Properties that have been repossessed through foreclosure by a lender are called REO’s. REO stands for Real Estate Owned. If they are bank owned, why not call them BO’s? I suppose it is obvious why not, although many of them stink. When buying REO properties there are some key differences to understand, as opposed to a traditional real estate purchase. First and foremost, you as a buyer have little or no ability to negotiate the price or terms with the seller. REO properties are sold “AS IS” and the seller is a financial institution with no emotional attachment to the property for sale. Unlike a traditional homeowner, they do not have any personal interest in who is moving into “their home”. There is a good chance that no one from the bank has seen the property, or been inside the house. The same holds true for the listing broker if that listing broker is not local. The lender is only concerned with receiving the highest Offer and best terms possible to suit themselves. Most of the negotiation process is completed via internet e-mail. The only information the bank will receive is the terms of the Offer. They only care about how much you will pay for the property, and how you will pay for the property.
Be sure you speak with your lender before submitting an offer on an REO property. In most cases, a pre-approval letter, not a pre-qualification letter, is required simultaneously with the Offer to Purchase. The bank wants to be certain they are considering an Offer from a buyer that has the credit and financial wherewithal to see the deal through. In many cases the seller even wants to see a bank statement showing you have enough cash in your account to consummate the transaction. Isn’t that an invasion of privacy?
Since you can’t rely on personal interaction with the seller, the cleaner the Offer the better it will look. Because REO properties are sold in “As-Is” condition, you want to look for a loan program that applies to this type of property. The condition of the property may not qualify you for certain types of traditional loans. If the property is in poor condition, and most REO’s are in poor condition, you might want to investigate a construction loan. Many lenders are now offering programs geared specifically for distressed properties. This way, the repairs can be completed after the buyer takes possession of the property. If your Offer is accepted, you are entitled to have your own property Structural Inspection, but you will only have a few days to complete the inspection. Quite often, only a dry inspection will be possible. By that I mean the power and water will not be turned on. Some REO clearing houses will advance funds and take responsibility for ‘trashing out’ the property and generally cleaning it up, because it helps them market the property. However, that is being done less and less today because listing companies are finding it very difficult to get reimbursed for their expenses. It’s getting ugly, and it may get worse before it gets better.
What about the closing date? Yes, that is also handled differently from the way a traditional purchase is closed. In a traditional sale, it is possible for the seller to be flexible about a closing date. Some contracts use the term “on or about” a certain date. Sellers in a traditional sale tend to be more willing to adjust plus or minus to make the sale work, as long as the Closing takes place within a reasonable number of days from the original date agreed upon. However, REO contracts use the term “on or before” a certain date, and the bank will tell you what the closing date will be. The bank will expect the Closing to take place no later than their stipulated closing date, and if there is a delay on the buyer’s side causing the buyer to be in default, the bank will either terminate the contract, with the buyer forfeiting their down payment, or the buyer will be penalized a specified dollar amount per day for an extension. Most often that amount is $100.00 per day. However, because of the enormous inventory of bank owned properties today, in my experience sales often do not close on time and the bank is responsible for the delay. A 30-day closing can end up being a 120-day closing, and that could mean the buyer will lose their loan rate lock. Nevertheless, I cannot stress strongly enough that the bank sets the timelines and they could care less about what you want.
Because REO transactions are different from traditional purchases, any buyer interested in an REO property needs a knowledgeable support team consisting of a competent and vigilant real estate buyer agent who knows how to look out for their buyer client’s best interest and can interface fluidly with a good attorney. Yes, the next member of the team needs to be a GOOD ATTORNEY, one who will take the necessary care to investigate the property title. What you do not need is a wishy-washy, don’t ask, don’t tell real estate agent and attorney, who just wants to get it done, collect a fee and move on.
REO properties appear to be very attractive opportunities on the surface, and you can save money purchasing an REO property. However, you can also end up spending considerably more money than you would on a traditional purchase property, not to mention all the stress and anxiety that has become typical with this type of transaction. Many times the offering price is set low in order to attract buyer attention with the hope that multiple buyers bidding on the same property will drive up the final price. Buyers are encouraged to submit their highest and best offer without the opportunity to know what the highest price is that they are bidding against. Since these properties are being sold “AS IS”, and since the onus is usually on the buyer to correct any structural deficiencies in the property, repairs can drive the final price above the realm of what would be considered a good deal. With short sales, foreclosures, and REO’s there are no guarantees, and in Massachusetts, it’s Caveat Emptor. That is why you need to hire an Exclusive Buyer Agent who deals with buyers’ needs day in and day out. On Martha’s Vineyard you want SplitRock Real Estate, an exclusive buyer agency specializing in careful buyer representation.
Friday, November 21, 2008
Wednesday, October 08, 2008
WHAT’S “WRONG” WITH THE MARTHA’S VINEYARD REAL ESTATE MARKET
Starting with the premise that commerce is activated by supply and demand, I want to look at what is wrong with the Martha’s Vineyard real estate market today. What I discovered was that, in fact, there is nothing wrong with the Martha’s Vineyard real estate market; it is just that this market is confusing to many people and even more confusing today given the dire conditions in the financial market and a disparity in seller motivation factors. But first let me establish a few facts as guidelines:
<> This is not a place people have to be, they want to be here. Martha’s Vineyard is a destination and for the most part, a second home market.
<> This Island is only 20.5 miles long, 87.48 square miles in total land area --- they are not making any more of Martha’s Vineyard.
<> With home prices averaging almost 100% higher than the national average, ranging from $300,000 for a shabby ‘fixer-upper’ to $25,000,000 and above not everyone can afford to swallow that pill.
<> The cost of living is about 60% above the mean, so once again living here is surely not for everyone, but that does not diminish its popularity.
<> There are between 775 and 850 properties on the market, depending upon the method of tabulation used, which is about four times as many properties as there were at the height of the market.
<> The current inventory is about one-quarter of what we had to deal with after the market broke in 1988, and the population density has increased significantly since 1990.
The total inventory at the time of this writing totals 777 properties. I want to break down that number, which includes all classifications of properties so you have a better perspective:
<> Up to $200,000 = 7 properties (Note: This includes a share in a fishing camp, an aircraft hanger, time shares and an office condo.)
<> $201,000 - $400,000 = 86 properties
<> $401,000 - $600,000 = 162 properties
<> $601,000 - $800,000 = 140 properties
<> $801,000 - $1,000,000 = 85 properties
<> $1,100,000 - $2,000,000 = 157 properties
<> $2,100,000 - $3,000,000 = 51 properties
<> $3,100,000 - $5,000,000 = 54 properties
<> $5,100,000 – $30,000,000 = 35 properties
Only 18% of the inventory is above $2,000,000. That means the so-called lower end of the market is where the fat is. However, within that segment lies a misleading inflationary factor --- sellers who do not have to sell.
For a few years now we have been reading about how the real estate market has tanked in some areas of the country, falling into what many view as a fathomless abyss. The media has us believing this was the general condition everywhere. In an attempt to educate consumers, the National Association of Realtors® launched an educational campaign proclaiming ‘all real estate is local’. This is true, all real estate is local and in many parts of the country the market has been pretty much stable or a recovery is under way. But the message came too late, the die was cast, and for most of the country sales activity started to stall. Sellers started to panic and buyers delighted that the tide was turning in their favor. No longer would the buyers be at the mercy of a seller’s market. Even on Martha’s Vineyard buyers believed they finally had a chance to get a foothold on their dream Island.
Overall, however, property values still remain solid on Martha’s Vineyard. Yes, I am serious. If you are interested in real estate on Martha’s Vineyard, you should be paying attention to this local market and not be influenced by broad brush studies that are based on limited national metropolitan samplings. I don’t deny there are pockets across the country where prices have fallen 40% or more. These areas are not the norm. On Martha’s Vineyard, overall, the price drop has only gone down about 14% since 2006. For anyone who invested in Martha’s Vineyard real estate 5, 10, or 20 years ago, the good news is their investment has increased handsomely in value over that time period, even with the occasional bumps in the economic highway.
Exclusive Buyer Agents, such as SplitRock Real Estate, work very hard to educate consumers and create Power Buyers. I have a number of buyer/clients who have been working with me for 6 months, a year, even three years or more. They have a sincere desire to be here if they can only find the right property at the right price (Isn’t that typical of what motivates buying decisions?). Much to their chagrin they are discovering that prices on the Vineyard make no sense. Comparables are difficult to come up with, and ultimately the buying decision has to be an emotional decision. For those who are thinking long term and understand the fundamentals of real estate investment, the fact that prices overall have not gone down much should be a reassuring factor that lends more confidence to a buying decision. For others, if they cannot afford to make the investment now they will regrettably join the ranks of the would-have, should-have, could-have buyers.
