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It is NOT a Good Time To Buy A House!

IT’S A GREAT TIME TO BUY —  OHHHHMMMMM

IT’S A GREAT TIME TO BUY— OHHHHMMMMM

To quote one my heroes, Simon Cowell,  “I don’t mean to be rude but….” SHUT UP ALREADY!

Yes prices are low!  Yes Interesting Rates are historically low!  Yes there’s a ton of housing inventory!

So let me qualify my opening about why everyone should not be jumping on the bandwagon and grabbing up some of the low-priced inventory with the low-interest rates.

It goes back to something that has been mercilessly pounded into our collective consciousness over the last 50 years.

REAL ESTATE IS A GREAT INVESTMENT!!!!

For many years, this was true.  In fact if you search through my blog archives you’ll find that I have taken my turn at chanting the mantra. If I were a politician, I might be called a flip flopper.

Right now – it’s NOT a great investment.  Sure we’d all love to silently hope that the RE Market is going to “cycle back to normalcy” tomorrow – or next month, or next year.  Another Cowelism – “If I’m being honest..”  there really aren’t any indicators that home prices are going to “bounce back” anytime soon.

Of course no one really knows exactly what the future brings and I’m by no means an economist but I continually read just about everything that’s out there on this subject and nothing has convinced me that you can buy a house now and watch your investment grow.

One of the things that makes me believe this has to do with the next “wave of foreclosures” that is coming in the next 9 – 18 months.

So, if that’s the case, you might ask, why did I just spend several hundred dollars and renew my Realtor’s License?

Fact is, there are people who should and will be buying homes and with the market as complex and dynamic as it is right now, those people need a guide like me who knows the ins and the outs so they can make it all the way from their current home to the next as gracefully and smoothly as possible.

So who is it that should be buying?

Glad you asked.

There is only one valid reason to be buying a home right now – if you are looking for a new place to live and plan on staying there for some time. For those people it’s a great time to buy for all the reasons above (low price, low interest tons of inventory).

So what I’m suggesting is this: Be honest with yourself. If you need a new place to live in Connecticut – give me shout and I WILL  help you find it.   If you are thinking that you should buy a house because conventional wisdom has been drilled and drilled that it’s a good investment, you may want consider buying gold.

It IS a Buyer’s Market.  That merely means that there are more sellers than there are buyer’s – it’s just supply and demand. It doesn’t mean that everyone should be buying just to buy.  If you need a house, you can get a great value – a REALLY great value – but think about the house as place to live, not as a way to make money.

Right now in Northern Fairfield County, CT there are more than 2000 Single Family Homes and Condominiums listed for sale.  They range in price from the low $100,000’s to more than $8,000,000.   So there are a lot of options.  If you have a valid reason to purchase one, I’d be excited and delighted to help you sort it all out.

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Rick Schwartz,   REALTOR

Homes for sale in Danbury, Bethel, Brookfield, Newtown, New Fairfield, New Milford, Ridgefield and Redding CT.

The Risks of Killer Negotiation

I’ve written before on this subject and this may or may not be my final word on the topic of negotiation (you never know what’s going to pop into my addled, old brain at any moment.) It covers the subject of why it may be in your own best interest not to approach a home negotiation with the tactics of your character in Mafia Wars.

What is KILLER NEGOTIATION?

In a nutshell it means putting the other party in a vice until they crack. Pushing them to do what you want not by vigorous “give and take haggling” to make the best deal you can, but by testing the limits at which they will “break” and bend to your will.

This can apply to either side – the buyer or the seller.  In a depreciating (buyer’s) market the seller will typically be the target and in an appreciating (seller’s) market it will most often be the buyer.  Not always – it is sometimes about the market and sometimes it’s just about exploiting the other party’s sense of desperation.

KEEP YOUR EYE ON THE GOAL.

I’m in no way urging that you should pay more or take less for a house than the market or your individual situation dictates.  This isn’t about the results of bargaining – it’s about the tactics. Remember what your objective is and why you put yourself into this position in the first place.  The goal is the same for each side: To make the best financial transaction you can in the best time frame with the least amount of risk.

The part of that statement that everyone always zooms in on is the first part – the price!  The goal, however has more than just that.  It’s about your optimum time frame and minimizing your risk.

RISK?? WHATCHOO TALKIN ABOUT?

I JUST WANT TO BUY (SELL) A HOUSE!

BUYER RISK

Unless you are paying cash for a house and are not selling another house, there are pieces of the transaction that you simply have no control over.

