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March 24, 2008

In the Metropolitan Phoenix real estate market, our long, slow slide in home prices is finally encountering demand

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Sun City Real Estate Broker

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This is my column for this week from the Arizona Republic (permanent link):

 
In the Metropolitan Phoenix real estate market, our long, slow slide in home prices is finally encountering demand

If you’ve been looking for the bottom of the Phoenix real estate market, it might well be upon us.

The world beyond our control — Washington and Wall Street — is so volatile right now that it’s hard for anyone to make plans.

The Federal Reserve Bank is determined to keep markets liquid, so its own interest rates are heading back toward record lows. The investment banks that brokered the mortgage-backed securities that made sub-prime loans possible are in turmoil. Meanwhile, Congress is desperate to do something — which will almost certainly make things worse.

The interesting thing about all that chaos is that it seems to be isolated to the real estate market. The larger economy is growing so fast that the twitterpated monetary policies of the Fed seem not to have had much of an impact.

That’s a good thing, and let’s hope things stay that way.

Meanwhile, in the world we have some control over — the local real estate market in Metropolitan Phoenix — our long, slow slide in prices is finally encountering demand.

Because so many people wanted to buy houses in Phoenix, our builders gleefully over-built the Valley. This caused the glut of inventory we have been trying to absorb over the past nine quarters.

Many of the resale homes that have languished on the market are by now short sales or have been taken back by the bank. Lenders don’t want to own houses, so they’re cutting prices until the homes get sold.

At the same time, our reliable inflow of population, along with investors and second-home buyers, is there to absorb these newly-affordable homes. The snow belt just got belted with its worst winter in memory, which will bring even more newcomers to Phoenix.

It could be we’ll be back to normal inventory levels fairly soon. The bad news? If your home is for sale, the price it will sell for right now is probably quite a bit lower than you think it should be. If you don’t have to move now, you might be better off staying put for a year or two.

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March 17, 2008

Your rental home in Phoenix will generate positive cash flow — but will it appreciate in the coming years?

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Sun City Real Estate Broker

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This is from my Arizona Republic column (permanent link):

It’s still a buyer’s market out there, but is it an investor’s market? The answer to that turns on three other issues: Vacancies, values and cash flows.

Lenders get all the blame for the downturn in home values, but that’s not entirely fair. Another big share of the blame goes to the builders, who built new homes far beyond any reasonable estimate of demand. So, even though folks who might have gotten home loans two or three years ago are stuck renting for a while longer, is there enough tenant demand to keep a rental home profitably occupied?

Even if there is, will the prices of Valley homes continue their decline? This seems likely, at least in the near term. There is still a tremendous amount of inventory in the MLS system. The best bargains, though, are houses that are in the foreclosure process. These can be hard to wrest away from lenders, but they may be a leading indicator of the bottom of the market.

More significantly, will a rental purchased at a bargain price throw off positive cash flow? Unequivocally: Yes. To qualify for an investor loan, you will need to have great credit and a 20% down payment. But interest rates are still very low, and rents have held up just fine through the downturn.

So the big bet boils down to this one question: If you buy a rental home in the Phoenix market now, will you be able to sell it at a significant profit eight or ten years from now?

Alas, no one can predict the future. If you pick the right rental home — good house, good location, good orientation, easy access to schools, playgrounds, shopping, freeways and jobs — it should rent well now and resell well later. If you get the right loan and don’t refinance, your income property will actually produce income — which means it will pay for itself and still throw off a few bucks a day in cash profits.

But will it appreciate in the forthcoming years? For the answer to that question, we’ll just have to wait and see.

March 11, 2008

How do you get visitors to come to your home’s custom weblog? Shoe leather works well. Search engines? Not so much…

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Sun City Real Estate Broker

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This is my column for this week from the Arizona Republic (permanent link):

 
How do you get visitors to come to your home’s custom weblog? Shoe leather works well. Search engines? Not so much…

Okay, so you’ve built a custom weblog to help sell your home, and you’ve dressed it up with photos, a map, a floorplan — every bit of content you could think of. Now what?