So what is wrong with the Martha’s Vineyard real estate market? Buyers who enter the Martha’s Vineyard real estate market, regardless of whether it is an up or a down market are confused and scared. They do not want to make a mistake or appear foolish. There are many sellers who are sincerely motivated and will actively compete, engage and negotiate with buyers to sell their properties in this market. I am not including what we call distress sales, i.e. short sales, foreclosures and bank owned properties (aka REO’s). The problem lies with the ‘ego seller’ who lists their property for sale, but really does not care if they sell now or two years from now. They are not willing to listen to the market (IE their seller agents), and insist on holding a hard line because they think their properties are special, and their posture is "I don't have to sell". I call this the ‘goose that laid the golden egg’ mentality. Sellers who are not competitive are like buyers who are not qualified; they are wasting everyone’s time and money. If you are a serious seller, please don’t be offended by an offer you receive. Be willing to graciously engage with a meaningful counter offer. Properly educating buyers is a difficult, time-consuming process. When they get to a point where they are comfortable making a reasonable offer, if they are coldly rejected by a seller, it sets the whole process back considerably. If you recall the moral of Aesop’s fable, he who wants too much loses everything. In this case it is the entire Vineyard real estate market that is losing.
As average buyers watch the market week after week, the inventory continues to grow. Some buyers hold out, sitting on the sidelines, as they keep hoping those overpriced properties will come down in price. They resist making a buying decision waiting for sellers to cave in. The result is a slow market with minimal inventory absorption. When the inventory was limited, the demand was greater and the market moved briskly. If this market is going to get back in stride, it is my opinion that sellers, who don’t need to sell, should remove their properties from the current inventory. If sellers don’t like where the market is today and they are not willing to be competitive and engage in negotiations, they should wait and relist their properties when happy days are here again. And surely, this too shall pass and happy days will return.
Thursday, August 14, 2008
Is the Martha’s Vineyard Housing Market really that Bad? I Don’t Think So
Looking at the overall picture of the housing crisis, perspective and understanding has been lost as a result of what is essentially a localized crisis in 4 states: California, Nevada, Florida, and Arizona. According to statistics from City-Data.com, 54 of the 101 cities with the largest population increase from 2000 - 2006 are located inside California, Nevada, Florida, and Arizona - the four states most affected by sharply decreasing home values. These four states saw the largest population influx between 2000 and 2006 triggering the need for more housing supply and with that demand, prices started to go up at 15% or more annually.
Anyone who has been in the real estate investment business knows that what goes up must come down. Many mortgage lenders bolstered by the above average appreciation rate year after year irresponsibly let their guard down, lowering lending standards and granting all sorts of exotic loans they should have known could not be repaid. Opportunity and greed propelled builders, real estate licensees, lenders and investors to push the envelope until the bubble burst. Today there are 15 states struggling to correct themselves; that is 30% of the country with 37% of the population and approximately 4 million problem mortgages. That breaks down to 7 percent of all mortgages owned in the U.S. Sure, you hear numbers reported by RealtyTrac, a foreclosure reporting service, stating one in every 464 U.S. households were served with a foreclosure filing in July --- 272,171 households, but the deepest concentration of those foreclosures are in California, Nevada, Florida, and Arizona. In Cape Coral-Fort Meyers, Florida alone, one in every 64 households received a foreclosure notice in July. On Martha’s Vineyard, RealtyTrac is reporting only 34 properties in Pre-foreclosure, Foreclosure or REO status. There are approximately 14,000 households on Martha’s Vineyard. The current inventory of properties for sale is less than 800 properties. Does anyone remember the early nineties? This is nothing compared to back then, but business is so much more difficult today because everyone is afraid of doing the wrong thing. Most of the public continues to believe the media, and the media continues to fuel the fear factor because, “misery sells newspapers”.
Not having a clear picture of the market has resulted in a lack of movement stalling the market, except for those buyers who ignore the media negativity and know how to read the numbers. I believe we are about to see a significant paradigm shift being expressed in two ways. Frustrated sellers are finally taking a hard look at their pricing realizing that their past strategy has not worked and has done them more harm than good. They are listening to their seller agents and cutting prices to the bone, well below assessed value in many cases. Sellers who have refused to price their properties realistically for today’s market and were never really sincere about selling, are taking their properties off the market. They think the market is about to turn around and prices will start to inch back up within the next 4 to 9 months. They can wait. I think this will paint a clear uncluttered picture for consumers who have been anxiously waiting with pent-up desire to get into this market but have been unsure and confused. They will finally realize now is the time to buy. They want to buy!
This fall, mortgage rates are forecasted to go up as much as a quarter percentage point according to Jim Vogel, an analyst at FTN Financial Capital Markets. This prediction is a result of Fannie Mae reporting a second-quarter loss of $2.3 billion and their prediction of more heavy losses resulting from the home-mortgage defaults and price declines centered primarily in California
(-28%), Florida (-17%), Nevada and Arizona. Fannie Mae has already said they will stop buying alt-A loans by the end of 2008. Fannie Mae and Freddie Mac are going to be limited in their ability to buy and guarantee home loans, and they will increase fees to borrowers seeking LTVs of 75-80 percent. Increases in the cost of borrowing will reduce the pool of homebuyers with the expected result that buyers with strong liquidity and solid credit will be in the catbird seat. As of today, mortgage rates are still very attractive. Martha’s Vineyard local Island banks understand our market and are excellent at helping qualified buyers to create a loan package that suits their needs. Now is the best time to buy, waiting will only create memories of what could have been your dream come true.
Anyone who has been in the real estate investment business knows that what goes up must come down. Many mortgage lenders bolstered by the above average appreciation rate year after year irresponsibly let their guard down, lowering lending standards and granting all sorts of exotic loans they should have known could not be repaid. Opportunity and greed propelled builders, real estate licensees, lenders and investors to push the envelope until the bubble burst. Today there are 15 states struggling to correct themselves; that is 30% of the country with 37% of the population and approximately 4 million problem mortgages. That breaks down to 7 percent of all mortgages owned in the U.S. Sure, you hear numbers reported by RealtyTrac, a foreclosure reporting service, stating one in every 464 U.S. households were served with a foreclosure filing in July --- 272,171 households, but the deepest concentration of those foreclosures are in California, Nevada, Florida, and Arizona. In Cape Coral-Fort Meyers, Florida alone, one in every 64 households received a foreclosure notice in July. On Martha’s Vineyard, RealtyTrac is reporting only 34 properties in Pre-foreclosure, Foreclosure or REO status. There are approximately 14,000 households on Martha’s Vineyard. The current inventory of properties for sale is less than 800 properties. Does anyone remember the early nineties? This is nothing compared to back then, but business is so much more difficult today because everyone is afraid of doing the wrong thing. Most of the public continues to believe the media, and the media continues to fuel the fear factor because, “misery sells newspapers”.
Not having a clear picture of the market has resulted in a lack of movement stalling the market, except for those buyers who ignore the media negativity and know how to read the numbers. I believe we are about to see a significant paradigm shift being expressed in two ways. Frustrated sellers are finally taking a hard look at their pricing realizing that their past strategy has not worked and has done them more harm than good. They are listening to their seller agents and cutting prices to the bone, well below assessed value in many cases. Sellers who have refused to price their properties realistically for today’s market and were never really sincere about selling, are taking their properties off the market. They think the market is about to turn around and prices will start to inch back up within the next 4 to 9 months. They can wait. I think this will paint a clear uncluttered picture for consumers who have been anxiously waiting with pent-up desire to get into this market but have been unsure and confused. They will finally realize now is the time to buy. They want to buy!
This fall, mortgage rates are forecasted to go up as much as a quarter percentage point according to Jim Vogel, an analyst at FTN Financial Capital Markets. This prediction is a result of Fannie Mae reporting a second-quarter loss of $2.3 billion and their prediction of more heavy losses resulting from the home-mortgage defaults and price declines centered primarily in California
(-28%), Florida (-17%), Nevada and Arizona. Fannie Mae has already said they will stop buying alt-A loans by the end of 2008. Fannie Mae and Freddie Mac are going to be limited in their ability to buy and guarantee home loans, and they will increase fees to borrowers seeking LTVs of 75-80 percent. Increases in the cost of borrowing will reduce the pool of homebuyers with the expected result that buyers with strong liquidity and solid credit will be in the catbird seat. As of today, mortgage rates are still very attractive. Martha’s Vineyard local Island banks understand our market and are excellent at helping qualified buyers to create a loan package that suits their needs. Now is the best time to buy, waiting will only create memories of what could have been your dream come true.
Thursday, April 17, 2008
Short Sales Are Not A Slam Dunk
Back at the end of January I wrote a brief e-Newsletter editorial about the ‘Short Sale’ phenomena, how it works and how the Urban Housing Corp. in Roxbury, MA was working to help suffering homeowners to work out their situations before losing everything. I also talked about how difficult and frustrating it could be when the mortgagor owed significantly more money than the current market value, I mean hundreds of thousands of dollars in some cases. I ended by saying “The good news is that Martha’s Vineyard is not one of these distress markets flooded with upside-down investors. Most attorneys here know very little about how the short sale process works, and personally I want no part of it.” Well, here we are at nearing the end of April and I still want no part of short sale negotiations, not that I will not engage if a buyer client insists, but now we have an increasing number of home owners here who are facing foreclosure and are offering their properties as short sales.
