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The Price of your Home

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There are many factors that determine what someone is willing to pay for your house, today.  And let’s be real.  The value of your home isn’t what Zillow says it is, it isn’t what your neighbor’s house sold for recently, and it isn’t necessarily what you feel it’s worth.

The value of your home is what a buyer is willing to pay for it, today.

It is a completely subjective matter controlled by the forces of Supply and Demand, a simple concept that many people don’t quite understand.

The variables that operate inside of Supply and Demand are seemingly endless, but for the purposes of pricing a home, one of the most important factors is its location.  Where a home is will often be the most influential factor in evaluating a home’s potential sales price.  I say potential because some homes, while they may be located in prime locations, may not be ready to exploit the full value of that location.  They may be in disrepair, etc.

Remember, your home is only worth what someone will pay today.  This makes marketing the property a challenge, because unless someone comes to the table today (which happens from time to time) the price you ask needs to be in line with what it will sell for in the future, and none of us have information that allows us to predict the future.

What we do have is a long history of trends and behaviors.  Those past behavior patterns allow us to accurately predict gradual future changes, whether positive or negative.  There’s no prediction tool for anomalies (such as the market meltdown of 2008) and sometimes they surprise us, but we are able to develop a fairly accurate assessment of a gradual change in the market over time, thereby being able to anticipate the market and price a home correctly the first time.

The goal when selling a house is to get it sold.  If that’s not the goal, then it shouldn’t be on the market.  In order to get the house sold, the price needs to anticipate where the market is headed and be priced according to that trend.  If we do this successfully, then we’ll be able to price the home ahead of the market.

So how do we determine the direction of the market such that we ensure we are pricing the home ahead of the market?

Math.

In almost every metropolitan market, anticipating the gradual direction of the market can be calculated with simple math, and that simple math will show us more about the Market Condition and Market Supply.

Market Condition

There are three market conditions that you may hear from time to time.  The first is a “Buyer’s Market.”  That’s where the number of homes on the market favors the buyer and puts them in a stronger position, i.e.: plenty of homes from which to choose.  The second is a “Seller’s Market,” which is the opposite, giving the seller more control over the outcome because there are less options for the buyer.  The third is a “Balanced Market” where everything is balanced with very little fluctuation in price.

To determine what the condition of the market is, one must first narrow their market to the area that they’re working with, such as your sub-division.  With just the right information, we can figure out what the condition of the market is in your area.

Market Supply

Market supply, in it’s simplest form, represents the time it would take for all of the homes on the market to sell, assuming no other homes were listed for sale.  For instance, if you had 10 homes on the market, and 2 homes per month were selling, then there’s a 5 month supply. (10 / 2 = 5)  Simple math.

In Phoenix, over time, we can show that a balanced market (that being a market where price does not fluctuate) occurs when there are approximately 6 months worth of homes on the market.  Anything below means we’re in a Seller’s Market, and anything above means we’re in a Buyer’s market.  The degree to which the prices will be influenced is directly related to how far away the Market Supply is from that 6 month mark.

In your neighborhood, if we find that there’s a 5 months supply, then it would be safe to assume that there is slight upward momentum in pricing.  If there is a 1 month supply, then prices may be increasing at a much faster pace.

The same goes for an over-supply of homes.  If there’s a 10 month supply of homes in your market area, it would be safe to assume that there will be down-ward pressure on pricing.

Once we determine the market supply in your area, we can accurately predict the direction of pricing, and price your home accordingly, which ultimately is a target price that will get your home sold.

That is, after all, the goal.

 

 

A Few Critical Money Tips for Real Estate Agents

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When you’re self employed, YOU are responsible for more than you think.  As an employee, which you may have been familiar with up until the point you decided to become self employed, your employer handled your taxes and social security for you.

Now that you’re self employed, you MUST have a simple roadmap to account for what you’ll owe the government simply for doing business.