Your home now has a twenty-four-hour salesperson on the internet. How do you go about getting potential buyers to visit your blog?

Perhaps surprisingly, the answer is not search engines. For one thing, your site is brand new. The search engines don’t even know it exists. Even if you manage to get indexed, you won’t have the kind of popularity to bring you to the top of search results for your keywords.

But there is an even more compelling reason why search engines won’t be much help to you: Visitors brought in by search engines are very loosely motivated. Many will have been looking for something else entirely, so they will bounce right back off your site in seconds flat.

Your objective in promoting your weblog is to target people who are motivated to buy your home — or who know someone who is motivated to buy your home. Your job is not to broadcast your appeal to everyone but to narrowcast to just those people who can do you the most good.

You’ll put notices about your weblog anywhere online that you can — Zillow.com, Trulia.com, CraigsList.com, local weblogs supporting nearby schools, little league teams, etc. But your primary promotional strategy is going to be offline — person to person.

We print business card-sized promotional pieces to advertise our open houses. These are distributed to every house in the neighborhood, since the neighbors may know someone who wants to live nearby.

During the school day, there will be more than 100 cars in the school parking lot, most of them driven there from out of the neighborhood. Some of those folks are sick of commuting.

Most local retailers will have some kind of bulletin board. Your cards belong there.

Your buyers probably won’t find your home on a search engine. But if you manage your promotion right, your house will be sold long before that matters.

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March 7, 2008

A thoughtful reminder to the home-schooling parents of California: Arizona is the most home-schooling-friendly state in the west, our homes are affordable, our weather is delightful and our state government pretty much minds its own business

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Sun City Real Estate Broker

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Unbelievably, home-schooling has been outlawed in California. We would love it if California home-schoolers were to call us for help in relocating to Arizona. But however you get here — get here. You have a right to school your own — and Arizona knows it.

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March 3, 2008

Dress up that custom weblog you’ve built to help sell your home

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Sun City Real Estate Broker

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This is my column for this week from the Arizona Republic (permanent link):

 
Dress up that custom weblog you’ve built to help sell your home

Last week we built a custom weblog to help you sell your home. This week, let’s dress it up a little.

Some of the things I’ll be talking about are free, but others cost money. Your Realtor may have a marketing budget, so that could be a source of funding. But even if not, with only a few buyers chasing a very large number of homes, stinting on marketing costs may not be your best strategy.

Here’s something you can do for free: Go to Google Maps and build a map to your home. At a minimum, you should also provide driving directions from the nearest freeway exit. But, if you sign up for a free Google account, you can link to an elaborate custom map for your home.

Highlight parks, playgrounds, schools and shopping. Saying anything at all about churches might invite Fair Housing complaints, but you can draw attention to other nearby amenities. Even better, you can attach pictures and internet links to your map markers, so that buyers can really get a feel for the neighborhood.

Online real estate sites like Zillow.com and Trulia.com want to know that your home is for sale. You can add photos to those sites and link back to your custom weblog, which will bring you more traffic. On Zillow.com, you can “claim” your home, updating details on any upgrades you have made to it.

We like to use floorplans. You might be able to get one to scan (or better yet, an Adobe PDF file) from your home’s builder. We use a company called FloorPlansFirst.com because they make interactive web-based floorplans. Buyers can move their furniture into the home to see how it will fit. This costs money, but it sells houses.

For virtual tours, we’re switching to Obeo.com. Their tours cost more, but they offer a category-killer feature: Virtual redecorating. Your buyers can discover how much they’re going to love your house after they’ve remodeled the kitchen and repainted the exterior.

And the only stronger commitment a buyer can make is a purchase contract and a fat check.

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February 25, 2008

A custom weblog can be your home’s 24-hour real estate salesperson on the world-wide web

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Sun City Real Estate Broker

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This is my column for this week from the Arizona Republic (permanent link):

 
A custom weblog can be your home’s 24-hour real estate salesperson on the world-wide web

I have an unshakable faith in the three P’s of home marketing — Price, Preparation and Presentation.