At the end of 2007 and the beginning of 2008, lenders were more willing to accept significant short sale losses and move on, but I believe that is not the case any longer --- especially here on Martha’s Vineyard. I believe we are walking in the valley of this down market and the turnaround is clearly in sight. That means lenders are going to be stubborn and if they cannot sell closer to their investment, they will take back the properties and wait it out. Here is an article that appeared in the Wall Street Journal today that further addresses Why Lenders Are Leery Of Short Sales.
At the end of 2007 and the beginning of 2008, lenders were more willing to accept significant short sale losses and move on, but I believe that is not the case any longer --- especially here on Martha’s Vineyard. I believe we are walking in the valley of this down market and the turnaround is clearly in sight. That means lenders are going to be stubborn and if they cannot sell closer to their investment, they will take back the properties and wait it out. Here is an article that appeared in the Wall Street Journal today that further addresses Why Lenders Are Leery Of Short Sales.
Monday, March 17, 2008
A Cautionary To Homeowners - Reverse Mortgages
This article appeared in today's Wall Street Journal. I have always believed that Reverse Mortgages can be a trap unless they are structured properly and are carefully thought through by the homeowner.
By Donna Kardos
The Wall Street Journal Online
"The Financial Industry Regulatory Authority urged homeowners over the age of 60 to carefully weigh their options before tapping into their home equity through reverse mortgages to obtain additional income for their retirement years.
"The group, formed by a merger of the NASD and some regulatory functions of New York Stock Exchange parent NYSE Group Inc., warned that a reverse mortgage -- an interest-bearing loan secured by the equity in a home -- can jeopardize their financial futures.
"With a reverse mortgage, a bank makes payments to a homeowner instead of the homeowner making payments to a bank. The loan is repaid, with interest, when the borrower sells the house, moves out or dies. Reverse mortgages have high fees -- typically about 7% of the home's value -- and they make it difficult for homeowners to leave the property to their heirs.
"The warning notes that, in some cases, those who sell the mortgages may profit from the their sale, giving them twice the incentive to talk someone into a loan they may not need.
"Finra Chief Executive Mary L. Schapiro said home equity "is often a homeowner's most valuable asset and most precious source of retirement security." Accordingly, the agency reminded homeowners that reverse mortgages should generally be a last resort.
"Reverse mortgages were originally designed as a tool for aging, low-income homeowners to keep their homes, Finra said. But they have been used more often by retiring Americans as a way to finance a more-extravagant retirement lifestyle than they could otherwise afford.
"Still, as foreclosure rates continue to rise amid the subprime-mortgage crisis, some homeowners who have built up equity in their home may consider reverse mortgages their best option against losing it."
Related Article Reverse Mortgages: A Way Out Of a Bind for Older Homeowners
By Donna Kardos
The Wall Street Journal Online
"The Financial Industry Regulatory Authority urged homeowners over the age of 60 to carefully weigh their options before tapping into their home equity through reverse mortgages to obtain additional income for their retirement years.
"The group, formed by a merger of the NASD and some regulatory functions of New York Stock Exchange parent NYSE Group Inc., warned that a reverse mortgage -- an interest-bearing loan secured by the equity in a home -- can jeopardize their financial futures.
"With a reverse mortgage, a bank makes payments to a homeowner instead of the homeowner making payments to a bank. The loan is repaid, with interest, when the borrower sells the house, moves out or dies. Reverse mortgages have high fees -- typically about 7% of the home's value -- and they make it difficult for homeowners to leave the property to their heirs.
"The warning notes that, in some cases, those who sell the mortgages may profit from the their sale, giving them twice the incentive to talk someone into a loan they may not need.
"Finra Chief Executive Mary L. Schapiro said home equity "is often a homeowner's most valuable asset and most precious source of retirement security." Accordingly, the agency reminded homeowners that reverse mortgages should generally be a last resort.
"Reverse mortgages were originally designed as a tool for aging, low-income homeowners to keep their homes, Finra said. But they have been used more often by retiring Americans as a way to finance a more-extravagant retirement lifestyle than they could otherwise afford.
"Still, as foreclosure rates continue to rise amid the subprime-mortgage crisis, some homeowners who have built up equity in their home may consider reverse mortgages their best option against losing it."
Related Article Reverse Mortgages: A Way Out Of a Bind for Older Homeowners
Monday, March 10, 2008
The Private Homecare Services Program of the Vineyard Nursing Association
Extra help for Vineyard Visitors is just a phone call away!
Families vacationing on Martha's Vineyard that travel with elders, infants, or those with a disability come to the Island facing unique challenges. The Private Homecare Services Program of the Vineyard Nursing Association is here to specifically assist with these special circumstances.
Whether your loved one requires nursing attention or companion services, we are here to help.
Some of the services they provide are:
· light housekeeping and meal preparation
· assistance with getting ready for the day or getting ready for sleep
· help with daily injections and lab work
· companionship for those that are not safe or don’t feel safe alone
· babysitting or respite care
Assistance is available from 2 hours to 24 hours a day.
For more information or to arrange for services please call: 508-693-6184.
Families vacationing on Martha's Vineyard that travel with elders, infants, or those with a disability come to the Island facing unique challenges. The Private Homecare Services Program of the Vineyard Nursing Association is here to specifically assist with these special circumstances.
Whether your loved one requires nursing attention or companion services, we are here to help.
Some of the services they provide are:
· light housekeeping and meal preparation
· assistance with getting ready for the day or getting ready for sleep
· help with daily injections and lab work
· companionship for those that are not safe or don’t feel safe alone
· babysitting or respite care
Assistance is available from 2 hours to 24 hours a day.
For more information or to arrange for services please call: 508-693-6184.
Saturday, March 08, 2008
1031 Exchanges and Vacation Homes actual text for IRS Rev. Proc. 2008-16
IRS Rev. Proc. 2008-16 on Safe Harbor for Like-Kind Exchange of Dwelling Unit
IRC Section 1031 IRC - Section 280A Document Date: February 15, 2008
This revenue procedure is scheduled to be published in Internal Revenue Bulletin 2008-10, dated March 10, 2008.
Part III
Administrative, Procedural, and Miscellaneous
26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability.
(Also Part 1, §§280A , 1031).
Rev. Proc. 2008-16
SECTION 1. PURPOSE
This revenue procedure provides a safe harbor under which the Internal Revenue Service (the "Service") will not challenge whether a dwelling unit qualifies as property held for productive use in a trade or business or for investment for purposes of § 1031 of the Internal Revenue Code.
SECTION 2. BACKGROUND
.01 Section 1031(a) provides that no gain or loss is recognized on the exchange of property held for productive use in a trade or business or for investment (relinquished property) if the property is exchanged solely for property of like kind that is to be held either for productive use in a trade or business or for investment (replacement property). Under § 1.1031(a)-(1)(a)(1) of the Income Tax Regulations, property held for productive use in a trade or business may be exchanged for property held for investment, and property held for investment may be exchanged for property held for productive use in a trade or business.
.02 Rev. Rul. 59-229, 1959-2 C.B. 180, concludes that gain or loss from an exchange of personal residences may not be deferred under § 1031 because the residences are not property held for productive use in a trade or business or for investment.
.03 Section 2.05 of Rev. Proc. 2005-14, 2005-1 C.B. 528, states that § 1031 does not apply to property that is used solely as a personal residence.
.04 In Moore v. Commissioner, T.C. Memo. 2007-134, the taxpayers exchanged one lakeside vacation home for another. Neither home was ever rented. Both were used by the taxpayers only for personal purposes. The taxpayers claimed that the exchange of the homes was a like-kind exchange under § 1031 because the properties were expected to appreciate in value and thus were held for investment. The Tax Court held, however, that the properties were held for personal use and that the "mere hope or expectation that property may be sold at a gain cannot establish an investment intent if the taxpayer uses the property as a residence."
.05 In Starker v. United States, 602 F.2d 1341, 1350 (9th Cir. 1979), the Ninth Circuit held that a personal residence of a taxpayer was not eligible for exchange under § 1031, explaining that "[it] has long been the rule that use of property solely as a personal residence is antithetical to its being held for investment."
.06 The Service recognizes that many taxpayers hold dwelling units primarily for the production of current rental income, but also use the properties occasionally for personal purposes. In the interest of sound tax administration, this revenue procedure provides taxpayers with a safe harbor under which a dwelling unit will qualify as property held for productive use in a trade or business or for investment under § 1031 even though a taxpayer occasionally uses the dwelling unit for personal purposes.
SECTION 3. SCOPE
.01 In general. This revenue procedure applies to a dwelling unit, as defined in section 3.02 of this revenue procedure, that meets the qualifying use standards in section 4.02 of this revenue procedure.
.02 Dwelling unit. For purposes of this revenue procedure, a dwelling unit is real property improved with a house, apartment, condominium, or similar improvement that provides basic living accommodations including sleeping space, bathroom and cooking facilities.
SECTION 4. APPLICATION
.01 In general. The Service will not challenge whether a dwelling unit as defined in section 3.02 of this revenue procedure qualifies under § 1031 as property held for productive use in a trade or business or for investment if the qualifying use standards in section 4.02 of this revenue procedure are met for the dwelling unit.
.02 Qualifying use standards.