Tip #1: Taxes and Crap Like That

When you get your first commission check, or your next commission check, for those of you who have not planned well, you will apply the following formula to the check.  As an example, I’ll use a $100,000 sale with a co-broke of 3%, you being the buyer’s representative, without the broker’s cut considered in the calculations to make round numbers and .

On that $100,000 home, you earn a 3% co-broke, which is $3000.00.  You dance your way to the bank, deposit the $3000.00 and have a jolly old time at happy hour with your clients and friends.

Did you really make $3000.00?  No.  You didn’t, because you MUST set aside a portion of that money for self employment tax and income mcc4tax.  So, a basic rule of thumb for a new agent who isn’t sure what their tax bracket will be would be to put 30% of the gross income in a separate basic, plain jane savings account.  So, on your $3000.00 check, you put $900.00 away for the piper…whom you’ll pay…quarterly.  Isn’t that fun?  Look, self employment tax is 15.3% as it is, and that’s on TOP of your tax bracket.  So do yourself a favor.  Plan according to what you think you’ll make.  It’s nearly impossible to calculate exactly what you will owe, but you can get good at estimating, over time.

Tip #2:  Plan for your annual dues on a monthly basis.

You have annual fees that you pay.  You need to determine how much that annual fee costs you monthly.  Add the sum of the monthly calculation of all of your annual dues together to determine what it costs you per month to have all of the compare motor trade insurace business privileges you have.  If you can be billed monthly on anything, it’s easier to manage your monthly cash flow if you switch.  If you cannot, you need to know what an annual fee looks like monthly.  For example, Scottsdale Association of Realtors bills annually, but it can be expressed monthly.  Figure out that number.

Then, using your business checking account, set up an online transfer that happens monthly for the amount you need.  In the case of a single annual expense of $440.00, you would need to transfer roughly $37.00 per month from your business checking account (account used for business purchases) into a plain jane, separate account designated solely for annual dues expenses.  When the bill comes for the annual expense, you will no longer feel like you’re being raped by the system because you will already have grown accustomed to 1/12th of the amount every month being moved into a designated account just for this purpose…and nothing more.  You cannot borrow from your own account to pay for other crap.  This money is considered spent already.

Every year when I get an annual bill, the money is already there because I move it there in little chunks so it doesn’t seem so bad (that includes things like my annual accountant fee for doing taxes.)  And, every quarter, when I estimate that nasty tax bill, I have the money to cover it and if I’m short, it’s not by very much.

Be smart as an agent and a self-employed person and put money that you earn away or they’ll come get it from you, and that will suck.

Slave to the Lender

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There’s a relational dynamic that many people neglect or aren’t even aware exists when they consider purchasing something with debt.  It’s the master/slave dynamic.  When you borrow money from someone, regardless of the time-frame you’ve agreed upon to re-pay that debt, the debt must be repaid, or there’s risk of bad things happening.

As a consumer, I have a say in what products or services are of value simply by choosing to do business with that company.  In other words, I vote with my wallet.  If I don’t agree with something a company does, I don’t have to use their services.

When you borrow money, something is usually used to secure the loan accompanied by an evaluation of your “debt score.”  In the case of a house, the house itself becomes the security instrument that the lender uses to ensure they’ll get paid.  That is why your rates can be so low.  In the case of consumer credit cards or personal loans, since there’s usually nothing put up for security, your rates will be much higher as the lender shifts the risk to you.  They make more money that way.

Collecting payments from you can be a costly process, depending on the type of loan you’ve taken.  When you buy a house, your payments are typically handled by a company you never chose to do business with.  In 2002, I purchased my home using a mortgage broker who promptly sold the note for my house to Countrywide Financial, who was acquired by Bank Of America who subsequently released the note to Greentree Servicing.

I had no say in the matter except that when I signed my closing docs, I gave consent to this phenomenon.  Perhaps I could have retained more control over who I was choosing to do business with had I refused to these terms, but at the same time, perhaps I would not have closed on my first home.

Now, as a debtor, indebted to repay a loan serviced by a company (Greentree) with whom I would never choose to do business, I am stuck with their garbage services and practices until I either pay off the note, or they release the servicing responsibilities to yet another collection company.

