Boston Real Estate Prices Going Up: Danger of Under Pricing Your Home!

July 23, 2012 By Leave a Comment

When home prices are going up, and going up fast, you should be concerned about under pricing your home. Boston real estate prices have been coming out of the slump, most prominently in the last few months. And as more sellers are getting ready to finally sell, under pricing can be a problem.

It is hard to imagine discussing the danger of under pricing just a couple months ago. But then I saw it done to a condo in Brighton. The condo, two bedrooms plus parking in an excellent building in Cleveland Circle, was barely on market before the seller accepted an offer. Because it didn’t close, I don’t know the final sale price yet.

I am so sure this condo was under priced because two comparable condos were off market just as fast, even though they were priced 30K more – about 10%.

There are two reasons the condo could have been deliberately under priced. First, the seller may have been under duress to sell quickly. Second, the seller may have been advised an under-pricing strategy to encourage multiple offers and thus have higher bids.

I don’t know the seller’s motivation, frankly. But I speculate a third reason the condo was under-priced – lack of knowledge on current market conditions. Brighton condos have been flying off market as first time home buyers are ready to buy, and there is very little inventory. The fast turnaround limits an agent’s ability to price accurately on recent sales.

The only way for an agent to know about this market pressure it to go to the jam-packed open houses with buyers writing offers on the steps of buildings. If the agent didn’t come to see Brighton condos in open houses in the past two months, accurate pricing would be almost impossible.

I hope, and expect, the condo sold well over asking. I’ll keep you posted.

For an accurate and free market evaluation of your home, click here.

Filed Under: Selling a Home Tagged With: , , , ,

The #1 Deal Killer for Newton and Brookline Houses

July 2, 2012 By Leave a Comment

Last Spring market, which ended roughly a week ago, looked something like this: buyers want to buy, sellers unsure they want to sell, plenty multiple-offer situations and many deals falling apart mid-way to closing. This is the nature of a market with rising prices.

Homeowners, believing prices will rise, stay on the sidelines and don’t feel a need to sell their homes. On the flip side, there are not enough homes on the market to satisfy all the buyers, who are bidding up the prices of homes.

But many of the home sale transactions don’t make it to closing, or at least not without some disappointments and fighting. The dreaded appraisal is the culprit!

The appraisal is a third party evaluation of the home which the bank requires for a mortgage approval. An appraiser comes to the home and compares it to recent sales. In our market, the appraiser has a difficult job because there may not be enough recent sales of similar properties, and the price buyers are willing to pay is higher than it was just a few months ago.

Because of the formulas, regulations and rules the appraisers must follow; their evaluation is often coming short of the offer price, which the buyer and seller already agreed upon. What does this mean? Here’s an example:

Four offers are submitted on a house in Newton, and the best offer was accepted at $800,000. The buyer agrees to pay a 30% down payment, $240,000 and submits a mortgage application for a 70% loan, $560,000.

The appraiser uses the limited recent sales data for similar houses nearby, and comes up with an appraised value of $750,000. The mortgage company will still fund 70% of the appraised value, but now this number dropped to $525,000.

Once of several things may happen next:

  • The buyer may demand the price reduced to the appraised value. Why should he pay more than that?
  • The buyer can make up the difference in cash.
  • The buyer and seller can negotiate a price between the $800,000 and $750,000. The buyer will pay cash for anything over $750,000.
  • The buyer and seller may terminate the agreement, (if there is an appraisal contingency in the agreement, which I’ll discuss in another posting).

Whatever the decision, it is never a romantic time during a real estate transaction process. Both parties are usually upset – buyer fearing he is over paying and dreading the added cash expenditure and seller annoyed she is making less than expected. This is especially disappointing when there were several offers, four buyers is willing to pay more than the appraised value!

Five years ago appraisals were rarely a problem. But are and will continue to be an issue everywhere prices are going up, inventories are low, and buyers are ready, willing and able to buy.

Buyers and sellers must prepare themselves for the appraisal. I’ll discuss that in upcoming posts.

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Real Estate Decisions: Use Your Head or Your Heart?