(1) Relinquished property. A dwelling unit that a taxpayer intends to be relinquished property in a §1031 exchange qualifies as property held for productive use in a trade or business or for investment if:
(a) The dwelling unit is owned by the taxpayer for at least 24 months immediately before the exchange (the "qualifying use period"); and
(b) Within the qualifying use period, in each of the two 12-month periods immediately preceding the exchange,
(i) The taxpayer rents the dwelling unit to another person or persons at a fair rental for 14 days or more, and
(ii) The period of the taxpayer's personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.
For this purpose, the first 12-month period immediately preceding the exchange ends on the day before the exchange takes place (and begins 12 months prior to that day) and the second 12-month period ends on the day before the first 12-month period begins (and begins 12 months prior to that day).
(2) Replacement property. A dwelling unit that a taxpayer intends to be replacement property in a §1031 exchange qualifies as property held for productive use in a trade or business or for investment if:
(a) The dwelling unit is owned by the taxpayer for at least 24 months immediately after the exchange (the "qualifying use period"); and
(b) Within the qualifying use period, in each of the two 12-month periods immediately after the exchange,
(i) The taxpayer rents the dwelling unit to another person or persons at a fair rental for 14 days or more, and
(ii) The period of the taxpayer's personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.
For this purpose, the first 12-month period immediately after the exchange begins on the day after the exchange takes place and the second 12-month period begins on the day after the first 12-month period ends.
.03 Personal use. For purposes of this revenue procedure, personal use of a dwelling unit occurs on any day on which a taxpayer is deemed to have used the dwelling unit for personal purposes under § 280A(d)(2) (taking into account § 280A(d)(3) but not § 280A(d)(4)).
.04 Fair rental. For purposes of this revenue procedure, whether a dwelling unit is rented at a fair rental is determined based on all of the facts and circumstances that exist when the rental agreement is entered into. All rights and obligations of the parties to the rental agreement are taken into account.
.05 Special rule for replacement property. If a taxpayer files a federal income tax return and reports a transaction as an exchange under § 1031, based on the expectation that a dwelling unit will meet the qualifying use standards in section 4.02(2) of this revenue procedure for replacement property, and subsequently determines that the dwelling unit does not meet the qualifying use standards, the taxpayer, if necessary, should file an amended return and not report the transaction as an exchange under § 1031.
.06 Limited application of safe harbor. The safe harbor provided in this revenue procedure applies only to the determination of whether a dwelling unit qualifies as property held for productive use in a trade or business or for investment under § 1031. A taxpayer utilizing the safe harbor in this revenue procedure also must satisfy all other requirements for a like-kind exchange under § 1031 and the regulations thereunder.
SECTION 5 . EFFECTIVE DATE
This revenue procedure is effective for exchanges of dwelling units occurring on or after March 10, 2008. No inference is intended with respect to the federal income tax treatment of exchanges of dwelling units occurring prior to the effective date of this revenue procedure.
SECTION 6 . DRAFTING INFORMATION
The principal author of this revenue procedure is J. Peter Baumgarten of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue procedure contact Mr. Baumgarten at (202) 622-4920 (not a toll free call).
IRC Section 1031 IRC - Section 280A Document Date: February 15, 2008
This revenue procedure is scheduled to be published in Internal Revenue Bulletin 2008-10, dated March 10, 2008.
Part III
Administrative, Procedural, and Miscellaneous
26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability.
(Also Part 1, §§280A , 1031).
Rev. Proc. 2008-16
SECTION 1. PURPOSE
This revenue procedure provides a safe harbor under which the Internal Revenue Service (the "Service") will not challenge whether a dwelling unit qualifies as property held for productive use in a trade or business or for investment for purposes of § 1031 of the Internal Revenue Code.
SECTION 2. BACKGROUND
.01 Section 1031(a) provides that no gain or loss is recognized on the exchange of property held for productive use in a trade or business or for investment (relinquished property) if the property is exchanged solely for property of like kind that is to be held either for productive use in a trade or business or for investment (replacement property). Under § 1.1031(a)-(1)(a)(1) of the Income Tax Regulations, property held for productive use in a trade or business may be exchanged for property held for investment, and property held for investment may be exchanged for property held for productive use in a trade or business.
.02 Rev. Rul. 59-229, 1959-2 C.B. 180, concludes that gain or loss from an exchange of personal residences may not be deferred under § 1031 because the residences are not property held for productive use in a trade or business or for investment.
.03 Section 2.05 of Rev. Proc. 2005-14, 2005-1 C.B. 528, states that § 1031 does not apply to property that is used solely as a personal residence.
.04 In Moore v. Commissioner, T.C. Memo. 2007-134, the taxpayers exchanged one lakeside vacation home for another. Neither home was ever rented. Both were used by the taxpayers only for personal purposes. The taxpayers claimed that the exchange of the homes was a like-kind exchange under § 1031 because the properties were expected to appreciate in value and thus were held for investment. The Tax Court held, however, that the properties were held for personal use and that the "mere hope or expectation that property may be sold at a gain cannot establish an investment intent if the taxpayer uses the property as a residence."
.05 In Starker v. United States, 602 F.2d 1341, 1350 (9th Cir. 1979), the Ninth Circuit held that a personal residence of a taxpayer was not eligible for exchange under § 1031, explaining that "[it] has long been the rule that use of property solely as a personal residence is antithetical to its being held for investment."
.06 The Service recognizes that many taxpayers hold dwelling units primarily for the production of current rental income, but also use the properties occasionally for personal purposes. In the interest of sound tax administration, this revenue procedure provides taxpayers with a safe harbor under which a dwelling unit will qualify as property held for productive use in a trade or business or for investment under § 1031 even though a taxpayer occasionally uses the dwelling unit for personal purposes.
SECTION 3. SCOPE
.01 In general. This revenue procedure applies to a dwelling unit, as defined in section 3.02 of this revenue procedure, that meets the qualifying use standards in section 4.02 of this revenue procedure.
.02 Dwelling unit. For purposes of this revenue procedure, a dwelling unit is real property improved with a house, apartment, condominium, or similar improvement that provides basic living accommodations including sleeping space, bathroom and cooking facilities.
SECTION 4. APPLICATION
.01 In general. The Service will not challenge whether a dwelling unit as defined in section 3.02 of this revenue procedure qualifies under § 1031 as property held for productive use in a trade or business or for investment if the qualifying use standards in section 4.02 of this revenue procedure are met for the dwelling unit.
.02 Qualifying use standards.
(1) Relinquished property. A dwelling unit that a taxpayer intends to be relinquished property in a §1031 exchange qualifies as property held for productive use in a trade or business or for investment if:
(a) The dwelling unit is owned by the taxpayer for at least 24 months immediately before the exchange (the "qualifying use period"); and
(b) Within the qualifying use period, in each of the two 12-month periods immediately preceding the exchange,
(i) The taxpayer rents the dwelling unit to another person or persons at a fair rental for 14 days or more, and
(ii) The period of the taxpayer's personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.
For this purpose, the first 12-month period immediately preceding the exchange ends on the day before the exchange takes place (and begins 12 months prior to that day) and the second 12-month period ends on the day before the first 12-month period begins (and begins 12 months prior to that day).
(2) Replacement property. A dwelling unit that a taxpayer intends to be replacement property in a §1031 exchange qualifies as property held for productive use in a trade or business or for investment if:
(a) The dwelling unit is owned by the taxpayer for at least 24 months immediately after the exchange (the "qualifying use period"); and
(b) Within the qualifying use period, in each of the two 12-month periods immediately after the exchange,
(i) The taxpayer rents the dwelling unit to another person or persons at a fair rental for 14 days or more, and
(ii) The period of the taxpayer's personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental.
For this purpose, the first 12-month period immediately after the exchange begins on the day after the exchange takes place and the second 12-month period begins on the day after the first 12-month period ends.
.03 Personal use. For purposes of this revenue procedure, personal use of a dwelling unit occurs on any day on which a taxpayer is deemed to have used the dwelling unit for personal purposes under § 280A(d)(2) (taking into account § 280A(d)(3) but not § 280A(d)(4)).
.04 Fair rental. For purposes of this revenue procedure, whether a dwelling unit is rented at a fair rental is determined based on all of the facts and circumstances that exist when the rental agreement is entered into. All rights and obligations of the parties to the rental agreement are taken into account.
.05 Special rule for replacement property. If a taxpayer files a federal income tax return and reports a transaction as an exchange under § 1031, based on the expectation that a dwelling unit will meet the qualifying use standards in section 4.02(2) of this revenue procedure for replacement property, and subsequently determines that the dwelling unit does not meet the qualifying use standards, the taxpayer, if necessary, should file an amended return and not report the transaction as an exchange under § 1031.
.06 Limited application of safe harbor. The safe harbor provided in this revenue procedure applies only to the determination of whether a dwelling unit qualifies as property held for productive use in a trade or business or for investment under § 1031. A taxpayer utilizing the safe harbor in this revenue procedure also must satisfy all other requirements for a like-kind exchange under § 1031 and the regulations thereunder.
