA will insure each loan. The government plans to issue up to $300 Billion in refinanced mortgages to help stem the tide of foreclosures. Decreasing the number of foreclosures will help to reverse their negative effect on housing prices where large numbers or foreclosures are prevalent.

Finally, the government plans to prop-up Fannie Mae & Freddie Mac by extending unlimited credit lines to them. Fannie Mae & Freddie Mac buy mortgages from banks, so that banks can keep issuing new loans. New loans mean more home buyers. To be sure that Fannie & Freddie are behaving, a new government regulator will be appointed to oversee their operations. This, in turn, should boost investor confidence in home lending, making even more funds available to loan to consumers.

So, will history repeat itself here like it has in so many other aspects of human existence? I’m inclined to think so. What should you do next? If you’ve been sitting on the fence about buying your first or a new home, now is the time to do it! As these measures take effect, existing homes are going to start selling at a faster pace again. In fact, I’m already seeing a significant up-tick in buyer activity. In an area like ours, where we only have a 5-8 month supply of homes, it will not take much to use up the sitting inventory and for prices to begin rising again. We are at the beginning of the next real estate cycle! Get in now while prices are low and selection is at its best – because these conditions aren’t going to last long!

Happy Buying!

Tim

Pricing Your Home to Sell in Today’s Market

Ok, the house is ready to go, you’ve chosen a successful, professional agent and you’re ready to list. Now you’ll need to decide on the listing price for your home. The best way to do this is to listen to your agent. Asking prices are meaningless. What really matters is what homes like yours actually sold for recently (like within the last 3 months in this turbulent market). The best source for this information is going to be your agent. Be cautious of the “Zillows” of the world – these sources are known for being notoriously inaccurate. Your agent will get their data directly from the MLS & title company, where accurate sales prices are recorded.

Just be sure that the comparable sales your agent is using are accurate for your home. If you live in a 1970’s split-level house that’s pretty-much as it was built (none, or light remodeling), these are the comps you want to see. If your agent is using homes built in 2005 or different style houses to determine your price, you’re in for a let-down when the house doesn’t sell. The best agents will use only those comparables that are the most similar to your house and won’t be apologetic about the sales prices those homes got if they don’t meet with your expectations. The facts are the facts and as a seller, you need them – like it or not.

Happy Selling!

Tim

Choosing Your Agent -You’ll get what you pay for!

