June 2006

As rates continue to rise with the Fed meeting this week, June 28 and June 29th, the ever present question on the consumer’s mind is “Is NOW the right time to buy”.  The answer to this question is different for every consumer.  The variables that contribute to one’s financial ability are both controllable and uncontrollable. For example, credit scores, liquid assets and income are all controllable variables that affect a buyers ability to purchase.  Interest rates, inflation, and home prices are uncontrollable variables that affect one’s abilty to purchase.  So the answer to the questions is, YES the uncontrollable variables are favorable right now to individuals with the ability to purchase a home.  However an individual with poor income, credit or assets should work to improve these variables and purchase.  Our goal as Loan Consultants is to educate and advise our clients of THEIR current abilities and allow them to make their own decisions on what to buy.

 Pricing your home is SO important. It seems we can’t say it enough. A couple of days ago while preparing for a listing appointment I decided to compare the performance of homes sold during the last quarter. Specifically, I wanted to see if what I have always found to be true still holds; that is, the longer a home is on the market, the less the sale price will be. Of the 147 active listings in Scripps Ranch that particular day, 73 (50%) had already had to price adjust at least once.  For homes sold during the past quarter, here is what I found:

Homes Sold April 1, 2006 - June 20, 2006

                                 NO Price Reduction        Price Reduction(s) 

# Homes Sold                         59                                20

Avg. BR/BA/Sq. Ft.             4/2.76/2291                  4/2.6/2080

Avg. $/Sq. Ft.                          $361                        $349 (-3%)

Avg. Market Time                    33 DAYS               92 DAYS (+178%)

What this shows is that the homes that were presumably not priced correctly from the outset (had to price-reduce during the listing period) sold on average for 3% less than their properly priced competitors.  As would be expected, the price-reduced homes also had a significantly longer market time. A three percent lower sale price on the average home sold in Scripps would equate to approximately $25,000, which I believe most will agree is more than pocket change.

I should point out that in each of the two categories, homes ultimately sold (again, on average) at 3% less than their last list price. What this tells me is that buyers step in when they see their perceived value within striking distance; until that happens, sellers either need to hope they get really lucky or they need to get enough market time under their belt to suggest to the buyers looking for a “deal” that the time is right to make a low-ball offer.  So, when listing your home for sale, I encourage you to select an agent that understands your marketplace and can advise you on comparable sales and trends, study all of the data carefully, and make a thoughtful and informed decision on pricing. Proper pricing will not only increase your bottom line, but it makes good cents sense.

Based on my experience showing buyers and homes of all flavors, these are the things most typically responsible for the buyer turning tail, so to speak. While numbered, these are in no particular order, as they are each important, and taken collectively, they are sure to not sell your home.

10. Ooh, that smell. And we don’t mean cookies in the oven.  The unidentified “dinner to be named later” slow-cooking on the stove, the pets (including their litter boxes, their residual odor in the carpeting, their “presents” encountered in the kitchen after a long day of indoor living), and that “old house” smell (can’t define it, but it is there) are but a few of the usual culprits.  I have shown homes where we literally had to cover our noses & mouths to make it past the threshold.

 9. Big, angry dogs. These can consist of the “don’t you dare think about coming in my backyard” variety, or the “protectors” who greet you at the front door, expecting Charles Manson. I will also include in this category the two dogs I met most recently while showing a home who, while not the least bit viscious, were off the charts on the annoying scale, and left enough drool on my suit to justify a special adjustment to my dry cleaning bill.

 8. Little, angry dogs. While the little ones are not generally considered life-threatening, they can be doubly annoying and distracting.  Much like too much clutter will easily distract a buyer from their mission, little yippy dogs have that same distracting tendency.  Also, keep in mind, while I have a 95-pound puppy at home and enjoy pets, not all buyers are as fond of our four-legged friends.

