Not Yet on the Market
There has been a lot of talk lately about "shadow inventory" in the financial community. This is the term applied to the current supply of homes held by banks and other lending institutions where the homeowners are behind on their mortgages, or that have been foreclosed on, but are not yet on the market. There are a lot of fears surrounding "shadow inventories" and the perceived potential for a "flood" of foreclosure inventory being brought to market, creating a dampening effect on the housing recovery.
I found three articles which debate the point, but I must admit I'm more personally aligned with this one by Larry Nusbaum, a resolution assistance contractor for the FDIC. More pessimistic views can be found in these two articles found in the Wall Street Journal and iStockAnalyst.com. Admittedly, my optimism may have a lot to do with where I live.
"The problem is largely concentrated in Arizona, California, Florida and Nevada", WSJ.com
If you are in one of these states, the shadow inventory threat would certainly seem far more credible than for other major markets around the country. In Texas, for instance, we are seeing inexpensive inventory snapped up in a matter of days by investors. I even saw one last week where the investor buyer wrote a full price offer for a property that had only been on the market two hours, and delivered his offer with a 100% earnest money check. He got the property, but it turns out there were eight other offers written and delivered to the selling agent within a 24 hour period from the time it went on the market.
What does that mean to me, today?
If you currently have your home for sale, you still need to be aggressive in getting it sold. While we are seeing improvements in most price ranges over the first two months of 2010, there is still a surplus of inventory, and a smaller pool of buyers due to increased lending restrictions and continued unemployment. Bearing all that in mind, my goal is to be the next home that sells in my subdivision.
Let's all agree that our home is our castle, and that we have put years of loving care into every update, and painstakingly maintained it for years and that if a buyer can't see that, well, they can just move on!
This may sound over-the-top, but if it does, you're probably not trying to sell your home right now. If you are, the emotions feel familiar. And an emotional response is something you need to avoid. TRY not to be insulted if someone sends you a low offer. That's the way it goes in buyer's markets (or almost any market, for that matter.) The buyer may really, really want your property, but can't stand the thought of leaving any money on the table with an initially high offer. It's really not personal, although it sure feels that way.
The point is to stay calm, and counter-offer (that ridiculous offer!)the best you can. Don't try to read the mind of the buyers, or guess their intentions - this can drive you crazy, by the way. See what happens after you counter back. You might be pleasantly surprised. Either way, especially if you have no other offers, you need to work any offer you get to the end.
Look at the Terms
When considering a counter-offer, terms are just as much in play as price. What are your goals? When do you need to move? Will the buyer give you time to get out after closing? Is the buyer offering cash, or getting 100% financing which may mean appraisal problems in the end? Are they asking for anything else, like closing costs?
When you send your counter-offer, remember to thank the buyer for their offer, and let them know you have carefully considered it, and look forward to hearing their response. I've found through the years that most RESIDENTIAL buyers don't appreciate hard-nosed, abrasive responses, and will tend to hang in there with those that respond professionally, not emotionally.
If you Just Can't Make it Work
Look at the entire process you just went through, and consider where you are in the marketplace. What did I learn through all this? What adjustments do I need to make in order to sell to the next buyer? What could I have done differently? These are tough, look-in-the-mirror and take a deep breath questions, but understanding the truth of your situation and getting sold is the goal!
I've talked at length about the relationship between pricing and the number of first showings you get - first showings are necessary to sell your property and first showings are a function of price. There is also an important function to be aware of concerning second showings. Second showings are a function of your house in a price range versus the competition. If you are getting your 12-15 first showings in a month, you should be seeing 2-4 second showings, and getting 1-2 offers. If you aren't getting second showings, you need to know why not. This is where feedback after a showing is crucial.
You want your agent to get feedback after every showing, as soon as possible after the showing. After all, there's only one piece of good news - they are writing you an offer. Everything else is bad news, and you should want to know every bit of it. What specifically turned off this buyer that they aren't coming back for a second showing, or won't be writing an offer? Is there something that can be addressed (read here - 20 year old builder grade blue carpet!), or fixed? My experienced investors want to know every negative remark, and are constantly tweaking their properties for sale.
If there is something turning buyers off that can't be easily changed, like an undesirable floor plan, well, ultimately, there is a solution...
