asking

The Moral Obligation: Repay or Walk?

January 30, 2010 by admin

Short Sales are a tricky beast. There are two sides to the argument when it comes to paying off a loan that you’ve promised to pay. The first argument is that you’ve signed a promise to pay and you have a moral obligation to do so. The second argument says that the lenders took advantage of us, so why should be pay them back? They are the cause, right?

It doesn’t exactly work that way. When you signed the note on your home, there was no clause within it that stated that you promise to pay “when the market is good.” You signed a promise to pay no matter what. Let’s face it. I think we all can take a step back and say that we’ve learned a huge lesson about borrowing money in this day and age, and the lenders have clearly taken a step back to re-evaluate how they lend money. So, it’s arguable that both parties are at fault for the disastrous market conditions.

That doesn’t release you from the obligation that you agreed to. So, what are you supposed to do now? Repay, or walk away?

That all depends on your financial outlook. If you are in a position of financial distress, and you’re headed towards an inevitable foreclosure, then you’re probably a candidate for a Short Sale, which is the best option for you because it’s not really walking away. It’s asking the lender for permission to sell for less than you owe. Foreclosure is what happens when you simply don’t pay. Foreclosure is not an option, it is a symptom. People who don’t pay their mortgage lose their homes. People that walk away from their homes, lose their homes.

It’s critical that you determine whether or not you qualify for a Short Sale. A short sale allows you to move on with your life with the permission of the lender. The lender agrees to release you from the note, and release the mortgage, and in most cases, you can walk away with peace of mind and a bright outlook on your future.

Why would a lender allow this?

Banks don’t want real estate. They want money. They lend money to make money. Without cash, a bank goes out of business. We’ve seen this happen time and time again. When you quit paying your mortgage, and the bank reposesses your house, they have to spend thousands upon thousands of dollars to maintain the house, prepare it for sale, and sell it. It will cost them more to foreclose than it will to allow you to sell it for current market value.

You have a moral obligation to pay your debts. You signed a promise. When you walk away, you are invalidating your credibility and as a result, regaining trust in you as a borrower will take years. Don’t walk away without attempting to sell the property, and make sure you hire someone who knows what they’re doing.

August Market Wrap Up

September 1, 2008 by admin

August 2008, a mere 3 years since the height of our most recent over-inflated boom, has come to a close.

In August, we saw 5833 properties sell at an average sales price of $254,920. The average asking price on properties that sold in August was $245,818 and it took an average of 113 days for those to sell. Homes currently on the market have been so for approximately 94 days on average.

In the Rental market, we currently see a total of 8,905 properties available for lease. In August, 2030 properties were leased at an average rental asking price of roughly $1300/month.

We currently have 51,807 active listings on the MLS with 42,479 of those being Single Family Detached. Last Monday, this number was at 43,705, representing a 2.8% decrease in the number of homes on the market.

The average sales price for the week ending 8/31/08 was up 14.79% to $280,430 and the number of homes sold in this same period almost doubled to 2110. Keep in mind that statistics and business that we see recorded today is a result of market conditions and activity in the past. That is what makes forecasting so difficult. We never know what the future results of our current actions will be.

It’s taking about 109 days to sell a home across the MLS. The average asking price fell slightly from the previous week to $408,001.

Interpreting Statistics: Sold Price vs. Asking Price

August 20, 2008 by admin

Know what the statistics represent before making a decision.

Statistics help us know what happened so we might prepare for what could happen based on the patterns we’ve observed. It is very easy to manipulate statistics to show results that will help us gain your trust and confidence. One of the statistics that I’ve been looking at in the Valley is the percentage of sold price versus asking price.

When a home receives an offer, those of us who think statistically and mathematically will quickly determine what the percentage of the asking price the offer represents. On a home that is listed for $300,000, if someone offers $285,000 they have submitted a 95% offer. This information can be very useful for the buyer to determine what to offer the seller. If the buyer were to look at this from the percentage angle as opposed to the dollar amount, and they were willing to put in a 90% offer, we’d know that their offer is going to be $270,000. What the seller does at this point is up to the seller, but that’s not the point of this article.

