1. Getting Emotionally Involved
Once you decide to sell your home, it can be helpful to start thinking of yourself as a businessperson and a home seller rather than as the home's owner. By looking at the transaction from a purely financial perspective, you'll distance yourself from the emotional aspects of selling the property that you've undoubtedly created many memories in. Also try to remember how you felt when you were shopping for that home. Most buyers will also be in an emotional state.
2. Setting The Price Too High
Setting the price too high is a classic seller mistake and unfortunately very common. This common mistake happens for a number of reasons. Sometimes the cause is pride of ownership, but more often the seller is setting a price based on what he or she needs out of the sale, as opposed to the market value of the home. If the price is set too high it will discourage offers and many times buyers won’t even take the time to look at an over price home. Moreover, in a down market, an inflated price on day one of the listing is even more inflated after a week or two have gone by. Not only is the asking price not tracking the market it's becoming more out of line as each day goes by. In sells your first goal is to get your foot in the door or in this case get the buyer’s foot in the door so a good strategy is to price the house slightly below market value.
3. Refusing To Lower The Asking Price On A Reasonable And Timely Basis
Sellers, who have set their asking price above the market value, will also invariably fail to adjust their price appropriately as the market declines if they get an offer. Instead of pricing to sell, these sellers will only grudgingly reduce their asking price and never by an amount large enough to make their home a worthwhile buy. As a result they find themselves chasing the market down - always priced too high and never getting a serious offer. In the end, this seller will loose more money than if they had simply priced their home correctly in the beginning. It may sound trite, but the market really does set the price.
4. Rejecting The First Offer
Too many times a seller will be suspicious of the first offer they receive. We've all heard statements like "I must have priced my home too cheaply" or "If I hold out I'll get more money." or "I just listed my property and I don't want to take the first offer." These reactions and others similar in nature, generally cause the first offer to be rejected. In down markets this is a clear mistake. Each day that passes the buyer's alternative choices are increasing and the seller's bargaining position becomes weaker. In times of rising interest rates the buyer's purchasing power is decreasing as times passes.
Assuming the home was priced correctly in the first place. The plain fact is the first offer is more often than not the best offer. Think about it this way. A home, which has just been listed, can more easily be perceived as a desirable "discovery" by a serious buyer than a home that's been on the market for weeks. The longer a property sits, the less desirable it appears. In fact, a buyer's first question usually is, "How much?" and the second question is "How long has it been on the market?" If you get a first offer, at or near your asking price, it's probably because you've priced your home correctly. If you feel the need, recheck the comparable sales, but don't reject the offer out of hand.
5. Becoming Offended By Low Offers - Refusing To Counter
It's surprising how many people will become so offended by a low offer they refuse to counter. There are a couple of good reasons why this is a mistake. If a seller has "an offer on the property" they are by definition in a stronger position with other potential buyers. The property is seeing action and there is the potential of getting a "buzz" started. Used properly, even "low ball" offers can instill a sense of urgency. Moreover, a low starting offer may be the buyer's way of testing the market and may not say anything about what the buyer is actually willing to pay. A seller is rarely hurt by responding to an offer.
6. Carelessly Selecting A Buyer
It's important to pay attention to the buyer's ability to make the purchase. The buyer should be pre-qualified by his lender, and should have a reasonable down payment. Between two otherwise equally qualified buyers, the buyer whose offer is contingent upon selling their own property represents more risk than the buyer without contingencies. This is especially true in a down market where the buyer may not be able to sell his home for the price he wants
7. Not Presenting The Home Effectively
A cluttered home or a home, which needs repairs or paint, fails to communicate desirability and in some instances can even signal to the buyer to reduce their offer. Fresh paint (neutral colors), clean windows and clean floors and carpets can work wonders. Cut the grass, and pull the weeds. A few flowers inside and out always seem to help.
When it comes to furniture, a little less may be better. Less furniture will cause a room to look and feel larger. That's a good thing. Using a home stager can do wonders so long as the stager has some talent and the cost is not too great.
8. Skimping on Listing Photos
So many buyers look for homes online these days and so many of those homes have photos that you'll be doing yourself a real disservice if you don't offer photos as well. At the same time there are so many poor photos of homes for sale that if you do a good job, it will set your listing apart and help generate extra interest. Good photos should be crisp and clear, should be taken during the day when there is plenty of natural light available, and should showcase your home's best assets. A good agent will take care of this for you and if you have a luxury home a professional photographer is recommended as they have cameras that can capture the different degrees of light.
9. Trying to Hide Significant Problems
Any problem with the property will be uncovered during the buyer's inspection so there's no use hiding it. Either fix the problem ahead of time, price the property below market value to account for the problem or list the property at a normal price but offer the buyer a credit to fix the problem. Realize that if you don't fix the problem in advance you may turn away a fair number of buyers who want a turnkey home. Having your home inspected before listing it is a good idea if you want to avoid costly surprises once the home is under contract. A qualified inspector only costs around $400 depending on the size of your home.
10. Not knowing your rights and obligations
The contract you sign to sell your property is a complex and legally binding document. An improperly written contract can allow the purchaser to void the sale, or cost you thousands of unnecessary dollars. Have an experienced Realtor who knows the "ins and outs" fully explain the contract you are about to sign to you, or have your lawyer review it before accepting it.
11. Not Hiring an Agent
Although real estate agents command commission (usually 5-6% of the sale price of your home), trying to sell your home on your own, especially if you haven't done it before, is probably ill advised. A good agent will help you set a fair and competitive selling price for your home that will increase your odds of a quick sale. An agent can also help take some of the high emotion out of the process by interacting directly with potential buyers so you don't have to and eliminating tire kickers who only want to look at your property but have no intention of putting in an offer.
