Looking Twice at Overpriced Homes

It's Not Always a Physical Defect that Drives Away Homebuyers

Common knowledge dictates that if a home doesn't sell, there must be something wrong with it. That's a true statement. In a market that is moving, there is something wrong with a home that doesn't sell. But contrary to popular belief, it's not always location or condition. The number one reason why an otherwise attractive home does not sell is price. Homes that are grossly overpriced often never sell at all. Why? Because home buyers don't make offers on them.

Why Don't Home Buyers Make Offers on Overpriced Listings?

• They don't want to offend the seller. It goes against human nature to offer substantially less than asking price to a seller. It's insulting to the seller and embarrassing for the buyer.
• Buyers erroneously believe that the seller knows the home is overpriced.

• They believe that if a seller would be willing to sell for less, the seller would simply lower her price.
• Buyers also assume that the seller must have turned down low-ball offers from other buyers because surely someone, somewhere along the line, had offered a reasonable price to the seller. But many times, there are no offers at all.

How Do You Find an Overpriced Listing?

The easiest way is to ask your Realtor about the average days on market (DOM) for your area. Multiple listing systems are designed so it's fairly easy to compute the DOM. Then ask your Realtor to sort through the listings and give you a print-out of every home that has been on the market longer than the average DOM.

If your Realtor is a neighborhood specialist, it is likely she has toured these homes and has intimate knowledge of condition and layout of these homes. Ask her to share this information with you. You can also ask your Realtor which of the homes she thinks are overpriced as well. You will be amazed to learn that often agents don't tell listing agents whether their listings are overpriced because agents don't want to offend anyone either! But listing agents aren't infallible. Sometimes they make mistakes when estimating market value prices for a seller. Ultimately, however, remember that it is always the seller's responsibility to select the sales price.

Why Would a Seller Lower the Price?

A couple who bought the house you see pictured on this page at first wondered the same thing. That home sat on the market at an asking price of almost $950,000 for three months. In a hot market seller's market, it probably could have sold for about $800,000, but the market was softening and demand was decreasing. Moreover, the sellers had moved out of the area, leaving the home vacant. The listing agent was unaware that the home was overpriced. The sellers were motivated. Pointing out market conditions to the seller, this couple was able to negotiate a deal to buy the home for about $400,000 less than list price. Their contract was the only offer on the table while the sellers' clock was ticking.

To make the offer more attractive to the sellers, the buyers did not include the sale of their existing home as a contingency. They offered the seller a sizable earnest money deposit to show that they meant business. And they also showed the seller a list of homes that sold in the neighborhood at more reasonable prices.

Now, not every home that is overpriced will ultimately sell for less than market value. But many homes that are listed at unrealistic prices are owned by sellers who are motivated and who are willing to listen to reasons why they should sell at a reduced price to you. If you find out that a seller has turned down multiple offers for less money, it might mean that it's just a matter of timing. Eventually the light bulb will go on and a seller will say yes.

There are overpriced gems hiding among the inventory of homes for sale every day. Don't just pass them by. You could be passing up an opportunity to buy your dream home.

Interesting Side Note: After this transaction closed and the final sales price was published, an irate buyer who had previously seen this home called the listing agent. She was upset and complained, saying if she had known the seller was willing to go that low, she would have bought the house and offered $100,000 more. Well, why didn't she?

http://homebuying.about.com/od/homeshopping/a/Buyoverprice.htm

Home Inspections - Six Reasons to Inspect an AtticDon't Miss This Important Home InspectionDon't Miss This Important Home Inspection

Don't Miss This Important Home Inspection

Although inspecting attics is rarely foremost on a buyer's mind, there are a lot of good reasons why buyers need to get into an attic or send their home inspector into the attic before completing a home inspection. Attics should not be overlooked. An attic reflects the history of a home. It can provide clues to serious problems that might not be disclosed or even known by the current occupant of the home.

• Supporting Truss or Rafter Damage
  
  Roof inspections won't necessarily turn up defects in the structural members inside the attic. While the roof might look sound and secure, inside the attic you could find broken trusses or rafters. An inspection would disclose stress cracks that could lead to a loss of integrity and would also give buyers peace of mind that the size of the lumber was correct and up to code.

• Previous Fire Damage
  
  If the rafters are any other color than natural wood, that could be a sign that the home was on fire.

