March 2008, Topic - Buying and Selling a Home in Today's Market

01.  Buying and Selling a Home in Today's Market
02.  Do you Think You Are Financially Ready to be a Homeowner?
03.  Tips for getting your home ready to be sold
04.  Advantages of using a realtor when selling & buying your home
05.  Advantages & Disadvantages of selling by owner

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1. Buying and Selling a Home in Today's Market

A housing bubble is an economic bubble that occurs in a real estate market. It was predicted by the U.S Treasury Secretary that this would be the most significant risk to our economy. A housing bubble is made up of rapid increases to the values of real estate until unsustainable levels are reached due to incomes, and other economic indicators of affordability. As a result home prices continue to decrease and the conclusion is many homeowners hold negative equity, which means the mortgage on the property, is more than the value of the home. The prediction for the housing bubble in the U.S was due to the historically low interest rates.

Unfortunately bubbles in the real estate market can only be identified after the damage is done and then a correction must be made. For the U.S housing market this occurred in 2006. Former U.S Fed Chairman Alan Greenspam stated "we had a bubble in housing. I really didn't get it until very late in 2005 and 2006". He then went on to warn of double digit declines in property values. Freddie Mac CEO Richard Syron also commented that home prices look as if they are overvalued and that the correction could last for years. He also stated that through the course of fixing the problem trillions of dollars of home values would be lost.

This housing bubble in the market has deflated causing a huge impact on the U.S. economy as a whole. This deflation has impacted the nation's largest mortgage markets, construction companies such as home builders, home supply retail stores, foreign banks and realtors. It has had such a significant effect on the economy as a whole that President Bush and Fed Chairman Ben Nernanke have announced a limited bailout to homeowners who are in the situation where they can't pay their mortgage debts.

In this newsletter we will discuss various points about selling or buying a home. The housing bubble has affected the sale of homes dramatically but remember where there is a will there is a way. For every home there is a buyer.

Hopefully these tips will give you some light into selling or buying your home with the best possible outcome. Also this newsletter will provide you with some useful resources in choosing how to sell or buy your home.

2. Do you Think You Are Financially Ready to be a Homeowner?

Home ownership has become a reality to more and more Americans. 66.7% of Americans in 2001 became homeowners, this was the highest rate ever recorded. A home is most likely the biggest investment you will make in your lifetime. It is something that should be thought out and well planned.

There are many things that must be contemplated prior to making your decision. Remember most homeowners stay in their homes for an average of 5 years. It is not only a place where you will raise your children, entertain guests and build a home; it is most importantly an investment in your financial future. There are many questions that you must ask yourself before purchasing your home.

The first question is do you have a steady income. It is recommended to be at a job for at least 2 years prior to buying a home. It's imperative that your income can allow you to live comfortably while maintaining the home. A significant mistake that many home buyers make is purchasing a home that is not affordable. You do not want to be house poor. House poor is a term that is used when every penny you make goes into maintaining a home and you are not able to have other luxuries in your life.

The next question is do you have experience paying long term debts. Have you been paying a car loan for a few years or credit cards? If the answer is yes than you most likely are used to being in the habit of having to put money aside into a budget and understand financial deadlines. That is a plus when buying a home. Mortgage companies will do a background credit review and frown on applicants that demonstrated a history of failing to make payments on time. The late fees can be extreme. Being late or missing a mortgage payment will affect your credit worthiness in a negative way.

Another important consideration is do you have money for a down payment? It is always best to be able to put down 20% of the purchase price. The huge advantage is you end up savings costs since you eliminate the requirement to carry PMI. PMI is private mortgage insurance you are required to carry when more than 80% of a homes value is financed in your mortgage note. It can add hundreds of dollars to your monthly payments every month. Think about this if PMI adds $200 to your monthly mortgage payment, then over a 30 year period it would cost you $72,000. So you may want to hold off on purchasing until you have some money to satisfy PMI.

Some lenders make exceptions in certain cases while others it is standard policy. If you are not planning on putting money down be sure to shop around and compare lenders. Even after you realize you can afford the mortgage payment you must calculate homeowner association fees, which are prevalent in most communities and can be costly. Then there are taxes and insurance, which vary from different cities and counties.

3. Tips for getting your home ready to be sold

1. First impressions last - Imagine pulling up to a home and seeing the yard a mess and the front door's paint coming off. How would you feel about that home before you even stepped in? Probably not that interested. So be sure the "curb appeal" is attractive.

2. Spend a few dollars in repairs and reap the benefits - Be sure the house is clean. Changing the kitchen drawer hardware such as the handles goes a long way. Also faucets in a sink can be changed to make the sink appear new. Throw a cheap slipcover over a sofa if it is not in the best shape. Also minor things like fresh flowers in the entry way will make a difference to the buyer. Remember it is better to have the buyer love the house the way it is rather than hear how great it would be with a little work.

3. Check lighting and appliances- You do not want a faucet leaking or a bulb flashing as the prospect tours the house. Take a walk through and be sure everything appears to be in working order.

4. Safety first - Some of us have children or significant others for that matter that tend to leave things lying around. As a homeowner you are used to stepping over their stuff, but others are not. Be sure to have a safe, clutter free walkway.

5. Storage space - Buyers are looking to make sure they will have not only enough living space but also storage space. Have garages, attics and basements clean so it looks like the maximum amount of space.