Most moves are part of a chain.  The number of links in the chain can vary. If you must complete the sale of your own home in order complete your purchase then you must rely on the success of your buyer.  If that buyer is also selling something then you must rely on the success of your buyer’s buyer.  And so on. The more links the more places something can go wrong.

The old adage about a chain only being as strong as its weakest link doesn’t have a better example than in a chain of home sales that rely on each other.

In addition, if you are acquiring a mortgage for your purchase there are a million things that can go wrong between the time you and the seller agree on transaction terms and the closing. The work flow of a mortgage is dependent on a number of laws that have specific intervals between critical dates as well as being dependent on the speed, work-ethic and efficiency of any number of employees and third party vendors that the bank may employ.

SELLER RISK

Unless you are selling your home with the idea of renting your next home, staying in a hotel while you travel for a while, or moving in with relatives and you do not need the net proceeds from the sale for living expenses, there are parts of the transaction that you have no control over.

The chain affects you as well – on both ends. In order to close successfully you are dependent on your buyer’s success and his buyer’s success. And so on.  In addition, if you are purchasing another home where  you plan to live, you cannot complete that transaction unless the people you are buying from close successfully – and they are dependent on the people they are buying from. And so on.

THE ULTIMATE DYSFUNCTIONAL FAMILY

Sellers, buyers, downstream buyers and upstream sellers are interdependent on each other for a successful move.   You start out as adversaries and then you all need each other to be successful. I’m not a mathematician so I can’t calculate the degree of risk but let’s just say that the more links in the chain the higher the odds that it will break somewhere along the line.

You cannot control anything that happens upstream or downstream.  You can’t even control much that happens with the two closest links, who are your buyer and your seller.  There is one thing that you can do to lessen some of the risk – at least at the closest point to you. You can control the level of goodwill between you and your buyer or seller.

SOME EXAMPLES

Work with your Realtor and come up with a price range that falls in within market value. Negotiate by making offers and counter offers. Try and learn what you can about the other parties sense of urgency and stick to numbers that you think will be accepted.  Wait them out if you have to.  Don’t go to a number that you don’t think is acceptable.  Go as many rounds as you have to, working with your Realtor’s guidance.

The key is to do it with respect.  (The following items are true – names changed to protect innocent).

  • Unless there is a valid reason – don’t tell your Realtor to inform the other party that if they don’t respond to a counter offer within a few hours, you are pulling out.
  • If you are the buyer and in your initial offer you ask for some item that was not in the listing – don’t press the issue if the seller replies that it’s an important item to them and they need to take it when they move.
  • If you are the seller and you settle on price around the time of a holiday weekend and the buyer can’t get an inspector to come out within 3 or 5 days as detailed in the offer – don’t inform him that his inspection contingency is gone
  • If you’ve gone through several rounds of offer/counter offer and you are now $800 apart on a $400,000 home, and the other party offers to move another $400 if you’ll do the same  – do it! Don’t come back and say you’ll do $350 if he’ll do $450

You certainly have the right to do any or all of the above.  As a Realtor, my job is to advise, but ultimately present any and all offers and demands my client makes.

The odds are, whatever side you are on, there is going to be SOMETHING you’ll need from the other party after the negotiation before the closing (These are all true)

  • A buyer is going to ask the seller to extend the mortgage commitment date in the contract by a week
  • A seller is going to ask a buyer if they can rent the house back after closing for 48 hour
  • Either side might need an extra day to execute the sales contract because their attorney was sick

There are a dozen other examples but you get the idea.  The bottom line is that if you put the other party in a box and squeeze the life out of him at the beginning of a transaction – I can assure you that he will remember.

As with most of things I write or talk to clients about – the operative phrase is “Accurate Expectations”.

The funny part of it is, very few strong arm tactics actually change the outcome of your transaction.  It’s almost never about the original goal (see above). It’s about winning.  As I’ve said before a truly successful negotiation doesn’t have to have a winner and a loser.

How Much Should Rising Interest Rates Influence Home Buyers?

Some of the most common questions that get asked of most Realtors are

  • Will Housing Prices continue to go down?
  • Will the appraised value of my house continue to fall?
  • Are interest rates going to stay low?

Fact is, none of us know if appraised values of houses will continue to fall or if interest rates will go up or if the market has bottomed out.