How Does an Agent Get Paid?

To understand who pays real estate commissions -- whether it's sellers or buyers or both -- first take a look at how real estate agents are paid and how they share cooperating commissions. Don't be embarrassed if you don't know how commissions work because I've had clients who didn't know, even though I had sold their home, represented them to buy a new home and then later listed that home for sale.

How Real Estate Commissions Work

• Real estate agents work for a real estate broker.
• All fees paid to a real estate agent pass through the broker.
• Only a real estate broker can pay a real estate commission and sign a listing agreement with a seller.

How Are Real Estate Agents Compensated by the Broker?

Divisions vary.

New agents can receive as little as 30% to 40% of the total commission received by the brokerage. From that amount, other fees may be deducted such as advertising, sign rentals or office expenses. Top producing agents might receive 100% and pay the broker a desk fee. Everybody else falls somewhere in between.

Listing Agents' Fees

The most common type of listing agreement between a seller and her agent gives that agent's broker the right to exclusively market the home. In return for bringing a buyer to the table, the seller agrees to pay a commission to the broker. Typically, this fee is represented as a percentage of the sales price and is shared between the listing broker and the broker who brings the buyer.

Co-Broker Splits

Divisions of fees among brokers is not always fair or equal, just like life. For example, a seller could sign a listing agreement for 7% that stipulates the listing broker will receive 4% and will co-broker 3% to the selling broker. It's not always a 50/50 split. In a buyer's market, sellers might want to consider asking the broker to give a larger percentage to the buyer's broker. In a seller's market, the buyer's broker might receive less. There is no set formula.

Buyer's Brokers

Seller Pays the Buyer's Commission

Under a Buyer's Broker arrangement, the named brokerage and agent represent the buyer. The fee paid to the broker most commonly is paid by the seller. Some buyer broker agreements contain clauses that will compensate the brokerage for the fee it is due less the amount paid by the seller. For example, a cooperating listing might offer to pay a broker only 2.5% of the sales price, whereas the brokerage operates at fees of 3%. The difference of .5% could be paid by the buyer if the broker chooses not to waive that amount.

Buyer Pays the Commission Directly


• The seller is then not obligated, under most listing agreements, to compensate the listing broker for more than the listing side or portion of the commission.
• Often sales prices are reduced to reflect the amount the buyer is paying.
• Sellers can also credit the buyer the commission and the buyer, in turn, credits the brokerage.

Who Really Pays the Commission?

It can be argued and, quite rightfully so, that the buyer always pays the commission. Why? Because it's typically part of the sales price. If the seller did not sign an agreement to pay a commission, the sales price might have been lowered. And therein lies the appeal of buying homes through unrepresented sellers because, given the same logic, those prices should reflect a net sales price without a commission. But those sellers haven't quite figured this out yet which causes potential buyers of those listings to be consistently disappointed.

To help alleviate much of this confusion, don't be astonished if over the next 20 years sellers and buyers each retain their own representation and pay separately for said representation

http://homebuying.about.com/od/sellingahouse/a/overprice.htm

Home Selling - The Worst Home Selling Mistake a Seller Can Make

1 Home Selling Mistake

There's a great saying in the real estate business. To succeed in life, you want to be:

• The First Child
• The Second Spouse
• The Third Realtor

And like with most sayings, there is some truth in that statement, as agents who pick up listings after sellers have made major mistakes will attest.

But We Want More Money

When the average seller sits down to interview real estate agents, it's easy to get caught up in the excitement over choosing a sales price. More money means more financial opportunities for the homeowner. Perhaps it means the seller can afford to buy a more expensive home, help pay for her child's college education or take that greatly overdue vacation. Unfortunately, uninformed sellers often choose the listing agent who suggests the highest list price, which is the worst mistake a seller can make.

Establishing Value

The truth is it doesn't really matter how much money you think your home is worth.
Nor does it matter what your agent thinks or ten other agents just like her. The person whose opinion matters is the buyer who makes an offer. Pricing homes is part art and part science. It involves comparing similar properties, making adjustments for the differences among them, tracking market movements and taking stock of present inventory, all in an attempt to come up with a range of value, an educated opinion. This method is the same way an appraiser evaluates a home. And no two appraisals are ever exactly the same; however, they are generally close to each other. In other words, there is no hard and fast price tag to slap on your home. It's only an educated guess and the market will dictate the price.