SECTION 5 . EFFECTIVE DATE
This revenue procedure is effective for exchanges of dwelling units occurring on or after March 10, 2008. No inference is intended with respect to the federal income tax treatment of exchanges of dwelling units occurring prior to the effective date of this revenue procedure.
SECTION 6 . DRAFTING INFORMATION
The principal author of this revenue procedure is J. Peter Baumgarten of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this revenue procedure contact Mr. Baumgarten at (202) 622-4920 (not a toll free call).
Sunday, February 03, 2008
Martha’s Vineyard Real Estate – Should You Be In The Market Now?
There are too many people who should not be in the real estate market right now, both buyers and sellers. They’re not serious, they are time wasters, and to me real estate is not a game.
If I were a seller’s agent, and I am not, and a home owner came to me asking me to list his property at a certain price that was out of line with my market research, and saying “let’s just try it for a while at this price”, I would say no thank you. Perhaps that seller is unable to sell his property at fair market value because he owes too much, and is upside down --- loan vs. current market. Perhaps that seller does not have to sell, but is just testing the waters or derives some pleasure at seeing his property advertised at a big number. It is sellers like this and the resulting skewed values and distorted inventory that create the negative public opinion and add to buyer’s misperceived impression of the market.
If a buyer came to me, and they do, saying they want to “steal a property”, I say no thank you. Pricing property is analogous to water seeking its own level. If you price a property too high, it will languish on the market until the price comes in line with the market. Across the country, 36% of all properties sold for list price or higher. Only 12% of all properties nationally sold for 90% or less than asking price. What this means is buyers continue to wait until properties are priced correctly. If you recognize that a property is priced correctly, you need to bid accordingly because properties that are priced correctly will normally sell quickly to a savvy buyer, and there may be more than one savvy buyer making a run on a property at the same time. Buyers must realize right now prices are good, interest rates are excellent and anyone with cash or excellent credit has power if they use it wisely in their negotiation. I’ve seen this too many times. Buyers who are eager and ready to get into the market, but continue to sit on the sidelines waiting for the ‘go signal’ from on high that prices have bottomed out are destined to join the ‘would have … should have’ club. You know who I am talking about, those people who painfully recount that they could have bought that property for ….
In the investment game, if you think you are at the bottom, or at the top, it is too late --- you are already on the other side. Right now is a great time to approach the market because the fruit on the tree is abundant and ripe. I don’t blame anyone for having doubts and fears; after all, the news these days is mostly negative and full of fear. I love what Louis Rukeyser once said about investing, no matter what you do, it is going to be wrong so do something, because the worst thing is to do nothing.
We need to remember real estate is cyclical and this too shall pass. Historically, the down-markets normally last two to three years and the up-markets last from seven to ten years. I believe we are walking in the valley right now, but we just don’t know it. It is going to be a long slow trek through the valley and we may not reach the mountain until the end of 2008, or the beginning of 2009, but we are on the march. One thing is for sure, real estate values overall continue to go up. Real estate is the one sure investment that always appreciates over time.
If I were a seller’s agent, and I am not, and a home owner came to me asking me to list his property at a certain price that was out of line with my market research, and saying “let’s just try it for a while at this price”, I would say no thank you. Perhaps that seller is unable to sell his property at fair market value because he owes too much, and is upside down --- loan vs. current market. Perhaps that seller does not have to sell, but is just testing the waters or derives some pleasure at seeing his property advertised at a big number. It is sellers like this and the resulting skewed values and distorted inventory that create the negative public opinion and add to buyer’s misperceived impression of the market.
If a buyer came to me, and they do, saying they want to “steal a property”, I say no thank you. Pricing property is analogous to water seeking its own level. If you price a property too high, it will languish on the market until the price comes in line with the market. Across the country, 36% of all properties sold for list price or higher. Only 12% of all properties nationally sold for 90% or less than asking price. What this means is buyers continue to wait until properties are priced correctly. If you recognize that a property is priced correctly, you need to bid accordingly because properties that are priced correctly will normally sell quickly to a savvy buyer, and there may be more than one savvy buyer making a run on a property at the same time. Buyers must realize right now prices are good, interest rates are excellent and anyone with cash or excellent credit has power if they use it wisely in their negotiation. I’ve seen this too many times. Buyers who are eager and ready to get into the market, but continue to sit on the sidelines waiting for the ‘go signal’ from on high that prices have bottomed out are destined to join the ‘would have … should have’ club. You know who I am talking about, those people who painfully recount that they could have bought that property for ….
In the investment game, if you think you are at the bottom, or at the top, it is too late --- you are already on the other side. Right now is a great time to approach the market because the fruit on the tree is abundant and ripe. I don’t blame anyone for having doubts and fears; after all, the news these days is mostly negative and full of fear. I love what Louis Rukeyser once said about investing, no matter what you do, it is going to be wrong so do something, because the worst thing is to do nothing.
We need to remember real estate is cyclical and this too shall pass. Historically, the down-markets normally last two to three years and the up-markets last from seven to ten years. I believe we are walking in the valley right now, but we just don’t know it. It is going to be a long slow trek through the valley and we may not reach the mountain until the end of 2008, or the beginning of 2009, but we are on the march. One thing is for sure, real estate values overall continue to go up. Real estate is the one sure investment that always appreciates over time.
Thursday, January 10, 2008
New Regulations Impose the Nation's Toughest Restrictions on the Mortgage Industry
In an effort to encourage mortgage lenders in Massachusetts to continue doing business here, on January 2, 2008 the Attorney General’s office imposed restrictions that require increased income documentation and a “reasonable belief” that a borrower can afford the loan they are applying for.
Follow this link to learn more > New Mortgage Rules in Massachusetts
Follow this link to learn more > New Mortgage Rules in Massachusetts
Wednesday, January 09, 2008
Narragansett Bay Insurance undercuts Fair Plan
In the past few years virtually all residents of Cape Cod and the Islands have been caught in the mass exodus of insurance companies from the region. Policies have been abruptly cancelled with the only option being the government Fair Plan insurance with its higher rates and deductibles. Now a company in Rhode Island is attempting to offer insurance plans that will be more affordable than Fair Plan insurance.
Follow this link to read more > Narragansett Bay Insurance
Follow this link to read more > Narragansett Bay Insurance
Saturday, December 01, 2007
Catastrophe Fund Backed To Insure Coastal Homes While Deductibles Skyrocket
As a homeowner on Martha's Vineyard Island, living on the water, I can tell you I have felt the bite of insurance companies backing away from so-called high risk locations. Before I was forced into the Massachusetts Fair Plan, a representative from my home owners insurance provider came to my house and subsequently I received a terse letter saying if I did not remove and cut back all the trees that were close to me house, the insurance provider, Vesta would cancel my insurance. I was bewildered and called my local insurance agent. I was surprised when my agent told me to ignore it because --- Vesta was going to cancel me anyway. They filed for protection with the US Bankrupcy Court, and became another casualty of the disastrous hurricane season in 2005.
According to an editorial in the Boston Globe reported by Bruce Mohl, "A special legislative commission called for the creation of a state-run catastrophic event fund to help reduce the cost of home insurance in Massachusetts. Few details were provided in the report, but the fund would be set up to sell reinsurance to companies at below-market rates. Industry officials participating on the commission dissented from the majority view, saying the fund would drive up insurer costs. Consumer groups also dissented, saying they wanted caps on the increases being sought by the Massachusetts Fair Plan, the home insurer of last resort. Insurers have been canceling policies or raising premiums along the coast on fears of a major hurricane. The Fair Plan provides coverage for about 40 percent of homes on the Cape and islands."
In the meantime, as of December 15, 2007 many residents of Martha's Vineyard insured under the Massachusetts Fair Plan will have the highest windstorm and hail deductibles in the country, up from a minimum of two to five percent. The increase will affect homes valued up to $500,000.
Follow this link to read > Bills Grow Larger For Home Insurance
According to an editorial in the Boston Globe reported by Bruce Mohl, "A special legislative commission called for the creation of a state-run catastrophic event fund to help reduce the cost of home insurance in Massachusetts. Few details were provided in the report, but the fund would be set up to sell reinsurance to companies at below-market rates. Industry officials participating on the commission dissented from the majority view, saying the fund would drive up insurer costs. Consumer groups also dissented, saying they wanted caps on the increases being sought by the Massachusetts Fair Plan, the home insurer of last resort. Insurers have been canceling policies or raising premiums along the coast on fears of a major hurricane. The Fair Plan provides coverage for about 40 percent of homes on the Cape and islands."
In the meantime, as of December 15, 2007 many residents of Martha's Vineyard insured under the Massachusetts Fair Plan will have the highest windstorm and hail deductibles in the country, up from a minimum of two to five percent. The increase will affect homes valued up to $500,000.
Follow this link to read > Bills Grow Larger For Home Insurance
Relief in Sight for Some Massachusetts Home Owners
You've all read countless articles and tales of woe and devestation caused by the subprime mortgage market debacle. The predatory behavior of many mortgage companies coupled by the lack of understanding of borrowers who either did not fully understand what they were getting into or were sold a bill of goods by the lenders has wiped out many homeowners.