May 16, 2012 By Leave a Comment

Last week I had a difficult decision to make. My emotional side had to duke it out with my logical reasoning. I work through head versus heart wars with clients all the time, so this week was an opportunity to observe the decision making process and find ways to optimize difficult choices.

Residential real estate is a fertile ground for difficult decisions that employ both the logical and emotional. So how do we make the best choices when buying a home and who to trust, the head or the heart? The answer is that you’ll have to bring the two to a compromise for the optimal decision.

A purely logical decision

Three years ago I had a house on the market in Newton priced around $780,000. A family came to see this house three times, and obviously loved it. When they were ready to make an offer, the conversation was something like this. “We’ve done the analysis of all the sales in the past six months in the radius of .33 miles. Using a formula taking into account square footage, age of house, etc etc…the house is worth $632,392. Our offer is for $632,500.”

A purely analytical offer misses the variables that are not easily measured, or altogether intangible. This family would have enjoyed this house, it was perfect for them in many ways, and they missed it. The house was sold for $750,000 to another family.

A purely emotional decision

In the height of our condo market, around 2006, I worked with a buyer for only a couple of weeks before she was ready to make an offer on a very pretty one-bedroom in Brookline. “I love it, I love it, I love it.” When buyers don’t take longer to choose a home my reaction is usually, “Are you sure, are you sure, are you SURE?”

My buyer did not want to negotiate; she put in a generous offer, higher than what I had suggested. All my explaining and advising was ignored, and my job was to represent her wishes. Everything went pretty well up until the appraisal. The bank’s appraisal was lower than the price my buyer was willing to pay. This means the bank is not willing to finance the purchase at this price – a big problem.

Did I mention this is the height of the condo market? I wasn’t new to the business but it was the first time I heard of a bank appraisal resulting in a lower price, (a commonplace these days). She was overpaying even in a hot market.

Finding the balance

I believe we naturally find a balance and use both our rational and emotional sides. A good real estate agent ensures this, and will hopefully balance your dominant decision making side. The pros, the cons, the what-if’s, and the numbers. It is a peace process between our heads and hearts because a home is all encompassing.

A house is both a financial investment and a home. You must enjoy the house, find it comfortable, and be happy to enter it after your day at work. But you can’t ignore that it will likely be your largest financial outlay ever.

 

Filed Under: Buying a Home Tagged With: , , , , ,

How Landlords Save the World

January 18, 2012 By Leave a Comment

The title of this entry is over-the-top, I admit, but I am just here to stick up for the landlords out there who are trying to do some good. The word “landlord” in itself has some negativity associated with it, and the use of “lord” in this context is distasteful in our American sensibility. In media, landlords are portrayed as misers ready to make a buck on the poor and take advantage of families.

Please!

Let me tell you about the landlords, the real estate investors, I know.

First and foremost, there is a commitment to maintain the property and keeping the tenant happy and comfortable, even with the high occupancy rate and the increasing rents. I am not suggesting any altruism here, but it is cheaper to keep than replace tenants. It only makes sense that tenants stay for a long-run, and take care of the property, as it is their home. Fostering that environment is essential for positive tenant-landlord relations, which is the relationship you want in between any consumer and supplier.

A rental property is a huge financial commitment and a landlord idiot enough to not take care of it and ensure it’s livability is ill suited for the job.

Yes, there are many terrible landlords out there. The worse of them are the ones who neglect their properties, fail to keep up with safety codes, and don’t treat their tenants with the respect they deserve. Just like in any occupation, in any aspect of humanity, there are some bad apples.

For more on tenant-landlord rights in Massachusetts, go to http://www.mass.gov/ago/docs/consumer/landlordtenant073007.pdf

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Three Ways to Invest in Real Estate

January 11, 2012 By Leave a Comment

Investing in real estate can seem overwhelming and reserved for the very rich. In the current economic conditions and marketplace, it may even feel a bit too risky. But if you’ve ever thought real estate investing may be right for you, this is a great time to learn about your options and how it can be done by almost anyone.

Before we learn about our options, though, let me say that I believe real estate investing can be a long a cumbersome process if you are new to it. That is not a bad thing, and I think of a lengthy process as a series of checkpoints that will make me very sure of my decision at the end. But it does mean that you have to have a critical eye, some good research skills and an a greater-than-average supply of patience. If this sounds like you, then let’s review how you can get into the lucrative business of real estate investing.