In today’s NY Times, Nelson Schwartz (no relation) did a column entitled  “Consumers in U.S. Face the End of an Era of Cheap Credit. He talks about how we as American have spent the last 30 years or so watching interest rates basically trend downward. While there certainly have been fluctuations, let’s face it, rates, in all areas of credit have significantly lower than they were in the 1970s

I can remember buying my first home in 1979.  We had a variable rate mortgage that started out at 10.5% and had the potential to go up as much as a point per year.  The lender magnanimously capped the loan so that it would never exceed 17%.   We sold that house a few years later – the rate had climbed to around 13%.

This was the norm and we didn’t really think of it as a bad thing – it was just the way it was.

Today – we’re in a huge crisis, part of which is based on the fact that some variable loans have climbed from 5%  ALL THE WAY UP to 9% or so.

Needless to say, our attitudes about interest rates have changed. Mr. Schwartz indicates that many economists are saying these days are over.   Rates have “nowhere to go but up.”

For the last 3 years mortgage rates have gone up and down between the low 5% and the mid 4% range.   At the same time home buyers have been hesitating to buy homes because they are waiting for home prices to “bottom out”.

As of right now, in most markets, home prices are still dropping a bit, so this “wait and see ” attitude is still prevalent among potential buyers.   As a Realtor, I have a number of clients who have been looking at homes with me for more than a year – or more than two years.

Here’s the thing – if you “do the math”  rising interest rates might offset any continued drop in prices.  Here’s an example.

If you were to buy a home today for $250,000 and put $25,000 down you’d be borrowing $225,000. If that loan is for 30 years at current rates of around 5% your principal an interest payments will be $1207 per month.

If you hesitate on your purchase and wait 9 months, the house might indeed go down in price.  Let’s say it drops another 5% and the you can buy the house for $237,500.   If you put the same $25,000  down, your loan would be for $212,500.   If rates go up by just 1 point – to around 6%, your monthly principal and interest will be $1308.

So – in the end, you be buying at a lower price, but paying $100 more per month – and that additional amount is not adding to your equity – it’s all in interest.

Add to that the fact that if you wait and you also have a house to sell, your home will also likely drop another 5% in price.

So – in the end, you will not only not save money by waiting – you’ll actually be paying more – maybe considerably more.

Now – no one really knows what’s going to happen.  Prices could stabilize and interest rates could drop.  It’s all about educating your self on the market conditions and making the best decision you can.

Rick Schwartz,   REALTOR

Homes for sale in Danbury, Bethel, Brookfield, Newtown, New Fairfield, New Milford, Ridgefield and Redding CT.

Realtor Expectations – Part One: THE LISTING AGENT

NOTE:  This is a pretty long post but worth reading – print it out.

With so many Realtors to choose from, this is intended to help you look at some of the things you might want to clarify with an agent when selecting the one to sell your house.  Realtors, like any group of people, have many different styles, work ethics, and philosophies.

There are a lot of homes on the market today – some sell, some don’t.   Working with the right Realtor can definitely have an impact on which group your home falls in to.

Every Realtor should have the same objective when listing your home.   The objective, put simply, is this: To help you sell for the highest possible price, in the shortest amount of time, with the least amount of inconvenience for you.

This  objective should be the basis for everything else in the Realtor’s Strategy:  Highest – Shortest – Least  or HSL.

Every plan and every action should be geared towards one of those three components.

PRICING: A Realtor’s first responsibility to you is to help you decide the right asking price.

You agent should perform a detailed analysis for you of your local market, including sold properties, active listings, properties that did not sell, as well as information on how many homes have sold in your areas recently and the pricing trends.

Once you know the right price, it is the responsibility of the Realtor to advise you not to overprice your house.   Why  you should not overprice your home is covered in THIS POST.  The subject at hand today is that your Realtor should not be telling you what you want to hear. Brutal honesty should gets high marks.

The tendency for many sellers is to ask about listing above market value for  “a while” and then lower it if doesn’t sell.  Doing this is rarely in the best interest of the seller and usually ends up with months of anxiety and ultimately nets the seller less money for their home.  Look for a Realtor who will stand by his analysis and work with you towards HSL.  It may be the path of least resistance for a Realtor to simply go along with the client on this issue – but it may not be the best thing for the client.

MARKETING: I’ve heard it said that no one “sells” a house, people look at at and choose to buy it.  If that’s true then the key to finding that buyer is to get as many people to look at the house as possible.  Not everyone that views your home is going to want to buy it – that’s OK.  You only need one buyer.  The odds of finding that buyer are greatly increased by the Realtor’s ability to generate interest.    Ask your Realtor for his Marketing Plan.  What are the specifics thing he’ll be doing.  What will be done in the first few days, the first week, the second week.  What will be done on an ongoing basis.

