Monday, December 31, 2007

happy new year!

Happy New Year



Sunday, December 30, 2007

Selling 'For Sale By Owner' in a declining market

There is an abundance of information published by the National Association of Realtors (of which I am a member) that I disagree with. All too often the Association does nothing more than apply lipstick to the proverbial pig by stating that the housing market/mortgage crisis is not as bad as the media makes it out to be. Sure, the spin put forth by the association may ring true in the 5 best performing markets nationwide, but overall that is not an accurate portrayal of what is really going on in the world. It's like saying 'even a broken clock is right twice a day' matter how you sugar coat that saying--it is still a broken clock.

That said, there are still bits and pieces of solid advice that the NAR does put out (once in a blue moon). The advice to homeowners on why it doesn't make sense to sell your home 'by owner' is actually good advice in a declining market, and I will explain why in MY words.

First, lets take a look at some for sale by owner websites and who is actually searching those sites for homes to purchase. Some of those websites are, Vs Vitamix and I'm sure you've probably seen the clever television ads by some of these sites where the homeowners describe how much money they saved while thanking the site for a job well done. I do not know the cost associated with using their services, but I assume it's less than the 6% it costs to sell your home through a residential brokerage.

So, you decide for whatever reason, you would like to sell your home 'by owner' and utilize the services of one of these websites. Immediately, you increase your exposure through top search engine positioning via one of the aforementioned websites. You do this presumably to save money. Well guess what type of 'market' shops for homes to purchase on for sale by owner websites? If you guessed BARGAIN SEEKERS you hit the nail right on the head!

When I speak to a homeowner who has tried or is still in the process of trying to sell their home through one of these outlets my first question to them is 'have you had any offers?' and their answer to the question is usually 'yes'. I follow that up with 'well what did those offers look like?', to which they ALWAYS say (not sometimes, ALWAYS) too low. WELL NO KIDDING! The people making offers on your home know you are trying to save 6% by not selling through a traditional brokerage!! Any idiot with a pulse is going to knock that right off their asking price BEFORE they make an offer. Just like you are trying to save money--they are trying to save money also. Whether you think you are offering fair market value or not makes no difference when you consider WHO these websites were REALLY created for in the first place. In a declining market, an experienced bargain seeker will CONVINCE you to accept his/her terms now before the news gets worse. If they are as good at negotiating as I know some of them to be, you are about to give up your place for a song!

I mean really.....why would a buyer/investor not use a Realtor to find the perfect home/investment for them when the service is free? (home sellers are the ones who pay Realtors their commissions). Because they want to try and get a DEAL!! They know they will out negotiate you (and yes, they will) and get you to agree to THEIR price and THEIR terms. No way, you say!! They'll never get us down from this price!! We can see you coming miles away, you say!! Uh......okay. Then your home sits on the market like all the other McMansions on the street and you end up listing it with a Realtor anyway. What a royal waste of money/time for you I say. For sale by owner websites were created for INVESTORS/DEAL SEEKERS......NOT YOU!!!!

Every so often, someone will sell their home by owner for a decent price (to that seller). And, at dinner one night out, you will overhear this conversation from another table as the other couple sips champagne and eats chocolate covered strawberries while laughing and smiling and otherwise acting as though they hit the lottery. You will remember this isolated case. It will stick in your head FOR MONTHS. You will subsequently forget about how 1000's of other not-so-fortunate 'by owner' sellers could not sell on their own and either gave up or listed with a brokerage. And your listing will languish. It will become unfairly stigmatized because you could not pull the wool from your eyes and face reality. What was reality again? The reality is that for sale by owner websites were NOT CREATED FOR YOU. They were created for bargain seekers and people who know how to get deals.

Monday, December 17, 2007

wake up and smell the roses

Sellers, please wake up. Smart Realtors know how many mortgages you have outstanding on your home, what your mortgage payoffs are, and what you stand to make or lose at the end of the day. Smart Realtors know what other properties you may own, if they are close to foreclosure or not, and we know how much cash you think you will make at the end of the day after this sale. Problem is my job is NOT to make you money and you need to know this. I sell homes based on current market conditions; good, bad, and ugly. If you profit on the deal, consider yourself lucky and congratulations.