Whatever your budget, real estate can be your investment vehicle.

1. All cash deal. If you have lots of cash, you may be able to find an investment property in your area and buy it without a mortgage. The advantage of this is that you will be a highly qualified buyer and you can probably secure a property for a bit of savings over a buyer who has to get a mortgage. Another advantage of a cash buyer is that her expenses are much lower, as there is no monthly mortgage payment. This enables her to be more flexible on the rent, giving her more options in choosing tenants.

The disadvantage of an all cash deal is that it is not taking advantage of very low mortgage rates. Borrowing is pretty cheap, and if all your cash is in one place, you can’t use it elsewhere. Leverage is a real estate investor’s friend.

2. Part cash, part mortgage. The down payment minimum is 20-30%, depending on various circumstances and your financial qualifications. My rule of thumb is that you should make money, or at least break even, with this kind of down payment. If you lose money on a monthly basis, the property is not worth the price, (at least not not for an investor). Your mortgage payments, any association fees and taxes should be covered by the rent.

The advantage here is that you’ll be taking advantage of the cheap borrowing costs, and you’ll own a property with an income without the whole cash outlay.

The disadvantage is, obviously, the cost of borrowing money and the higher cost due to your mortgage payment - same as the mortgage on your home.

3. Pool of investors with little cash. Gather a few friends and family, and pool your money together to buy one property. It can even be a small property at first, but at least get into the market. If ten friends get together with $15,000 each…you do the math. The advantage is that you are in the real estate market, getting a piece of the pie, however small. It is a start, or a great single investment you have. You can hire a real estate broker and an attorney to help maybe for a stake in the property instead of commission and fees.

The disadvantage is finding like-minded individuals and putting it all together in a legally binding agreement. To me, this is just a bit of leg-work, and not so much a disadvantage, but it does add to the complexity of the transaction.

Entering the real estate market as an investor is not simple at first, but once you are in, it gets easier and easier. If you’ve ever considered investing in real estate, this is a great time to get in. Just choose your strategy and do it!

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Top Three Reasons Why Property Investment Is King

January 4, 2012 By Leave a Comment

No one wants to hear this, but I’m saying it anyway. Real estate is the best long-term financial investment. Phew…that’s a relief.

With the real estate market in the dumps for several years now, it is not easy to get back into the pro-property mind-set. But, it is exactly at these times that you should be considering expanding your real estate portfolio.

One reason I know this is because while the real estate market is dragging in most of the country, it is dominated by the professional real estate investors. Don’t you want to learn a lesson or two from them?

The professional investor loves real estate above all other investments. There are three main reasons for this.

First, real estate investing can come in many forms, just like any other investments. There are small condos, multi-family buildings, commercial, residential, mixed use properties, different towns, neighborhoods, etc. For every budget, preference and style, there is an investment instrument.

Second, real estate has a certain tangible value that you just don’t see in other investments. Property investors love that there is an asset they can visit, fix and maintain. There is a satisfaction in knowing that you have some control and responsibility in the relative value of the property.

Third, although real estate is illiquid - meaning it takes relatively a lot of time and effort to sell it - it is a versatile investment. You can hold it, or resell it when the market turns your way. You can do extensive renovations and have a quick resell, or you can hold it with tenants for years to come. Whatever it is, you have options and you can make decisions based on the best scenarios for your needs and the market conditions.

All of this assumes that you have sufficient funds for a down payment and that your expenses on the property are covered. The major drawback in investment real estate are the unavoidable expenses in maintaining it and the difficulty of selling it if you need the cash.

But this said, it may be time to consider an investment property, especially in such a critical time in the market. Opportunities and possibilities are present, and real estate investing can be a perfect fit for long-term financial goals.

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The Strategy for Home Hunting Without Fear

June 27, 2011 By Leave a Comment

As any daredevil, extreme sports addict or adrenaline junkie knows, well-grounded preparation for the specific task at hand is what takes the fear out of trying.

The sometimes risky sport of home buying is no different.

Those who’ve suffered the agony of defeat in what’s likely the most dangerous consumer game, learned the hard way that sheer fearlessness isn’t enough to become and remain a homeowner — through good times and bad.

