[photopress:wr.jpg,thumb,alignright]One of the common questions newer Bloggers ask is “What do I write ABOUT?”
In the real estate business, nothing is more timely than the questions asked by your clients in the last few days. If your client asked the question, likely lots of people in the marketplace have the same question.
Here are a few questions asked of me in the last few days:
2) Why does it matter HOW I got the money for the downpayment?
3) Is that house for sale or not? (rant of the week)
4) What does 60 days have to do with anything?
5) Why should I think about accepting a price that is less than the asking price NOW?
No matter what business you are in, on Monday morning you should always review what questions your customers have asked in the week prior. Keep a notepad or taperecorder handy at all times and jot down these great questions. After all, being a blogger IS being a writer, and all good journalists and writers jot down real life events as they happen, just in case they might be worth writing about.
Aren’t people asking any of these questions?
1. Is now the right time to buy a house?
2. If I buy a house now, how long should I expect to hold it?
3. Do you think I should get a conventional mortgage or something else?
4. Does the increase in inventory and decrease in sales mean anything?
5. Should I be concerned about a possible loss in equity?
1. “right time” – People don’t usually ask that question in that way, as most of my clients can’t be talked OUT of buying a house. They are compelled to buy for their own reasons. For whatever reason they are tired of renting, or they currently own a house that they are selling and won’t consider renting. Some people HATE moving, and they see renting as a “temporary” house and not a “home”. Some people are itching to make a home the way THEY want it, and are too limited in a rental with regard to making improvements. Some are afraid the landlord will tell THEM when they have to move, and don’t like not being in control of their own destiny home-wise. Most of my clients aren’t buying for investment, they are buying a home to live in. There are fewer choices in homes for rent than there are in homes for sale.
2.”how long should I expect ot hold it?” No, people don’t ask that, because they move for reasons other than a “good time” investment-wise. I do tell them which houses I could come back and sell quickly without a loss and which I cannot. How much money they can put into the house before they are locking in a loss…things like that. It varies with each house based on location and condition. It is really my intuition that tells me who is going to move in a short period of time vs. a long period of time. I warn people from house to house with regard to resale expectations. But I seem to care a whole lot more than they do.
3) Most people get a conventional first. I never recommend HELOCs for seconds or arms. If the spread is worth it, I sometimes recommend a 5/25 or a 7/23. But the spreads haven’t been worth it. Most of my clients go with conventional mortgages, unless they don’t tell me what they are doing. Some don’t. If someone is getting a sub-prime second, I do check to make sure that they can’t do better. Once in a while I can fix the sub-prime second, but sometimes I can’t.
4) Increase in inventory and decrease in sales affects some houses more than others. All houses are not created equal. It is very difficult to sell a problem location when inventory is high. I generally recommend against problem locations always. I at least advise them that it could be a killer if you have a tough location when you try to sell and NO ONE wants your house. Same with certain floor plans. The best of homes can do well in any market. The worst of homes suffer the most when there is increased inventory and decreased sales. Always better to buy a house whose weaknesses you CAN fix than one whose weaknesses you can not fix. And always better to buy a house that has something you can do to improve its value, so you can be protected regardless of market conditions. Most clients do not think inventory is adequate in terms of houses they like. Still very hard to find a good house on the market, even with increased inventory.
5) In 16 years I haven’t had a client need to sell a house I sold to them for a loss under what they paid, even with costs involved. Nor have I ever had that problem. People who lose money generally made a wrong decision somewhere. I’m not saying it’s impossible to lose money, I’m just saying that often the culprit for the loss was not the market conditions, but the choices made by the purchaser in the first place. Once in a while when someone just has to have something that I know they may take a loss on when they sell, I just tell them that, and they purchase the property knowing they may take a loss if they sell it. I don’t stop them, but I do warn them of the potential consquences and why for THIS house, that is the case.
Of course that is for my clients, not for people who buy my listings with their own agent or for one who represents themselves and takes the 3% Buyer Agent Fee. I would only give those detailed advices to my buyer clients, which most are. I do not use contracts to determine this. If they are not represented by someone else, they are my client unless they choose to, and the seller and I agree that they can, represent themselves.
Hello Joe!
These are good questions!
First, it’s always a good time to buy and it takes two to three years of holding a property to maximize profit. I always advocate a thirty year fixed mortgage, but use Adjustable Rate Mortgages for myself. I did just refinance my personal residence to a thirty year fixed due to instability in world politics.