But if I hear 'well this is what we MUST net at the end of the day' one more time I may laugh off of the chair I'm sitting in. Good luck with that. I'll be glad to refer you to an agent that thinks he or she can help you. I won't even ask for a referral fee (translation: your home won't sell). If this was your retirement plan, I do feel sorry for you to an extent. But my condolences end right there.

When you hire me to get a home sold, I plan on selling it. If that requires you to lower your asking price significantly, I will tell you. Only we have this conversation before hand, before I take the listing. If we are conversing and I suspect that you will not be willing to reduce your price to a realistic level, I will move on. There is no more room for another delusional seller. Consider the reduction as if it were money you never had.

People like to count their money before its in their hands and that 'figure' sticks with them throughout the home selling process. I exist to eliminate that 'figure' since it never existed in the first place. You reduced your price $50,000, but that was money that didn't exist. Not yesterday, not today, and certainly not tomorrow. This might come across as harsh, but trust me, most of you really need to read this and take it to heart. You will thank me later--every seller I have had this year (in your shoes) has.

housing starts approaching all time lows

The definition of a housing start according to the National Association of Home Builders is:

Defined as excavation (ground breaking) for the footings or foundation of a residential structure. For a multifamily structure, all units are counted as started when the structure is started.
Starts are estimated by the Census Bureau based on a survey of permit holders. Each month, Census Bureau representatives ask holders of outstanding permits whether they have started construction. The same survey also determines whether the home is being built for sale (as a package including land), and if so, whether it has been sold. The Census Bureau continues to contact the permit holders each month until the structure is completed (or if completed but still for-sale, until a sale occurs). For single-family homes, about one in every 50 permits is selected for the survey.

Although about half of single family homes are started in the same month that the permit is issued, and more than 90 percent are started within 2 months of the month of issuance, the Census Bureau will continue to track unused permits for 60 months. For multifamily units, more than one-third are started in the same month as authorization, and about 80 percent are started within 2 months.

The “Survey of Construction” forms are filled out by Census Bureau personnel, with most data collected by phone. Construction sites are visited only where the permit holder cannot be contacted or is uncooperative. The survey also collects other characteristics of new homes, such as the size, number of bedrooms, exterior wall material, type of heating system, lot size, estimated current lot value, and sale price.
Institutional structures and group quarters, such as dormitories, nursing homes, or transient hotels, are excluded.

For the few places where permits are not required or reported, the Census Bureau sends representatives to a random sample of land parcels, to see whether any homes are being built.
Single-family structures are distinguished based on information collected in the survey, even if the permit was characterized as multifamily by the permit-issuing jurisdiction.

The link to this definition is here.

The PDF file for the actual statistics can be found here.

Why is this significant? Because it further points to a real estate market that we've never seen. The housing starts statistic is generally regarded as an indication of national builders' confidence in the strength of the real estate market. Translation: they think we're in some trouble based on fundamentals.

A local builder, Levitt & Sons filed for chapter 11 bankruptcy in November and although a smaller builder (compared to some of the larger outfits) it represents a possible trend for the near future in our local real estate economy.


Wednesday, December 12, 2007

low ball offers are a good thing

I was perusing my competition's blogs in the area (Southeast Florida) to catch a glimpse of additional perspective on current market conditions. I think most people equate declining home values to negative news when really, all the market is doing is correcting itself to healthy, more stable levels. Certainly, if you bought a home one year ago and you were forced to sell your home this year (only to realize the home values in your neighborhood have been declining for those 12 months passed) you would declare a depreciating market a negative thing. I think this is all perfectly healthy, if not a bit scary for some, as there is still equity for long term homeowners.

I came across a blog from another local Realtor who published a blog discouraging us (other Realtors) to bringing her (and her customers) low ball offers. You can read the blog here. Her reasoning is that 'low ballers' must 'just make up numbers' and if we do keep bringing these offers we 'bring prices down more'.

