Top 5 Reasons Homeowners Should Avoid Going FSBO  

There are Top 10 Lists aplenty that detail just why any homeowner should think twice before planting one of those For Sale by Owner signs in their front yard. One of them is that when you sell your home all by yourself, the sheer amount of time you’ll have to devote to mastering processes that are already fully handled by full-time real estate professionals is a true waste of time. It’s one wheel that doesn’t need reinventing.

If you are among those considering how you will sell your own property this spring, since your time is important, let’s start saving it now by cutting those top 10 lists down to the Top 5 Reasons to Avoid FSBOs:

1.   You’re involved. It may sound like a good idea to be your own salesperson since you are the most intimately acquainted with the product—your house—but logic rules against it if for no better reason that buyers will be automatically skeptical of your impartiality. Why? Because you aren’t! You also don’t get the benefit of a professionally trained pair of eyes helping prepare your property to appeal to today’s buyers, nor the benefit of honest feedback that buyers won’t share with a FSBO seller.

2.   Legal peril. Throughout this year’s political debate, a frequent refrain from candidates (both local and national) has been the need to cut down on over regulation. Without getting into those weeds, it is certainly the case that federal and state laws require a number of very specific disclosures. If you aren’t a real estate attorney, that lack of familiarity could make a FSBO sale an open door to after-sale litigation. When that happens, there goes any commission dollars saved (and maybe a lot more!).

3.   Expense. That’s right, one of the Top 5 Reasons to Avoid FSBOs is that a FSBO can actually amount to an extravagance. It’s logical, too—because most buyers take one look at your asking price, mentally subtract the commission, and proceed from there (wouldn’t you?). The most recent studies bear out the bottom line: only 8% of successful sales were made via FSBO, and on average, they sold for 15% less than the agent-assisted sales.

4.   Marketing Oomph. We professionals market homes all year long, 24/7. As a result, we know which marketing approaches are currently bringing in results, and which are wasting time and money. We also have open channels with the media companies we deal with regularly—an advantage that FSBO sellers can’t hope to match.

5.   Expert Opinion. The open secret is that those who know the most about how to get the best results from a house sale tend to rely on expert help. A good example came in 2014, when Al Bennati, the CEO of the “BuyOwner” dot-com (“the strongest For Sale by Owner marketplace”) decided to sell his own St. Petersburg home. He listed it with a Realtor^®.

            There! Time saved already—who needed a Top 10 list when you have these? I bet you agree: these “Top 5 Reasons to Avoid FSBOs” are more than sufficient reason to avoid the FSBO route…and to give me a call instead!

Notes On The Ins And Outs of Short Sale Listings

Any dedicated bargain hunter who scours the local real estate listings is not surprised to find among the most deeply discounted entries one of two notations: foreclosure or short sale.

Everyone knows what the “foreclosure” designation means—it’s been repossessed by the bank. It’s an REO (real estate owned). By discounting the asking price, the lending entity invites buyers to take the property off its books. It is here that the economists’ favorite acronym, “TANSTAAFL” (There Ain’t No Such Thing As A Free Lunch), comes into play. Foreclosed properties have frequently been neglected by their previous owners, who are not happy campers. So the cost of rehabilitation must be factored in before any offer is made. Still, foreclosures can represent real opportunities for buyers with patience and determination.

Slightly different are foreclosures’ first cousins: short sale listings. There are any number of unforeseen circumstances that can cause an owner to fall into financial distress, but when their home has to be repossessed, the impact on the borrower’s credit is immediate and drastic. It can make finding a new place to live difficult, and can even make future employers hesitate to hire someone whose record includes that kind of hefty unpaid debt.

Local properties which fall in the “short sale” category are those in which the borrower has been unable to keep up with the mortgage payments, but who is arranging for the lender to agree to accept a payoff that’s less than the full amount owed. When a short sale is finalized, the result is still some damage to the original borrower’s credit, but less than had a foreclosure proceeded. The buyer will benefit from what should be a substantially lower price than a comparable  property would bring—and a home that is usually in better condition. An eager lender can also sometimes offer favorable financing terms, too.

But remembering what the economists say about TANSTAAFL, there are also these points to keep in mind:

·       Short sales involve extra bureaucratic red tape. The fine print includes items such as the lender having to approve details of the sale—and that can result in nerve-racking delays.