In Massachusetts alone there are 24,650 adjustable rate mortgages due to reset at the beginning of 2008. However, there appears to be good news on the horizon for some > Subprime mortgage rates could be frozen for some .
In addition, an Associated Press release just reported that Governor Deval Patrick has signed a measure seeking to slow the state's recent spike in home foreclosures. According to the Governor, the new law gives Massachusetts one of the nation's most consumer-friendly mortgage lending statutes. The legislation requires mortgage companies to file a 90-day notice of intent to foreclose with the homeowner and the state. Borrowers would be required to receive consumer counseling before obtaining certain high-cost mortgages. Grants totaling $2 million would establish 10 education centers statewide and promote first-time home buyer and foreclosure counseling. (AP)
In Massachusetts alone there are 24,650 adjustable rate mortgages due to reset at the beginning of 2008. However, there appears to be good news on the horizon for some > Subprime mortgage rates could be frozen for some .
In addition, an Associated Press release just reported that Governor Deval Patrick has signed a measure seeking to slow the state's recent spike in home foreclosures. According to the Governor, the new law gives Massachusetts one of the nation's most consumer-friendly mortgage lending statutes. The legislation requires mortgage companies to file a 90-day notice of intent to foreclose with the homeowner and the state. Borrowers would be required to receive consumer counseling before obtaining certain high-cost mortgages. Grants totaling $2 million would establish 10 education centers statewide and promote first-time home buyer and foreclosure counseling. (AP)
Thursday, November 29, 2007
What is it going to take to get the Martha’s Vineyard real estate market rolling again?
There is one thing for sure, wishful thinking is not working. Neither is the constant stream of anemic price reductions week after week. How about those incentives and broker bonuses? You know what I'm talking about; the three-year old Range Rover in the driveway, the 24' sailboat, a 60" LCD TV, seller paid closing costs, seller paid Land Bank fee, first payment in six months, a vacation in the Bahamas or $50,000 to the agent that brings the buyer. None of that is working, and any additional compensation offered to an agent that brings the buyer should be considered a conflict of interest and bribery.
So what is working, and how is it working? Home "Staging" is working to some degree, but once buyers wise up to the fact that this kind of eye candy emotional sizzle is costing them thousands of dollars more in the price for the home, they will stop falling for it and start backing away from homes that look just too pretty. They will wonder what lies beneath the dining room table that is set for a 5-course formal dinner party seating twelve.
In an article written for Bloomberg News, John F. Wasik says, "Buyers just want price," he quotes one real-estate attorney/broker/consultant based in Stuart, Fla., as saying. "Buyers have become more educated and they can easily cut through the fluffy incentives". Hmmm. I don't think we're there yet. Everyone loves romance and people shopping for a home on Martha's Vineyard want to fall in love. This market is like going to Las Vegas for the first time and getting lost in one of the Casinos. Know the feeling?
What is the first question buyers ask? "How long has the house been on the market?" This has almost become a joke among real estate professionals, but buyers ask the question because it is commonly assumed that the longer a property has been on the market the weaker the seller's resolve to hold firm on price. You see, overpriced listings that languish on the market reduce the seller's negotiating ability as time diminishes their power. Once a listing has gone unsold, even if they take it off the market for a while or remove it and relist it with another agency, the information is in the public domain. There are definitely exceptions; EG: the seller doesn't have to sell, or the seller just likes to see their property advertized at some inflated price.
I think it is obvious that if a seller is serious --- I am NOT talking about desperate; homes priced to sell will sell. That means being ahead of the market instead of chasing the market. A good deal starts to get noticed if it is at least 10% below its competition. But when you see a good deal, do you think you are the only one who sees that good deal? Heck no, and usually you end up competing with other consumers who want what you want. What that can do is create a bidding war, and that is exactly what the seller wants --- or should want. A bidding war is probably the best and truest way to establish market value. I hate bidding wars, and right now I don't have to worry about it because sellers on Martha's Vineyard are following the same bloodletting technique; they all price high and week after week pull a few thousand dollars out of their last price. My clients feel like they are standing around the markdown sale table at Macy's waiting for the 70% off sign to go up.
There is a lot of misleading statistical information out there right now. Many agents talk about price-to-price ratio. In the recent 2007 NAR Report on Buyers and Sellers it states that "sellers sold their homes for 97% of list price." Does this mean 97% of the original listing price or 97% of the current listing price? The property could have been on the market for a year and transitioned through a half-dozen price reductions before it finally sold.
To sellers my advice is to listen to your listing broker when they give you an 'honest' price recommendation. In this market, if you interview several brokers, hire the broker who gives you the lowest price recommendation because they are probably the one telling you the truth. Many times a broker will agree to a listing contract with a seller because they are thinking, "If I don't take it, my competitor will and I will lose it." They know full well the property will never sell at the listing price. They are banking on the seller eventually coming to their senses and seeing the light. The conversation goes like this. "Mr. Seller, it has been three weeks since we listed your property and we have had no interest, so it is time to reduce the price." By then it is too late and that conversation will most certainly be had again --- and again.
To my buyer clients I always say if you like a property, pay little attention to the asking price and don't be afraid to make a "Bold Offer". By this I mean make an intelligent well thought-out and thoroughly researched offer. I make it perfectly clear on my website > ATTENTION SELLERS: A Low Offer Today, May be a High Offer in 60 Days .
So what is working, and how is it working? Home "Staging" is working to some degree, but once buyers wise up to the fact that this kind of eye candy emotional sizzle is costing them thousands of dollars more in the price for the home, they will stop falling for it and start backing away from homes that look just too pretty. They will wonder what lies beneath the dining room table that is set for a 5-course formal dinner party seating twelve.
In an article written for Bloomberg News, John F. Wasik says, "Buyers just want price," he quotes one real-estate attorney/broker/consultant based in Stuart, Fla., as saying. "Buyers have become more educated and they can easily cut through the fluffy incentives". Hmmm. I don't think we're there yet. Everyone loves romance and people shopping for a home on Martha's Vineyard want to fall in love. This market is like going to Las Vegas for the first time and getting lost in one of the Casinos. Know the feeling?
What is the first question buyers ask? "How long has the house been on the market?" This has almost become a joke among real estate professionals, but buyers ask the question because it is commonly assumed that the longer a property has been on the market the weaker the seller's resolve to hold firm on price. You see, overpriced listings that languish on the market reduce the seller's negotiating ability as time diminishes their power. Once a listing has gone unsold, even if they take it off the market for a while or remove it and relist it with another agency, the information is in the public domain. There are definitely exceptions; EG: the seller doesn't have to sell, or the seller just likes to see their property advertized at some inflated price.
I think it is obvious that if a seller is serious --- I am NOT talking about desperate; homes priced to sell will sell. That means being ahead of the market instead of chasing the market. A good deal starts to get noticed if it is at least 10% below its competition. But when you see a good deal, do you think you are the only one who sees that good deal? Heck no, and usually you end up competing with other consumers who want what you want. What that can do is create a bidding war, and that is exactly what the seller wants --- or should want. A bidding war is probably the best and truest way to establish market value. I hate bidding wars, and right now I don't have to worry about it because sellers on Martha's Vineyard are following the same bloodletting technique; they all price high and week after week pull a few thousand dollars out of their last price. My clients feel like they are standing around the markdown sale table at Macy's waiting for the 70% off sign to go up.
There is a lot of misleading statistical information out there right now. Many agents talk about price-to-price ratio. In the recent 2007 NAR Report on Buyers and Sellers it states that "sellers sold their homes for 97% of list price." Does this mean 97% of the original listing price or 97% of the current listing price? The property could have been on the market for a year and transitioned through a half-dozen price reductions before it finally sold.
To sellers my advice is to listen to your listing broker when they give you an 'honest' price recommendation. In this market, if you interview several brokers, hire the broker who gives you the lowest price recommendation because they are probably the one telling you the truth. Many times a broker will agree to a listing contract with a seller because they are thinking, "If I don't take it, my competitor will and I will lose it." They know full well the property will never sell at the listing price. They are banking on the seller eventually coming to their senses and seeing the light. The conversation goes like this. "Mr. Seller, it has been three weeks since we listed your property and we have had no interest, so it is time to reduce the price." By then it is too late and that conversation will most certainly be had again --- and again.
To my buyer clients I always say if you like a property, pay little attention to the asking price and don't be afraid to make a "Bold Offer". By this I mean make an intelligent well thought-out and thoroughly researched offer. I make it perfectly clear on my website > ATTENTION SELLERS: A Low Offer Today, May be a High Offer in 60 Days .
Wednesday, October 31, 2007
Federal Funds Rate Down Again
Today the Federal Reserve once again in less than two months lowered its target rate for the federal funds rate by a modest 25-basis-points to 4.5 percent and the discount rate to 5 percent.
In a statement announcing the Fed’s decision today, members of the Federal Reserve's Open Market Committee said that "after this action, the upside risks to inflation roughly balance the downside risks to growth."
Some analysts concerned that the housing downturn will lead to a recession were hoping for another 50-basis-point reduction in the federal funds rate, but the Fed has to weigh consequences such as further weakening of the dollar and inflation.