If the home is priced above its value to the buyer it will not sell in this market — it probably won’t even show.

If it is not well-prepared — repaired, staged, cleaned — to the condition implied by the price, it will not sell even if it does show.

Presentation is your Realtor’s job — or yours if you’re trying to sell without representation. I don’t have space to go into a full-blown marketing plan, but here’s an idea that can make a big difference for very little cost:

Give your home a blog.

Every home for sale should have its own web site. What makes a weblog useful and practical is that weblogging software is so easy to use. And the price to get started? Nothing.

Sites like WordPress.com or Blogger.com will let you set up a blog on a subdomain — an address like 123MulberrySt.WordPress.com — for free. Or you can buy your own domain — 123MulberrySt.com — for less than ten bucks a year. You can host your own domain for a few dollars a month, but using your weblog provider’s hosted option will work just as well.

What do you want for content? Photos — and lots of them. Good pictures of clean, well-lit rooms sell houses. Your text should be just-the-facts, nothing overtly promotional. Not only can people see through hype, it turns them off.

With a weblog, you can document your house room by room — or by the benefits to be realized from the home’s features and amenities.

Best of all, you’ll have a 24-hour salesperson working for you on the internet. Put your blog’s address on your flyers, in any advertising you do, in your Craigslist open house notices, on Zillow.com and Trulia.com. The more you can promote your blog, the more traffic it will draw.

You still have to be priced right. You still have to be prepared right. But a custom weblog for your home could be a key element in your home’s presentation to the marketplace.

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February 19, 2008

Down Payment Assistance is another creative financing option you can deploy to make sure yours is the home that sells

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Sun City Real Estate Broker

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This is my column for this week from the Arizona Republic (permanent link):

 
Down Payment Assistance is another creative financing option you can deploy to make sure yours is the home that sells

It’s a hard world for home sellers right now. It’s possible that things are slowly getting better, but a qualified buyer still has at least ten suitable homes to choose from.

Does this mean you might sell now, or you might sell a little later? Probably not.

Does it mean you might sell for your price, or you might have to accept a little less? Probably not.

What it means is that, if your home is not the one that answers most of a potential buyer’s needs, it probably won’t sell at all in this market.

We’ve talked before about being the most appealing — best priced, best prepared, best presented. These are the homes that will sell to the best qualified buyers — while the near-misses languish month-after-month.

We’ve talked about using seller-financing to help less-qualified buyers. Carrying back a note for a third mortgage entails a risk of loss, but, again, that marginal difference can be moot if the house wouldn’t sell otherwise, or if it sells months later for a much lower price.

There is another creative financing avenue you can pursue, although this one comes with an assured loss to the seller. It’s called Down Payment Assistance. Through programs like AmeriDream or Nehemiah, sellers contribute a portion of the sales price to serve as down payment or closing cost assistance to the buyers, who receive those funds at close of escrow as a grant.

This is what I call Psycho Lender Math at its worst, since the lender is permitting the sellers to discount the home by a huge percentage while pretending that that same pile of money is coming to the buyers as a grant from a neutral third party.

The house still has to appraise for the full purchase price, so it really is just a seller discount disguised as a shell game — but if it means your house sells while all the others languish, you still might be ahead of the game.

These programs require advance legwork, so talk to your Realtor about what you need to do to participate. Note also that both programs are slated to be discontinued and are being kept alive, for now, by court intervention. If you do initiate a transaction involving Down Payment Assistance, it probably makes sense to act fast.

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February 14, 2008

Choosing second-best could get you the best possible home

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Sun City Real Estate Broker

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This is my column for this week from the Arizona Republic (permanent link):

 
Choosing second-best could get you the best possible home

Last week we talked about how, even with so many unsold properties, multiple buyers can somehow land simultaneously on the one property on the market that approaches perfection.

This is perfectly natural human behavior, if you think about it. Who hasn’t thumped a melon? Who hasn’t reached into the back of the cooler for the fresher milk? Who buys the brown ground beef when there’s redder meat available. We were not just born to shop, we will perish if we don’t learn to shop wisely and well.