Is it Too Low?

Homes sell at a price a buyer is willing to pay and a seller is willing to accept. If a home is priced too low, priced under the competition, the seller should receive multiple offers to drive up the price to market value. So there is little danger in pricing a home too low. The danger lies in pricing it too high and selecting your agent solely on opinion of value.

How It Starts To Go Wrong

The seller of the Spanish home pictured on this page didn't even interview her real estate agents. She plucked the first one off the Internet because, "He looked like such a nice guy." He priced her home at $1.3 million. This agent never heard the local agents chuckling behind his back because he worked in a different city. After 90 days, the listing expired.

Continues To Go Wrong

The next agent, also from another town, listed the home at $1.1 million. Months passed. Eventually the price dropped to just under $900,000. Still no takers. A few lookie-loos, but no serious buyers.

More Than a Year Later

By the time the last agent was hired to list this home, the seller had grown weary and exhausted. It was now 12 months later. Together, the seller and her agent priced the home at $695,000. It immediately sold for all cash. The sad part is the comparable sales in the neighborhood fully justified a price of $835,000, but the home had been on the market for too long at the wrong price, and now the market had softened.

Agents Specialize in Expired Listings

There is an agent in my office whose basic real estate practice is comprised of calling sellers of expired listings and relisting them at market value. He sits in a small room with a phone, desk and chair, dialing number after number. Last year he sold more than 34 homes valued at more than $13,600,000, and he has 18 active listings right now. He makes a pretty good living repackaging overpriced homes.

Protect Yourself

The question is how much money have those expired listings cost the sellers? The financial loss often exceeds the extra mortgage payments paid and goes beyond the uncompensated hassle factor of trying to keep a home spotless during showings. It affects the value that a buyer ultimately chooses to pay because it's not a fresh listing anymore. It's now stale, dated, a market-worn home that was overpriced for too long. Don't let it happen to you. Don't be that seller of an expired listing.

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What to consider when reviewing a home purchase offer

A home purchase agreement is a complicated legal document. It will include all of the terms and conditions of the sale, most of which are negotiable. Some sellers focus on the price the buyer offers, minimizing the other terms and conditions. This approach can lead to trouble.

It's natural to want to sell for the highest price possible. But, the highest priced offer is not always the best offer. Recently a seller decided to accept the higher of two offers. Two days after acceptance, the buyers backed out. Their inspection contingency allowed them the right to back out for any reason. So, the seller had no recourse but to refund the buyer's deposit money and put his house back on the market.

Evaluate every one of the terms and conditions of the purchase offer before making a decision. Since virtually every term is negotiable, consider your options. You can accept some terms and counter others in order to fine-tune the contract to meet your needs.

Some sellers find it helpful to list the price, terms and conditions of an offer on a sheet of paper. Next to each item on the list, make a note as to whether the term or condition is acceptable or unacceptable.

The terms would include such things as the closing date, when possession will be delivered to the buyer, the specifics of how the buyer will finance the purchase, how closing costs are to be shared, what's included and excluded from the sale and the buyer's various contingencies.

Common buyer contingencies are for inspections of the property, financing, property appraisal and review of the property title record. Usually, buyers can withdraw from a purchase without penalty if they made a good faith effort to satisfy contingencies but were not successful. So you'll want to pay attention to the contingency deadlines. From the seller's standpoint, the shorter the contingency time period, the better. Still, these time periods should not be unreasonably short.

After reviewing an offer, you might feel the price is low, the closing date is too long and you need more time after closing to move out. In addition, you don't want to include the washer and dryer. If the offer is acceptable in all other respects, you might counter with a higher price, shorter closing, and more time to vacate. As an incentive for the buyer to accept your counter, you might agree to include the washer and dryer. A successful negotiation often involves give and take.

HOME SELLER TIPS: No-contingency offers are appealing. But, they can be risky, particularly if the buyer hasn't had a chance to adequately inspect the property before making an offer. You may be wise to counter a contingency-free offer with a short contingency for the buyer to inspect the property. It's far better to have any unknown defects discovered before closing than it is to be drawn into a legal dispute after closing. It's never a good idea to counter a buyer's inspection contingency out of the offer.