 7. Major “Gruddies”.  This is a term we use in our house to define any stuff of the icky variety.  A stove with a three-inch layer of grease, cobwebs at eye level, and that black and green stuff (okay, mold and mildew) in and around tubs and shower enclosures that looks like it indeed may be in motion, to name a few. I will include in this category “minor gruddies” as well, the one that bothers me the most being the black light switch plates. When viewing a home, everyone is running around turning on lights, and this is one thing they will definitely notice.

 6. Seller on Board. This is one of the worst offenders. Most sellers encountered during showings are delightful, yet their presence intimidates buyers and stifles communication between buyer and agent which is critical to a sale. It is a common mantra in real estate that a buyer must raise objections and the agent must overcome these before a sale can take place.  When the seller is home, even trying to make themselves scarce in the guest room, it tends to shut down dialogue and shorten the showing. In the more extreme cases, a seller will follow the agent and would-be buyer around, pointing out all of the special features of the home.  This is never well received. When acting as a buyer’s agent, we want to help you sell your home if it meets the needs of our clients. We know our clients best and, as professionals, we know your product, so you are better off to let us do the selling. Finally, I have encountered all of the following: Completely unclothed children following the showing party around the home asking them to watch them (sing, dance, do cartwheels, etc.), sellers in bed yelling “come on in”, and sellers asleep in bed. You can guess how these situations played with the buyers.

 5. Carpeting in Technicolor. You may love your kelly green carpeting, but most buyers will not.  True, carpeting can be easily replaced, but this distraction will forever label your home “the green carpet house”.  Buyers will tend to only remember this and not the plethora a special features which would have otherwise suggested this to be their perfect home.

 4. Personalizaton to an Extreme. Not everyone is going to have your same, refined sense of style. That bottle cap collection that you have proudly displayed on one, entire, prominent living room wall may not be as charming to the would-be buyer as it is to you and the Bottle Cap Club. Nude, professionally framed glamour shots are a definite distraction. A few pictures of the family, I find, are generally well received; they help the buyer relate to your home in a more emotional fashion. Enough pictures to fill the Louvre, however, will overwhelm.

 3. Dirty Carpeting/No Shoes Rule.  Not every seller is going to have the luxury or even willingness to replace dirty, worn carpeting prior to listing, but buyers are really annoyed by having to remove their shoes in these circumstances.  It generally leaves a bad, “what are they thinking” impression, not to mention it calls attention to carpeting that might be better left unscrutinized.

 2. Obvious Disrepair. If a home shows obvious signs of neglect, the buyer immediately wonders what might have been neglected that is not visible. Yours could be the most structurally sound home every constructed, but if you have holes in the drywall (due to batting practice, door slamming), cabinet doors hanging off hinges, ripped screens, or any number of other blatant repair needs, the buyer begins questioning the unseen (plumbing, electrical, HVAC). The result is usually the “what would I be getting myself into” question. 

 1. Misrepresentation. As listing agents, we all take photos from the best angles (often using that wide-angle lens to our advantage), and we go to great lengths to describe a property in the most glowing terms (heavily relying on our Thesaurus and Random Word Generator). Buyers and agents alike, however, get really annoyed when common sense truth-in-advertising practices are discarded.  I have shown homes promoted as having a “panoramic ocean view” which provided said view only from a vantage point across the street in the neighbor’s driveway or while precariously straddling the master bathtub. Don’t tell me a home shows like a “model” if you mean a model from the 1960’s. A pool-sized lot is one that, by definition, you could build a pool in, and the assumption here that we are talking about a “swimming pool”.

Presentation is important in any market; in this market, it is critical. Get your agent’s advice when listing your home for sale. By following a few basic and commonsense rules of staging and showing, your buyers will more likely be running for the door… to write the offer!

So, you’re family is growing and you need more space. You decide to buy a larger home, but you need the equity out of your current home to make it happen.

What do you do first? 

Scenario “A”: Find a replacement home and make an offer (subject to the sale of your home);

 or

Scenario “B”: List/Sell your home and then find the replacement home.

