Opportunity Costs

Sometimes, there are costs associated with not taking a particular action.  If a person left their money in a certificate of deposit earning 2% when they could have made an investment that earned 8%, the difference is the opportunity costs associated to not taking action.

If a couple has a down payment and good credit, locking in a low interest rate mortgage for 30 years could easily provide their lowest cost of housing.  If that couple waits three years to purchase a home, the price would probably be higher as would the mortgage rate.

However, assuming the price and interest rate remained constant, look at what the opportunity costs might be compared to doing nothing.

If their money was invested in a certificate of deposit at 2.00%, in two years their $8,750 would have grown to $9,104.  They would have earned $354 and had to pay ordinary income tax on the interest.

If their money was invested in the stock market that had increased 7%, in two years they would have a profit of $1,268 which would be subject to long-term capital gains tax.

On the other hand, it the same investment was used to buy a home that increased in value at 3% annually, the equity would be $31,938 or an increase of $23,188. Tax would not be triggered until the home is sold and may not be due then based on their homeowner’s principal residence exclusion.

The home goes up in value due to appreciation and the unpaid balance goes down because of amortization.  The dramatic difference in growth in the equity of the home is effected by leverage: the use of borrowed funds controlling the asset.

A home is a place of your own where you can feel safe and secure, to enjoy with your family and friends and in many instances, a very good investment.  It is difficult to measure the opportunity costs of intangibles but not necessarily money.

Make your own projections with Your Best Investment.

 

Seller Safety Plan

September is REALTOR® Safety month when special attention is focused on the security of having a home on the market and the concerns for the well-being of owners is a day-to-day effort.  The following list may help sellers secure their home and minimize risk.

• Locks – doors and windows should be locked at all times.  Additional locks like deadbolts or safety locks can provide a higher level of security.
• Home lighting - turn on the lights prior to purchasers arriving to improve the showing.  Not only will they be able to see things better, it could prevent them hurting themselves unnecessarily. Outdoor motion-sensor lights provide additional security.
• Eliminate the possible hazards – try to identify anything that might cause a person to trip and fall such as loose objects on the floor or floor coverings that aren’t properly secured.
• Security system – If you have a security system, it should be monitored and armed, especially when you’re away from home.  Most systems will allow you to program a temporary code that agents will be able to use based on your instructions. 
• Prescription medications – remove or secure the drugs before showing the home.   
• Secure valuables – jewelry, artwork, gaming systems;  mail containing personal information like bank and credit card statements, investment reports;  wine and liquor can also be a security issue.
• Remove family photos –pictures can be distracting to prospective purchasers but the concern at hand is to eliminate photos of a wife, teenage daughter or children that might provide information to a possible pedophile or stalker who could be posing as a buyer.
• Remove weapons – the reason to remove guns should be obvious to everyone but a knife block on the kitchen counter can become an opportunity of convenience.
• Unexpected callers - when some people see a for sale sign in the yard, they think that it’s an invitation to look at the home immediately. Keep your doors locked so that people can’t let themselves in. If they ring the doorbell and want to see the home but aren’t accompanied by an agent, ask them to call your listing agent.

These precautions should be taken before the photos or virtual tours are made.  Having these items in plain sight in the pictures posted on the Internet can unwillingly provide prospective criminals with a menu of what is available.

Agents cannot protect a seller’s valuables other than to inform the owner of potential threats to their security.  In most cases, the seller’s agent will not be present at home showings and even if they were, it is not always practical nor desirable to follow the buyers and their agent through the home.

Annual Maintenance

A common expectation of homeowners is to want the components and systems in their home to work when they need them. Periodic maintenance is just as important as having a trusted service provider to make necessary repairs.

Victims of Murphy’s Law can attest that their air conditioner goes out on the hottest day of the year or the water heater fails when you have out of town visitors.

If the convenience of having things work doesn’t justify maintaining your home’s systems, consider that it can be less expensive than the results of neglect causing repairs or replacement.