·       Although the owner is usually trying to keep a short sale property in good shape to facilitate the deal, banks won’t allow a short sale until the borrower has seriously fallen behind in payments. That can mean an inability to keep up with the expense of proper maintenance. As in a foreclosure, canny short sale buyers make certain they know the cost of rehabilitation.

·       The possibility of sticky legal issues needs to be recognized. For instance, if the seller has filed for bankruptcy, it could squelch the whole deal. Negotiating a short sale can be considered a “collection activity”—and those aren’t allowed in most bankruptcy courts.

If one of our local foreclosure or short sale-denoted listings has grabbed your attention, I can help because I have bought and sold many foreclosures and short sales. It will require attending to some technical issues attached to the specific property—but I’ll be pleased to help you navigate the process from beginning to end!  

Officials Unworried By DTI Outbreak Among Homeowners

It might sound shocking, but local homeowners—present and future—have DTIs!

Although the press has been largely silent, it’s important that the public be fully educated on the subject. But before anyone calls an emergency meeting to see what can be done…

The good news is that, despite how dire it may sound, having DTIs isn’t a health menace (even though it is true that local homeowners have both front-end and back-end DTIs). In fact, they’re not only not a problem, the truth is that without DTIs, it’s doubtful any of us could qualify for even the simplest home loan.

You needn’t bother Googling “DTIs”—they are Debt-To-Income ratios. So everyone with debts and an income has them. They are quite useful when it comes to predicting the maximum home loan amount that can be handled comfortably. Knowing your DTI will clue you in on how much home you can easily afford. It will also tell the bank or other mortgage lender the same thing—once they verify from your credit history that you are an established bill-paying good citizen.

DTI computations are wonderfully simple. In fact, even without formally knowing how they are calculated, most local residents have a feel for what they measure—it comes with paying the bills every month.  

The front-end ratio is easy to arrive at. By taking a home loan payment (all-in: principal, interest, taxes and insurance) and dividing it by the monthly before-tax income, you come up with a percentage. A $2,000 mortgage payment with an $8,000 income yields 2000/8000, or 20%. Most lenders would smile on that number; but a maximum of 28% is considered standard for the front-end ratio (although no debt ratio rule is carved in stone).

The back-end ratio is broader. It’s what’s usually meant when “DTI” is cited. Among the bills included are those for credit card and car loan payments, alimony and/or child support, student loans, personal installment loans and payments for co-signed loans (even if the co-signee is paying them). NOT included are other monthly expenses like utility bills, health insurance payments, cell phone and cable bills.  

To finish calculating the back-end ratio, just take those debt payments, add them to the home loan payment, then divide that total by income: the resulting ratio comes out as a percentage. An income of $6,000 with debts of $2,500 would yield a DTI of 41.67%, which is within the federal “qualified mortgage rule.” Forty-three percent is the top number officially allowed.

So, a rule-of-thumb like “no more than 28% of debt should go toward servicing a home loan” actually just restates the front-end DTI guideline. Other factors—like credit history and liquid assets available for a down payment—go into the banks’ decision-making, but as soon as you familiarize yourself with your DTIs, you’re talking the lenders’ language!

Call me when it’s time to buy or sell, and we’ll soon be talking all of the dialects that make up the area’s real estate language!    

Local House Hunters Find Bargains in ‘Reduced’ Listings

When you are skimming through the local listings, now and then you come across attention-grabbing terms like “one of a kind” or “extremely motivated seller.” “Reduced” is another one.

After all, who doesn’t like a bargain? Especially when that bargain is associated with a major commitment, who wouldn’t think it’s worth looking into? Today’s listings may no longer be saturated with short sales, foreclosures, and scores of listings reduced by enormous percentages, but patient local house hunters can still strike pay dirt if they are diligent and methodical. Nevertheless, there are some tried-and-true cautions that need to be observed to ensure that the “penny-wise, pound foolish” saying doesn’t wind up describing the result.

 Most of what is being written on the subject of real estate bargain hunting falls into the common sense category—for instance

·       Low-balling the offer seldom works. The hope that you can create a bargain just by making a shot-in-the-dark low-ball offer is much more likely to result in a resentful homeowner than a successful deal. As in most business transactions, success is more likely to develop when both sides understand the motives and goals of the other. Since any seller whose local property is on the market is assuredly quite well aware of the likely value of his offering, unless the seller is in desperate need of a deal, this tactic is counterproductive (and if the seller does really need to move on, odds are the property has already been reduced to reflect that).   