How will he be promoting the home to the other Realtors in the area?   Remember, it’s the other Realtors who have the buyers.  So  while advertising your home to consumers is important, it is equally important to know the specifics of how your Realtor will be communicating with the other area Realtors – or even Realtors not in your area.  Your buyer may live  down the street or thousands of miles away.  In our area of Northern Fairfield county, there are multitudes of folks who move across the state line from NY.  How will your Realtor approach the NY Realtors with information about your listing?

Part of  the marketing plan includes preparing your home for showings.  This may include staging advice, which again calls for brutal honesty.  For certain homes, it might be appropriate to bring in a professional home stager, but  even without that there will be things that your Realtor will likely notice that will make your house more appealing to buyers.  Again, what you want here is for the Realtor to look beyond saying what’s comfortable – he needs to point out anything he notices to you that will help reach the prime objective.

In addition your Realtor should make a point of preparing marketing materials for your home that will point out “the high points” to visitors.  Remember – neither you nor your Realtor will likely be present during showings and the buyer’s Realtor does not know as much about your home as you or your own Realtor.  “Call outs” which are small signs can be placed throughout the house to draw attention to certain features.  If there’s a cedar closet for example, buyers will only see it if they open and look inside – so a small sign on the outside of the closet can help.

There are a variety of other materials that can be placed in the house, co-located with the agent sign-in sheets.  Property and subdivision maps, neighborhood information and transportation options are just a few.

FEEDBACK: Ask yourself how often you want updates from your Realtor about  “what’s going on”.   Will your Realtor provide weekly written summaries of all showings and re-showings of your house?   What is the Realtor’s plan for following up with the agents who bring buyers for showings?   With today’s electronic key boxes, your Realtor can have the capability of knowing very quickly what other Realtors showed your home.  Does he have a systematic plan to get feedback and follow up with them?

NEGOTIATION: Your Realtor should have a negotiation strategy which he goes over with you before the house is ever shown.  While he will bring you all offers and you will ultimately decide,  he should be discussing likely contingencies and options with you.  When an offer comes in, it begins a series of fast paced back and forth telephone conversations that should lead you to a successful sale. If you’ve discussed the strategy in advance, you’ll be prepared for and can come up with well thought out positions on things such as:

  • What will you do if you get a full priced offer on the first day of the listing – before you’ve had an open house?
  • What are your options if you get multiple offers?
  • How should you respond to “lowball” offers?
  • What if you get an offer form someone who has a healthy down-payment but needs an extended closing date?

None of these things should be surprises if and when they come up.

POST SALE: Once an offer is accepted, the primary point of contact will likely be your attorney but that, by no means, says that your Realtor’s responsibility is over.  Your agent should be prepared to follow up with all the various parties to make sure that everyone else is doing everything they are supposed to.  There is an old adage among sales people  that applies here:   “A salesperson’s job begins when the buyer says yes”.   Everything that happened prior to your finding a buyer will mean nothing if the deal falls through.  There are many things over which you or your Realtor have no control, but he can stay informed and at least try to avert any one of the many things that can go wrong.

SUMMARY: Generally speaking, you should choose someone you feel comfortable with but that comfort should come from you knowing that your Realtor has a plan which involved more than taking the listing and waiting for the buyers to come.

When is a Seagull like buying a house?

1/31/10

Updating an old post from about a year ago.  This is actually more timely than ever due the April 30th deadline for finding a house under the Expanded Home Buyer Tax Credit.

—–

I heard an interesting parabolic riddle (I always wanted to say that) by an author on one of the morning television shows today. I was also on the phone, tripping over the dog’s water bowl and trying to make breakfast at the same time so I didn’t catch the name of the man who was talking. When my brain processed it a little later on it really struck me though.

If there are four seagulls sitting on piece of driftwood and one of them decides to fly away, how many are left on the driftwood?

The answer is four. DECIDING to fly away is not the same as actually making the flight.

It’s really the same with a lot of folks today who are looking at houses. We all know this is a buyer’s market and a lot of people are taking advantage of it to get some of the great bargains that are out there. There are lot of folks I talk to though, who have made the decision to buy but they are waiting: for prices to bottom out, mortgage rates to drop below the historic lows that we have right now, or they keep hoping that the next new listing that comes on the market will be the perfect home.