It’s no different for houses. You have a certain amount of money available, and a certain selection available to you for that money. It’s completely natural that you would shop until you find the home that is far and away better than your other choices.

And it’s perfectly natural that other buyers would come to the same evaluation of the available inventory. They wold have bought the same melon as you, except you got there first.

But there’s still an important difference. A good melon is as good as it’s going to get, and a bad melon cannot get better. But a house can almost always be improved.

Here’s a melon-improvement strategy for financially-savvy home shoppers.

That home you fell in love with is almost certainly a production home — a tract home. Yes, it’s in great shape, and it’s staged to perfection. But guess what? There are three more almost exactly like it for sale on the same street. They’re not as clean, not as nicely-decorated, not as well-marketed — but that works to your advantage.

The difference between your dream home and what looks to you like a bad melon is really just a matter of money. If you put that money into the bad melon, it will be as good or better than your dream home.

So, rather than competing for the best house and paying top dollar, you can use it as leverage to get a lower price and seller concessions on a home that could be even more ideal for you — after you do a little work.

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February 1, 2008

If you’ve finally found your dream home — don’t dawdle

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Sun City Real Estate Broker

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This is my column for this week from the Arizona Republic (permanent link):

 
If you’ve finally found your dream home — don’t dawdle

Here’s a paradox for the ages: It’s been a strong buyers market for more than two years — and yet buyers still can’t afford to be lax about the houses they love.

How’s that? In our recent seller’s market, sellers were completely indifferent to home-buyers — as a matter of studied strategy. “We might consider your offer,” they seemed to say, “but not today. We’re letting the offers pile up until Monday or Tuesday, then we’ll take a look at them all at the same time.”

Why can’t buyers in this market approach sellers with the same bland indifference?

They can — provided they’re willing to buy just any home.

In a seller’s market, qualified buyers are essentially a fungible quantity. Each one is simply a pile of money in the seller’s eyes — some larger, some smaller, some sooner, some later. Allowing for risks and opportunities, one is as good as another.

Not so for buyers. Houses are inherently non-fungible — each one is unique in location, appearance, construction, condition, amenities and lifestyle factors. Even with so many homes for sale right now, it can be a challenge for buyers to find even one house they are completely committed to buying.

My take: If you want to get the best possible deal, pick three homes, not one, and pit the sellers against each other.

But buyers don’t do this. Instead, they look at dozens of sub-standard offerings, and then focus all of their attention on the one house they can find that is priced right, repaired and staged right, marketed right.

And guess what? Of all the houses these buyers will have seen, this is the one for which there is competition. The factors that appeal to them also appeal to the other folks out there looking for homes right now. The dirty or neglected or over-priced houses attract no offers, where the few that are truly market-ready can draw multiple contracts within a few days of being listed.

The lesson to take away: If you really love the home, don’t dawdle. Chances are, someone else loves it, too.

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January 27, 2008

Selling your home in a declining market? The race is to the swift

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Sun City Real Estate Broker

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This is my column for this week from the Arizona Republic (permanent link):

 
Selling your home in a declining market? The race is to the swift

If you’re chasing the market down, chances are you’ll never catch it. The trick to pricing a home for sale is to race the market down.

How’s that again? We’re in a declining market, that’s understood. It won’t be this way forever, but prices could continue their slow leak for quite a while longer.

What that means is that, whatever price you might get for your home today, you will probably get still less a month from now or three months from now.

Hence, you need to make a difficult decision.

If you don’t actually need to sell right now, you might do better putting your move off for two or three years.

But suppose instead that you do need to sell your house right now. You have a job offer out of town. You have a big deposit on a new home. You’re expecting triplets. What now?

Even in the best of markets, sellers can have an inflated idea of the value of their homes. This has certainly been the case in the two years since the market turned. We’ve had a glut of inventory, but much of that has been overpriced inventory.

Typically, the seller starts out with the price too high, then tries to chase the market down with a series of price reductions — usually too little and too late.