With the rules of the housing game changed forever, preparing to just squeak by the home buying ordeal isn’t enough to achieve a decisive and lasting victory.

The idea isn’t just to buy a home. The goal is to keep your own roof over your head.

Preparation is key, according to the National Association of Realtors (NAR).

From NAR, here’s how to get ready to be and remain a homeowner.

• Create a wish list. Write down housing wants and needs. Include all the physical characteristics you want or need. Include style, size, layout and room configuration. Look at the number of bedrooms and bathrooms, and the basic amenities you must have. Include critical features such as location and services and a home’s proximity to good schools or public transportation lines.
• Browse for housing. Realtor.com and other Web sites offer home valuation features and neighborhood data on trends in local markets. Use features to determine how a listing compares with nearby, comparable properties in terms of value, actual sales prices, home features, neighborhood characteristics, and more.
• Work with an expert. Finding a professional real estate agent who will represent your best interests can make the difference in location, negotiating the best offer, and closing the home of your dreams. Look for a full time real estate agent, who has uploaded telling photos and videos of their listings and look for agents with good Web sites to market your listing.
• Get the complete picture before you visit. You can’t know everything about a community from an online listing. Schools, crime, and proximity to shopping and work all impact property values. NAR says talk to a Realtor and go to Realtor.com to explore communities.
• Make sure the property details are reliable. Buyers need know when a listing has experienced a price change. Look for Web sites like Realtor.com that updates listings frequently, including price changes. Fresh and reliable information is critical. Realtor.com time stamps listings to help buyers make better informed decisions. Get email alerts and stay on top of changes so you can be first to act.

Written by Broderick Perkins

Filed Under: Buying a Home Tagged With: , , , , , , , , , , , , , , , , , , , ,

Don’t Fall Into The Home Buyer Traps!

June 9, 2011 By Leave a Comment

Finding the right home takes some thought and patience. Buying a home takes a bit of guts and trust in oneself. But even with all of those things in place, there are some unseen traps out there for buyers which will waste your time and drain your energy.

Knowing where to look and how to search is as important as knowing what price to offer and how to put together a mortgage. Yet, there is little advice on the topic despite the wide array of resources out there.

Here is how you need to go about your home search, if you are serious about buying and you value your time.

First of all, know what you want. I’ve written about this over and over again and can’t stress it enough. It seems very obvious and perhaps even silly to say such a thing. Yet, much of the work I did as an agent with buyers is just trying to figure out what they want. Honestly, this was probably one of the most interesting aspects of the job for me, because this is where I got to know the clients best. But this can be very frustrating for the buyer. The lack of clarity often leads to lots of pointless searches and sometimes even failed transactions.

Don’t fall into the trap of thinking you want what others have, or wanting something that won’t suit your needs (i.e. a small condo in the city when you want to start a family and have two big dogs running around). Clarity!

Next, find an agent. An agent should know the market, know the neighborhood and be trustworthy. You’ll be spending a lot of time together, so please be open and honest with your agent and find someone you like. Don’t fall into the trap of working with someone because he or she is related to your boss, or because he or she is super nice but basically useless.

Then comes the searching itself. I get so many phone calls and emails for outdated listings, homes that sold months and even years ago. There are many websites that seem to have a large selection of homes, but many of the listings are not current. The caller is always disappointed and annoyed, and feels like it’s a trap, but I am not the one posting old listings - these sites are often outdated and I don’t know why.

Instead of getting caught up in different websites and what they claim is on market, ask your agent to set you up with the local Multiple Listing System feed which will be the absolute, hands down, no doubt about it BEST source for listings where you want to live. It is where the agents are updating their information and the status of listings must be current within 24 hours.

Ask you agent what is the best way to receive information, some locations have non-MLS systems or all sorts of alternatives and supplements of current information.

The only listings that are not on MLS are some of the for-sale-by-owner. But even most of those list there as well.

Once you are at a home you like, carefully review the listing details. Your agent must do the same. Look for any disparities between what is written and what you see. Pay careful attention to disclosures. You want to methodically review the seller’s statement of the home’s condition, if it is available. You’ll be requested to sign it, so look at it BEFORE you make an offer. In my experience, an common unintentional trap has been to only receive the sellers’ statement of the home’s condition AFTER an offer has been presented and accepted. So please ask for it in case the listing broker forgot.