However, on Martha’s Vineyard, the mortgage market has little effect on our high-end market, because most real estate transactions are all cash.
In a statement announcing the Fed’s decision today, members of the Federal Reserve's Open Market Committee said that "after this action, the upside risks to inflation roughly balance the downside risks to growth."
Some analysts concerned that the housing downturn will lead to a recession were hoping for another 50-basis-point reduction in the federal funds rate, but the Fed has to weigh consequences such as further weakening of the dollar and inflation.
However, on Martha’s Vineyard, the mortgage market has little effect on our high-end market, because most real estate transactions are all cash.
Friday, September 21, 2007
What Consumers Want On A Real Estate Website
What information do most consumers want to know about when visiting a real estate website?
According to a survey released by the exclusive Buyer agency firm Accent Realty Group, here are the topics most searched by consumers:
1) 85.7% wanted the ability to search all homes in the area.
2) 42.9% said they wanted to know about local schools.
3) 57.1% said they wanted to know about local crime rates.
4) 28.6% said they wanted to know about tax rates.
The survey also went on to add the fact that consumers were still unfamiliar and confused about the terms “Dual Agency” and “Facilitator”.
I spent a lot of time personally creating my website and I go into great detail to educate consumers about the different types of Agency, but I still find about 50% of the potential buyers I speak with are confused or just plain suspicious. I don’t blame them because the real estate community is still playing a shell game and trying to be all things to all people. I say it can’t be done.
On my website I use the analogy of two sports teams sharing the same locker room, and the same coach. What kind of game do you think they are going to be playing? In an NAR sanctioned publication titled Agency – Choices, Challenges & Opportunities (Agent’s Guide), the definition of an EXCLUSIVE Buyer Agency reads as follows: “The practice of representing only buyers and never sellers in a transaction. The company never lists a sellers’ property and thus never has a seller as a client. Agents never accept subagency that is offered to a seller’s agent.” (Note: In Massachusetts, practically all agencies no longer offer compensation to subagents because of inherent liability.)
As if it is not hard enough for the public to understand terms like “Dual Agency”, “Designated Agency”, “Transaction Agency” or “Facilitator”, “Single Agency”, and “Buyer Agency -- with consent to Dual Agency”, many brokers are still misusing the term EXCLUSIVE in order to capture a buyer. They offer EXCLUSIVE Buyer Agency with consent to Dual Agency”. That is like saying, I’ll be married to you, but if I see someone I want to fool around with, I’ll do it. I don’t know about you, but my wife would have none of that and I am perfectly happy being her EXCLUSIVE husband. Call me what ever you like, but I prefer to keep my life simple stupid, and be respectful of consumer intelligence. I will never share the locker room with another team.
In conclusion, allow me to direct you to a wonderful article I just read and please call me if you still don’t “get it”. I create power buyers!
Follow this link to read > What Buyers Do Wrong
According to a survey released by the exclusive Buyer agency firm Accent Realty Group, here are the topics most searched by consumers:
1) 85.7% wanted the ability to search all homes in the area.
2) 42.9% said they wanted to know about local schools.
3) 57.1% said they wanted to know about local crime rates.
4) 28.6% said they wanted to know about tax rates.
The survey also went on to add the fact that consumers were still unfamiliar and confused about the terms “Dual Agency” and “Facilitator”.
I spent a lot of time personally creating my website and I go into great detail to educate consumers about the different types of Agency, but I still find about 50% of the potential buyers I speak with are confused or just plain suspicious. I don’t blame them because the real estate community is still playing a shell game and trying to be all things to all people. I say it can’t be done.
On my website I use the analogy of two sports teams sharing the same locker room, and the same coach. What kind of game do you think they are going to be playing? In an NAR sanctioned publication titled Agency – Choices, Challenges & Opportunities (Agent’s Guide), the definition of an EXCLUSIVE Buyer Agency reads as follows: “The practice of representing only buyers and never sellers in a transaction. The company never lists a sellers’ property and thus never has a seller as a client. Agents never accept subagency that is offered to a seller’s agent.” (Note: In Massachusetts, practically all agencies no longer offer compensation to subagents because of inherent liability.)
As if it is not hard enough for the public to understand terms like “Dual Agency”, “Designated Agency”, “Transaction Agency” or “Facilitator”, “Single Agency”, and “Buyer Agency -- with consent to Dual Agency”, many brokers are still misusing the term EXCLUSIVE in order to capture a buyer. They offer EXCLUSIVE Buyer Agency with consent to Dual Agency”. That is like saying, I’ll be married to you, but if I see someone I want to fool around with, I’ll do it. I don’t know about you, but my wife would have none of that and I am perfectly happy being her EXCLUSIVE husband. Call me what ever you like, but I prefer to keep my life simple stupid, and be respectful of consumer intelligence. I will never share the locker room with another team.
In conclusion, allow me to direct you to a wonderful article I just read and please call me if you still don’t “get it”. I create power buyers!
Follow this link to read > What Buyers Do Wrong
Wednesday, September 19, 2007
Can You Smell the Brownies in the Oven?
Anyone who has ever been shopping for a home has had at least one of these experiences. It’s early June and you walk into a home to be greeted by a crackling fire in the fireplace. Even before you have walked over the front door threshold, the smell of Vanilla extract is overpowering. You go to inspect the basement and six different Airwick scents chase you back up the stairs. How about the dining room table with eight place settings for a formal dinner -- and all the plates and wine glasses are dusty? Don’t for get the framed needlepoint in the family room that says ‘Home Sweet Home’.
Staging has become very popular lately. Seller agents implore their sellers to remove all the personal knickknacks and clutter, and if necessary rent new furniture, putting dad’s tattered Lazy Boy into storage along with that treadmill no one has used in years.
Even more so today, people are going to extremes ‘staging’ their homes, and you know why? It works! Sellers who stage their homes usually sell them for more money. That is why I say, buyer beware – and be aware.
The National Association of Exclusive Buyer Agents (NAEBA) published an article sometime ago warning buyers of staging pitfalls. What I find interesting is the national Press picked up on it and there are still articles being written referencing NAEBA.
Follow this link to read > Don't be fooled by for-sale homes that are 'staged'
Staging has become very popular lately. Seller agents implore their sellers to remove all the personal knickknacks and clutter, and if necessary rent new furniture, putting dad’s tattered Lazy Boy into storage along with that treadmill no one has used in years.
Even more so today, people are going to extremes ‘staging’ their homes, and you know why? It works! Sellers who stage their homes usually sell them for more money. That is why I say, buyer beware – and be aware.
The National Association of Exclusive Buyer Agents (NAEBA) published an article sometime ago warning buyers of staging pitfalls. What I find interesting is the national Press picked up on it and there are still articles being written referencing NAEBA.
Follow this link to read > Don't be fooled by for-sale homes that are 'staged'
Monday, September 17, 2007
GREENSPAN SPEAK(S)
If you watched the most recent interviews with Alan Greenspan you may or may not be pleased with what you heard. As for the housing bubble, Greenspan says it is a global problem and we still have some distance to travel before the market levels off. He said, “We, unlike the rest of the world, are showing some modest price declines.” When asked if a recession was on the horizon, his answer was, “The evidence so far, is not yet. The economy at this stage, despite this fiscal problem, despite the financial problem, is still holding up.”
In hopes of slowing the downturn in the housing market and lessening the credit crunch the Fed is expected to lower federal funds rates to at least 5.0 percent; it is now at 5.25%. However, Greenspan still sees a great deal of pain ahead for those who overextended during the boom. “I think we're going to have to go through this adjustment, as indeed all the other countries are in the process of going through it. There are going to be a lot of people who will have very tragic stories," said Greenspan.
It appears Greenspan is less optimistic about the economy than he was while writing his memoir, The Age of Turbulence, and estimates the probability of a recession at just above one-third. One of the problems, according to an interview published in the WSJ is the “very large” inventory of newly built and unsold homes resulting in increased pressure on builders to sell them quickly.
Martha's Vineyard for the most part is a high-end resort and second-home market where many expensive properties are sold without need for mortgage financing. However, in order to stave off inflation in the future, Greenspan said the Fed would most likely have to raise interest rates to double-digit levels for the first time since the 80’s, but that increase period would be short lived. If you are contemplating a real estate investment on Martha’s Vineyard and need financing, I think that prediction alone is a good reason to get into the market while the rates are low.
In hopes of slowing the downturn in the housing market and lessening the credit crunch the Fed is expected to lower federal funds rates to at least 5.0 percent; it is now at 5.25%. However, Greenspan still sees a great deal of pain ahead for those who overextended during the boom. “I think we're going to have to go through this adjustment, as indeed all the other countries are in the process of going through it. There are going to be a lot of people who will have very tragic stories," said Greenspan.
It appears Greenspan is less optimistic about the economy than he was while writing his memoir, The Age of Turbulence, and estimates the probability of a recession at just above one-third. One of the problems, according to an interview published in the WSJ is the “very large” inventory of newly built and unsold homes resulting in increased pressure on builders to sell them quickly.