An agent will also have more experience negotiating home sales than you do, potentially helping you get more money than you could on your own. And if any problems crop up during the process--and they commonly do--an experienced professional will be there to handle them for you. Finally, agents are familiar with all the paperwork and pitfalls involved in real estate transactions and can help make sure the process goes smoothly.
12. Letting the Selling Agent also represent the Buyer
The seller has little to gain by letting his agent represent the buyer. The selling agent will probably lower the overall commission but at what cost. There have been many instances when the selling agent never showed higher offers because a dual commission at a lower percentage is still higher than just half the commission.
Vist us at http://www.877homes.com/
Thursday, September 30, 2010
Sunday, August 22, 2010
Buyers’ Market vs. Sellers’ Market – 2nd Qtr 2010
In December of 2009 I wrote a blog taking a look at the San Diego market so buyers and sellers would have a better idea on how to handle a purchase or a sell. The data gathered at that time was only useful for a short period of time because the real estate market is continuously changing. Since then I calculate this data once a quarter.
To learn how this information can be used visit my December 2009 blog “Buyers’ Market vs. Sellers’ Market”.
Absorption rate is used to determine the supply vs. demand of real estate. It is calculated by dividing the amount of inventory by how many properties are selling in a month.
1 to 4 months supply of homes is a Sellers’ Market
5 to 6 months supply of homes is a Normal Market
7 or more months supply of homes is a Buyers’ Market
The real estate market we are in today is not an ideal market to calculate the absorption rate because of short sales. When an offer is submitted to a bank on a short sale it typically takes 60 to 90 days to hear back and during this time the listing agent usually puts the property into a status of Contingency, which removes it from the actively supply count. In this state the property is not actively being sold neither is it in escrow. The following data is a look at the San Diego County real estate market as of July 5, 2010. First we look at San Diego County by geographic regions then break down the numbers by price.
All of San Diego County
Active homes for sale: 13,151
Contingent homes: 3948
Sold homes in last 30 days: 2446
Absorption rate of active homes: 5.4
Absorption rate of active and contingent homes: 7.0
North San Diego County
Active homes for sale: 5311
Contingent homes: 1196
Sold homes in last 30 days: 954
Absorption rate of active homes: 5.7
Absorption rate of active and contingent homes: 6.8
Central San Diego County
Active homes for sale: 4030
Contingent homes: 1002
Sold homes in last 30 days: 685
Absorption rate of active homes: 5.9
Absorption rate of active and contingent homes: 7.3
South San Diego County
Active homes for sale: 1622
Contingent homes: 1186
Sold homes in last 30 days: 486
Absorption rate of active homes: 3.3
Absorption rate of active and contingent homes: 5.8
East San Diego County
Active homes for sale: 1371
Contingent homes: 475
Sold homes in last 30 days: 263
Absorption rate of active homes: 5.2
Absorption rate of active and contingent homes: 7.0
Up to $200,000 Homes
Active homes for sale: 2085
Contingent homes: 1429
Sold homes in last 30 days: 521
Absorption rate of active homes: 4.0
Absorption rate of active and contingent homes: 6.7
$200,001 to $400,000 Homes
Active homes for sale: 4120
Contingent homes: 1875
Sold homes in last 30 days: 1118
Absorption rate of active homes: 3.7
Absorption rate of active and contingent homes: 5.4
$400,001 to $600,000 Homes
Active homes for sale: 2811
Contingent homes: 506
Sold homes in last 30 days: 492
Absorption rate of active homes: 5.7
Absorption rate of active and contingent homes: 6.7
$600,001 to $1,000,000 Homes
Active homes for sale: 2365
Contingent homes: 200
Sold homes in last 30 days: 307
Absorption rate of active homes: 7.7
Absorption rate of active and contingent homes: 8.4
$1,000,001 to $1,500,000 Homes
Active homes for sale: 908
Contingent homes: 45
Sold homes in last 30 days: 85
Absorption rate of active homes: 10.7
Absorption rate of active and contingent homes: 11.2
$1,500,001 to $5,000,000 Homes
Active homes for sale: 1210
Contingent homes: 36
Sold homes in last 30 days: 40
Absorption rate of active homes: 30.2
Absorption rate of active and contingent homes: 31.1
$5,000,001 plus Homes
Active homes for sale: 184
Contingent homes: 0
Sold homes in last 30 days: 6
Absorption rate of active homes: 30.7
Absorption rate of active and contingent homes: 30.7
Note: Small towns and communities far from the major populated areas were not used in the breakdown calculations of the county, which is why their sum does not add up to San Diego County as a whole.
It is easy to see that San Diego County is in a normal market for the majority of the categories but compared to the 1st quarter data it is moving toward a buyers’ market. I don’t expect prices to rise as long as there are distressed homes on the market but once they are gone don’t be surprised to see prices jump 15% to 20% within a year. Also don’t be surprised if interest rates start to increase after the November elections.
Here are reasons to start getting serious about buying.
Historically low interest
Large inventory of homes
Cost of renting similar to that of owning
Depressed prices
If you want to know the absorption rate of a particular area contact us at homes877@yahoo.com
Visit us at www.877homes.com
Saturday, June 26, 2010
San Diego in the Last Two Years
The following charts consist of data of sold homes in San Diego County over the last two years with the exception of the first chart, which is the 30 year fixed mortgage interest rate. Most people looking to buy a home always tend to use at least these two criteria: price and location. Since location can vary greatly between different people’s wants and we are just looking at one region, San Diego, the data is separated by price. If you are interested in a particular community and price range don’t hesitate to contact me.
Several things to note when looking at the charts:
1) There are insufficient sold homes in the higher price ranges to provide meaningful results without critiquing the information more.
2) The Federal First Time Buyer credit expired November 2009 but was extended to June 2010.
3) About 10% of the US military on the east coast is in the process of being moved to the west coast.
