How Dangerous Is It To Overpay For That Home?

overpay-my-mortgage

In today’s fast-paced seller’s market, it’s not uncommon for prospective buyers to find themselves in a bidding war over a house. And while it may appear an innocent move (after all, the lucky bidder gets the house!) there can be dangerous downstream affects.

For example, the Petrees are in a bidding war for the house they really want and are willing to give the seller his inflated selling price of $195,000 (market value is more like $189,000) plus cave in to his demands to pick up $500 of his closing costs.

It’s obvious that they’ve thrown money away in the $500, but that’s just the tip of the iceberg. By overpaying for the house, it costs them more money for the down payment on the mortgage, more in closing costs (since many mortgage costs are based on a percentage of the mortgage), not to mention thousands of dollars more in interest over the years due to the larger mortgage. All toll, overpaying for the house could cost the Petrees an additional $10,000 if they own the house for ten years.

But there’s more. Because they purchased at an inflated price, their equity buildup is off to a slow start. And if they’re forced to sell before the house can realize some significant appreciation, they may have to bring money to closing—all brought about by overpaying for the house.

If you’re tempted to pay a premium price, it’s good to keep in mind my favorite home buying adage, “You don’t make money in real estate when you sell, you make money when you buy!” Sins like overpaying, over-leveraging, and overspending on closing costs will come back to haunt you later in low equity coupled with fewer selling and repurchasing options.

What can you do if you’re compelled to overpay for a house? There are two potential antidotes: 1) Know why you’re overpaying; and 2) Make sure the overpayment factors into your game plan based on how long you’ll keep the house. If you know you’ll have to pay more upfront (due to competing buyers, etc.) but have a game plan to quickly recoup your losses, overpaying for your home could make sense.

Say you’ve overpaid for a property that has several extra acres that can be divided off and sold at a substantial gain. In fact, you believe the acreage sale could fund an entire remodel for your home. It’s probably a good case of overpaying (provided you’ve gathered the proper planning and zoning research information upfront.) Overpaying for a property should not be isolated from other facts of the purchase. For example, overpaying for a house in a stable, appreciating neighborhood may not be as dire as spending too much on a house in a deteriorating subdivision or on the edge of a warehouse district.

Buyer emotions, stiff competition from other buyers—even feelings of losing out on the home you want challenge buyers to overpay. Keep a cool head, have a buying game plan (and stick to it) and make money when you purchase the house.

That’s where the extra profit is found.

 

Written by Julie Garton-Good

Are You a Motivated Seller Today?

locate-the-motivated-seller

If you are being transferred, enlarging your family, or preparing to make an offer on another home, you are a motivated seller – ready to make the best deal to sell your home quickly. You and your real estate agent can take numerous and appropriate actions to help you meet your goals.

But many sellers aren’t in a hurry to sell. They may want to test the market to see how high prices will go, or they might want to try a different lifestyle, but are undecided as to when and where they want to move. Realtors call these sellers unmotivated, because without firm plans, they can give the agent very little to do to move the transaction forward. The unmotivated seller can’t sign a listing contract, and therefore the agent can’t market the home, tell other agents about the home, or show the home to buyers.

Yet it is often at this stage of indecision that sellers’ will most often contact an agent. They let the agent know that they are “thinking of selling” and ask the agent to create a marketing plan for them, including the gathering of comparable data of homes in the neighborhood. They use this information to help them decide whether the timing is right to sell, how much they could possibly net from their home, and to help them decide what range home they would like to look at when they are ready to move. Then the sellers tell the agent, who has put in hours of work to get this information, that they will let him or her know “when they are ready to make a decision.”

Many sellers feel entirely comfortable taking real estate agents’ time in this way. And most agents are glad to give it, but what these sellers don’t realize is that without a target moving date, they have not only wasted the agent’s time, they have wasted their own.

In most areas, markets are changing rapidly. Some parts of the country have reported as much as a 10% change in home prices within a quarter. That doesn’t take into account the rapid appreciation and depreciation that can take place with the entrance of a major employer to an area, or the devastation to real estate prices that can accompany a natural disaster.

When an agent gathers information for a seller, that data only applies to the current market. If the seller is three to six months away from being ready to sell, the homes that are featured in the comparables will already be sold, and a new group of competing homes will be on the market, and the comparables and marketing plan will have to be revised to benefit the seller in that market. In other words, every bit of information that the agent gave the seller is essentially worthless unless they plan to list their home for sale immediately.

You may wonder why agents are willing to work so hard when the promise of the listing is months away, or may even go to another agent. Some agents will happily work hard to secure your listing in the future, but more frequently, you will find that many of the best agents will not. First, there are other sellers to serve who are motivated to sell their homes now. Second, top agents can not afford to be burned. They only have their time and expertise to sell, so the better agents are learning to pass on unmotivated sellers who only want free information.

So which kind of seller are you? You may see yourself as a motivated seller, but one who has just a few decisions to make first. If so, here are a few things you can do so that the time you and your agent spend is productive, and not wasteful for either of you.

