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It’s Mostly About the Asking Price

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Supply and demand is a powerful economic force that has many dynamic variables that affect consumers and suppliers.

When it comes to selling a home, ultimately, it comes down to the price. There’s a supply of homes on the market, each supplied by a single owner (for the most part) and represented by a myriad of brokerages competing to be the best at what they do.

It’s different than a company that produces the same product over and over again. Create a widget, and the number of widgets compared to the number of widgets demanded plays a huge role in determining market value of that widget. Please go and read stockpair review at gobinaryoptions.net.

Real estate is different, however. In a widget store, the location of the widget doesn’t affect the retail price of the widget. In real estate, one builder could build the same house in two different locations and the demand will be for the location before the house itself.

This is not always true, but is for the most part.

When you ask more than the market will bear, in consideration of the competing properties and their show quality, you’ll have a hard time selling.  When you price a property just right, you tend to sell it much faster than the competition.  Often it doesn’t matter what you’re buying so much as it matters where you’re buying it. Any home can be remodeled to maximize its value in its location.  Tear it down, re-build.

 

 

Price is Negotiated on the Front End

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There are many points along the residential real estate transaction that are open for negotiation.  One misconception that many buyers may have is that they can go in with a higher price than their competition to beat them, then use the inspection period to bring the sales price down by leveraging the repairs against the seller.

Here’s the thing.  While the sales price can be modified at any point by agreement (i.e. on an addendum), your offer/counter-offer time-line expires when the seller signs the offer.  All you have now are contingencies to let you back out of the purchase.  So, you, as the buyer, have very little say over the price after you’ve inspected the home.  What you do have is the right (depending upon the contract terms) to cancel the contract and walk away with your earnest deposit.

When a home needs repairs, you have one opportunity prior to the end of the inspection period to make the seller aware of what you disapprove of, both warranted, and non-warranted items (remember, some items are to be fixed per the Seller Warranty regardless.)  This notification is done using a document called the [download id=”56411″].

Often a buyer might use language such as, “Seller to credit buyer $5000.00 in lieu of repairs.”

This is a red flag for lenders.  Lenders don’t want to see anything about repairs, because they don’t want to lend on a property that may have liabilities.  Credits are typically handled on the front end, prior to reaching an agreement on the sale price.  But, if there is language added that says something to the effect of “Seller to credit Buyer $5000.00,” the BINSR is NOT the place to do it.  This must be done on an addendum, and even that can pose problems, because the credits provided by the seller can only cover closing costs.  So, if the seller is willing to provide a $5,000 credit, they might as well lower the price by $5,000.

Let’s use a buyer under contract at $200,000 with a seller who agreed to pay 3% towards closing costs as an example.  The seller is allowing $6,000 to be allocated to the buyer’s closing costs.  During the inspection period, the seller elects to credit the buyer $5000.00 instead of repairing the disapproved items that the Buyer points out.  Now we have $11,000 in credits, but closing costs won’t be that high, so we have nowhere to put that money, except back into the seller’s pocket.

While the buyer may be attempting to use the BINSR to leverage a price reduction, the BINSR is designed to be used to notify the seller of disapproved items.  Nothing more.

Until a buyer receives a response from the Seller regarding their intentions after being notified of disapproved items, they have only two options.  1.  Either continue with closing without any repairs being completed, or 2. bail out and receive the earnest funds back from bondsman denver co and start searching again.

The outcome of the inspection contingency is going to vary depending on market conditions.  If it’s a Seller’s market, there may be multiple offers on the property, in which case the buyer has less leverage throughout the entire transaction.

Don’t bank on repairs to lower the price of the home you intend to purchase.  It can be done, but it’s the Seller who holds the ball.  If the seller is desperate to sell, then they may simply lower the price, rather than go back on the market, but if they have multiple offers, then they may be willing to close at a higher price with another buyer without making concessions.

 

 

 

 

 

The Short Sale Pricing Plan

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Supply and Demand Basic Curve

Every short sale needs a pricing plan.  Every home on the market needs a pricing plan.  In any market, it’s in the best interest of the home owner to sell the home for the highest possible amount.  In a distressed market, with a distressed property, sometimes there isn’t enough time to “hope” for a higher price than the home will bring.  Knowing that, it becomes critical to the life of the listing to have a scheduled price reduction plan.