6. Closets - Yes a clean closet will make the closet look much bigger. Nows the time to clean your closets out and donate stuff to charity you don't want.

7. Light - The vast majority of people like a bright home. Open the curtains and let the sun shine in during the day. If you are showing the house at night be sure to turn on the lights. This gives it a cheerful home feeling.

8. Keep the amount of people to a minimal - Potential buyers seem to hurry through when there is an abundance of people at the home. Try to keep the house to a limited amount of people while showing. With that said also keep your pets out of the way of the buyers.

9. Background noise - While showing your home try to keep the radio or television off if possible, if not at a very low pace. This can serve as a distraction.

10. Never apologize - Regardless of how humble you are, never apologize for the home's shortcomings. If a prospect volunteers something derogatory about your home just acknowledge you heard them and move on with the tour. While giving the tour try to point out all the good aspects.

11. Focus on selling the home only - Many sellers like to ask the buyers if they need furniture, kitchen supplies or many other things. All this does is distract the potential buyer. Keep in mind you want to sell the home first. After the home is sold than worry about the little things.

12. Bedrooms - Get rid of excess furniture that makes the bedroom appear small. Use cheerful colors and curtains.

4. Advantages of using a realtor when Selling

Advertising - 82% of real estate sales are due to agent contacts through previous clients, referrals, friends and personal contacts. Realtors prescreen potential home buyers to be sure they are qualified. They also have the resource of the MLS. MLS stands for Multiple Listing Search. This is an advantage because it is a search engine that can find all homes listed with realtors that meet the buyer's criteria with in seconds.

Professionalism - A realtor is someone that knows what needs to be done throughout listing the property, negotiating the sale price and the closing process of the property.

Sales experience - They know how to sell a home. Realtors have experience pointing out the good aspects in every home and neighborhood.

More flexibility - Most realtors will put a lockbox on your property and can show the home even when you are at work or not available.

Aware of the market at all times - The knowledge that realtors have in regards to what is going on in the real estate market is key to selling your home. Within minutes realtors can find out what is for sale, pending closing and has been sold. These are all tools you want to research to be sure your home is priced according to fair market value.

Contracts - The agreement is only the start of a process to sell your home. There are a lot of inspections; appraisals and financing that have to take place prior to the closing. Realtors will write a legally binding agreement that will advance the process and make it a situation where all parties win.

Closing of the property - There are questions that may arise prior to closing. Numerous things can halt a closing. To give you an example, something could be wrong with the title. A realtor deals with this stuff often, yet for a seller this may be overwhelming.

Advantages of Using a Realtor when Buying

Financing - A licensed realtor can help you determine your borrowing power.

Advertising - Realtors have many resources to help you find a home. Not all homes that are listed are advertised. Your realtor will be able to actively search for a home that you would be interested in using various tools that are not accessible to the general public.

Knowledge of the homes - They can assist you in the selection process. Realtors know a variety of informational resources such as local community information.

Negotiation process - Realtors are trained when it comes to deal breakers. Deal breakers would include but are not limited to finance, price, repairs or furnishing. They will be able to navigate you as to what to require prior to purchasing the home. Often times this will save you a lot of money.

Networking - Many realtors have relationships with appraisers, lenders and inspectors. Their referrals can not only save you money, but also know that you are going with someone who qualified and recommended.

Disadvantages of Using a Realtor when Buying

Limited access - The realtors are going to try to show you the homes that they will make the most commission on. Some buyers offer incentives to the realtors to sell their home. These are the homes that the realtors are going to push on you.

Clouded view - Remember their job is to sell you a home. They will point out all the good aspects of a home but will not tell you the disadvantages.

5. Advantages & Disadvantages of selling by owner

Advantages

No commission costs - Commission is generally 6% of the sale price. To give you an example if your home sold for $300,000 the realtor will receive $24,000.

Less Stress - You will know when potential buyers will be coming and can prepare accordingly. You will not have to vacate the home every time an agent brings someone through.

You know your home - When showing your home you can show the potential buyer the highlights while downplaying the areas that need some work.

No contracts that you are tied into with a realtor for a period of time - When selling on your home you are in charge. You are not tied into any contracts. If you feel you want to take it off the market for a little while you can do so. You are in control of all major decisions including advertising and showing schedules.

Save time - You may actually save time listing it on your own. The vast majority of people who sell through a realtor inflate the price to cover commissions. Yet most of the time ends up just eating the costs since the house did not sell and they were forced to lower the price.

Disadvantages

Security - You will have to let complete strangers into your home. You will have to use your own instincts to protect you and your family.

Advertising - It is very difficult and costly to advertise to buyers that are not in your general area. Reality is most ready to move buyers seek a realtor to help them, which will limit your potential buyers.

Pricing - You may be over pricing or under pricing your home. You will not know what else is listed as a comparable to your home.

Negotiations - If you have never sold a home before you may not know how to write a binding contract. You may end up selling for less or having the transaction fail.

Responsibility will be yours - All paperwork, disclosures, inspections and negotiations will be your responsibility. Also you will need to be available when a potential buyer would like to view the property.

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Got a question? Then contact our Education Team on 561-883-2398 Ex.310 United conducts regular seminars on financial education, including "How to Budget", come along and join us - to reserve your seat contact our Education Team on 561-883-2398 Ex.310

Newsletter 03
Rev.1
March, 2008