 

  • Interview you agent honestly. Tell the agent up front that you don’t have a time frame, but share your basic plans and what the hurdles are. Perhaps the agent may have suggestions to move you forward.
  • Use the agent’s expertise to advantage. Ask the agent for his/her advice as to what types of will be most useful to you in your particular situation. His/her answers may surprise you, as well as move you more quickly toward your goal.
  • Be willing to pay for information. Many top agents will give you the comparables you want at a reasonable fee. Others may be willing to consult with you on an hourly basis until you are ready to sell. You can request that the consultation fees be rebated when you list and close your home with the agent.
  • Don’t use an agent with the intention of stiffing him/her. Some sellers think it is okay to get all the information from one agent, usually the top producer in the area, and then give the listing to Aunt Sally. This is wrong and could come back to haunt you in ways you’ll never know. If you don’t trust Aunt Sally to do the work on your home from beginning to end, chances are she might have a less than stellar reputation in the marketplace, too. It’s a fact that good agents like to show other good agents’ homes, not the homes of people they don’t trust. Also, word gets around, including everything you told the agent (who no longer represents you). The agent is also free to share with other agents what her first impressions of your house really were. Think everything from fewer showings to no showings, and lower offers to no offers.
  • Learn about agency. Before you divulge some types of information to an agent, make sure that the agent will be serving your interests exclusively in the transaction. If you don’t have a contract with the agent, s/he is under no obligation to keep what you tell him/her private, particularly when your home comes on the market via another agent.
  • Keep the agent updated. If your plans start to gel, let the agent know. S/he may be able to take some actions on your behalf that will move things along.

Written by

 

So You Want to Sell Your Home Yourself?

fsbo

When Larry and Beth decided that the time had come to sell their home, they asked themselves: “Why do we need a real estate agent? After all, an agent will charge thousands of dollars to sell even an average home, and that commission comes right off the top! Heck, we can do practically everything that an agent would do, so why should we pay out all that money?” Many home sellers have similar thoughts, and because so much money is at stake, these questions deserve some serious thought.

Any real estate agent can give you an impressive list of reasons why it makes sense to hire a professional to help you sell your home, and from a marketing perspective, there are indeed many benefits in doing so. An experienced agent can utilize any number of marketing opportunities and strategies that the typical “For Sale by Owner” (a.k.a. “FSBO”) does not even know about. For example, only a professional agent can take advantage of the Multiple Listing Service, organized tours, etc. However, there is another reason to seek professional help in selling your home; an important reason that you may not have thought about.

In today’s world, the sale of real property is not just a marketing exercise; there are many legal issues involved, which can create liability in the sellers. Of all the things you want and expect from selling your home, a lawsuit is probably not one of them!

Unfortunately, residential transactions have seen an alarming increase in the number of claims and lawsuits. Of these claims, the majority are filed against sellers, by their buyers. Home sellers who think they can “go it alone” might want to seriously ponder the observations of a lawyer who has defended many sellers and real estate agents against claims made by “the Buyer from Hell.”

In most states, the process by which title to real property is transferred is rather complicated, and the typical home seller is not familiar with the many legal issues that can and do arise, even in a fairly simple transaction. Important decisions must be made concerning contract terms, escrow matters, transfer of title, apportionment of costs and any number of other matters. Also, bear in mind that a simple missing word, or a mistake in grammar can create a dispute which, in turn, can give rise to a lawsuit. Aside from the problem of drafting the contract language itself, sellers can face other dangers as well. For example, did you know:

  • that in most states, there are substantial risks involved when a seller agrees to “carry back” a note from the buyer; risks that can cost you thousands of dollars?
  • that your good credit rating could be ruined by your buyer’s default, many months, or even years, after that buyer “assumes” your loan?
  • that a clever buyer may be able to stay in possession of your property for many months after he defaults on the contract, and in effect “live for free” at your expense?
  • that most buyer complaints involve alleged damages of less than $10,000, yet it can cost you thousands in attorney’s fees to defend such a claim?

In short, a lawsuit can ruin your whole day! Even if you know that the buyer’s claims are completely bogus, it can take many months and many thousands of dollars to prove that you are “innocent.” What’s worse, you have no “malpractice” insurance to pay these legal bills; you will have to write all the checks yourself. And, of course, you could lose … and losing a case like this can be disastrous. You and the buyer have a contractual relationship, and in many states, sellers who lose such suits could find themselves having to pay not only the amount of damages awarded to the buyer, as well as their own attorney, but they may also be ordered to pay the fees of the attorney who sued them!

Experienced, professional real estate agents understand these kinds of risks, and they can help you to minimize them in a variety of ways. They devote many hours to training and educational programs which emphasize risk reduction, and protecting their clients’ interests.

Now, there are any number of reasons why your buyers may decide to take action against you (sometimes, they just don’t feel like making the payments any more!). However, most of these complaints allege problems with the condition of the property, and/or representations made to them about the property or the transaction. An experienced agent knows how to reduce the risk of these types of complaints, by including, or suggesting that your attorney include, effective “AS IS” and other clauses in the contract language, and by providing for such things as a professional home inspection, and a home warranty.