The fact is that it is only a buyer’s market for those folks who actually buy a house. At some point, prices will go flat and then rise, mortgage rates will go up, and there will be fewer houses on the market to choose from. Nobody knows when these things will happen.

The simple truth is that the stars are aligned pretty nicely – right now – for qualified home buyers. So if you’ve made a decision to partake in the buyer’s market, there’s no time like the present.

Waiting for the bottom?

May 2, 2009 1 comment

A lot of people shopping for houses today are moving very cautiously towards making a purchase as they keep their eye on the depreciating prices of houses.  Everyone wants to buy at the “bottom” of the market – which is a natural feeling – who wants to buy something today and have it be worth less in 6 months.

One of the challenge with this is that we are not going to know when the bottom hits until we can look back and point at it in our rear-view mirrors.  Once prices start to rise at some point, we will know, for sure, when the bottom was. Until then, we’re all just guessing – and gambling.

The second thing to consider is really a math exercise.  If, for example, there is a home that you like that you can currently buy for, let’s say,  $250,000.  If you wait 3 more months, the price might drop to, let’s say $230,000 giving you a “savings” of $20,000.

Let’s look closer at that $20,000. You have to consider what it is costing you NOT to buy for another 3 months.  If you are a first time buyer and you are currently renting, that means that you’ll be paying rent for 3 more months and not enjoying a tax deduction on the interest you’ll be paying in your new mortgage. The earlier in the year you make a purchase, the bigger your deduction will be on April 15, 2010.

If you currently own a home, compare your current interest rate to what you would be paying if you made a move sooner than later.  If you’re current rate is, let’s say,  7% and you can get a mortgage on your new home for 5%, how much will you be saving on your monthly payment.

Everyone’s situation is going to be a unique but you should take the time and do the math to figure out how much it will cost you to wait for “the bottom.”  You might be surprised.

Negotiation Doesn’t Have to be Adversarial

February 25, 2009 1 comment

Quite often, price negotiations turn into very adversarial situations where one party tries to get “the upper hand”.  There seems to sometimes be a feeling that you can “win” a negotiation by getting your opponent into a situation where he will be somehow harmed if you were to pull out.

This comes about because buying and selling homes not only have a financial component but an emotional one as well.  The buyer is buying because he needs or wants a new home, and the seller is selling for the same reason.

Perhaps your existing residence is too small for you growing family, or perhaps it’s too big now that the kids are grown. Perhaps the economy has put you in a situation where it’s tough to keep up and you are moving to get more control of your finances.  Or perhaps you have a new job which comes along with a new commute.

There are lots of reason why you might need or want to move.   Here’s the thing, though. None of those issues has anything to do with the value of the house you are trying to buy or sell.  The value is the value.  So when you begin negotiating you need to do so strictly from a point of view of what the house is worth.   If you can’t afford to buy a certain house, or you can’t afford to sell your house for less than a certain amount – then you should not be doing it.

Your emotional and family needs are important when deciding where and when to move, but once you start negotiating, all that stuff needs to go on the back burner.

A successful house negotiation will not have a winner and an loser.  It will be a mutually beneficial business arrangement where both sides have a fair result.

Whether you are  the buyer or the seller, your Realtor, should begin the preparation for negotiation, exactly the same way – by using market data to determine the fair value of the house.   If both Realtors are doing their jobs correctly, there should be very little difference in the perception of the home’s value – whichever side you are on.

In a perfect world, everyone would get together in a room and look at all the available data, come up with the right price and that would be that – but we all know that it doesn’t work that way.

The buyer and the Realtor will, together, come up with two numbers.  The highest price you are willing to pay and where you will start the bidding.

The seller, who has already, in a sense, put in the opening bid by setting a list price, needs to prepare with his Realtor by doing essentially the same as the buyer.  Decide exactly what your lowest price will be and what your first counter-offer will be when you receive the opening offer from the buyer.  The list price, unfortunately kinds of goes out the window at this point.  The list price is designed to attract shoppers. Now you need to get down to business and decide how much you are willing to take for your house.

Since conversations between Realtor and Client are confidential, these numbers will not be shared between the two sides.  If done properly, however, “what I’m willing to pay” and “what I’m willing to sell for” shouldn’t really be too far off.

Then an opening offer is tendered, there is a series of counter and counter-counter offers and a price is settled on.  At the end of it, there shouldn’t be any negative feelings about the number from either side since the ranges were decided ahead of time.