If your house is not showing, it cannot sell. But if it isn’t showing, this almost always means it is overpriced. The trick to getting it sold now is to price it under the competitive listings.

The natural impetus, in the face of advice like this, is to say, “I don’t want to give my house away!”

Who can blame you for feeling that way? But the important question is, “Would you rather hang onto it for a few more months, and then sell it for even less — if you are able to sell it at all?”

Racing the market down can be a painful decision. But the pain is likely to be a lot worse if you continue to try to chase the market down instead.

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January 21, 2008

Whatever you do, don’t dance: Pinal county restaurant fined $700 a day for encouraging its patrons to dance outdoors

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We’re in Phoenix, which is a megalopolis. You can drive in a straight line in the Phoenix metropolitan area for two solid hours and never run out of metropolitan area.

But much of Arizona is not just rural but virtually devoid of people. Scrub desert, dry as dust, where a very few hard-scrabble folks try to scratch out a hard-scrabble living.

You can be on a lonely old road at night and not see a car in either direction. There are no street lights, since someone would have to build, pay for and maintain them. There are no lights at all, and you will never know what it feels like to be shipwrecked or stranded alone on the moon until you look in vain in every direction for any sign of the works of man.

And then, far off in the distance, there’s a light. Just a glint at first, but it seems to grow brighter as you draw nearer. You can drive toward a light like that for half an hour, so thick is the darkness. And then you’re upon it. And then, just like that, you’re past it.

What was it? An electric sign. For what? A lonely little cowboy roadhouse. And what did the sign say? “Dancing, Saturday Nights.”

That’s real life in the real desert.

Here’s a Reason.TV story about authorities in Pinal County trying to shut down a little desert road house — for the crime of allowing its patrons to dance outdoors.

There’s a bit of speculation in the video that calls to mind the Lincoln County War — but that’s a different desert in a different state…

Hat tip: Thomas Johnson.

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January 19, 2008

Net-borne buyers create new burdens for listing agents

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Sun City Real Estate Broker

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This is my column for this week from the Arizona Republic (permanent link):

 
Net-borne buyers create new burdens for listing agents

“Eighty percent of buyers start their home search on the internet.”

You don’t have to dig too deeply in the real estate world to unearth that statistic. There are two problems that I can see with the claim.

First, it’s based on an outrageously unreliable mail survey of recent home-buyers. Fewer than five percent of recipients returned the survey. How did the other 95% manage their home search? We don’t know.

Moreover, while the long-term trend, surely, is that more people are using the internet to shop for homes, what matters is not how they started their search, but, rather, how did they finish?

There’s more to think about, though, because it seems reasonable to me that people who are starting their home search without professional representation — without a Realtor — are continuing their search unrepresented as well.

What’s the implication? Like it or not, the listing Realtor’s responsibilities are increasing.

Realtors like to say — to each other — “If you list, you last.” What that means is that a listing, at least in a normal market, is a pretty secure paycheck, where working with buyers can be a lot riskier. This is the reason that the buyer’s Realtor often gets 60% or even 75% of the gross commission. The listing Realtor presumes that the buyer’s Realtor is going to be doing most of the heavy lifting.

But this is not as much the case in the age of the internet. If an unrepresented buyer clicks through to the listing Realtor from an on-line Realty.bot — or if that buyer simply makes a sign call — the listing Realtor is obliged to show the home, even if the original intent was to have buyer’s Realtors doing all the work. Moreover, the open house, long derided by Realtors, is suddenly much more important.

All of this creates new opportunities for dual agency, whereby the listing Realtor gets paid more — and incurs huge risks — while giving the buyer almost nothing in the way of representation. It’s hard to argue that this is an improvement, but it seems to be the way things are trending.

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January 12, 2008

Seller financing can give you an edge over your competition in the Phoenix real estate market

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Sun City Real Estate Broker

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This is my column for this week from the Arizona Republic (permanent link):

 
Seller financing can give you an edge over your competition in the Phoenix real estate market

If you have significant equity in your home, you have a potent weapon at your disposal on resale.