If you are thinking about buying or selling in the near future, you should start paying attention to articles like this one. All good things must come to an end, and if you don't know the effect an additional 1% on your interest rate has on your buying power, go here and run a quick mortgage calculation.
If you don't have time for that, here are some quick numbers: on a $271,000 loan (FHA loan limits in North Texas), a 1% difference in the monthly principal and interest payment when you go from 4.95% to 5.95% equals $169.56 per month. Times 360 months that comes out to $61,041.60!
There are several great articles on the web concerning home pricing. The one I read this morning from Zillow has a lot of solid thoughts on the subject.
One thing that isn't talked about enough is showings. Experienced agents know that showings are the real indicator of whether your market price is fair value. Buyers will pounce on homes that are priced right. Bottom line, in every market, whether a $50K home or a million, a home that is priced right for it's market will generally see 12 - 15 showings in a month. There is truly a magic pricing point where buyers will find you. OBTW, looking for unique buyers for your unique property is pretty much over for now.
Sellers ask all the time: "Why don't buyers just send me a lower offer if they think I'm priced too high?" It's an understandable question. The answer is, they haven't found you, yet. Agents set up searches for themselves and for their buyers. If a buyer tells their agent: "Look up to $700,000," and you are priced at $700,001, you are essentially invisible. In practice, many agents search over their buyer's upper limit, but it's not necessarily a common practice. Take this a step further and ask any active home buyer you know, "What price range are you looking in?", and it will generally be a round number, like $750K or $700K, rounded by $25,000 increments.
You need showings in order to sell. Are you invisible?
Over the last two years I have seen so many good people suffering. Clients calling us crying, because they lost their job and were faced with losing their home. Most were worried about how it would affect their children and their future. Our entire industry - every supplier, builder, agent, construction workers - everyone's life was affected. I read somewhere that the recession wasn't personal - it was after all of us. Decisions that were made in 2007 and before looked like good decisions at the time.
Despite all this, I have seen great portraits of faith during these times. My wife's cousin is a builder in another state. Through these dark and desolate times for that industry, she has written often on Facebook about how proud she is of him for taking another job (economists call that underemployment) to support their family during these times. They aren't blaming anyone, or any thing - they are simply doing what they have to do, in faith, every day. Very touching.
I came to work this morning not expecting to be so moved and inspired. I starting reading my daily blogs (thanks as always, Seth) and followed the link to the Lemonade movie. I'm still thinking about it. Things are going to be okay, I think.
Amy Burger of the Post Dispatch wrote an article that applies to almost every home seller these days - except for those who don't have a basement!
By Amy Burger
SPECIAL TO THE POST-DISPATCH
With a minimal budget and a little sweat equity, your home can go from a "so-so" to a "wow" in no time. Whether you want to update your existing living space or add value to a house you are trying to sell, investing in some basic home renovations can make a huge impact.
So what home improvements will provide the biggest bang for your buck and make the strongest impression on guests and potential buyers? We interviewed two local contractors and a local real estate agent as well as John DeSilvia, host of the DIY Network's series, "10 Grand in Your Hand." They recommended 10 projects for the new year.
"The key is to more refresh than remodel when you're working on a budget," says Andy Burgio, owner of Burgio Remodeling. "Plan ahead and know that it will take more time and money than you initially think. Be realistic about what you can complete."
Kitchen and bathroom renovations provide the most equity and top the list for buyers, according to Joe Naert, owner of St. Louis-based Naert Realty. You don't have to replace your entire kitchen though; basic improvements make a big difference. Try replacing dated laminate countertops with granite or slate.
"Although it can seem costly, making this one change can often be as effective as an entire kitchen remodel," says Bryan Sonderegger, owner of True Construction of St. Peters.
Consider refacing outdated or worn cabinets and adding new hardware rather than fully replacing them. Adding crown moldings and under-cabinet lighting are another inexpensive way to give basic cabinets a more custom look.
DeSilvia suggests saving money by installing, painting or staining cabinets on your own if you can. If you are using a contractor to remodel your kitchen, ask what tasks can be taken out of the contract to help save you dollars.