With thousands of sales every month, it is becoming easier for us to compare your property to the rest of the market. One of the comparisons we look at is the sold price to asking price, which helps our sellers understand what to expect when they receive an offer. What has often been overlooked is the percentage result we obtain by determining the sold price versus the original asking price. Most reports that we run are defaulted to show the list price at the time of sale, not the list price at the time the property was listed.

I conducted a simple comparison on 16 properties of a subdivision in the west valley that were all comparable properties. In order to obtain enough results, I had to go back two years. I compared the sold to list price of each property and then averaged the results. What it showed was that on average, the properties that were selling in that neighborhood were selling for approximately 95.6% of their list price.

After calculating the percentage based on the original list price, which is the price for which the seller originally wanted to list their home, the results showed that the sold price was actually 88.8% of the original list price.

Without conducting your own statistical analysis, it is difficult to understand what someone might be attempting to show you if they don’t disclose how they came up with their numbers. On one hand, you could pitch to your buyer that it’s likely the seller will settle upon a price that is around 95% of the asking price. Likewise, you could show a potential seller that their asking price is far too high and that they could expect on average to settle for 88% of their original asking price.

Make sure you know when you are presented with statistics what those statistics are actually measuring, and which statistics really matter to you.

Market Update as of August 18th

August 18, 2008 by admin

As of the beginning of the week we had a total of 54,674 homes for sale, including all residential property types. By the end of the day on Sunday, our levels had dropped 1.6% to 53,767. The average asking price at the beginning of the week was $408,161 which increased less than one percent. Average days on market decreased by 5.1%.

1256 properties were sold over the past week which was 18.6% more than was sold the previous week. Word is getting out. It’s time to buy.

For properties that sold last week, the average asking price actually increased 2.83% over the previous from $241,098 to $247,941. The actual average SOLD price of the 1256 properties that sold last week was $237,968, 1.4% less than the previous week at $241,268. Those properties on average were on the market 116 days.

Weekly Market Update

August 12, 2008 by admin

As usual, the graphs below, organized by week, outline the activity in the market since the beginning of the year.

Inventory for all of ARMLS stands at 54,114 homes with an average asking price of $411,671. The average sales price over this period was $245,206. The average asking price for properties that sold during the week is actually lower than the sales price.

Homes are selling on average in 101 days. Based on our current inventory and rate of closing, we are looking valleywide at a 9 month inventory on average.

Do You Want to Sell Your Home or Not?

June 24, 2008 by admin

As though we haven’t heard this plea enough, it’s time for sellers to let go of unrealistic expectations. There are too many people who are testing the market and aren’t serious about selling their homes and many of them forget that they aren’t the only one taking the hit. When we list your home, our job is to market the home. We will put it on the market for SALE, not for tour, not for show…for SALE. Right now, more than ever, price is driving the sale of the home.

Supply and Demand

My goal as your Realtor is to analyze the market in your area and help you determine what the most realistic asking price for your home should be. It’s up to you to set the price. It’s up to me to point you in the right direction.

Supply and demand are the two opposing forces that are intertwined in the process of determining the right price. Typically, when you increase the supply, provided that it is not a response to increased demand, the price of the item falls. There’s more of it, so the consumers have more choices, and they can afford to shop for a lower price. If you decrease the supply, as long as it’s not in response to changing demand, the prices tend to go up because there are more buyers than there are items for sale. (To read my quick article describing supply and demand, please click here)

Is it possible to artificially affect pricing without affecting the supply? Yes, but it requires artificially altering consumer demand by offering incentives or specials, or conveying a sense of urgency for the buyer.

Is it possible to artificially affect demand by changing the price? Yes. How? Lower the price. If you offered a gallon of gas at 50% of the surrounding competition’s prices, you’d artificially increase demand for gas in that area. The problem with this is that the gas station won’t make any money, so lowering the price too much is not in their best interest.

Is it possible to increase the value of a product by artificially inflating the price? In other words, if I want to sell my peanut butter for $1.00 more than all of the competition, will that increase demand for my product? Will it increase demand for the product that’s $1.00 cheaper? No, and no. Increasing the price of a product that is competing against less expensive products is not going to increase demand for higher prices.

It is our job to get the highest price that we can for your home. We cannot do this by pricing your home higher than the competition, no matter what the condition of the home. Even if the home has upgrades, the price you set may be too high for the area to bear.