The big news this year is likely to be more and more stories of people with little or no equity trying to get their homes sold. Values for an average suburban Phoenix home were down 14.66% year-over-year. That doesn’t sound too bad, but prices were down almost six percent just in December. We’re down 24% from the peak in December of 2005, on average.

But here’s the silver lining: If you bought that average home in December of 2003, and if you resisted the impulse to refinance your loan, you’re still up over 40% from your purchase price.

That equity gives you a source of leverage on resale that you might not have considered.

First, as always, for your home to sell it must be priced right, prepared right and presented right to the marketplace. You can’t do any kind of elaborate negotiations if buyers don’t even see your house.

But because you have equity in the home, you have the ability to help a willing buyer navigate the suddenly-more-perilous shoals of the lending process.

Suppose your buyer has five percent for a down payment, but the lender is willing to make a much more attractive deal for ten percent down. If the lender is willing to accept the arrangement, you can offer to carry back a note for the extra five percent, using part of your equity as seller financing.

You’ll be taking a second or third position in the line of creditors, should the buyer default — and it’s always possible that you will lose every cent you are lending. But given the direction of the market, you could be a lot better off risking five percent now, rather than accepting ten percent less a few months from now.

As with everything, read the fine print, ideally in the company of your accountant. But seller financing is one more weapon you can deploy to set your home apart from the competition in this very competitive market.

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January 12, 2008

Will Super Bowl visitors buy Phoenix real estate?

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Sun City Real Estate Broker

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It’s an age-old strategy: Just get ’em down here. They’ll love the place. It could be how you came to buy a home in Metroplitan Phoenix.

Channel 15 News offers this:

The Phoenix Association of Realtors is hoping the Super Bowl will draw prospective homebuyers.  

President Nate Martinez says with plenty of homes on the market and low mortgage rates, Phoenix is a buyers market that could be enticing to out of town visitors. 

The hope is the tens of thousands of people who come to the Valley for the big game will love the weather and what Arizona has to offer.

They then might decide to invest in a home.

If you’re coming to Phoenix for the Super Bowl, or if you have friends coming to the Valley of the Sun for the game, it’s definitely a buyer’s market. There are plenty of homes to choose from, and sellers are negotiable.

The Super Bowl won’t be in Phoenix every year, but the weather’s always like this…

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January 8, 2008

Your real estate improvement goals for 2008 will be more financial than physical

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Sun City Real Estate Broker

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This is my column for this week from the Arizona Republic (permanent link):

 
Your real estate improvement goals for 2008 will be more financial than physical

Do you want to set some workable real estate goals for 2008? If so, sharpen your pencil.

Does the house need a new roof? Does the kitchen need an update? Should the pool be resurfaced? Doing regular maintenance is usually not profitable on resale, but deferring those repairs and upgrades can be very costly.

But the most important real estate work you will do this year will be financial, not physical.

If you’ve been prudent enough to buy a home — and 70% of Americans have — you’ve done well for yourself. You have a roof over your head and an asset to fall back on if times get tough. But refinancing your home or getting a home equity line of credit is not as easy as it used to be.

If you’re a first-time buyer, you have an even steeper hill to climb. Most homeowners have at least some equity to borrow against, but many first-timers have little more to bank on than a willing heart and an eager smile. Two years ago, that was enough. Lately, not so much.

The problem is that loan underwriting guidelines are a lot tougher than they have been in the past few years. Verifiable income matters. Debt-to-income ratios matter. For most home loans, a down payment is no longer optional.

What’s changed? For one thing, lenders have lost a ton of money on nothing-down and limited-documentation loans. For now, at least, they would rather write fewer but more promising mortgages. But the real estate market has changed, too. Lenders were free and easy until lately because they assumed the appreciation of the home would make up for lax underwriting procedures.

So what should you be doing to prepare for these changed circumstances? Boost your income if you can. Cut your debt ratios any way you can. If you will be buying a home for the first time, start saving for that down payment. If you plan to sell and move-up or downsize, maintain your equity in your current home — and watch your credit rating like a hawk.

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