Now, this retort isn't designed to bash another Realtor, but she is wrong on many fronts. The blog she writes is written to other Realtors explaining that we need to 'stick together' in the business and we should not participate in bringing down the real estate market. Why anyone would write a blog designed for an audience of other Realtors is beyond me. It may be a marketing tool she uses to show potential customers at listing appointments, saying 'hey, I'm the type of Realtor that simply won't stand for low offers! I'm here to get you TOP dollar!' to which I would say she is doing a major DISservice to those very customers.

First, low ball offers are a good thing. If Realtors had anything to do with escalating home values (as opposed to the individuals who actually BOUGHT those properties at escalating prices, but what do I know) then they'll have a hand in the declining prices as well. Unless your customer gives you his or her absolute bottom line price, and tells you to publish that price to the world, we have no idea what our customer would or would not be willing to accept. We have no business telling others in our business where our offers should land. If you do not have the ability to negotiate a low ball offer, that should be your problem and not your customers'.

If you see a listing that seems reasonable today and you want to offer 20% below that price, MAKE THAT OFFER. Do it with a smile. The worst that home seller can say is no. As a Realtor, we have to present any and all offers in a timely manner to our customers, even if they are $1. That's right...if you tell me you want to offer $1 on a home that is listed at $400,000, the listing agent for that listing MUST present that offer to their customer, as absurd as it may be.

If you follow the Case Schiller Index of home values, you can see that we are in a declining market that looks as though it will continue to decline. By making a low offer, you could argue that you are simply trying to protect yourself as best you can in the event life happens and you are forced to sell that home a year later. It is as simple as that.

So go right ahead and make a low ball offer if you must. You will only be contributing to a market that already existed.

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Tuesday, December 11, 2007

A real eye opener.

Since December 1st, 2007, there have been 1211 listings put on the market in the city of Boca Raton. Yup, that's right, 1211 new listings added to the already swelling inventory in December alone. Now, I'll explain the different categories of listings for some clarification.

The first is a NEW listing. When a listing is first entered into the MLS (Multiple Listing Service), it is given 'new' status for 10 days.

After the ten days has passed, it becomes an active listing, marked ACT.

If a listing had been taken off the market only to return within 45 days, it will be placed in 'back on the market' status, or BOM.

If there is a price increase or a price reduction (yes, people do actually RAISE the price of their listing, even has the market tumbles) the status of the listing changes to PCH or price change. This change is reflected for another 10 days, and then reverts back to an active listing.

When an offer is accepted, the listing changes from active to contingent, or CTG.

I have NOT included listings that are pending, or PND, because most offices handle the pending listings wrong. That is, even though listings clear all the the contingencies within the contract and should then move to pending status, a lot of offices do not make the change from CTG to PND. They just let the listing go from CTG to SLD (sold), if it sells. There are even a few listings from 2006 that still show pending since nobody has bothered to update the listing.

So, adding all of these listings up, whether it is NEW, ACT, BOM, PCH, or CTG, we have had 1211 listings entered into the Regional MLS for the month of December in Boca Raton.

Well how many sales have there been in the city to offset all of those new listings? In the month of December (as of 4: 30 p.m. on the 11th) in Boca Raton, there have been a staggering 69 sales. Pretty disgusting if you ask me.

List-to-sell ratio so far for December in Boca Raton: 17.5:1.

If there are people out there who do not see a major problem with these figures needs to have their heads examined. For every 18 new listings put on the market here ONE is sold.

Any idea how to offset the issue and help your cause if you are a home seller that has equity and needs to sell? Lower the asking price of your home. Do this now. Do not sit on the fence and HOPE that things will get better. You must be aggressive and have enough sense to realize that you still have a bit of negotiating power, but not one single person will buy your home if it is not priced right.