• Replace burned-out, dim or missing bulbs in light fixtures and lamps. Consider switching to LED bulbs.
• Dryer exhaust vents build up lint even though you may be cleaning the filter regularly.
• Fire extinguishers need to be recharged or replaced after expiration date.
• Establish a recurring appointment on your calendar to change filters in your HVAC.
• Replace missing or damaged caulk around sinks, bathtubs, showers, windows and other areas.
• Clean gutters.
• Schedule an inspection with a pest control a minimum of once a year unless you have a service contract.
• Schedule a chimney cleaning prior to using the fireplace for the first time in the season.
• Keep all tree branches and shrubs trimmed away from the home.
• Pressure wash exterior, deck, patio, sidewalks and driveway.
• Keep levels of insulation in the attic above your ceiling joists.
• Check appliances with water lines for leaks or worn hoses.
  • ice maker  • washing machine   • dishwasher   • others
• Test all GFI breakers and reset.
• Inspect all electrical outlets for broken receptacles, fire hazards or loose fitting plugs.
• Have furnace and air conditioner serviced annually.
• Test smoke and carbon monoxide detectors and change batteries.

The early fall is a great time to take care of these items before the weather becomes harsh.

Real Estate 411

When you’re buying or selling, the obvious source to get your real estate question answered is your agent but where do you go the rest of the time?  As a homeowner for many years to come, you’ll need reliable help and solid suggestions.

Our business goal is to have a select group of our friends and past customers who consider us their lifelong real estate professional. We want to earn that trusted position so they’ll enthusiastically refer their friends to us.  Our plan to achieve this is simply to help these people with all of their real estate needs not just when they buy or sell but for all the years in between.

Throughout the year, we offer reminders and suggestions by email and social media that benefit your homeowner experience.  When we find good articles to help you be a better homeowner, we’ll pass them along.  You’ll discover new ways to maintain your property, minimize expenses and manage debt and risk.

We want to be your “Go-To” person for everything to do with real estate.  If we don’t have the answer you need, we’ll point you in the right direction to find it.

We’re here for you and your friends…now and in the future.  Please let us know how we can help you.

Lower Anxieties/Improve Marketability

One of the anxiety highpoints during the sale of a home is waiting for the buyer’s home inspection report.  Most sellers willingly disclose what they know about their home to any potential buyers.  The concern stems from the inspector finding something that they’re totally unaware of and that it will either cost them a lot of money to correct or the buyer will simply use it to void the contract.

If the inspection does reveal some unknown problem with the home, it’s probably as big a surprise to the buyer who is not as emotionally or financially invested as the seller.  It is human nature to fear what you don’t understand and when a report identifies defects, they may simply opt-out of the home.

The solution to the situation may be for the seller to have the home inspected prior to putting it on the market.  There is still a risk of becoming surprised by an unknown defect which at that point, would have to be disclosed to potential buyers or repaired by the seller.  The advantage is that it creates a baseline to compare discrepancies that may arise when a future buyer has the home inspected.

If the seller’s inspection report is made available during the marketing process, it could give buyers a sense of confidence about the home even though they may still choose to have the home checked by their own inspector.

The cost of the inspection, possibly $500, keeps some sellers from taking this initiative when selling their home.  In an effort to minimize their expenses, they forego getting valuable, disinterested 3rd party advice that could help sell their home.  On a $175,000 home, the fee for the inspection will probably be less than 3/10 of one percent of the sales price.

Another option to the seller to increase marketability of the property and bolster buyer confidence in the home would be to offer a home protection plan.  Generally, the seller doesn’t incur cost for this coverage until the home is sold and there may even be some coverage for the seller during the listing period.  The benefit to the buyer is avoiding unanticipated expenses for specific items that are covered during their first year of ownership.

Contact me for recommendations of home inspectors or home protection plans.

Equity Dynamics

Equity is the difference in what your home is worth and what you owe. Ideally, as the value goes up and the unpaid balance goes down with each amortized payment made, the equity grows from two directions.

This dynamic leads to increasing a person’s net worth much faster than many other investments.

A homeowner has minimal control over value. It is necessary to maintain the property to avoid depreciation and make good decisions on capital improvements. After that, appreciation is generally controlled by supply and demand and the economy.