So how do you find a good, competent agent? (if you don’t already have one, that is). Even if you have an agent in mind, do yourself a favor and interview a total of 3, more if you have the stomach for it. Referrals from friends & co-workers are a great resource. Your company may even have some internal resources, like a referral directory or something similar. Utilize these & learn from the good (or bad) experiences of others. Also see which agents are most active in your neighborhood. These folks have a local expertise than can be a real advantage.
Look at the agent’s current & past (sold) listings. How do/did they look? How long have they been on the market? What did they sell for in comparison to the original asking price? You want an agent that prices their listings correctly the first time, so the home sells in a reasonable amount of time for as close to full price as possible. Don’t hire an agent that will price the home higher than the recent comparable sales say it should be, even if you demand them to. Some agents will surely take your listing, but will then beat you up week after week to drop the price so it has a chance of selling before it becomes totally “stale” on the market and buyers (and buyer’s agents) lose interest in seeing it. If your home becomes “stale”, it may not sell, or will sell for far less than its true market value. Often, sellers will want to “test” the market at a higher price, thinking the buyers will still be there when they finally drop it to the real market price. Resist this temptation! It will ultimately cost you much more in the end. Hire a professional agent that will stand their ground with you, or at most, will only let you “test” your price for a few weeks at the most. These are the people that are performing and doing the most business in this market. They will closely monitor the web traffic, showings & agent feedback during this time. The results nearly always show that an over-priced home suffers. A professional agent will insist that you price the home correctly if this is the case.
In today’s market, there are a few key things that are just plain critical in your agent; For one, they must use a professional photographer (or at least be willing to) for your home’s photos. Everyone surfs online for houses now and the photos tell the story of your home. You want appropriately lit, clear, wide-angle photography that will showcase your home’s best features & space. A professional will have an “eye” for how to shoot your specific house properly. How many times have you been looking online at houses and been turned off purely by the quality of the pictures? Either they were too dark, too bright, out of focus, or just didn’t make sense? I can’t tell you how many pictures of bathrooms, for example, I’ve seen that had an open toilet as the focal point of the shot. Why??? What does this picture add to the “story” of your home? (in this case, I don’t think I want to know!) Or, another is a photo of a living room with a television still turned on. Really?? Are you kidding me? The best of the worst for me are empty houses where all you see are the corners of a room, or homes that are so cluttered that you can’t see the house for all of the “stuff” that’s jammed in there. These sure make me want to jump in the car and look at them! (that’s sarcasm) A professional photographer, working with a competent Realtor, will help to be sure that the pictures don’t make your home look cluttered. Clutter is a killer!
Next, what is the agent’s plan to market your home? Where will it be exposed? For how long? What kind of an internet presence will the listing have? Don’t sweat the print ads or whether or not it’s going to be in the newspaper or “Homes & Land Magazine”. Few buyers read newspaper ads for homes anymore and fewer yet call on those magazine ads. Why would they, when they can get so much more from the internet? You want an agent that will give your home a massive amount of internet exposure, not only locally, but on a national scale, too. They should use services that provide “syndication” of your listing to multiple real estate search engines & websites. Just posting your listing on their own website & placing a Craigslist ad won’t do. So many buyers of our listings are relocating here now, or have done so just recently. National exposure gets your listing in front of these buyers before they have left their home state (or country). It’s a must. On this note, many Realtors & real estate brokers will tell you that they advertise their listings on Realtor.com (the most heavily trafficked real estate website in the nation); This is good, but be sure you look at their listings on this website. 99% of brokers & agents will have a very limited ad with just a single photo (or none at all!) of the exterior of your home, a few stats and the brokerage’s contact information. You want to choose an agent that has “enhanced” listings on Realtor.com. Enhanced listings will have all of the home’s photos, a virtual tour with even more pictures, a full description of the listing and the complete contact information for the listing agent(s). These listings get much more traffic than the basic ones do. You may end up with a buyer for your home that saw it there first and put it on their short list to see while visiting town on a home-finding tour before their official relocation takes place. You want these buyers! These buyers are highly motivated and have little time to see homes (so they only look at those they could do the most research on). Be sure that yours gets on a buyers short-list by having an enhanced listing.
Communication & feedback (or a lack thereof) are crucial to your success or failure when selling your home. The agent you choose should have a system and a schedule for communicating regularly with you and for providing you with feedback from agents that preview & show your home, as well as what their potential buyers thought about it. The best type of feedback would be the kind that provides you with an un-filtered e-mail describing the price, condition & presentation of your home. I would much rather have you get a frank piece of feedback about something we can change in the house that will make a difference than unknowingly allow that condition to continue, turning off buyer after buyer. Food & pet odors are frequent complaints. Of course, your agent should remark about this type of issue on their first visit to your home, if the problem exists at that time. Many pet owners don’t realize that Fido leaves a distinct smell behind. They are used to it and don’t notice it. Buyers will. And, many people won’t buy a home that smells like a wet dog or a dirty litter box. You want this feedback so the problem can be fixed right away!
Lastly, we circle back to the subtitle of this piece – “You Get What You Pay For”. In this extremely competitive real estate environment, and with sales volumes down by more than 40% in our region, there is a glut of agents desperate for business. Most of these desperate agents will either be new to the business, “site” agents that are used to selling new home plats (that no longer have new plats to sell) or older agents that haven’t kept up with the times and don’t understand how to operate in our new, technology-driven marketplace. Just about all of the above will be lacking the qualities I have described so far in a highly successful, professional Realtor. This will be obvious as you interview them. As a result, since they can’t justify their value, they do the one thing they think will get them the business – they drastically cut their commission. Hey, we all want to save a buck. There’s nothing wrong with that. But, although it may be tempting to sign with the biggest discounting agent, take a moment to reflect on why they are willing to do this. If they are willing to work for peanuts, you should seriously question their ability to perform for you. If they were a big success, they wouldn’t be so willing to throw their money away – they would pass up a seller wanting a big discount and move on to the next that didn’t. And if they are willing to throw their own money away so easily, how willing do you think they are going to be to fight tooth and nail for your money? If they are heavily discounting their commission, they aren’t going to have the budget it takes to properly market your home for very long, if at all. You WILL get what you pay for. To put it another way, let’s say you needed brain surgery. Which doctor would you choose – the one offering her services for $199 or the professional that expects to be paid accordingly for their skill & value they bring. I’ll take the skilled brain surgeon, thank you very much!
Commissions can certainly be negotiated, however. Especially if you are selling your home and buying a new one with the same agent. There’s always some room to give a loyal, repeat client a break when there are two transactions involved. Just be sure that if the commission will be discounted, that the discount only be taken on the listing side – the commission offered to the buyer’s agent should always be higher, like 3%, which is typical in our area. With so many homes to choose from, you want to attract as many buyer’s agents to your listing as possible. A full commission for the buyers agent will do this.
Happy Selling!
Tim

Be the Shiny Penny!