4) In the last two years the US stock market lowest point was in February 2009.
5) Expect interest rates to increase if there are any signs of inflation.
Click on the chart to make it bigger.
Several things to note when looking at the charts:
1) There are insufficient sold homes in the higher price ranges to provide meaningful results without critiquing the information more.
2) The Federal First Time Buyer credit expired November 2009 but was extended to June 2010.
3) About 10% of the US military on the east coast is in the process of being moved to the west coast.
4) In the last two years the US stock market lowest point was in February 2009.
5) Expect interest rates to increase if there are any signs of inflation.
Click on the chart to make it bigger.
Thursday, May 20, 2010
San Diego Real Estate Market, May 2010
At least once a week I read an article stating that real estate prices are going up, going down or staying flat. For example, here are two articles from the same newspaper but with different views May 11th, 2010 and May 18th, 2010; notice where their data comes from. I don’t take too much to heart when the article talks about the national market, as real estate like the weather is regional.
These articles are obviously written by non-statisticians that take data from places like Dataquick.com and Zillow.com and write a story with an eye catching title. I realized how just looking at data without analyzing it could give false information. For example, data for one year showed that the median condo price in Pacific Beach dropped 29% from the previous year. After looking into it I realized how this was possible. Most of the condos that sold the previous year had two bedrooms while the following year most of the condos that sold had only one bedroom. We all know two is better than one.
After this experience I learned not to pay much attention to the median value and to articles claiming one thing or another. Since I have access to all the data regarding the San Diego real estate market I’m able to compile and analyze the information myself. I have learned that the average price per square foot is a much better number to use to track the market and foresee trends as a whole. I have also learned that trends are easier to track using price ranges than locations. It works out that places like Rancho Santa Fe, Del Mar, Coronado, and La Jolla only have expensive homes so a look at the trends of million dollar homes is a good reflection of those communities.
Below is the data for homes sold over the last 14 months for three different price ranges. The graphs are Sold price per square foot over time.
LP = List Price, SP = Sold Price, DOM = Days on Market
These articles are obviously written by non-statisticians that take data from places like Dataquick.com and Zillow.com and write a story with an eye catching title. I realized how just looking at data without analyzing it could give false information. For example, data for one year showed that the median condo price in Pacific Beach dropped 29% from the previous year. After looking into it I realized how this was possible. Most of the condos that sold the previous year had two bedrooms while the following year most of the condos that sold had only one bedroom. We all know two is better than one.
After this experience I learned not to pay much attention to the median value and to articles claiming one thing or another. Since I have access to all the data regarding the San Diego real estate market I’m able to compile and analyze the information myself. I have learned that the average price per square foot is a much better number to use to track the market and foresee trends as a whole. I have also learned that trends are easier to track using price ranges than locations. It works out that places like Rancho Santa Fe, Del Mar, Coronado, and La Jolla only have expensive homes so a look at the trends of million dollar homes is a good reflection of those communities.
Below is the data for homes sold over the last 14 months for three different price ranges. The graphs are Sold price per square foot over time.
LP = List Price, SP = Sold Price, DOM = Days on Market
It is very interesting to see the increase of home sales for the month of May 2010. This is mainly do to buyers delaying the closing of escrow until May so they can receive the California tax credit of $10,000 in addition to the Federal tax credit of $8000.
It is important to note that if prices drop by more than $3000 then it was a smart move to wait until the tax credit expired. This number comes from $8,000 x 25% plus $10,000 x 10% tax bracket.
If you want to know the market trend of a particular area contact us at 877homes@gmail.com
Visit http://www.877homes.com/
Tuesday, April 6, 2010
Buyers’ Market vs. Sellers’ Market – 1st Qtr 2010
In December of 2009 I wrote a blog taking a look at the San Diego market so buyers and sellers would have a better idea on how to handle a purchase or a sell. The data gathered at that time was only useful for a short period of time because the real estate market is continuously changing.
Because of the popularity of this information I will be evaluating the San Diego real estate market on a quarterly basis. To learn how this information can be used visit my December 2009 blog “Buyers’ Market vs. Sellers’ Market”.
Absorption rate is used to determine the supply vs. demand of real estate. It is calculated by dividing the amount of inventory by how many properties are selling in a month.
1 to 4 months supply of homes is a Sellers’ Market
5 to 6 months supply of homes is a Normal Market
7 or more months supply of homes is a Buyers’ Market
The real estate market we are in today is not an ideal market to calculate the absorption rate because of short sales. When an offer is submitted to a bank on a short sale it typically takes 60 to 90 days to hear back and during this time the listing agent usually puts the property into a status of Contingency, which removes it from the actively supply count. In this state the property is not actively being sold neither is it in escrow. The following data is a look at the San Diego County real estate market as of April 5, 2010. First we look at San Diego County by geographic regions then break down the numbers by price.