There's a definite advantage to a shorter rather than a longer closing. The longer the closing, the higher the likelihood that something might go wrong. For example, occasionally, a buyer who was fully approved for a mortgage subsequently loses his job and can't close the sale. If you need more time to move, ask the buyer to rent the property back to you for a while after closing.

THE CLOSING: Make sure that your contract includes a provision for the buyers to show evidence of their preapproval and verification of the funds needed to close if they haven't already done so.

About Author:
Dian Hymer for Inman News
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

What are the benefits of piggyback financing?

When a buyer puts 10 percent or less cash down, most lenders require mortgage insurance, known as PMI, which is paid for by the buyer. The cost of PMI is about 1/2 percent of the loan amount annually. So, on a $250,000 mortgage, PMI will run about $1,250 per year.

PMI provides protection for the lender in case the buyer stops making mortgage payments. Buyers don't like PMI because it increases the cost of home ownership. Currently, unlike most mortgage interest paid on a primary residence, PMI is not tax deductible.

Low-cash down buyers can avoid PMI by using piggyback financing. Here's how it works. Let's say you have enough cash to put 10 percent down on the purchase of a new home. If you borrow a mortgage for 90 percent of the purchase price, the lender will likely charge you for PMI.

Instead of taking out one mortgage, you combine two mortgages to come up with 90 percent financing and thereby avoid PMI. You could combine a 75 percent first mortgage with a 15 percent second mortgage. Or, you might combine a 70 percent first with a 20 percent second mortgage. You could save as much as $100 to $150 per month using piggyback financing, depending on the size of the loans involved.

You might wonder why anyone would choose to do financing that requires PMI. For some buyers, there's no other choice. Piggyback financing requires good credit. Second mortgage lenders can be stricter than first mortgage lenders in their qualifying criteria. Typically, borrowers need a credit score of 660 or more to qualify.

Recently, piggyback financing has increased in popularity, even with buyers who have a substantial cash down payment. Many large cash down buyers are electing to establish an equity line second mortgage in order to have access to cash on a moment's notice. There's often no charge for initiating the loan. The annual fee should run around $75. You're only charged interest when you write a check against the credit line. The interest rate is often tied to the Prime Rate. And you can usually make interest only payments for up to 10 years.

HOUSE HUNTING TIP: Piggyback financing can be used effectively as interim or bridge financing if you buy a new home before you've sold the old one. Recently a trade-up buyer had enough cash to put 15 percent down on her new home. For the long term, she wanted to have a first mortgage of no more than 60 percent of the purchase price. She borrowed a 25 percent equity line second mortgage to make up the difference.

During the period of time that she owned two homes, she made interest only payments on the equity line in order to keep her carrying costs down. When her old home sold, she paid the equity line on her new home down to a zero balance. However, she didn't close out the equity line. She retained it in case of an emergency. Note that some equity lines do charge an early closure fee during the first few years of the loan. However, if you pay the equity line to a zero balance, but don't close it, there shouldn't be a closure fee.

As long as you qualify, you can borrow up to $500,000 on an equity line second mortgage. And, you can use piggyback financing to finance up to 95 or 100 percent of the purchase price.

THE CLOSING: By using an equity line second mortgage for your piggyback financing, you can achieve a lower blended mortgage rate because the interest rate on an equity line is often substantially lower than it would be on a conventional mortgage.

About Author:
Dian Hymer for Inman News

Traps all home buyers should avoid

At the beginning of a new year, it's natural to make resolutions. For instance, you may have been putting off buying a home. Now you've resolved to buy before interest rates rise and you're priced out of the market. Before forging ahead, consider the following tips and traps.

The first trap to avoid is buying a home because you think this is your last chance. It may be an excellent time for you to buy, but you shouldn't base your decision on fear. Certainly, if interest rates go up significantly you may not be able to qualify for as big a mortgage. But, higher interest could also have an adverse effect on the home sale market, depress prices and create better buying opportunities for buyers.

Following this line of reasoning, you might decide to wait to buy until you see what the market will do in 2005. After all, if you buy now, you could end up paying too much if rates rise and the market softens. Herein lies the second trap: waiting for a better time to buy. You could wait to buy only to find out that home prices didn't soften; they continued to rise.