Let’s address equity first because that’s what I sell. My rule is that if I don’t have at least a ten per cent equity position going into a home purchase it’s not a deal. My last sale the buyer ended with one hundred thousand of equity. That equity was determined by the lender who is lending that amount one month after the purchase.
Equity is always available if the deal is structured accordingly.
The high inventory and lack of sales makes all of the equity scenarios possible.
Real Estate is a commodity as well as a home. Yes there are people who get hurt in any Real Estate market. Today’s market happens to be very strong in the Seattle, Tacoma, and Everette areas. We have more job potential here than in most parts of the country. Yes there are many people who are dumping properties, I’m one of them. I’ve been dumping so I can buy at the bottom of the market.
OMG David! I don’t know whether to delete you as spam or leave your comment here as a joke.
If your are “dumping so that you can buy at the bottom of the market”…then why should people buy the properties that you are dumping?
David,
“it’s always a good time to buy” – “I’ve been dumping”
“I always advocate a thirty year fixed mortgage” – “use adjustable rate mortgages for myself”.
A lender who will give you a refi at $100,000 more than you just paid for the place is NOT confirming the house is all of a sudden worth $100,000 more…he has a bad appraiser in his pocket.
So if the market drops 30% in that 2 to 3 years, you are somehow guaranteeing it will not affect people who bought it at peak value two to three years ago?! No matter WHAT they bought…no exceptions…2 to 3 years timeframe has some magic value? As if time creates value in and of itself.
God, I wish I could delete that comment. But here’s PROOF that we don’t simply delete because we do not agree. But I am nauseous.
Goodness!
David,
I didn’t mean to be so tough on you, but it is so hard for the rest of us agents to live down the stereotype of “It’s always a good time to buy!” agents. Maybe you didn’t really mean that. It sounds so “used car salesman”.
Wells Fargo currently offers a 125% LTV mortgage product – so if you bought a $400K home you could immediately claim “$100K in equity” based on the $500K mortgage value. Unfortunately, it’s all negative equity.
Will,
If the person is putting the extra money into the property, like buying a fixer and taking the $100,000 and remodeling it, then maybe it wouldn’t be negative equity. More like a “construction/permanent” type loan based on the value of the end product.
As I said in my “Exotic” post, all of these loans are good if they are used at the appropriate time and for the right and intended purpose.
Goodness!
I just bought a little property tonight. We’ll gut it and add a bath. The seller needs to sell, I don’t really want to buy, but I think it will be OK. Real Estate is a business that I enjoy. I drive around in the pick up, sometimes with the dogs, most of the time by myself and look at houses. It sounds stupid, but I have guys who call me with what they think are good deals. I help people buy and sell to the very best of my ability. To me that’s the business.
I didn’t mention that my buyer with the equity position also got a subdividable lot with the seven bedroom three bath home he purchased for $510K. He made a low offer on a $650K listing. The property comps at $650K but after being on the market for a few months the estate took a low offer that they were thrilled to get. I had shown the house numerous times to buyers who didn’t get it. My wife and I thought about the deal, but I am a rehabber and not a builder. I hate getting permits or arguing with architects.
There is nothing used car salelsy about it. I do the best I can for my clients. I don’t lie, or pretend that things are different than they are. In my opinion people pay me for my advice. My experiance in Real Estate matters spans thirty years. I speak my mind.
I operate a set of service businesses. Many of the people who I talk with work jobs. A lot of those people are upset today about being priced out of the housing market. The advice I give involves risk. It’s not for everybody, but here goes. The theory is that it takes five houses owned free and clear in order to retire. There is the personal residence and four rentals. To own those properties free and clear you may need to buy and sell a hundred homes, but the idea is to park all of the equity into the best five. Once you buy a home with a thirty year fixed mortgage you can budget. You throw money at the principle to have the loan amortize faster. A thirty year can become a fifteen by adding a few payment per year.
The budget is all important. You are purchasing of course with present dollars and paying the property off with future dollars. Buying and holding may be great, but that takes many years. Buying equity in investment properties to pay down the principle on the chosen few makes things go quicker.
The two to three year rule has to do with appreciation and or the personal residence tax advantage. Housing is tied to the consumer price index in a loose kind of way so if the price of housing were to go down 30% we would have more to worry about than giving the bank thier money.
Thank you David. Excellent come back. I don’t know how often you visit here, but some people are afraid and don’t want to hear Rah Rah speeches about it ALWAYS being a good time to buy. It just doesn’t sound like an honest comment. I seriously appreciate your taking the time to return with your latest and very honest response.