This is not meant to be a trick question, but it can be tricky. It’s a classic “Chicken or the Egg” scenario (well, almost). The answer depends upon several factors including your needs, timing, flexibility and, to a certain degree, how lucky you are.

Let’s look at the main advantages and disadvantages of each -

Scenario “A” (Purchase new home subject selling exisitng home)- Today, as the market has slowed down, you may actually have a better chance at this scenario than during the previously heated market. The main advantage, of course, is that you get to find the perfect home on your time schedule and if you are successful in getting your offer accepted, you have the chance to sell your home and shift your equity to the new home at close of escrow. HOWEVER, their are several disadvantages, as well. One is that your offer will most likely (if the listing agent has a brain) be accepted by the seller subject to a “48 (or 72) hour clause”; meaning that your new dream home will remain an “Active” listing in the MLS. If the seller subsequently receives and considers accepting a non-contingent offer from another buyer while you are still trying to sell your home, you will receive a written notice from the seller giving you 48 hours to remove all of your contingencies including, among many other things, having sufficient funds for your down payment, which due to the fact that your home has not yet sold, you don’t have. The reality is that you risk getting blown out of the transaction and having to start over in the search for your new home :-(. Another disadvantage is that a contingent offer is, inherently, not perceived by the seller to be as strong as a non-contingent offer (obviously, because it’s CONTINGENT). Therefore, you will likely have less leverage in the negotiations of the price and term. 

Scenario “B” (List/sell home prior to offering on new home) -This scenario is more about “huevo’s”! You list your home for sale and start looking for your new home. You wait to make an offer until your home is in escrow (preferrably with all buyer contingencies waived). You now have the advantage of leverage due to the non-contingent nature of your offer for your new home. Wonderful! Except what if you don’t find your perfect home in time? Are you homeless?? Are you a renter?? This depends upon your agent and how well he/she protects you. For example, one way to protect yourself from joining the ranks of the homeless is to include the term…”Subject to seller finding suitable replacement housing within (blank) days” (in your listing and in the terms of the  Purchase Agreement. But the disadvantage is that you may scare off buyers who need to close escrow within a certain timeframe. You and your agent should also be prepared for how to handle a contingent or non-contingent offer. With a contingent offer on your home it gets really tricky because you now have 3 homes that need to close concurrently or sequentially. A choo-choo train! We’ve done it (with as many as four homes in the train), but it is certainly not the preferred scenario.

But there is also a Scenario ”C” - This one involves a “bridge” loan arrangement (”bigger huevo’s”). If you have sufficient equity available in your home to obtain a line of credit (or the availability of other funds) equal to the down payment on your new home AND you can qualify for the new home without the need to sell your existing home, you may decide to proceed with the purchase of your new home and list/sell your existing home concurrent with or after you vacate the home. An advantage of this scenario is that you may proceed to buy your new home on a non-contingent basis and not be a slave to timing of the sale of your existing home. A disadvantage, of course, is that you may be saddled with two mortgage payments for the period of time it takes you to sell you old home.   

We have successfully handled all of these scenarios and I can say with confidence that they all can work. However, I have just scratched the surface of the many implications you need to be aware of when engaging in any of these transactions. Timing of escrows, due diligence, contingency waivers, and many more purchase contract terms must be well thought out by your agent and yourself in order to best protect your interests and, not to mention, keep you from becoming homeless.

Steve B.

No, they did not just watch TV and go to bed.  What they did do was wade through a construction zone right in the middle of their house.  Our sellers have completely renovated and upgraded their home for sale.  They have new paint throughout, including the ceilings and kitchen cabinets, upgraded their light fixtures and Voila!  They are ready to put their house on the market!  Our sellers will definitely succeed, getting the highest price possible and closing escrow in a difficult market. 