This is one example of how borrowing money can put you into a situation whereby you have no control over who you choose to do business with.  Thus, the borrower is slave to the lender.

Proverbs 22:7 – The rich rule over the poor and the borrower is slave to the lender.

 

Dear Wells Fargo, I’m Leaving You

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Dear Wells Fargo,

After nearly 20 years of banking with you, I am leaving.  I will be finding someone else who cares about me more.  I will find someone who doesn’t charge me to hold my money, who doesn’t rip me off when I use the ATM that’s part of the “network,” who doesn’t eat up my money every month at a rate of return that makes what you pay me look like a fee in itself.

I will find someone who makes decisions based on who I am as a customer, not as a number.  I will find a company who is in touch with their client, and who doesn’t hire a team of people to “handle customer service issues” through one twitter account with canned responses.  I will put my money where I can shake the hand of the people connected to the pulse of the company’s culture, who understand and believe in the vision of the company, who aren’t sheep, controlled by a corporate attitude.

Bank of America?  No.  Chase?  No.  Citi?  No.  Don’t worry Wells Fargo, I’m not going to leave you for another famous bank.  I’m going for the bank next door, cause she’ll care more, and we can raise a family of children named Benjamin, Lincoln, Grant, Jefferson, and Washington together.

When I deposit my certificates of appreciation, I do so trusting that you appreciate it, and so far, you have not appreciated me.  So, farewell.  I’ll never come back.

The Moral Obligation: Repay or Walk?

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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.

Give Your Specialist Room To Work

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The process of selling a home short of what you owe is simple in concept, but very difficult emotionally because it involves you and your home, and your prospect of foreclosure, and your finances.

As a short sale expert, it’s my job to first market your home, and second, negotiate with the lender so you don’t have to.  Banks listen to us because our job is to circumvent their B.S. and we’re not emotionally invested in the financial situation, even if he had finest lending solution for all and because we know the market and they don’t.  We are invested in you and your success through this process.  We know the facts and we get the job done where the job can be done.  Banks don’t really listen to their customers.  In fact, they’ll use tactics to frighten you into emptying your retirement accounts to stay afloat until all of your money is gone and you’re truly realizing the hardship that was inevitable anyway.  They know that most Americans feel held hostage by their “credit scores” and they’ll use that to keep you paying your mortgage even in the face of financial hardship.  As long as they get their money…

It’s best that you allow your Certified Distressed Property Expert the room to do the job you have hired them to do.

Through the process, you will be hounded by your lenders, you will be called, you will receive letters that may cause you to freak out.  You may even start searching for alternate solutions in desperation.  Don’t do this.  It’s critical that you give your short sale expert room to work.  There’s a process involved and deviation from that process is the first thing that will slow the process and in some cases prevent success.

Sometimes the job cannot be done.  You need to know this.  A short sale is how we attempt to prevent foreclosure.  Banks do it because it saves them money.  Foreclosure is expensive for them, and they don’t want to own houses, they want to play with money.  However, the clock is ticking, and there is no guarantee that we will be able to achieve an agreement with the lender.  We do it all day long, and have been very successful at it, but nobody can guarantee that it will work.

What I can guarantee is that if you aren’t 100% trusting of your realtor, and you find yourself seeking alternative solutions, of which there are none by the way outside of finding someone else to start all over again, then you’ll be saying to your agent, “I don’t think you’re able to do the job, so I’m going to have someone with more clout, more experience, or more legal knowledge tackle it.”  As a result, your agent may resign the listing to take on more loyal and trusting clientele.

A good agent will know when he in over his head, and a good agent will resign from the job if he recognizes that he can’t solve your short sale problem, whether it’s truly unsolvable, or it’s because you aren’t giving him or her the room needed to do the job.  If you feel like you need to seek outside help, such as an attorney, then feel free to do so, but I would encourage you to read my story about “Attorney Negotiated Short Sales are Still Just Short Sales” so you understand why they offer this service.