Mortgage management is something that the homeowner does have control. Making the decision to select a shorter term mortgage at a lower interest rate can have an impact on equity build-up. Lower interest rates amortize faster than higher interest rates which will also affect equity growth. Currently, it is possible to get a 1% lower rate on a 15 year mortgage than a 30 year mortgage.

Compare two alternatives of a 30-year and a 15-year mortgage. The payments will definitely be higher on the shorter term because it pays off quicker. However, if a person can afford the higher payments of $362.53 more per month in this example, the equity will be greater. Even after you take into consideration the higher payments, the increased equity is $17,236 at the end of the seven year holding period.

Another decision that can affect equity build-up is making additional principal contributions along with the regular payments. Whether you’re making an occasional lump sum payment toward principal or regular monthly contributions, it will save interest, build equity and shorten the term on a fixed rate mortgage. Estimate your personal savings with this Equity Accelerator.

It It Shows Better... - 2/18/2013

If it shows better, it will probably sell faster and maybe for more money. Once your home is on the market, it's time to look at it like a commodity and through the eyes of potential buyers. In all likelihood, you'll need to take care of these items eventually, so do them now to help it sell sooner.

1. Make repairs - it doesn't matter if it's been that way since you bought it. You need to fix it so that the buyer doesn't think that the rest of the house is about to fall apart.
2. Not too personal - you may have bought your home to express yourself but if the buyer can't see themselves in the home for all of your things, it's going to take longer to sell than you want.
3. Drive-up appeal - the old saying "you never get a second chance at a first impression" applies to your home too. They may never even get out of the car to come inside.
4. The nose knows - it may not smell like home but it shouldn't smell like a place they would never consider living.
5. Neutral colors, decor, etc. - these are not decorating tips you'll see in magazines but the truth is that bold colors and designs are difficult for most people to see beyond. They'll imagine their things better in neutral surroundings.
6. Less looks like more - removing some of the non-essential things from your home will eliminate clutter and make the home feel larger. The same suggestion applies to cabinets and closets.

A confused mind will not make a decision. Identify and eliminate items that could derail a potential sale. The preparation you make in the beginning will help the presentation to your buyers.

Selling Luxury Homes Today

If You’re In The Market To Sell Your Saint Louis Luxury Home , You Probably Feel You Can’t Catch A Break.
Nearly Five Years Into The Housing Bust, When Many Experts Thought The Real Estate Market Would At Least Have Stabilized, Sales And Prices Are Still Dropping In Most Of The Country. You Can’t Count On Things Turning Around Soon, Either. It Would Take 8.6 Months To Clear Out The 3.5 Million Existing Homes Listed Today.

Put Part Of The Blame On Stiff Competition: Foreclosures And Short Sales, “It’s Dreadful Out There For Sellers,” Says Patrick Newport, A U.S. Economist At Forecasting Firm IHS Global Insight. It’s Not Enough To Show Buyers Your House Is A Deal: You Have To Convince Them It’s A Total Steal. That Means Slashing Your Price, Bringing In A Pro To Pretty It Up, And Creating A Killer Website For Your Home.

Here’s How To Do It Right. Slash Your Price, Big Time
 Sellers Are Still Loath To Accept The Extent Of The Toll The Bust Took On Their Homes’ Value, Says Tara-Nicholle Nelson, Consumer Educator For The Housing Website Trulia.Com. Many Also Give In To The Temptation To List The Property Above Fair Market Value To See What Happens. Big Mistake. About A Quarter Of Sellers In The Past Year Initially Listed Too High And Were Forced To Knock The Price Lower, According To Trulia.Com. Even In Cities That Have Held Up Well, Such As Charlotte, 25% Of Sellers Resort To At Least One Price Cut, And Often Two. Think You Can Always Drop The Price If Your Home Doesn’t Sell? Bigger Mistake.

The First 30 Days On The Market Are The Most Important. 
That’s When Your Place Attracts The Most Attention And Gets The Most Showings. The Result: You Often End Up With Less Than You Would Have If You Priced It Right To Begin With, So Get Aggressive Right Out Of The Gate.