Every short sale that I have listed has received an offer, because I implement a pricing plan, depending on the amount of time left before foreclosure, which prices the home slightly above market value, then systematically reduces over time at regular intervals. When the price reaches market value or below, it will most likely draw an offer, and as a result of the planning, enough data has been captured to make a solid case to the lender that no higher offer is possible. This is all driven by supply and demand.

It’s very important to illustrate to the banks (because they have no idea about real estate) the gradual increase in showings over time as the price is slowly reduced on a schedule.  When we can show a lender that an over-priced home is receiving no showings, yet when we reduce the price, the number of showings increase, we make a good case for the offering when it comes.

Should I Buy New or Used Car?

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Used.  Always used.  Buying a new car is one of the worst financial decisions I have ever made.

Monthly Payment

The monthly payment is the first thing that everyone looks at when they finance a car.  Why?  Because they live in a cash flow mentality.  In this economy, cash is king.  If you don’t have it, you can’t spend it.  If you can’t spend it, you can’t make it.  If you can’t make it, you won’t have it, and the circle continues.

If you’re thinking about a monthly payment, and any portion of that payment is going to be paid to anyone other than yourself (in other words, the bank), then you’ve already lost the battle, because you’re headed into debt.  There may be a reasonable explanation for why you’re seeking financing for something you don’t have enough cash to purchase up front, but my advice to you is to completely avoid Bacteria Testingit altogether.  In order to succeed at this, you will have to radically change your idea of what you should be driving.  One of the mistakes people make when they consider their monthly payment on a new or used car is how much it really is going to cost them every month.  The monthly payment every month is only the financed amount, and it hides all of the other expenses you’ll incur throughout the life of the car.

Since I’m such a nice guy, I’ll go ahead and lay out my stupidity (Dave Ramsey calls what I’m about to explain a “stupid tax”) for all to see, with no holds barred.

My Stupid New Car Buying Experience

In March of 2008, I purchased a new Honda CR-V, loaded.  The only feature I didn’t buy was the All Wheel Drive.  Big deal.  So what did my car cost?  The sticker price was $27,895.  Divide this by 72 and you have a monthly payment of $387.00, right?  Wrong.

When you buy a new car, you have to add to it the document fee, which in my case was $368.00, sales tax, which was $2259.50, and title and registration, which was another $514.71.  These are just the up front fees.  Then there’s the finance charge.  My loan was at 7.9%, which over a period of 72 months is $8162.47.

Add all of these up, and the price of the car goes up to $39139.68.  Divide that by 72 and you have a monthly payment of  $544.00.  But is that the total cost of owning the car?  No.

In the first year, the car depreciates roughly $4200.00, so for the first year, you’re paying $544 per month plus $4200.00 divided by the first year (12 months) or $350.00.  Color me stupid, but that’s $894.00/month.  Add insurance at $1200/year and that’s another $100/month.  Now we’re up to $994.00/month.  Fuel for me last year, as a REALTOR, was $2937.00.  That’s $244.00/month.

My vehicle, which appears to be costing me only $544/month (which by the way, is ridiculous and I should be stabbed through the eye with the very pen I signed with) is actually costing me $1238/month in real money!

The following is from Edmunds.com.  It shows what you can expect to be the real cost of owning a 2009 Honda CR-V.

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 Year 1 Year 2 Year 3 Year 4 Year 5 5-Year Total

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 Depreciation $4277 $2729 $2402 $2130 $1911 $13449

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 Financing $1801 $1455 $1082 $680 $247 $5265

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 Insurance $1258 $1302 $1348 $1395 $1416 $6719

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 Taxes & Fees $2439 $374 $313 $262 $220 $3608

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 Fuel $1996 $2056 $2118 $2182 $2247 $10599

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 Maintenance $93 $546 $359 $872 $1108 $2978

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 Repairs $0 $0 $105 $254 $373 $732

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 Yearly Totals $11864 $8462 $7727 $7775 $7522 $43350

The Used Car Buying Experience

Let’s assume that I decided way back at the beginning, that I would be satisfied with driving the half-way okay car that I had which was completely paid off and only representive a small amount of “inconvenience” in my life.  No NAV, no fancy leather, no sun-roof…etc.  Big deal right?  Right.  Now, with a paid for car, the bank is getting nothing.