When a problem arises in the transaction, an experienced agent can move swiftly to “nip it in the bud.” Their thorough understanding of the myriad facets of modern transactions can help them to identify the real problem, and to either solve it themselves, or by calling upon resources that the typical seller simply does not have access to.

There is no escaping it: the best way to deal with a complaint is to prevent it in the first place. The organized real estate community has spent a lot of time thinking about how to reduce the likelihood of claims, and has responded to this threat in a number of ways. For example, the standard contract forms that agents in many states use, are chock full of language which can help protect you, and reduce your exposure to claims and litigation. If you are in a state in which real estate transactions are handled by attorneys, many of the problems discussed herein will be minimized, but a top-flight agent can still play a major role in helping your sale move toward a smooth closing.

Of course, I don’t mean to scare you with all this! But hey, it is a jungle out there. Indeed, I’ve only touched on a few of the potential pitfalls of selling your home on your own. Take it from someone who knows: selling your home without professional help is very risky business indeed. Yes, it costs money to employ a real estate agent, but if you find the right one, you will likely be able to sell your property faster, while at the same time reducing the chances that your buyer will come back to haunt you.

 

Written by Robert Bass,Esq

When Is It Time To Sell ? The Empty-Nester Dilemma.

empty_nest_syndrome-473309204

Wasn’t it just yesterday the moving truck pulled away, leaving you to unpack boxes in the kitchen, while the kids raced each other up the stairs to lay claim to their bedrooms? Could YEARS have past since you planted the seedling in the front yard, where now stands that majestic tree? Unbelievable as it may seem, you blinked and became your parents!

Millions of baby boomers are now facing, or will shortly face, The Big Question: “What Do We Do About The Family Home?” With children grown and leaving for college or for places of their own, Fifty-Something folks find themselves grappling with a decision that many are just not ready to make.

Most boomers bought their present homes assuming they would one day make a clear-cut, economic determination. They firmly believed that once the kids were out, they would sell the big house, pocket the profit, and scale down. They logically figured that no one in their right minds would continue hanging onto a four bedroom, 2 ½ bath house after the children left. Someday in the distant future, they mused, they would be heading for something smaller, something more manageable, something more appropriate for two people.

Suddenly, THE DAY arrives ! Wonder of wonders, many empty-nesters find themselves completely unprepared. Like deer caught in the headlights of a car, they are paralyzed at the thought of having to move. While realizing it probably does not make economic sense to maintain a residence far too big for their present everyday needs, empty-nesters still stay put.

Why?

The answers are as simple, and as complex, as human beings themselves. First and foremost is the inability to face the notion that they have actually reached the “Someday” stage! Selling the big house smacks of being old. Baby boomers do not look , or feel, “old”.

In addition, the home holds many emotional ties. Every room emits memories: all those family functions, all those prom pictures, all those birthday parties.

Next, there is the real issue of the disruption a move invariably causes. The process of selling one house, packing everything, buying another residence, moving, and then unpacking, is exhausting. And, where would they go? Still vibrant — and probably still working – most baby boomers are not ready to pull up stakes and head for retirement cities.

Even if the perfect condo or townhouse complex exists just around the corner, many empty-nesters are concerned about drastically changing lifestyles. What if they hate condo living ? What if they miss their backyard? What if they can’t breath with neighbors so close?

What Is The Answer?

While the decision of WHEN to give up the big house will remain a personal and emotional one, some objective financial factors should, rightfully, be contemplated now:

Is The Area Appreciating Or Depreciating?

Empty-Nesters would be very wise to keep a finger on the pulse of the real estate market in their area. Tracking the appreciation record of an area is not a complicated matter. For the Internet savvy,  , is a Web site that offers the ability to check the appreciation history of any property in the US. As an added bonus, the site also has reports that predict the probability of future appreciation! In addition, call your local REALTOR and request a CMA (Competitive Market Analysis). This should tell you the direction your area is taking. If an area shows a flat rate of appreciation, or worse yet if it reveals depreciation, then you may want to seriously consider selling sooner, rather than later.

Do You Have The Ability And Desire To Keep Up With Maintenance?

Let’s face it. All residences require maintenance , and the larger the dwelling, the more there is to do. If you have reason to believe you may become less than diligent about keeping up with repairs, even as MORE chores show up (the house isn’t getting any younger, either!) , then you may want to consider selling . Homes that show signs of deferred maintenance (a fancy way of saying someone was too lazy, or too busy, to take care of things) will bring less value on the marketplace.

When Will Major Components Need Replacing?

The longer you remain in your home, the more exposure you have to expensive, necessary replacements. How old is your roof ? What is the age of your heater? Your air conditioner?

In a nutshell, you should take a cold, hard look at the reality of your real estate. Determine how much extra it may cost you to remain in your present “comfort zone” for a few more years, and then decide if you are willing to pay the price.

 

Written by Judi Wolfson and Elaine Shreiber