All of San Diego County
Active homes for sale: 10,188
Contingent homes: 4576
Sold homes in last 30 days: 2532
Absorption rate of active homes: 4.0
Absorption rate of active and contingent homes: 5.8
North San Diego County
Active homes for sale: 4063
Contingent homes: 1460
Sold homes in last 30 days: 990
Absorption rate of active homes: 4.1
Absorption rate of active and contingent homes: 5.6
Central San Diego County
Active homes for sale: 3073
Contingent homes: 1119
Sold homes in last 30 days: 750
Absorption rate of active homes: 4.1
Absorption rate of active and contingent homes: 5.6
South San Diego County
Active homes for sale: 1155
Contingent homes: 1378
Sold homes in last 30 days: 480
Absorption rate of active homes: 2.4
Absorption rate of active and contingent homes: 5.3
East San Diego County
Active homes for sale: 1163
Contingent homes: 502
Sold homes in last 30 days: 225
Absorption rate of active homes: 5.2
Absorption rate of active and contingent homes: 7.4
Up to $200,000 Homes
Active homes for sale: 1740
Contingent homes: 1645
Sold homes in last 30 days: 595
Absorption rate of active homes: 2.9
Absorption rate of active and contingent homes: 5.7
$200,001 to $400,000 Homes
Active homes for sale: 2894
Contingent homes: 2204
Sold homes in last 30 days: 1092
Absorption rate of active homes: 2.7
Absorption rate of active and contingent homes: 4.7
$400,001 to $600,000 Homes
Active homes for sale: 2107
Contingent homes: 557
Sold homes in last 30 days: 539
Absorption rate of active homes: 3.9
Absorption rate of active and contingent homes: 4.9
$600,001 to $1,000,000 Homes
Active homes for sale: 1809
Contingent homes: 243
Sold homes in last 30 days: 307
Absorption rate of active homes: 5.9
Absorption rate of active and contingent homes: 6.7
$1,000,001 to $1,500,000 Homes
Active homes for sale: 813
Contingent homes: 45
Sold homes in last 30 days: 70
Absorption rate of active homes: 11.6
Absorption rate of active and contingent homes: 12.3
$1,500,001 to $5,000,000 Homes
Active homes for sale: 1022
Contingent homes: 34
Sold homes in last 30 days: 50
Absorption rate of active homes: 20.44
Absorption rate of active and contingent homes: 21.1
$5,000,001 plus Homes
Active homes for sale: 174
Contingent homes: 1
Sold homes in last 30 days: 3
Absorption rate of active homes: 58
Absorption rate of active and contingent homes: 58
Note: Small towns and communities far from the major populated areas were not used in the breakdown calculations of the county, which is why their sum does not add up to San Diego County as a whole.
It is easy to see that San Diego County is in a sellers’ market for the majority of the categories but compared to December 2009 it is moving toward a normal market. I don’t expect prices to rise as long as there are distressed homes on the market but once they are gone don’t be surprised to see prices jump 15% to 20% within a year.
Even though it is a sellers’ market there are still good reason to buy real estate now.
Historically low interest rates (There are predictions the Feds will raise rates about two more times in 2010)
Cost of renting similar to that of owning
$10,000 tax incentive for first time buyers or $10,000 for the purchase of a new home
Depressed prices
If you want to know the absorption rate of a particular area contact us at 877homes@gmail.com
Thursday, March 25, 2010
Owner Financing or Carry-Back Loan
An owner financed or carry-back loan is when the seller usually owns the property outright and is willing to either hold the loan themselves, rather than a bank, or lease/rent the property to the buyer for a fixed period allowing the buyer more time to obtain favorable financing. For a buyer the key is to find a seller that will offer this possibility. In the present real estate market, many of the homes on the market are distress sales, which mean there is little chance of making a deal with the seller.
How does Owner Financing Work?
When a buyer is having trouble obtaining a loan or favorable financing, they may request their agent to contact the seller on their behalf, requesting seller financing. The seller loan can take the form of a first mortgage or a second mortgage. If the property is fully paid off then the process is simple. The seller and buyer come to an agreement on the sell price and the monthly payment and the sell has a first mortgage on the property. On the other hand if there is already a loan the process is the same except that the carry back loan will take a second position (second mortgage) to the existing loan. The buyer in this instance will need to be more careful because if the seller collects the buyer’s monthly payment and fails to pay the mortgage on the first loan the bank could foreclose on the property leaving the buyer with nothing. Another scenario is the buyer obtains a first mortgage loan but does not have sufficient funds the down payment so the seller finances a portion of it. Be sure to work with a qualified attorney for any carry back loan contracts.
Why Use Owner Financing?
If a property is old and in very bad shape, for example the foundation/slab is cracked, most banks will not consider loaning against the property. The options for the seller is to find a buyer with all cash, someone willing to obtain a hard-money loan, or provide the financing themselves. Second, for a buyer there are several good reasons to do a carry back loan. The first is if the buyer does not qualify for a loan due to poor credit, bankruptcy, or a foreclosure on a previously owned property. The second reason is if the buyer is self-employed or most of his/her income is from commission. The third good reason is to avoid closing costs for a loan, which is about 2% of the purchase price. And the finally reason is the whole purchase process can be done rather quickly if the buyer is in a hurry to move into a place.
Example:
The seller and the buyer agree on a sell price of $100,000. Since the buyer is self-employed the bank requires him to put down 50%. The buyer only has $10,000 to put down so the seller agrees to finance $40,000. To sum it up the buyer puts down $10,000, the bank loans $50,000 and the seller finances the remaining $40,000. The seller will have a mortgage note (Deed of Trust) for $40,000 with an agreed interest rate.
In this example the buyer does not have to worry about the seller defaulting on the first loan since it is in the buyer’s name.
If you still have questions contact us at 877homes@gmail.com
How does Owner Financing Work?
When a buyer is having trouble obtaining a loan or favorable financing, they may request their agent to contact the seller on their behalf, requesting seller financing. The seller loan can take the form of a first mortgage or a second mortgage. If the property is fully paid off then the process is simple. The seller and buyer come to an agreement on the sell price and the monthly payment and the sell has a first mortgage on the property. On the other hand if there is already a loan the process is the same except that the carry back loan will take a second position (second mortgage) to the existing loan. The buyer in this instance will need to be more careful because if the seller collects the buyer’s monthly payment and fails to pay the mortgage on the first loan the bank could foreclose on the property leaving the buyer with nothing. Another scenario is the buyer obtains a first mortgage loan but does not have sufficient funds the down payment so the seller finances a portion of it. Be sure to work with a qualified attorney for any carry back loan contracts.
Why Use Owner Financing?