·       ‘As-Is’ also means ‘Heads-Up!’ A home that’s been “reduced” simply means the market is suggesting that an asking price correction is needed. When “as-is” is appended, it could also indicate that the place probably needs work—maintenance work (and work from potential buyers to discover how costly that maintenance is likely to be). In some cases—when a home has been perfectly maintained—it could mean that some features that are expected in today’s local homes are missing. In any case, “as-is” means “heads-up.”

There is one more caution that isn’t usually written about, but which can be easy to overlook when an epic bargain looks to be within reach. Since the process of buying a house takes some time to accomplish, it’s one that often occurs before it’s too late, anyway—namely, it’s not a bargain if it’s not what you really want! It can happen that the asking price is so affordable for a home that has more (or better) features than you thought you could manage, that you are in danger of being charmed into making an offer on something that’s not a very good fit. When you discover a property that’s been reduced to bring it within your price range, it still needs to fit your family’s most important requirements. An Olympic-sized swimming pool can add an exciting and unexpected dimension, but if the place is one bedroom short, in the long run, it might not be such a bargain, after all.

This spring, many sensational offerings are out there for local home hunters. Give me a call when you are ready to take a tour of the ones that meet your requirements!   

Homeowner Tax Deductions: Real Estate’s Ace in the Hole

Sure, even the idea of homeownership is appealing for all of the traditional emotional and lifestyle reasons. Having proprietary control over your family’s center of operations is a goal for most local residents—just as most of us would consider it a necessary evil if professional obligations make frequent moves unavoidable. Travel may be broadening, but most rolling stones (no matter how moss-less) eventually hanker to settle down.

But aside from the lifestyle aspects, another major advantage to settling down and owning your home gets its turn in the limelight at least once a year. This advantage is anything other than abstract. The time of year is April 15, when the concrete financial benefits are tallied up in the very welcome form of homeowner’s tax deductions.

Tax advice is not my specialty—for that, you should always defer to your qualified financial advisor, whose full time job it is to do all that’s humanly possible to keep track of the ever-changing Federal Tax Code. But even non-specialists know that some of the most beneficial provisions in the Code’s 75,000 pages do relate to the range of significant homeowner tax deductions.

In the National Association of Realtors’ periodical houselogic, writer Dona DeZube recently surveyed some of the major ones—tax tips that deserve to be investigated by any  homeowner who will soon be charting out their own mid-April strategies.

The list was headed by the most obvious one, the mortgage interest deduction, which applies to interest paid on a loan secured by the place you live in. That doesn’t have to be a house—it could also be a trailer or a boat. As long as you sleep and cook in it, if it also has toilet facilities, interest paid for its purchase falls into the category.

Likewise, there is the prepaid interest deduction. Prepaid interest (aka “points”) you pay in when you take out a mortgage or refi can usually be deducted in the year it is originated. An exception is when you refinance and use the proceeds for other than home improvements, in which case the deduction is spread out over the life of the loan. If you refinance again, it gets a little more complicated (may be time to ring up that qualified advisor again).

Another hefty deduction is the one for property taxes you have paid. If your mortgage lender required you to insure repayment through private mortgage insurance (PMI), if your income is less than a set amount, the premiums may be fully deductible (otherwise, a reduced deduction will apply). Even more complicated rules apply to government insurance premiums (qualified advisor time).

More homeowner tax deductions can be applicable, too, with varying degrees of complication—particularly those which relate to vacation homes. And there are also tax credits for things like energy-efficient home systems.

The bottom line - deductibility of many aspects of homeownership can be a major reason why April 15 causes many renters to do some serious examination of their residential futures. I’m here to help with any of your own real estate plans!    