One of the most common questions we get is, ”What do we need to do to improve our property so it will sell faster and at top dollar?”  Fortunately, this is a really easy question to answer.  The budget for somebody who is selling a million dollar property is going to be different than for someone who is selling a three hundred thousand dollar property.  But here’s the BIG SECRET.  You would not believe how many times you walk into a million dollar plus property that has ZERO improvements.  The furniture is from the ’70s, they still have that avocado green kitchen stove, wood paneling on the walls, and wallpaper everywhere.  We just want to scream, ”It doesn’t matter that there is six or seven hundred thousand dollars of equity!”  This is yet another example of trying to save pennies, but in effect, makes the choice to lose thousands and thousands of dollars.  That eventual sales price will not be anywhere near what the sales price would have been if they had upgraded and spent some money improving their home to sell.  We have concluded that for some people, “it’s in their nature.”  And, nothing will change that.

It is a Buyer’s contractual right, and duty actually, to have a home inspected by a professional, licensed property inspector during escrow and prior to removing all contingencies.  Lately, however, it has seemed to me that buyers are taking this as an opportunity to attempt to rebuild the property.  I believe that we (buyers and their agents) have lost sight of the spirit and intent of the inspection clause.

Most often, the home being transferred is not new construction. As such, it is not realistic to expect that every detail is in perfect condition. From my perspective, the property inspection contingency is in place to protect the buyer from consummating the purchase of a property with “fatal” flaws.  What do I consider “fatal”? Structural defects which cannot be remedied to the satisfaction of the buyer would fall into this category (breached trusses, cracked slabs, etc.).  In this category I would even place major system components; I continue to believe that a roof free of leaks, an HVAC system in proper working condition, and a home free of health and safety concerns (faulty electrical, for instance) all fall under the category of inalienable rights.  What makes me crazy is the silly, cosmetic, ordinary maintenance item stuff that have become routine demands during escrow.

The furnace filter is dirty?  The tub could use some caulking?  The bedroom door rubs slightly against the frame?  Give me a break.  I recognize that the request list is not our decision to make (as a fiduciary, we must respond to our client’s concerns and fight to protect their interests), but we do have a duty, in my opinion, to help our clients keep this process in perspective.  I have seen many more deals cancel or threaten to cancel over a washer/dryer or a piece of patio furniture than I have over $5,000 to $10,000 in sale price. What I am seeing lately is that the principals literally beat each other up during the contract negotiation phase only to repeat that process during the request for repairs process. I find it ludicrous that someone buying (or selling) a home in the $500,000 to $1,000,000 or more range will make replacement of a window screen, for example, an issue that could potentially derail a purchase agreement.

Remember, our purchase contract specifically says that the “property is sold in its present physical condition as of the date of acceptance and subject to the Buyer’s investigation rights”.  Clearly, the “subject to” provision is intended to protect the buyer in the event alarming issues are discovered that would result in the home no longer being suitable to the buyer. So, here is my two cent’s worth on what constitutes important versus petty (not inclusive, of course, but all I have personally witnessed).  Alarming: Tree roots growing through crack in master bedroom floor slab; framing truss cut in multiple locations to facilitate addition of unpermitted skylights; furnace emitting dangerous levels of carbon monoxide into the home; furnace with charred components signifying a past fire in the unit; and an extended family of racoons living in the attic (apparently for years) resulting in destroyed insulation, damaged wiring and a whole bunch of hazardous waste.  Silly: A tub that could use some recaulking; a ceiling fan mounted too low, a missing drain stopper, anything having to do with landscaping (unless the tree roots are growing through the master bedroom floor), and anything cosmetic. Oh, and for Pete’s sake, if you negotiated an appliance or other personal property item as part of the contract, DO NOT ask the seller to pay for additional coverage in the home warranty policy to cover the item they didn’t want or have to give you in the first place.

Buyers, please keep this fix-it stuff in perspective.  Many of the items I see you requesting be repaired by the seller are minor and should be considered part of the agony and ecstasy of home ownership.  If you expect a home in new condition, look into new construction but, in that case, expect to buy your own window coverings.