Undercut Your Competition.
In Normal Times Listings Of Similar Properties In Your Area Would Give You A Good Sense Of What Your Home Might Sell For. Today There’s A Big Gap Between What Sellers Want And What Buyers Are Willing To Pay. Instead, Figure Out What You Can Realistically Expect To Get By Asking Your Realtor To Show You What Houses Similar To Yours Have Sold For In The Past Three To Six Months. If More Than A Couple Of The Comparable Properties Were Foreclosures Or Short Sales, Look Closely At The Photos And Descriptions Of Those Former Listings. Distressed Homes Should Be Included In Your Comps If They Are In Move-In Condition, Once You Have A Handle On Your Likely Sale Price, List Your Home A Bit Beneath That. You Don’t Have To Undercut By Much To Attract Attention, Because That Price Will Probably Still Be About 10% Or 15% Below What Other Homes Are Listed For. Even If You’re Competing With Lots Of Foreclosures And Short Sales, Your Price Should Generate Enough Interest To Attract More Than One Bidder, Pushing Up The Final Price To Where It Should Be. Take Out The Ax. No Bites Within 30 Days? Make A Big Move.

When A Property Sits, People Start Thinking It Must Be Listed Too High.
To Stimulate Interest, Make A Giant Cut — As Much As 10% Of The Asking Price, And Even More In An Area Where Prices Are Still Falling. That Should Be Enough To Warrant A Second Look From Buyers Who Passed The First Time, And To Bring In A New Pool Of Potentials Who Are Hunting For The Right Home. Play Hardball. It’s Okay To Reject Low-Ball Offers If A Buyer Won’t Budge. But If A Buyer Is Willing To Negotiate, Push Aside Feelings Of Anger Or Insult And Start Counter Offering Ideally You’ll Be Able To Negotiate Within $10,000 To A Couple Hundred Thousand And Even A Million Of An Acceptable Offer. Then,

Using Incentives Can Make It Easier To Reach An Agreement
For Example, If Your Buyer Refuses To Dicker, You Might Offer To Leave The Furniture, Tv‘s, Appliances, Even A Car Behind. Or Maybe You’d Rather Take The Reduced Price But Have The Buyer Agree That You Take 60 Days, Not 30, To Move Out. Remember This Is Something That Should Be Negotiated Once The Initial Offer Is On The Table Not Before. Always Be Open To Negotiation And Counters Because Without A Counter The Deal Will Never Get Done. Also When Someone Makes An Offer They Want The Home And Are Already Emotionally Attached To The Property – Make It Happen. Hire A Stager, Hire A Cleanup Crew, Trim The Hedges, Cut The Grass There Are People Who Want To Sell, And There Are People Who Have To Sell.

Veteran Real Estate Brokers Interviewed Say That Proper Staging Can Speed The Sale And Often Increase The Price Too. The Key Is To Get It Done Right.
Start With An Open Mind. Staging Demands A Psychological Shift That Many Homeowners Find Challenging: Thinking Of Your House Not As Your Home But As A Set. That Means Scrubbing Away Evidence That You Actually Live There. Your Goal: The Homey Yet Impersonal Look Of A Pottery Barn Catalogue. Find The Right Stager. Get Names From Realtors Or At Realestatestagingassociation.Com, And Then Review The Stager’s Online Portfolio Of Before-And-After Photos. Next, Call Homeowner References And Ask How Fast Their Homes Sold After Staging And Whether They Think The Work Helped. Establish A Budget And Ask The Stager To Work Within It. Stagers Typically Charge $150 To $400 To Walk Through Your Home And Give Recommendations For Each Room. You Can Then Execute The Plan Yourself Or Hire The Stager To Do It For An Hourly Fee, Usually $100 Or So, Plus The Cost Of Any New Paint Or Furnishings. If You Make Big Changes, Costs Can Add Up — But Can Often Make A Huge Difference Using What Homeowners Already Have These Days It’s Going To Take Far More Than A FOR SALE Sign In The Front Yard And A Spot On The Multiple-Listing Service To Get Potential Buyers In The Door. That Means Getting The Word Out In A Creative Fashion — And Finding A Realtor  Who Is Willing To Do The Same.