Mystery of The 184 Things A Real Estate Agent Does For Clients 

As its name clearly implies, The 184 Things a Real Estate Agent Does for You is an exhaustive list of the actions a real estate agent is called upon to perform on behalf of a client. It is an authentic real estate Golden Oldie.
     Whenever someone wonders aloud what it is that real estate agents do to earn their commissions, many of us agents have the option of digging around in a drawer for a wrinkled printout of The 184 Things. If there were a Real Estate Hall of Fame, The 184 Things would be sure to have its own spot-lighted exhibit…or even an interactive video display (so the kids could push colored buttons that would seem to make the list interactive).
     Since the list is 184 items long, it’s a good bet that, given the option, very few of our clients would have read the whole thing (if they had, they’d probably be so exhausted they might  reconsider selling their house at all).
     Actually, the truth is real estate agents don’t perform all 184 in the course of any single home buying or selling transaction. Some items refer to specific kinds of deals; some others aren’t always necessary. But they’re all authentic, and for most transactions, we really do execute on a lot more than half of them. To give you the flavor, they are actions like “Verify legal description,” “Confirm lot size via owner’s copy of certified survey, if available,” “Prepare detailed list of property’s ‘inclusions & conveyances’…,” and so on.
     Like so many other epochal historical events, the birth of The 184 Things seems shrouded in mystery. You might think that the reason is because it happened so long ago—but 2006 isn’t really that long ago. Perhaps the mists of time haven’t actually had a chance to fully enshroud the event…so maybe simple confusion is responsible. Most historical citations credit its origin to a 2006 House of Representatives Financial Services Sub-Committee hearing, during which the president-elect of the NAR presented the Things at the conclusion of her testimony. This could have happened after some House member made the innocent mistake of asking what real estate agents do to earn their commissions…but the actual exchange that provoked the list has been lost for all time.

At any rate, despite the House hearing being often credited as the point of origin for The 184 Things, there are problems with that story. The House archives’ transcript of the hearing shows a written Attachment that has 180 Things—not 184! But that’s not the only mystery, because the Attachment has a footnote, which seems to credit the Orlando Regional Realtor Association. It’s only after you consult the ORRA’s web site that you come upon what may be the original list, with all 184. If they ever do build a Real Estate Hall of Fame, it could be a reason to put it in Florida…

I don't need to do each one of The 184 Things every time I set about helping a client buy or sell their home - but it's certain I do an awful lot of them. My own list is simply one with all of the things that need to be done - and turns out to be different for every client and every property. The first item is always the same, though-and it's all yours: call me!

 

 

Foreclosure Listings are Bargains Worth Investigating

It is entirely possible to think of a residence that’s been the subject of a foreclosure as the real estate equivalent of a cute, cuddly orphaned kitten or puppy—one that deserves to be adopted by a loving family. You can think of the bank as the temporary animal shelter. With a little tender care, the adopted foreclosure can resume its place in the neighborhood, and all is well…

Or, a foreclosure can be the real estate equivalent of a snarling mutt that turns out to be a menace to anyone who comes near it…with the possible exception of a wild animal trainer (the real estate equivalent would be a remodeling contractor—one with lots of time on his hands).

For anyone who might consider checking out the local foreclosure listings in 2016, the paramount skill will be the ability to make sure any property they pursue is one of that first kind of ‘orphans.’ That’s because of the fact that the kind of quality protections that are taken for granted in a regular residential real estate transaction are not in force.

Since banks are under no obligation to disclose information about a foreclosure’s flaws, it is always a true ‘buyer beware’ situation. No matter what the time pressure might be, it’s imperative to make a physical investigation of any foreclosure offering as early as possible. The more thorough the inspection, the more confidence you will have that any budget forecast accounts for all the expenditures you are likely to encounter in the course of turning a foreclosed property into a move-in ready residence.

The good news is that despite the reality that the local real estate market has tightened up a good deal since the days of the real estate meltdown, foreclosure properties are still coming onto the market. Since would-be bargain hunters are no longer intimidated by the fear of falling housing values, timing becomes important. With sharp-eyed competitors regularly on the lookout for promising foreclosure listings, it’s important to be alerted to new opportunities as soon as possible. In this regard, there is also another ‘buyer beware’ situation—this one having to do with some of the online dedicated “foreclosure” websites. Avoid any that wind up providing outdated and/or endlessly repeated ‘bargains’—for fees billed in advance. If you decide to try them out, see if they offer a free trial. You will quickly find out if you are being directed toward wild goose chases instead of what’s been advertised.

A better way to start is to give me a call as I have sold hundreds of foreclosure properties to  bargain-minded buyers. If you wish, I will be happy to include local foreclosure listings along with other new entries as they come onto the market—as well as to offer the kind of prudent advice and guidance that helps turn ‘orphans’ into family-friendly residences. A foreclosure may not be for everybody—but the rewards for those who are able to take advantage of them can be substantial!