Are you nervous in this market? We are flooded these days with so many opinions from so many different directions that it not only causes us to be nervous but also to be confused. And I feel that confusion is where the nervousness comes from. We have prognosticators and naysayers, people that are saying that things are going to get worse. And then we have the more “upbeat”, positive people. It really is a case of – is your glass half full or half empty?
Let’s talk about the media. First of all good news does not sell as well as bad news so the majority of what you read, whether it is in the newspaper or on the internet, is going to be negative. It just sells better and after all the companies that write and produce these messages are not in the business to inform as much as they are in the business to make money. When there are so much “negative” messages is it any wonder we are in a downward spiral? I am not saying it is the media’s fault that the economy is in the shape it’s in. I am just saying that what you focus on is what you get. If we continue to focus on the negative our chances are pretty good that is what we are going to get.
There is no crystal ball when it comes to real estate or the economy, but I think if you allow yourself to step back from your own circumstance and take a good look at it you will find calm and vision. First take a look at your long and short term goals. Are they the same goals you started out with? Goals can change and it is good to do an inventory of where you are and where you want to go. So if the goals you created 5 years, 1 year or 6 months ago don’t necessarily fit where you want to go now don’t be afraid to change them. But most importantly, we need to check our progress occasionally to make sure we are headed in the direction we want to be. By checking in on ourselves and being realistic about our own circumstances we can get “grounded”. When we are grounded we become calmer and see things more clearly and in the end lose that nervousness.
I will leave you with a few things to keep in mind about real estate that I hope will help. First of all be responsible with your money. Money is really cheap right now with interest rates hovering around 5%. It’s a great time to buy. But just because it’s a great time to buy doesn’t mean you should. If you are buying or considering buying make sure you know what your goals are and that you are comfortable with the payments (debt) you are getting into. In other words – don’t get in over your head. My mother, who grew up in the depression always said “It’s not really a bargain unless you need it”.
Feel free to leave any comments. Thanks for reading!
This week I would like to address the current market conditions. So far the previous discussion hve been about REO (bank owned) properties. With the number of REO properties that have come on the market and sold in the last 2 years it has changed the landscape of the market. Some would say for the better and others would say for the worse. It depends on your situation. If you are a home owner you have seen the value drop significantly. If you didn’t or don’t own a home than the market is starting to look pretty good. It has become a buyers market like we haven’t seen in some time.
With the value of homes dropping it has opened up home ownership possibilities to some that never thought they would own a home in California, especially the Bay Area. No matter which part of the Bay Area you are in we haven’t seen prices like this in some time. That combined with truly historically low interest rates it is almost like a perfect storm.
Between the beginning of 2007 and the end of 2008 the number of REO properties has grown on a monthly basis. But somethings have happened lately that have changed that. First of all the banks were asked by the government to stop foreclosing on houses for 3 months. On top of that, with the mergers between the large banks and the banks that got into trouble, there was an additional 3 month moritorium. The result of that has lead to a lower than normal inventory. When inventory gets low it becomes a sellers market. So what I am currently seeing is multiple offers on a lot of properties. The competition between first time home buyers and investors is strong. So strong in fact that with the multiple offers the prices appear to be moving up for the first time since 2005. Most of this activity is taking place in the lower priced homes but that will eventually push into the homes price above that.
I am afraid that this will not last very long. The reason for this is that the banks are still sitting on a large amount of foreclosed homes that they have not released to the market. Once this happens the inventory will move higher and we should see the market swing back to the buyers favor.
So if you have been thinking about buying your first home or investing I believe the time is right. Interest rates will have to move up sooner or later. My recommnedation is to take advantage of this perfect storm.
First of all let me start by saying you aren’t actually writing an offer. What your intent should be is to enter into a legal binding contract. Because that really is what you are doing.
With that said I’ll talk a bit about putting forth a good “offer”. In my last two blogs I talked about REO properties and how repairs and FHA lender required repairs are handled. With that knowledge it is easier to know how to prepare the purchase contract. First of all, don’t try to buy anything you can’t really afford, are uncomfortable with the payments or don’t have the capability to repair. So lets start with a hypothetical situation. There is a house on the market priced at $200,000. It needs some TLC – carpet, paint, window coverings and landscaping. The fair market value for this property in good condition is $210,000. Obviously you would like to get this for less than the asking price as it needs repairs and we are still in a declining market. If you want to pay $190,000 for this property you will want to write your purchase contract for around $170,000. The banks are not afraid to negotiate but they are looking for serious buyers. So if you want to “bottom feed” this blog is not for you. In order for someone to purchase a house at 5 – 8 percent below market value you will need to start your negotiations at 10 – 12 percent below market value.
Something that is really working, especially to get first time buyers in the door, is to ask for credits for closing costs. It is not unheard of to ask for 4% in closing costs. Keep in mind that if you do this you should be prepared to pay close to asking price. But if you can get the 4% or even 3% it will help pay for your escrow fees and could even buy down your interest rate which would lower your monthly payments. And you can do this and still ask for repairs.
So, if you want this hypothetical house for $190,000 you need to start by offering lower and negotiate up. But if you happen to get into a multiple offer situation all bets are off. Once that happens the seller gains more leverage and the price is usually driven up. This generally happens with a property that is in good condition, priced right and is in a desirable location.
Another way to save money is to offer to pay for the little things that the seller would normally have to pay. For example, if you are trying to buy the house for 10% below the asking price offer to pay for the home warranty, Natural Hazard Disclosure Report, Transfer Tax fees, etc. These would total about $1,000 on a $200,000 home. But by offering to pay for these you take the sting out of having your offer being for 10% below the asking price. You are essentially paying $1,000 to save $20,000.
Again, this all depends on market conditions and that is what I will write about in my next blog.
Thanks for reading!