 “The More Eyeballs That Get On The Listing, The Better,” Says Katie Curnutte Of The Real Estate Information Website Zillow.Com. To Do That, You Need A Multipronged Marketing Plan Of Attack. Create A Great Site . About 90% Of Buyers Begin Their Search On The Internet, According To The National Association Of Realtors. Make Sure Your Home’s Online Presence Has A Dozen Or Two Photos: Having 20 Instead Of Five PhotosWill Almost Double The Number Of Hits You’ll Get, According To Zillow.Com. And Have Professional Pictures And Virtual Tours On Every Site. Pictures Will Get The Buyers Through The Door. Throw Money At Them. Incentives Can Perk Buyers’ Interest Just As Much As Price Cuts, Says Matt Brown, Director Of Business Development At ForSaleByOwner.Com. In Fact, Many Buyers Will Agree To A Higher Price If Their Upfront Costs Are Lowered, Since They Often Run Short On Cash. If You Can Afford It, Offer To Cover The Buyer’s Closing Costs Or Pay The First Year’s Property Taxes Or Condo Or Homeowner Association Dues. However, Those Freebies May Be Practically Standard, Particularly In Areas Rife With Distressed Properties. Be Aware, Though, That You Must Disclose Any Such Gifts Or Payments When The Offer Is Agreed On, And Some Lenders Will Not Approve Them. If So, You Might Have To Find Another Incentive That The Bank Doesn’t Object To. Showcase Super Condition. Yes, Some Buyers Are Hunting For Foreclosures In Rough Shape That They Can Nab For A Song. Yet Just As Many Shoppers Don’t Want — Or Don’t Know How — To Put In That Sweat Equity.

So Hire An Inspector To Identify Every Problem With The Home, Even Seemingly Minor Issues Such As Dripping Faucets, And Fix Them. “If An Outlet Doesn’t Work, Why Get The Buyer Wondering What Else Is Broken. Tell Your Realtor To Give Anyone Who Tours Your Home A Copy Of The Inspection Report And Your List Of Fixes. Spread The Word Online. Having Your Home Listed On A Major Website Like Realtor.Com Isn’t Enough. Ask Your Realtor If You’ll Get An “Enhanced” Listing On The Site, Where Your Home Gets Top Promotional Billing. Many Realtors Will Create A Website Just For Your Home. You Also Want To Get Your Listing On Alternative Sites Like Craigslist, Facebook, Backpage, Trulia, Postlets, LuxuryHomes.Com, And Any And Every Site Offering Real Estate.  Print ads such as Ladue News, Town & Style, STL Today will reach more buyers.

Stay Away — Far Away
In Better Times You May Not Feel Obliged To Drop Everything To Accommodate Prospective Buyers’ Schedules. Today, If Buyers Can’t Get In On Their Time, They’ll Skip It. So Be Prepared To Show A Perfectly Clean Home At A Moment’s Notice. And Disappear (Along With Your Dog, If Possible) For All Showings And Open Houses So That Prospects Can Imagine Themselves In Your House — An Impossible Task When Your Family Is Vegging On The Couch.

Keep A List Of Must-Do Chores
Including Emptying Wastebaskets, Filling The Dishwasher, And Making The Bed And Walked Out Every Morning With The Place Spotless. On The Weekend She Holed Up At A Local Mall. “Every Time I Thought I Could Go Home, A New Person Wanted To See The House,” Recalls McCoy. But A Few Extra Hours At The Mall Paid Off In Spades. In Just A Few Days McCoy Had An Offer For Her Home — For The Full Listing Price.

Spring 2012 Came Very Early!

 

The rates are starting to rise along with the flowers and for sale signs. Sellers must be committed to selling in this market. Inflated inventories, short sales, foreclosures...lots of competition out there. Time is of the essence. Your first buyer may be your only buyer for a long time. In the long run, a lower initial price may net the seller more money.