If a property is old and in very bad shape, for example the foundation/slab is cracked, most banks will not consider loaning against the property. The options for the seller is to find a buyer with all cash, someone willing to obtain a hard-money loan, or provide the financing themselves. Second, for a buyer there are several good reasons to do a carry back loan. The first is if the buyer does not qualify for a loan due to poor credit, bankruptcy, or a foreclosure on a previously owned property. The second reason is if the buyer is self-employed or most of his/her income is from commission. The third good reason is to avoid closing costs for a loan, which is about 2% of the purchase price. And the finally reason is the whole purchase process can be done rather quickly if the buyer is in a hurry to move into a place.
Example:
The seller and the buyer agree on a sell price of $100,000. Since the buyer is self-employed the bank requires him to put down 50%. The buyer only has $10,000 to put down so the seller agrees to finance $40,000. To sum it up the buyer puts down $10,000, the bank loans $50,000 and the seller finances the remaining $40,000. The seller will have a mortgage note (Deed of Trust) for $40,000 with an agreed interest rate.
In this example the buyer does not have to worry about the seller defaulting on the first loan since it is in the buyer’s name.
If you still have questions contact us at 877homes@gmail.com
Sunday, February 28, 2010
Lease-to-Own with the Option-to-Purchase
I have met a number of people over the years that ask for Lease-to-Own places and I tell them they’ll have better luck looking for rentals. The simple reason is Realtors do not make money on Lease-to-Own transactions, unless he/she is paid upfront. But since this is a poplar subject for people who want to own property I’ll discuss the merits of it and mention a better option.
Lease-to-Own Example
The concept of Lease-to-Own is to have a portion of the rent go to a down payment for the purchase of a property. The renter will pay above average rent with an option to purchase the property at a future date and a predetermined price. For example, if the average rents are $1,500 per month a renter with a one year Lease-to-Own contract might pay $2,000 per month. The extra $500 would go into a separate account and at the end of the contract the renter has the option to purchase the property at the predetermined price with $6,000 for the down payment already saved. If the renter does not choose to purchase the property they typically forfeit the whole down payment.
The Benefit of Lease-to-Own
The advantage to the renter in a Lease-to-Own contract is they get to learn about the neighborhood first hand but more importantly if real estate values increase the seller cannot back out of the deal. In other words the renter is hedging that real estate values with increase more than the agreed to future price. On the other hand if real estate values decrease it is not likely the renter would exercise their option to purchase hence forfeiting their down payment. If the renter has poor credit it does not make sense to enter into a Lease-to-Own contract because they will not be able to obtain a loan and they will have to forfeit their down payment.
Lease-to-Own Contract
It is important that the agreement is in writing. This sounds simple but I have met many renters that believe they are in a Lease-to-Own contract after having a conversation with their landlord with a Lease-to-Own option being discussed. A Lease-to-Own with the Option-to-Purchase contract needs to be formalized in a written contract that specifies the monthly rent, the portion of rent that will go toward the down payment, the sales price and the expiration date of the option. There are other factors that should be in the contract like the right to have an inspection, who decides on and who pays for escrow and title along with many of the same factors found in a real estate purchase contract.
Lease-to-Own Responsibility
During the rental period the owner is responsible for property taxes, insurance, repairs and maintenance of the property. Like with all rental property the landlord would suffer a loss if the property were damaged or destroyed by a natural disaster that occurred during your Lease-to-Own period. However the renter is responsible for their personal property so it is a good idea to have renter’s insurance. Of course, once the renter purchases the property after exercising the Lease-to-Own with the Option-to-Purchase contract, the new owner is responsible for the taxes, insurance, and repairs related to the home.
Because Lease-to-Own agreements can be complex I recommend contacting an attorney to make sure your interests are protected. (I can provide some qualified attorneys)
Another option is Owner Financing, also called Carry Back Loan. I will discuss this next month. If you still have questions contact us at 877homes@gmail.com
Lease-to-Own Example
The concept of Lease-to-Own is to have a portion of the rent go to a down payment for the purchase of a property. The renter will pay above average rent with an option to purchase the property at a future date and a predetermined price. For example, if the average rents are $1,500 per month a renter with a one year Lease-to-Own contract might pay $2,000 per month. The extra $500 would go into a separate account and at the end of the contract the renter has the option to purchase the property at the predetermined price with $6,000 for the down payment already saved. If the renter does not choose to purchase the property they typically forfeit the whole down payment.
The Benefit of Lease-to-Own
The advantage to the renter in a Lease-to-Own contract is they get to learn about the neighborhood first hand but more importantly if real estate values increase the seller cannot back out of the deal. In other words the renter is hedging that real estate values with increase more than the agreed to future price. On the other hand if real estate values decrease it is not likely the renter would exercise their option to purchase hence forfeiting their down payment. If the renter has poor credit it does not make sense to enter into a Lease-to-Own contract because they will not be able to obtain a loan and they will have to forfeit their down payment.
Lease-to-Own Contract
It is important that the agreement is in writing. This sounds simple but I have met many renters that believe they are in a Lease-to-Own contract after having a conversation with their landlord with a Lease-to-Own option being discussed. A Lease-to-Own with the Option-to-Purchase contract needs to be formalized in a written contract that specifies the monthly rent, the portion of rent that will go toward the down payment, the sales price and the expiration date of the option. There are other factors that should be in the contract like the right to have an inspection, who decides on and who pays for escrow and title along with many of the same factors found in a real estate purchase contract.
Lease-to-Own Responsibility
During the rental period the owner is responsible for property taxes, insurance, repairs and maintenance of the property. Like with all rental property the landlord would suffer a loss if the property were damaged or destroyed by a natural disaster that occurred during your Lease-to-Own period. However the renter is responsible for their personal property so it is a good idea to have renter’s insurance. Of course, once the renter purchases the property after exercising the Lease-to-Own with the Option-to-Purchase contract, the new owner is responsible for the taxes, insurance, and repairs related to the home.