DeSilvia recommends checking prices and shopping online for cabinets, fixtures and other items. "You can often get the same quality cabinets as a specialty shop will offer online for up to 50 percent less, especially if you're willing to install them yourself," he says.
As long as the layout of your bathroom works, just replacing the vanity, faucets and fixtures can give it a whole new look without breaking the bank. Add a cool new above-the-counter sink for a modern look or paint a small powder room a bright color. Think outside the box. "I've been doing a lot of chandeliers in bathrooms lately, which gives more of a spa feeling," says Sonderegger.
There's nothing like a fresh coat of paint to instantly perk up a tired-looking house — inside and out. If you can afford to do nothing else, just repaint your walls, trim, doors and even the outside of your house, if needed. If you are trying to sell, stick with neutral colors (white, cream, beige); otherwise experiment with color. "Faux-finishing an accent wall with a suede finish or simple rag finish can be a dramatic way to get oohs and ahhs," says Sonderegger.
MOLDINGS AND TRIMS
Updating the baseboards and trim or adding crown moldings throughout your house is an inexpensive project that, like a fresh coat of paint, gives your home a clean, new look. Replace small, builder-grade base molding with taller custom-looking base trim. Add crown molding to any room for a more high-end look. You can do this for $100-$200 in most rooms.
"There are inexpensive molding products offered now that are actually made of Styrofoam and can easily be cut with a utility knife, making them simple to install yourself," suggests Andy Burgio, owner of Burgio Remodeling of West County.
Adding wainscoting or a chair rail with raised panel-style molding in a dining room, formal living room or foyer is another way to get a very high-end look easily and inexpensively. And home stores such as Lowe's and Home Depot often offer free clinics to teach you how to do these projects
Replace outdated brass fixtures and old ceiling fans with more modern ones. Add landscape up-lights and footpath lighting outside to show off your house and provide added security. Consider additional accent or puck lighting in bookshelves and other spaces for a custom look.
Aside from in bedrooms, carpet is outdated and difficult to keep clean, especially with kids or pets. Consider removing carpet in main living areas and installing hardwood floors or refinishing hardwood that may be under carpeted areas. Add area rugs for style and comfort. Replace dated linoleum in kitchens and baths with tile or hardwood as well. Doing tile (yourself) in a small space, such as a bathroom can cost as little as $200 and makes a huge impact. Consider a unique tile border or pattern.
"Curb appeal" is something every homeowner should strive to have. "Your house can be great inside, but it doesn't matter if they don't even make it to the front door," says Naert. Investing in landscaping, no matter how large- or small-scale, can provide significant return. Start from scratch or look for ways to improve existing landscaping. Consider using native plants, trees, shrubs and perennials that will flourish in our climate with little maintenance. If you have an old, weathered deck, DeSilvia suggests just replacing the decking itself to make it look brand new if the overall structure is intact, as that's where the majority of the labor lies.
Did you know that, in addition to saving money on utility bills and being environmentally conscious, you can get tax credits for making energy-saving improvements to your home? Through the Environmental Protection Agency's Energy Star program, tax credits are given for buying Energy Star products such as major appliances, water heaters, roofing, siding, HVAC products, doors and more. Visit Energystar.gov to learn more. Ameren UE's UEfficiency program promotes Energy Star qualified manufacturers and provides links to local retailers and contractors at UEfficiency.com.
Old, worn out doors can make a house look shabby, especially if you are trying to sell and competing with newly built homes. If your interior doors are no longer in pristine condition, consider replacing them with finished or unpainted six-panel doors. A new front door (or a fresh coat of paint and new hardware) can give a "facelift" to a house and add curb appeal — and don't forget the tax breaks for buying one with an Energy Star label.
Basements are big in the Midwest, and finishing one can, in some instances, nearly double your living space. "People and especially families need more space," says DeSilvia. "So rather than building additions, they are turning unused space in the basement to useful space such as a play room, office or family entertainment room." Full basement remodels may require the help of a contractor, unless you are more highly skilled. If you choose to do the major construction yourself, Burgio suggests leaving things like electric, plumbing and HVAC to the experts to ensure they are safe and installed correctly. Burgio also suggests saving money by renting larger tools. "If you spend half your budget on tools for the project, you are losing money. You can rent almost any tool you need inexpensively."