One couple who had saved enough for a 10 percent down payment, waited one year to buy in order to save a 20 percent down. During that year, home prices in their area increased by so much that the additional money they saved still only enabled them to make a 10 percent down payment. They would have been better off buying earlier and earning home price appreciation for the year.

HOUSE HUNTING TIP: It's impossible to time the real estate market, so it's better to make your home buying decision on factors other than whether you think the market will peak or dip. You can't know this with certainty except through hindsight.

The first question you should ask yourself before buying is if you're ready for home ownership? Owning a home is a big commitment of time and money. In addition to mortgage and property tax payments, homes need to be maintained, which requires even more money. First-time buyers often overlook this fact, and are caught short of funds when the roof needs repairing or the water heater goes out.

Before you make a home purchase, make sure you're in a position to buy for the long term. The real estate market fluctuates. You can insulate yourself from swings in the market as long as you're not caught having to sell in a down market. Historically, residential real estate prices in this country have increased over time. But, if you had bought a home in the 1989 and were transferred and sold in 1991, you would have lost money in many areas of the country. If, on the other hand, you were able to stay put until 2000, you would have realized a significant profit. Ideally, you should have at least a 5 to 10 year time frame in mind when you buy a home.

Just as it's risky to buy for the short-term, it is also risky to stretch to buy using an interest-only mortgage. These loans are popular because the initial payments are. This makes loan qualification easier. But, at some point, the loan is amortized over the remaining loan term. This can result in a significant jump in your monthly mortgage payments.

Some buyers figure they can always refinance for payment relief. But, if interest rates are much higher when the interest-only payment period expires, you might not be able to qualify for a refinance.

THE CLOSING: Buying a home using an interest-only mortgage may be worth the gamble if you're sure that your income will be higher when your monthly payment increases.

About Author:
Dian Hymer for Inman News
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

How to protect yourself in a real estate transaction

It's no wonder that buying or selling a home ranks high on the list of the most stress-provoking events one can experience, up there with the death of a loved one and divorce. There's a lot at stake financially when you buy or sell a home. A good or bad outcome can affect your net worth, as well as your sense well being.

There are a lot of factors involved in buying or selling a home that are beyond your control. For example, interest rates could jump unexpectedly, or an inspector might uncover a defect that you were unaware of. However, there are steps you can take to maximize your chances for a successful real estate endeavor.

The first step is to hire the right professionals to help you accomplish your goal. If you don't already have a real estate agent, mortgage broker and closing agent that you've worked with successfully before, ask friends and associates for recommendations. Take the time to interview each referral carefully to make sure that there's a good fit. Make sure to check references. If you have any doubts about a candidate, continue the search until you find qualified professionals with whom you have good rapport.

A common mistake home buyers and sellers make is to underestimate the time it takes to get the job done. Resist the urge to pile additional work on yourself while you're in the midst of a home purchase or sale. By doing so, you'll be better able to manage stress.

HOUSE HUNTING TIP: One of the keys to ensuring that your real estate venture will have a happy ending is to make a commitment to stay involved in the process every step of the way. Even though you hire professionals to assist you, they aren't the decision-makers. You are. Problems can arise if you relinquish control and let your real estate agent or mortgage person make decisions for you.

Let your agent know that you want to be kept informed of developments as they arise. The sooner you know about a problem, or potential problem, the sooner you can work on resolving it.

Don't be shy about asking for an explanation of a facet of the business, or your transaction, that you don't understand. If you don't buy and sell real estate on a regular basis, you shouldn't expect yourself to know the ins and outs of the business.

As tedious as it might be, it's important to read and understand every document before you sign it. Make sure you receive copies of everything you sign. It's a good idea to retain these documents, even after the transaction closes. If there's a problem during or after the transaction, this documentation could prove invaluable in proving your case.

It's also wise to keep a transaction log. This can be something as simple as a notepad on which you record important transaction-related conversations. Keep the log with your other transaction documentation in case you need to substantiate who said what later and when.

Be nice, but let your real estate team know what you expect from them. This should include periodic written or verbal updates. If you're not receiving the service you need, let this be known. Don't expect the people working for you to be mind readers.

You should expect that problems of some sort will arise during the course of your home purchase or sale. How you work through the problems has everything to do with the parties involved and how well you communicate with one another.

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