At the time, my truck was worth $8000.00.  That actually means that I could have moved from the truck into a car that was more conducive to showing property for the same price, or perhaps a bit less.  But, I would have been able to set my sights on that newer car without losing $1238/month.

Here’s how it starts Lost Car Keys story.  For 10 months, I would sock away $544.00 every month in my own savings account.  Hey, I was willing to pay it to the bank, so why not just pay myself?  After 10 months, I have $5440.00.  Now I trade my $8000.00 truck, which would still have been holding its value, in to a used car dealer for a car that costs $13,440.00 (That’s $8000.00 + $5440.00.)  Not bad.  Yet again, I save for 10 months an additional $5440.00 and I trade my most recent car in for another car at the price of $18,880.00.  20 months into the process I’m driving a fairly nice used car.  Keep in mind, I’m never buying new cars through this process and I’m always upgrading to cars that are holding their value, like a Honda or Toyota.  For another 10 months, I save an additional $5440.00 and I trade my $18,880.00 car in for a used $24,320.00 car.  30 months have gone by and I haven’t paid the bank a red cent, and every 10 months I get to upgrade to a newer car, and not only that, but the $24,000 car I’m in now, was purchased by someone else NEW just 3 years earlier for a whole lot more than $24,320.  Let the first owner take the depreciation.  Let’s do it again.  10 more months of saving $544/month for another $5440.00 and I’m now able to trade in for a $29,760.00 car, paid for, IN FULL!

If you’ll recall, the price of my new Honda CR-V was $27,895.00.  It’s been 40 months or 3.3 years, it’s 2011, and I can actually now purchase that 2008, loaded CR-V with miles on it, for much less than its original sticker price.  In fact, that car that I had to have last year, would probably cost me under $20,000 in 2011, and would have all of the same features!

This is an absolute no brainer.  When you buy a new car, you lose, no matter what.  If you’re in a financial position to be able to take that loss, in other words, if you have the money to blow, then you can buy a new car, but you lose.  It’s a mathematical fact.  Most of us do not have that money because we jump in before we look at the facts.  So here’s where I am now, as a result of my impatience.  I have a one-year-old car with 20K miles that’s worth about $22,000.  My monthly payment is $544, but as we’ve seen, the actual cost of ownership this first year has been over $1200/month.  I still owe $27,000 on the car, which is a hair under the sticker price, and the only way out is to sell it and take a note for the difference.

Instead of having a paid for Honda CR-V in 40 months, I have to get rid of it and take an $8000.00 loss, which means I’ll be paying off nothing for a while.  Are you as stupid as me?

Is it a Virus, Infection, or well what!

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There’s a certain threshold in a given area regarding how much you should upgrade your home and how much it will make a difference in the competition. It would not make sense to put a $5000.00 stove in a $200,000 condomimium, etc. That’s just one example. So, when a prospective tenant or buyer is looking for a place to buy or rent, there’s also a threshold to their perception of value, and when something seems out of place, it won’t matter to them that you have the nicest property in the area, when it comes to considering the rent or price.

Most upgrades will increase the ability to sell or rent your home over the next door neighbors, but it won’t guarantee that you’ll be able to draw a premium based solely on those upgrades, especially if the area in which you’re renting or buying doesn’t warrant such upgrades.

For potential rental properties, if you ever find yourself saying, “I can’t drop the rent that low because my mortgage is more than that,” then it’s time to think about the cost of carrying a vacant property.

Let’s say your mortgage payment is $1500/month and your home can draw $1200/month in rent. That’s a loss of $300.00/month when it’s rented. If it’s not rented, it’s costing you $1500.00/month.  If you rent it for $1200/month for one year, you’ll lose only $3600.00.  Let’s see, $3600 divided by $1500 is 2.4.

You choose.  You can be realistic about your asking price and get the property rented and lose $3600 in 12 months, or you could hope and pray you get someone to rent your house at your inflated price and lose $3600 in 2.4 months.  Hmmm… 12 months versus 2.4 months.

If this is your way of thinking, it’s just not realistic and you may need to be innoculated from the virus, infection, or well whatever it is that’s keeping you from seeing the real market conditions.