Because Lease-to-Own agreements can be complex I recommend contacting an attorney to make sure your interests are protected. (I can provide some qualified attorneys)
Another option is Owner Financing, also called Carry Back Loan. I will discuss this next month. If you still have questions contact us at 877homes@gmail.com
Friday, January 29, 2010
18 Common Home Buyer Mistakes
When doing something for the first time, like buying a home, mistakes are expected. Some say, “learn from your mistakes” I say, “learn from the mistakes of others”. Many first time and repeat home buyers are smart enough to do research to educate themselves and the Internet is a great source but not the only source. I typically spend one to two hours with first time buyers going over all the ins and outs including common mistakes. I have jotted down many of the areas real estate buyers should keep in mind during the home buying process.
1. Know how much home you can afford
Many first time homebuyers spend time researching neighborhoods, looking at homes on the internet, and even driving around before fully considering the cost of purchasing a home. One of the first things buyers should do is meet with a loan officer and get pre-approved for a mortgage. To make sure you are dealing with a quality loan officer ask if they typically use a processor. If they do then chances are they don’t fully know the loan process and the processor is probably working with several loan officers juggling many loan applications. Try to find a loan officer that is a control freak, as they are good at avoiding unforeseen problems and always meet with at least two loan officers. Be sure to get a Good Faith Estimate from each loan officer and compare.
2. Document and maintain your financial status
If you are pre-approved for a loan, do not change your financial status without consulting your loan officer. Purchasing large ticket items like a car, a boat, furniture, a washer and a dryer, or canceling a credit card, or not paying rent are all reasons why a loan could be denied before closing do to the change in your financial status.
3. Choose a qualified real estate agent
Unless you are a Realtor or an attorney you should find a good Realtor early in your home search process instead of waiting until you find a place. Since Realtors have direct access to the MLS (Multiple Listing Service) it only makes sense to use their knowledge and resources to get a jump start. The trick is to find that qualified Realtor that you will work well with. Experience, education, intelligence, and availability is a good starting place to help distinguish Realtors but you’ll have to make the choice and don’t be afraid to change Realtors if your needs are not being met. Also because of all the legal forms involved in a real estate transaction you will need a professional on your side.
4. Be cautious of Foreclosures
Just because a place that sold for $500,000 several years ago and is now offered for $300,000 does not make it good deal; maybe the place is only worth $250,000. Normally foreclosures are worth less because most homes owned by lenders or banks have been sitting vacant for months and many have been vandalized. Extensive repairs will probably be required and don’t expect the bank to repair anything before the close of escrow; foreclosures are typically sold-as-is.
5. Control your emotions
For the amount a home costs don’t let your feelings override your common sense. Owning a home is not cheap and neither is remodeling. Try to see the big picture and take everything into account. Many homebuyers don’t anticipate the additional cost for repairs and maintenance, or for an increase in utility costs. Consider the age of the place you want and how well it appears to have been treated by the previous owners. Buying a home is not just about the money that you spend upfront; it's about all the rest of the money you have to spend beyond that. Find out what the property taxes are, what your water bill might be and what a standard electric bill is in that home. You also want to factor in furnishings you may need to purchase before you can move in.
6. Do not assume your first offer will get accepted
As home prices become more affordable and with the tax credit competition has increased. Don’t be surprised to hear that a new home on the market as 20 offers. To increase the chance for your offer to be accepted you need to be quick in submitting the offer and have a strong offer. Having more money down and offering more money are two parts to having a strong offer. There is a third part to make an offer stronger but if I divulge it my clients will loose their edge.
7. Always have the property inspected, its cheap insurance
The importance of a physical inspection can’t be stressed too much. A physical inspection cost between $300 to $500, which is a small price compared to the price of a home. Wouldn’t it be nice to know that the pipes leak before closing so you can get the sellers to repair them or reduce the sell price? There are a lot of things a home inspection can reveal about a property that are not visible to the naked eye. Be sure to hire someone with credentials and verify them, as there is no branch in the government that monitors inspectors. Your agent can steer you to sources but the choice is yours.
8. Contract contingency clauses are important
A mortgage financing contingency clause protects the buyer in the event you can’t get financing because a loan officer did not do due diligence, the place you wanted did not appraisal high enough, or your financial status changed. Should one of these events occur the buyer gets back the deposit money. In California this clause is on the first page of the Purchase Contract, make sure the small box is checked.
9. Put yourself in the sellers shoes
The average homeowner only stays in a home for about five years. When purchasing a home, consider the reason you want the home, is a good reason some else may want the home later. The same goes with remodeling. Converting the garage into another room might sound like a good idea but many garage conversions are converted back into a garage; this would deter many future buyers.
10. Avoid Dual Agency
A Realtor representing both the seller and the buyer is like an attorney representing both the defendant and the plaintiff. This practice is called dual agency and is frowned upon by the DRE (Department of Real Estate). The seller’s agent primary fiducially responsibility is to the seller so home buyers may innocently disclose confidential and material information about their buying needs, financial abilities and negotiating strategies to the seller, especially when not aware of the roles of the Realtor involved.
11. Discount the seller's Decor
Remember that you are buying the house, not the items inside it, so make sure you see beyond the decorations. Focus on the location, the floor plan, and the square footage. If there are furnishings you want you can write them into the contract; it doesn’t hurt to ask.
12. Use your Realtor as an asset
Realtors work only on commission so if a transaction is not completed he/she does not get paid and when the transaction is completed their commission typically comes from the seller not the buyer. Working with a good Realtor can save money as they can provide you with data on a comparable place to give you a general ideal of the value of a place before you engage an appraiser and inspector. A great Realtor can even get your offer accepted in a sellers market without having to offer thousands over the listing price.