I do NOT suggest taking out a home equity line of credit for repairs or upgrades. First off, you will not receive 100% plus on your money no matter what project you think will help you sell the most. The vast, vast majority of home improvement projects are money losing propositions in this market. Here is the Remodeling Magazine's Cost Vs. Value survey for 2007 if you would like to check for yourself. Simply LOWER your asking price and let the future buyer undertake any remodeling. Because any honest individual in this business knows that we are in a depreciating market, spending money that you don't really have in the first place is dangerous and irresponsible and can only hurt you.

My advice? If you don't need to sell your home, do not put it on the market. The inventory overload is bad enough as it is. If you do have a listing on the market and you can't figure out why it is not selling, lower you price. I don't care if you THINK it is priced right....if it were someone would have presented you with an offer.

If you are going to lower the price, do it the right way the first time. If you have a home listed for $400,000 and you lower you price to $390,000, you are not showing buyers that you are serious sellers.

Example: Lets say a potential buyer were to present you an offer for full asking price. That buyer puts 20% down and finances the rest. The loan amount is $320,000. They decide to get a 30 year fixed rate mortgage at 5.7%. Their monthly principle and interest payments for this mortgage instrument would be $1857.28 per month.

Now...same buyer, only this buyer presents you a full price offer on your reduced asking price of $390,000. Same 80/20 loan, 30 years, at 5.7%. The new loan amount is $312,000. Their new monthly payments come to $1810.85.

That is a monthly savings of ($1857.28-$1810.85) $46.43....hardly earth moving, and does neither you, nor any potential buyer, any amount of good. If you are considering lowering your asking price, make sure you do it right. Only then, will we start seeing more sales to offset the absurd amount of listings we continue to see.

Blendtec Vs Vitamix

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Saturday, December 8, 2007

Can we afford this Boca Raton home?

Hare some basic numbers that defog the mirror a bit on what is happening in the South Florida real estate market these days. You can do with them what you will, but if you don't educate yourself I'll try and do it for you.

Oh--and to answer that inevitable question of 'is now the right time to buy?' that I get so often in my business....the answer to your question is "I don't know". Anyone that answers otherwise is predicting the future and I am not in that business. If you are a family of three expanding to a family of four and you must get out of that 850 square foot condo and into something slightly larger to accommodate the new arrival, and you have come to me with a request to find you something bigger since you can't stand your current living situation, your time to buy is now. If you are an investor who wants to purchase a property with the idea of flipping it within a year for profit and you have little to no idea what you are really doing, your time is not now. It's also not tomorrow, nor is it 10 years from now. Your time to buy is never. Take your business elsewhere. There is certain to be someone in my line of work to help you in your search; I won't be one of them.

Here we go:

Median household income in Palm Beach County (per the 2000 Census, adjusted for inflation):


Median price of a single family home in Palm Beach county:


Price-to-Income Ratio for Palm Beach County:


Healthy PI Ratio according to Goldman Sachs (article here):


Okay, equipped with this data we can calculate what the average household income needs to be in order to afford this home in this county. We have to make some simple adjustments with respect to monthly debt, and I will illustrate this below. Using Bankrate's 'How much house can I afford' calculator, this is what we come up with for a single family home located in Boca Raton using a conventional 80/20, 30 year fixed loan:

Home price: $371,000

Down payment: $74,440

Financing: $297,760

Interest rate: 5.3%

Taxes/Year: $7000

Homeowners Insurance/Year: $3000

Monthly HOA dues: $150

Monthly mortgage payment: $1650

Required household income in order to qualify for this loan: $87,600.

Caveats to these numbers....You can qualify for this loan if you or your household earns $87,600 and you have ZERO DEBT. That's right, no car payment, no car insurance payment, no alimony out or in, no investments, no student loans, and no credit card debt. You must also have excellent credit. Sound like you? Probably not. Add on all of your debts and the household income number goes up up up. And we wonder why the housing market has begun a crash of epic proportions. You can 't lie on your loan application anymore and prices are still way out of whack with respect to basic fundamentals.

Until prices come back to realistic levels, we can expect the South Florida market to decline. The government bailout will NOT help most people, and inventory will SOAR in 2008. You can quote me on that.

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