Remember, time is money and the entire nation is getting a swift lesson in loss mitigation.  Most of us are in a “collection” mindset.  We want the full payment and we want it now, and we waste all of our time trying to hunt it down.  The best method is to mitigate your loss by getting something going…anything.

The Five Stages of Real Estate Grief

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There are three factors that determine the sale of a home.

  • Location
  • Condition
  • Price

What good news!  Why?  You have nearly complete control over 66% of what sells a home.  Granted, you cannot change the condition of the surrounding properties or the type of construction of your property.  I mean, you could raze your house and rebuild a completely different style home, provided your HOA didn’t prevent it, but then you’d be throwing good money after bad as you created a home that didn’t fit the surroundings.  The condition of the surrounding homes has mostly to do with location anyway, so you really do have control over most of the consumer response to your home.

There are five stages of grief that, if you are not in touch with reality, you will traverse throughout your experience selling a house.  Why is this?  Well, selling a home isn’t like selling off your possessions at a garage sale.  Garage sales are usually designed to eliminate junk.  Your home is a very personal space, and you’ve grown very attached to it, most likely.

My job is to provide you with the right information to help you make an informed decision about how you should price your home, and what you can do to improve its chances of selling.

In todays market, of the determining factors that you can control, price carries the most weight, and many sellers have fallen victim to “rear view mirror” thinking.  Newsflash!  The gig is up.  We have to price our homes in line with what buyers are willing to pay.  Remember that the value of a home is determined upon close of escrow.  Asking more than it will sell for does not declare the new value on the block.  The actual sale price of a neighboring like property combined with an appraisal is what is going to help you price your home properly.

Stage 1: Denial. Nobody is exempt from feeling this if their expectations are out of line.  Not even real estate agents these days are pricing their properties realistically.  If you enter the transaction with a realistic outlook on what your home can actually get in the marketplace, you’ll be able to avoid the denial that accompanies the let down after your property has chased the market.

Stage 2: Anger. Obviously if you’ve felt the loss of thousands of dollars (albeit on paper only, which makes the situation even crazier because you never had the money in the first place) then you’re going to experience all five phases.  To what degree is determined by how quickly you can bounce back from fantasy land.  You will be angry about waiting too long to sell.  You’ll be angry when you realize that your Realtor was right when he/she recommended a much lower price bracket than you insisted upon.  Get over it.  It’s time to sell your home.  Make the adjustments now and minimize your losses (remember, that didn’t even exist in the first place.)  And, if you are actually experiencing more than just losses on paper, that’s all the more reason why you should price your home right, the first time.

Stage 3:  Bargaining. Through your anger you’ll find yourself justifying why things are the way they are.  You’ll begin to think things like, “If only I had.”  “Maybe if we try this we can still salvage our…”  Nope.  You’re where you are now, just get it sold.  Listen to your Realtor.  He or she does this every day and sees people go through this process all the time.  Trust us, we are here to help you move on with your lives.

Stage 4:  Depression. This is where you’ll want to give up.  Perhaps you might even consider taking your home off the market because you’ll find no point in selling.  Most people can’t afford to hold two or more properties.  Lots of people can’t even afford one property these days, especially after getting into the financial trouble that lenders allowed.  You may even want to let your Realtor off the hook and find someone else to sell the home.  Trust the Realtor you have.  If he’s done his homework and is working hard for you, stick with it.  We dread working our tails off to be a victim of the fourth stage of grief, which usually ends in you finding another Realtor who advises you to drop your price only to sell where your first Realtor had already suggested you price your home.

Stage 5:  Acceptance. If you’re a healthy person, you’ll probably make it here quickly.  In fact, if you’re a healthy person, you will probably avoid this entire process of grief through the idea of losing your yet unrealized equity gains in your home.

I can’t stress enough how important it is to price your home to sell.  If you’re serious about selling your house, think about the cost in your lives of the process of selling.  You may own two homes, you may have added utility bills through the process…you name it.  The cost of pricing your home too high can last far longer than it’s worth.  Your time is important.  If you’re not actually serious about selling your house, then you probably shouldn’t list it at all.

Are you happy with your real estate situation?  If not, please give me a call and I’ll help you move from point A to point B in as few steps as possible so you can go about the business of living and enjoying your life.