Go, search, buy. Just watch your step. Happy hunting!

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How to Find Your Gem in a Depressing Housing Market

June 9, 2011 By Leave a Comment

Are you sick of all the statistics and news about the housing market? I find it makes people constantly doubt their decisions about their own homes and about their decision to buy or sell.

“Yesterday I heard this,” and “The news reported that,” is what I hear constantly from buyers and sellers who are losing sight of what the real estate market is all about.

Real estate to you, to me, and to any individual is located ONLY in the neighborhood where you live or where you are considering buying a home. That’s it! Your real estate market can be a one mile radius, and it does not directly relate to what you are hearing on a national level.

This is not to say markets don’t influence each other. All the markets are highly connected, and a depressed market in one city affects another town and so forth. There is no doubt that what is going on elsewhere affects us - real estate or otherwise.

Yet, when buying or selling a home you make a big mistake when you try to make sense of the national numbers.

So how do you shop for your gem with the depressing news and exauhsting statistics in the background…not to mention everyone’s unsolicited advice?

First, focus on the neighborhood and learn the facts. How many houses are selling? What is the average time on market? What is the average sale price? What is the sale price to ask price ration? (In other words, on average, for how much less than asking are homes selling. For example, on average, homes sell for 96% of asking price, or 4% under asking). Your real estate agent should be able to put together all those numbers for you, and make sense of them as well. (Or just send them to me and I’ll make sense of them for you).

Don’t like numbers? Just keep looking at homes and compare them to each other in a small area. Look at houses you don’t think you’ll buy just to learn.

If you do this, you’ll be able to spot a great deal on a home when it comes on market. Don’t be shy to make a great offer when such a home comes on market. If you love a home and you know it is priced well compared to recent home sales in the immidiate area, make a strong offer to secure the property.

The goal is to find the home you love and to buy it at a fair market price, not to see how much less than asking you can get it for. Don’t fall victim to the national housing market cynicism.

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This Miscalculation Cost My Buyers a Home

June 6, 2011 By Leave a Comment

“Our offer was rejected,” I told my buyer, Janie, on the phone one evening after she and her finance Chris put in an offer for a small ranch they loved in one of the area neighborhoods.

“Are you kidding me? What? Aren’t they coming back with a counter offer, something?” She was so upset, and I was in as much disbelief as she was that it was a done deal. We lost out on the house they wanted and that was that. There was nothing I could do to change it.

The crazy thing was this was not 2005 when buyers were writing deposit checks and over-the-asking-price offers at the open house. This was 2010, when prices were spiraling down and getting a loan was like pulling teeth. Properties’ days on market were triple that of two year earlier so how come our offer was rejected? What home seller in their right mind would say no to highly qualified buyers?

A home seller with two other offers, one of which was for the asking price from buyers no less qualified.

This was my fault, I gave my buyers some bad advice. When we discussed the price we should offer, it didn’t occur to me there would be two other offers, and that the seller would not try to negotiate a bit. The seller’s listing broker said other offers were coming, but from past experiences with this broker, I had reason to doubt it. Besides, everything was just sitting there…housing inventory was at a high. I was representing buyers in a buyer’s market, we had the upper hand.

Wrong. It may have been a buyer’s market, but regardless of the real estate market conditions, the seller is the one who sets the asking price of his or her home and sometimes they set it low enough to attract buyers to the table the first day on market. My miscalculation was to look at the whole market and be influenced by all the news and depressing office chatter around me rather than focus solely on this specific property and how well it was priced compared with other like properties.

Had I done this I would have acknowledged that this was a hot property and not been so cynical.

It is hard to believe that there are hot properties, but it is up to your agent and you to recognize when you see one. The problem is that in a down market all homes look overpriced and in an up market, everything is hot. We’ve gone from one extreme to the other. But to make good decisions, focus on the specific neighborhood in which you want to buy and ignore national and even statewide statistics. They are meaningless noise in your quest.

As for Janie and Chris, they didn’t fire and referred their friends to me. We found a great home they loved just as much.

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