In order to sell a product to a consumer, the price must be right. Your neighborhood is like a grocery store filled with products. Those products are homes. When you shop in the grocery store, you look for the best products at the lowest price. Sometimes you pay more for a better product because it has 10% more!!! Sometimes you pay more because of the brand name. Sometimes you settle for bargain basement prices because name brand aspirin is the same as the local grocery store aspirin, and you just don’t care. But, if you find a product that is clearly over priced, it is guaranteed that you’ll pass it by with only a glance.

Manufacturers spend millions of dollars every year to market these products to you. Realtors also spend their money on your home to make sure that it is marketed as effectively as possible. If you, the seller, set a price that is too high, you may generate interest in the product simply because it’s on the same block as more realistically priced homes, but nobody will buy it, especially when three other identical products down the street sold at a price far lower than yours.

“But our house is upgraded.”

There is a very clear difference between a home that is upgraded and a home that simply has new features that are already expected. Is it really upgraded, or is it just more sellable? Just because a fixture is new, or tile has been laid doesn’t mean that you have a home with upgrades. What it does mean is that you have a clean home. What makes those items upgrades? The quality of the items. New linoleum is still linoleum. It doesn’t increase the value of your home nor will it command a dollar for dollar investment recovery at sale. A pool is a great feature to have, but what type of pool is it? Is it a pool that most people expect, with a diving board and/or decorative rocks surrounding the perimeter, or is it an enlarged spa? In Arizona, in the 200-300K price range, a pool adds about $5,000 in value. Sometimes more, sometimes less. This really depends on how many homes in your sub-division have pools. In some countries, as you can see in the illustration, pools are in very high demand.

Paint is not an upgrade. An air conditioner just like the neighbor’s is not an upgrade, even if it was installed yesterday. Sure, it’s new, and that may influence whether or not someone will consider your property, but it will not support a higher price. It is a deferred maintenance item. An air conditioner twice the size of the surrounding neighborhood could be considered an upgrade, unless you’ve upgraded yourself out of the market.

Basically, anything that is expected to be in a standard single family home in the 200K – 300K range will only add to the sellability of the home, not the value.

Be careful when you spend money on your home, because some items don’t fit. A 6-Burner Viking Gas Stove in a 300K Home with Corian counter tops and laminate floors won’t increase the value of your home. It will make it sell faster, true, but you won’t recover your costs. Nobody expects there to be that high of an upgraded item in your home. Consider upgrades to be vast improvements over not just the condition of the previous item, but also the quality. The items you perceive to be upgrades may only be what you believe to be upgrades and the rest of the world may expect more.

The Bottom Line

Your house has an inherent value to someone. Until the home closes escrow, your home’s value is basically unknown. What you do know is:

How much others have paid for similar homes, recently.
How much you paid for your home.
How much money you put into your home.
How much you still owe.

The average return on Real Property is around 4% annually. 2005 really screwed up homeowner’s perception of value in housing. If you purchased your home in 2003 for $150,000.00, and you apply the average rate of return, a realistic price for your home in 2008 would be about $185,000.00 give or take. That’s $7,000 per year in value, and it’s realistic. If your neighborhood comparables show that properties just like yours are selling in the $220,000 range, then your return is HUGE and you need to realize that it’s completely abnormal. Many homeowners screwed up by tapping into that artificially bloated equity to upgrade their homes or buy other properties or a boat or other luxury item. Now, they think they can recover it, and they can’t.

Let’s just hope that Sellers will become more realistic about looking at how much value they have gained already and consider it a blessing, and to not be greedy. If you are thinking about selling your property, and you thought it was worth more than it actually is, think again about your reasons for selling. If you must sell, get realistic about the price and sell. The offers are there and there are plenty of hungry buyers. If you don’t have to sell, hold the property or rent it out and take a small monthly hit for a while. You’ll benefit from it in the long run.

If you have no idea whether or not you’re in the right position to sell your home, give me a call at (602) 312-3262 and I’ll be happy to work up a Market Analysis of your home so you can make the right decision. When you’re ready to list your property, know that I will take care of you through the entire process and in the most cutting edge ways.

I hope to hear from you.