A lot of readers are first time buyers who are buying their first home. They are not buying for investment or to own five houses free and clear by the time they retire. They are often young people making that first step to buy the home they will live in vs. renting. They will sell it when they buy their next home.
The next two to three years will be hard to call, as certainly much of the country is in a situation where people who bought last year and need to sell this year, are selling at less than they paid. I have not seen that here, but we can’t act like we are so special that it cannot happen. People do need to be cautious about being blinded by staging and “the look” and not paying attention to deferred maintenance and underlying value.
Historically, holding two to three years could in fact bring you to a down market. I’ve made the most money I ever made on a property by holding it only 10 months. Timing is everything…for sure. But predicting where the market will be in two or three years takes a crystal ball.
When the market increases to double what someone paid, it dropping back 30% is still a 70% increase…except to the guy that bought it at peak. That is what people are afraid of…have we reached a peak? Before you answer…NO one knows the answer. In the meantime, it is good to buy with caution.
>But predicting where the market will be in two or three years takes a crystal ball.
Historically it takes 3 years from peak to trough; generally 6 years peak to peak. We’ve never seen a runup in prices like this, and for so long, so it is likely that it will take much, much longer to find the bottom. Calling the bottom isn’t nearly as difficult as the top, which is something I never do. I think its’ pretty obvious that we are at the top now, as local data suggests.
My question, if David Lereah never called the top, how can he call the bottom? And so soon? We’ll have false bottoms all the way down… I can’t wait to snap up his new book though! Such a great writer he is…
Joe,
“We’ve never seen a run up in prices like this”. I have.
From my perspective, the reason I an watching most carefully is attributable to Greenspan’s comments/thinking that the longest sustainable run up, historically, has been seven years. Most of the country started the run up in 1998 and are experiencing the correction phase, which by economist predictions is supposed to last three to five years.
The previous run up was after the fall of the double digits with the peak and turn around being in 1989 and 1990. Properties had doubled over the 7 year time span to 1989 (northeast) and then dipped and flattened from 89 to 94 and then flattened and inched up to 98 and then a seven year run up.
Seattle area, has not run with the herd in most cases, with Eastside in “the zone” running at it’s own separate pace. It is difficult to equate the small area around Microsoft with the rest of King County.
I am still seeing a house here and there bidding up to unbelievable prices admidst the many that are lingering on market. My call is it is just fall and come April we will be able to separate the chaff from the wheat. Maybe Sultan, for example and outer vs. inner Duvall, will see a different market than Kirkland, Bellevue and Redmond. Watching 98033 vs. 98034 is a good “predictor” as 98034 is a lag market to 98033. Or may the $500,000 give or take market of Juanita vs. the $1.3 plus market in Kirkland proper.
Also, watching newer townhomes in Redmond and Bellevue. There are some with “problems” that linger due to lawsuits against the builder, so using “just stats” doesn’t tell you as much as when you eliminate the one or two problem areas from the pack.
I think I will do some stats today to see if newer vs. older makes a difference. Seems to me that houses built since 1990 sell better than ramblers built in the 60’s for example.
I don’t see the value in watching “King County” stats at this point in time. The overall picture is not as important of the tiny sub-market pictures.
Hey Ardell,
My name is also Joe. We’ve chatted a few times before about “commission rates” and “discount” v. “full service” and such. I like your data based writing and have commented that way. (I’m too lazy to hunt down those links right now.)
I just wanted you to know that this Joe is not me. This is the first time I’ve seen comments from “Joe” that weren’t mine. So in the name of clarity I thought I’d chime in.
I guess I’ll have to use a more distinctive handle. That probably happens more with “Joe” than “Ardell.”:)
Joe
People can easily find me by just putting ARDELL into Google or MSN search. Would be a lot harder for you, yes.
My Dad was “Joe the Hat”, given all of the Joe’s and Joeys in an Italian neighborhood. I would like people to note what or where, like Joe Agent or Joe Redmond. Joe Sullivan will do, but Joe Agent or Joe Redmond tells me SO much more about a man 🙂
I’ll stick with just 2 things in David’s detailed explanation of where he drives his buyers. First the 650,000 house sold for 510,000 based on comps, only has built in equity if the market jumps right back up. Currently, 510,000 is the value of that house, otherwise it would have sold for 650,000.
2nd you don’t get to count a subdividable lot as equity. If you’ve ever subdivided a lot, you’d find it a very expensive proposition and one that might eat up alot of the future value of that lot. I cost me one whole lot to get two lots in Redmond. Hydrants,roads, grassy swales, etc. Not to mention permit fees, surveys, engineers, etc. to get it to the value of a finished sellable lot.