13. Research the neighborhood
It's absolutely critical that you research the neighborhood before you buy. Check out the area, amenities and the school system to be sure that your address corresponds with the correct school district. Also attend a community meeting, if possible. You're not just buying a home; you're buying a piece of real estate and the land around it. Check the commute by driving to the neighborhood you are interested in early in the morning then drive to work during rush hour. Do the same after work to see if you can live with the drive five days a week 52 weeks a year. Walk the neighborhood a few nights and see what is going on.
14. Don’t treat real estate like stock
When the real estate market is really hot and is appreciating really fast, people tend to look at it like it's the stock market. But playing real estate is nothing like the stock market; when you invest in real estate, you really need to take a long-term approach. I know people will disagree with this eight years ago but look where we are today.
15. Buy with appreciation in mind
The less expensive houses will pull down the value of the most expensive house on a block. The opposite is also true. Also, the more expensive houses are usually not the first houses to sell because they are usually overbuilt for the neighborhood.
16. Be proactive at closing
At the end of a transaction closing documents need to be signed and there is no reason you can’t have a copy before hand to review at your own pace. Most of the closing documents come from the loan officer so have your loan officer give you a copy a day or two before. One of the documents is called a HUD (Housing and Urban Development) and it is a form that lists all the charges; you can legally obtain it in 24 hours before closing. Try to sign the documents at the office of the escrow company so you don’t have to pay the notary traveling fees and have the loan officer there to answer any questions.
17. Choose the best way to take title
In July of 2001 husbands and wives owning real property in California can opt to take title in the form of Community Property with Right of Survivorship. When a husband and wife hold title as Community Property with Right of Survivorship the full interest in the property will vest, by law, in the surviving spouse immediately upon death of the first spouse. Title insurers will be able to vest title free and clear of the deceased spouse’s interest merely by the recommendation of an Affidavit similar to the one used to clear the interest of a deceased joint tenant. The survivorship feature will, in most instances, avoid the lengthy escrow delays caused by probate proceedings and other legal actions often associated with the traditional community property form of title. (See an attorney for the best way to take title)
18. Fully review the CC&R’s, meeting minutes, and financials
Buying a condo or a single family house in a community with HOA fees means there are CC&R’s (Covenants, Conditions, and Restrictions) and Bylaws. Get a copy of CC&R’s and Bylaws and go through them to make sure you can meet them. Some places might have restrictions on pets like the quantity and the weight. It might even be a good idea to have a real estate lawyer review them for you. Take some time to review the meeting minutes of the condo association board to see what the owners have been complaining about, if possible try to go back 12 months. Finally, get a copy of the last reserve study; they are required to be done once a year. Lester Giese, the author of The 99 Best Residential & Recreational Communities in America, recommends the following formula: If the complex is one to 10 years old, the reserve fund should have 10% of the cost of replaceable items (roofs, roads, tennis courts, etc.). Between 10 and 20 years old, the repair fund should be at 25% to 30%. At 20 years, that amount should be 50% or above. In reality there are not many condo communities that have the necessary reserves. Condo communities that have low fees more likely than not will have low reserves. In other words the fees will be going up and/or there may be some pricey assessments in your future.
If you still have questions contact us at 877homes@gmail.com
Visit us at www.877homes.com
1. Know how much home you can afford
Many first time homebuyers spend time researching neighborhoods, looking at homes on the internet, and even driving around before fully considering the cost of purchasing a home. One of the first things buyers should do is meet with a loan officer and get pre-approved for a mortgage. To make sure you are dealing with a quality loan officer ask if they typically use a processor. If they do then chances are they don’t fully know the loan process and the processor is probably working with several loan officers juggling many loan applications. Try to find a loan officer that is a control freak, as they are good at avoiding unforeseen problems and always meet with at least two loan officers. Be sure to get a Good Faith Estimate from each loan officer and compare.
2. Document and maintain your financial status
If you are pre-approved for a loan, do not change your financial status without consulting your loan officer. Purchasing large ticket items like a car, a boat, furniture, a washer and a dryer, or canceling a credit card, or not paying rent are all reasons why a loan could be denied before closing do to the change in your financial status.
3. Choose a qualified real estate agent
Unless you are a Realtor or an attorney you should find a good Realtor early in your home search process instead of waiting until you find a place. Since Realtors have direct access to the MLS (Multiple Listing Service) it only makes sense to use their knowledge and resources to get a jump start. The trick is to find that qualified Realtor that you will work well with. Experience, education, intelligence, and availability is a good starting place to help distinguish Realtors but you’ll have to make the choice and don’t be afraid to change Realtors if your needs are not being met. Also because of all the legal forms involved in a real estate transaction you will need a professional on your side.
4. Be cautious of Foreclosures
Just because a place that sold for $500,000 several years ago and is now offered for $300,000 does not make it good deal; maybe the place is only worth $250,000. Normally foreclosures are worth less because most homes owned by lenders or banks have been sitting vacant for months and many have been vandalized. Extensive repairs will probably be required and don’t expect the bank to repair anything before the close of escrow; foreclosures are typically sold-as-is.
5. Control your emotions
For the amount a home costs don’t let your feelings override your common sense. Owning a home is not cheap and neither is remodeling. Try to see the big picture and take everything into account. Many homebuyers don’t anticipate the additional cost for repairs and maintenance, or for an increase in utility costs. Consider the age of the place you want and how well it appears to have been treated by the previous owners. Buying a home is not just about the money that you spend upfront; it's about all the rest of the money you have to spend beyond that. Find out what the property taxes are, what your water bill might be and what a standard electric bill is in that home. You also want to factor in furnishings you may need to purchase before you can move in.