Well, I must say that it’s been quite a long time since I’ve blogged, but I’m back on the horse, so to speak, and will have lots to talk about in the days & months ahead. Life has been a little crazy since late last fall, with some exciting new adventures we’ve been involved in. But, as I said, more on that to come later.

As most people know, the national real estate market has taken quite a beating since the lending crisis exploded last August. As a result, home sales have slowed dramatically, foreclosures are way up & prices in some parts of the country have fallen more than 30%. Most people have been left scratching their heads, wondering what’s coming next. I know many Realtors who feel this same way, as they’ve seen their businesses fall flat. During the first quarter of 2008, more than 1,900 agents left our local MLS. Surely more left in the second quarter, but those stats aren’t out yet. This is probably a good thing, by the way.

Our business is definitely off from the pace of the last 4 years. Volume has been down by about 40% over this same time last year. It hurts, but you have to be prepared for ups and downs in this business. Fortunately, we were. Real estate booms & busts are cyclical. This “bust” will boom again, too. It’s just a matter of time. We are already seeing an increase in home buying activity in our area and specifically in our own business.

There is pent-up demand for housing out there, but many buyers are waiting for “the bottom” of the market. Honestly, I don’t know where that is. Two things I can tell you, though. 1. There are more homes available for sale now than in several of the last years and many home sellers have already purchased something else (are “contingent”) or are being relocated, so they are very motivated to sell. This means that buyers have more negotiating power than they have had in a long time; not just on price, but on practically everything. Terms are abundant! 2. We will only know that we’ve hit the “bottom” of the market when prices start shooting back up. That will happen when most of the current inventory has been sold. This means that once the general public & the media become aware of the “bottom” of the market & start to talk about it, those buyers waiting for it will have waited too long – it’ll be gone and so will these great deals. If you’ve been waiting to buy, do it now. Strike while the iron is hot!

If you need to sell your home now, you might be thinking that you’re in for a long, rough road. And, you might be, unless you make your home really stand out from its competition. Ok, sounds good. But how do you get started? The first thing you want to do is go out and see other homes for sale in your neighborhood that are the most similar to yours. Open houses are a great way to do this. Look at them with a critical eye. Are the homes clean & in good repair? How do they look from the street? (we call this “curb appeal”). Can you clearly see the house? Is the paint & trim in good condition? Has the yard been cut & cared for? Does the landscaping look neat & tidy, or is it all overgrown or worse, dead? Is the roof in good repair & clean? Are there toys or other clutter in the yard or stacked against the house?

How do the homes smell when you walk inside? Do they smell fresh, or like wet dogs or dirty cat litter boxes? Do they smell strongly of food or musty? As you continue through the homes, are the carpets clean & look new or well cared for? How about the condition of the hardwood floors? Are the homes light & bright, or dark? Have they been freshly painted or are there marks on the walls? How is the furniture arranged, & what is its condition? Does the home flow well, or do you have to step around bulky pieces of furniture or other clutter? Take notes at each home, paying special attention to things you really liked and those that you didn’t. Be brutal, because the buyers that come to your house will be, too!

Now, the hard part. Go home & look at your own house with those same critical eyes, starting at the street and working your way through and out to the back yard. Ask friends & neighbors to come through and give you HONEST feedback about your house. Don’t be offended by their constructive comments – take them to heart! They are just trying to help you. As you go through your own home, note those same things that you did in the others – the good and the bad. Then, put some time (& yes, money) into fixing those things that need to be done. You need to rise above the rest to sell in this market, so do what you need to, to make this happen.
Most homes will need at a minimum to have the landscape cleaned up/new bark put down, exterior trim repainted (if not the whole house - at least spray the mildew & moss off!) roof/gutters cleaned, carpets cleaned, the home de-cluttered & at least some rooms, if not all, repainted - in neutral tones. No more purple living room & pink kids' bedrooms. Paint them a nice, neutral & warm tone.

When you are selling your home, less is more in terms of the furnishings to be kept inside, especially if you have a smaller home with bulkier furniture. Only keep the best pieces inside. That old, dirty recliner your husband loves may be comfortable, but if its ugly or worn out, take it out! Heck, you’re moving anyway, so why not just pack up all of those old high school trophies & souvenir mugs & plates now, too? Take down your wedding pictures, clear off the refrigerator & "de-personalize" the house so potential buyers can envision their own belongings in there. Arrange the furniture you leave inside in a logical manner that flows well with the lines of your home. Finally, hire a good, professional housecleaner to come in and really make things smell fresh and all of the shiny bits sparkle!

Once you’ve done these things, you're miles ahead of your competition. Now its time to interview some Realtors and get the sales process started. In my next blog entry, I’ll talk about interviewing & selecting an agent that’s right for you. You won’t want to miss this one!
Happy Selling,

Tim