6. Do not assume your first offer will get accepted
As home prices become more affordable and with the tax credit competition has increased. Don’t be surprised to hear that a new home on the market as 20 offers. To increase the chance for your offer to be accepted you need to be quick in submitting the offer and have a strong offer. Having more money down and offering more money are two parts to having a strong offer. There is a third part to make an offer stronger but if I divulge it my clients will loose their edge.
7. Always have the property inspected, its cheap insurance
The importance of a physical inspection can’t be stressed too much. A physical inspection cost between $300 to $500, which is a small price compared to the price of a home. Wouldn’t it be nice to know that the pipes leak before closing so you can get the sellers to repair them or reduce the sell price? There are a lot of things a home inspection can reveal about a property that are not visible to the naked eye. Be sure to hire someone with credentials and verify them, as there is no branch in the government that monitors inspectors. Your agent can steer you to sources but the choice is yours.
8. Contract contingency clauses are important
A mortgage financing contingency clause protects the buyer in the event you can’t get financing because a loan officer did not do due diligence, the place you wanted did not appraisal high enough, or your financial status changed. Should one of these events occur the buyer gets back the deposit money. In California this clause is on the first page of the Purchase Contract, make sure the small box is checked.
9. Put yourself in the sellers shoes
The average homeowner only stays in a home for about five years. When purchasing a home, consider the reason you want the home, is a good reason some else may want the home later. The same goes with remodeling. Converting the garage into another room might sound like a good idea but many garage conversions are converted back into a garage; this would deter many future buyers.
10. Avoid Dual Agency
A Realtor representing both the seller and the buyer is like an attorney representing both the defendant and the plaintiff. This practice is called dual agency and is frowned upon by the DRE (Department of Real Estate). The seller’s agent primary fiducially responsibility is to the seller so home buyers may innocently disclose confidential and material information about their buying needs, financial abilities and negotiating strategies to the seller, especially when not aware of the roles of the Realtor involved.
11. Discount the seller's Decor
Remember that you are buying the house, not the items inside it, so make sure you see beyond the decorations. Focus on the location, the floor plan, and the square footage. If there are furnishings you want you can write them into the contract; it doesn’t hurt to ask.
12. Use your Realtor as an asset
Realtors work only on commission so if a transaction is not completed he/she does not get paid and when the transaction is completed their commission typically comes from the seller not the buyer. Working with a good Realtor can save money as they can provide you with data on a comparable place to give you a general ideal of the value of a place before you engage an appraiser and inspector. A great Realtor can even get your offer accepted in a sellers market without having to offer thousands over the listing price.
13. Research the neighborhood
It's absolutely critical that you research the neighborhood before you buy. Check out the area, amenities and the school system to be sure that your address corresponds with the correct school district. Also attend a community meeting, if possible. You're not just buying a home; you're buying a piece of real estate and the land around it. Check the commute by driving to the neighborhood you are interested in early in the morning then drive to work during rush hour. Do the same after work to see if you can live with the drive five days a week 52 weeks a year. Walk the neighborhood a few nights and see what is going on.
14. Don’t treat real estate like stock
When the real estate market is really hot and is appreciating really fast, people tend to look at it like it's the stock market. But playing real estate is nothing like the stock market; when you invest in real estate, you really need to take a long-term approach. I know people will disagree with this eight years ago but look where we are today.
15. Buy with appreciation in mind
The less expensive houses will pull down the value of the most expensive house on a block. The opposite is also true. Also, the more expensive houses are usually not the first houses to sell because they are usually overbuilt for the neighborhood.
16. Be proactive at closing
At the end of a transaction closing documents need to be signed and there is no reason you can’t have a copy before hand to review at your own pace. Most of the closing documents come from the loan officer so have your loan officer give you a copy a day or two before. One of the documents is called a HUD (Housing and Urban Development) and it is a form that lists all the charges; you can legally obtain it in 24 hours before closing. Try to sign the documents at the office of the escrow company so you don’t have to pay the notary traveling fees and have the loan officer there to answer any questions.
17. Choose the best way to take title
In July of 2001 husbands and wives owning real property in California can opt to take title in the form of Community Property with Right of Survivorship. When a husband and wife hold title as Community Property with Right of Survivorship the full interest in the property will vest, by law, in the surviving spouse immediately upon death of the first spouse. Title insurers will be able to vest title free and clear of the deceased spouse’s interest merely by the recommendation of an Affidavit similar to the one used to clear the interest of a deceased joint tenant. The survivorship feature will, in most instances, avoid the lengthy escrow delays caused by probate proceedings and other legal actions often associated with the traditional community property form of title. (See an attorney for the best way to take title)
18. Fully review the CC&R’s, meeting minutes, and financials
Buying a condo or a single family house in a community with HOA fees means there are CC&R’s (Covenants, Conditions, and Restrictions) and Bylaws. Get a copy of CC&R’s and Bylaws and go through them to make sure you can meet them. Some places might have restrictions on pets like the quantity and the weight. It might even be a good idea to have a real estate lawyer review them for you. Take some time to review the meeting minutes of the condo association board to see what the owners have been complaining about, if possible try to go back 12 months. Finally, get a copy of the last reserve study; they are required to be done once a year. Lester Giese, the author of The 99 Best Residential & Recreational Communities in America, recommends the following formula: If the complex is one to 10 years old, the reserve fund should have 10% of the cost of replaceable items (roofs, roads, tennis courts, etc.). Between 10 and 20 years old, the repair fund should be at 25% to 30%. At 20 years, that amount should be 50% or above. In reality there are not many condo communities that have the necessary reserves. Condo communities that have low fees more likely than not will have low reserves. In other words the fees will be going up and/or there may be some pricey assessments in your future.
If you still have questions contact us at 877homes@gmail.com
Visit us at www.877homes.com
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