Martha's Vineyard for the most part is a high-end resort and second-home market where many expensive properties are sold without need for mortgage financing. However, in order to stave off inflation in the future, Greenspan said the Fed would most likely have to raise interest rates to double-digit levels for the first time since the 80’s, but that increase period would be short lived. If you are contemplating a real estate investment on Martha’s Vineyard and need financing, I think that prediction alone is a good reason to get into the market while the rates are low.
Saturday, August 18, 2007
Is The Real Estate Market on Martha’s Vineyard Finally A "Buyer's Market"?
In my opinion we are finally entering into an honest to goodness buyer’s market on Martha’s Vineyard. However, due to the fragile and mercurial climate in the loan market, this will be a buyer’s market with few buyers capable of performing.
The national fallout began last year in the sub-prime or what is called the predatory lending market. Dozens of lenders closed their doors, but now national lenders are also feeling the effects.
First Magnus Financial Corp. of Tucson, one of New England's biggest loan brokers, said it would stop lending altogether. Then American Home Mortgage Investment Corp., a publicly traded real estate investment trust that grew rapidly during the housing boom to become the nation's 10th-biggest residential mortgage lender just filed for Chapter 11 bankruptcy protection. AHM employed about 7500 employees in more than 550 offices in 47 states and the District of Columbia.
The list will continue to grow as companies like First Magnus Financial, American Home Mortgage and National City Home Equity announce they are no longer funding loans. National City Home Equity, like AHM, specializes in so-called Alt-A lending, typically to borrowers with strong credit who, for one of a variety of reasons, may not meet all the requirements for a prime, conforming loan. As the ripple effect of this collapse continues to spread, another large Alt-A lender, Houston-based Aegis Mortgage Corp. has filed for Chapter 11 bankruptcy protection. Aegis also laid off half of its 1,305 employee work force.
The nation’s largest independent mortgage lender with over 60,000 employees, Countrywide Financial Corp. is ‘lying on its side’ as one financial reporter described it. While companies like CFC manipulate billions of dollars in unsecured credit options to stay afloat, those companies still funding loans must devise ways to protect their loan investments.
Facing dwindling funds from jittery mortgage investors, the result is a more stringent qualification criteria required from would-be borrowers. Lenders are tightening requirements, increasing interest rates, demanding larger down payments, and completely withdrawing some mortgage products. However, New England based lenders like Sovereign Bank and Cape Cod Five Cents Savings Bank say they are still having no problem funding loans. Sovereign has instituted a program they call "lock and look" that comes with a full pre-approval and allows the client to lock in a rate while they look for their future home, for either 90 or 120 days.
Borrowers are being told to make at least a 5% down payment, put enough money down to avoid taking out a higher-rate jumbo mortgage, and be prepared to verify your income through tax or other documents. Borrowers may also be required to have assets on reserve equal to six or more monthly payments. Even borrowers with strong credit and fico scores well above 700 can not be certain their loans will be funded.
The following comes from a major U.S. mortgage writer. It is typical of what has been going on in the mortgage business:
“As you are probably aware, the mortgage industry is going through a major disruption. In response to these market conditions and to enable ******* to continue to serve our customers; we have made changes to our loan eligibility, appraisal rates and repricing of loans in the pipeline.
- Rate exceptions by AE's will no longer be allowed
- Only full doc loans allowed
- No Non OO (Owner Occupied) and second homes allowed
- Increased disposable income requirements on D/R's > 50% from $2000 to $3000
- No refinances of Vacant Properties
- No refinances of properties listed for sale in the last 3 months
- Limited ltv's on homes listed for sale > than 3 mos but less than 6mos for cash out refi's
- Loans in the pipeline will be repriced according to the current rate sheet unless they are in '"docs out" status or are Purchase transaction types in "Conditional Approval"
- All loans in the pipeline that are NOT O/O Full Doc must fund by August 17
- Appraisals must be less than 90 days old
- Appraisals must contain 1 comp sale <>
Click here to read article >Island Real Estate Sales See Second Quarter Gain With Few Mortgage Ills
The national fallout began last year in the sub-prime or what is called the predatory lending market. Dozens of lenders closed their doors, but now national lenders are also feeling the effects.
First Magnus Financial Corp. of Tucson, one of New England's biggest loan brokers, said it would stop lending altogether. Then American Home Mortgage Investment Corp., a publicly traded real estate investment trust that grew rapidly during the housing boom to become the nation's 10th-biggest residential mortgage lender just filed for Chapter 11 bankruptcy protection. AHM employed about 7500 employees in more than 550 offices in 47 states and the District of Columbia.
The list will continue to grow as companies like First Magnus Financial, American Home Mortgage and National City Home Equity announce they are no longer funding loans. National City Home Equity, like AHM, specializes in so-called Alt-A lending, typically to borrowers with strong credit who, for one of a variety of reasons, may not meet all the requirements for a prime, conforming loan. As the ripple effect of this collapse continues to spread, another large Alt-A lender, Houston-based Aegis Mortgage Corp. has filed for Chapter 11 bankruptcy protection. Aegis also laid off half of its 1,305 employee work force.
The nation’s largest independent mortgage lender with over 60,000 employees, Countrywide Financial Corp. is ‘lying on its side’ as one financial reporter described it. While companies like CFC manipulate billions of dollars in unsecured credit options to stay afloat, those companies still funding loans must devise ways to protect their loan investments.
Facing dwindling funds from jittery mortgage investors, the result is a more stringent qualification criteria required from would-be borrowers. Lenders are tightening requirements, increasing interest rates, demanding larger down payments, and completely withdrawing some mortgage products. However, New England based lenders like Sovereign Bank and Cape Cod Five Cents Savings Bank say they are still having no problem funding loans. Sovereign has instituted a program they call "lock and look" that comes with a full pre-approval and allows the client to lock in a rate while they look for their future home, for either 90 or 120 days.
Borrowers are being told to make at least a 5% down payment, put enough money down to avoid taking out a higher-rate jumbo mortgage, and be prepared to verify your income through tax or other documents. Borrowers may also be required to have assets on reserve equal to six or more monthly payments. Even borrowers with strong credit and fico scores well above 700 can not be certain their loans will be funded.
The following comes from a major U.S. mortgage writer. It is typical of what has been going on in the mortgage business:
“As you are probably aware, the mortgage industry is going through a major disruption. In response to these market conditions and to enable ******* to continue to serve our customers; we have made changes to our loan eligibility, appraisal rates and repricing of loans in the pipeline.
- Rate exceptions by AE's will no longer be allowed
- Only full doc loans allowed
- No Non OO (Owner Occupied) and second homes allowed
- Increased disposable income requirements on D/R's > 50% from $2000 to $3000
- No refinances of Vacant Properties
- No refinances of properties listed for sale in the last 3 months
- Limited ltv's on homes listed for sale > than 3 mos but less than 6mos for cash out refi's
- Loans in the pipeline will be repriced according to the current rate sheet unless they are in '"docs out" status or are Purchase transaction types in "Conditional Approval"
- All loans in the pipeline that are NOT O/O Full Doc must fund by August 17
- Appraisals must be less than 90 days old
- Appraisals must contain 1 comp sale <>
Click here to read article >Island Real Estate Sales See Second Quarter Gain With Few Mortgage Ills
Wednesday, July 25, 2007
Living On The Edge; That’s Where The Action Is
Everyone knows that living in a coastal area, be it north south or west means risking certain forces of nature. Floods have become an ever increasing threats in many parts of the country, but people still flock to river front towns even if it means living below sea level, because that is where the action is.
Earthquakes are a threat, particularly along some of the west cost fault lines, but that does not stop anyone from living in the fun in the sun state of California, because that is where the action is.
Hurricanes are a huge threat and in recent years have affected the Gulf Coast and eastern coast of Florida with devastating effects, but people still gravitate to those areas, because that is where the action is.
Living on an Island is certainly living on the edge --- or possibly over the edge, but we love it and many people dream of having a home on Martha’s Vineyard. What about the possible treat from Nor-Easters and those dreaded Hurricanes? Sure, we are always anticipating the next named storm and when it materializes we all start thinking about how to prepare for it, not having too many choices for where to run. But we love it here, because that is where the action is.
Many of my clients are not only concerned about hurricanes and the flooding associated with it, but they even have included elevation above sea level to their shopping criteria. I suppose that has to do with Al Gore and all that global warming stuff.
For Martha’s Vineyard, there seems to be some good news to report. We have had an unusually cool spring and summer and not a lot of rain so far. That means the water around us will not heat up until much later in the season. Oh yeah, the fishing has also been really good. Hurricanes thrive in warmer water, so I guess that means we can relax more than we usually do, at least according to the latest Reuters news report.
Follow this link to read more > Forecaster cuts 2007 hurricane outlook
Earthquakes are a threat, particularly along some of the west cost fault lines, but that does not stop anyone from living in the fun in the sun state of California, because that is where the action is.
Hurricanes are a huge threat and in recent years have affected the Gulf Coast and eastern coast of Florida with devastating effects, but people still gravitate to those areas, because that is where the action is.
Living on an Island is certainly living on the edge --- or possibly over the edge, but we love it and many people dream of having a home on Martha’s Vineyard. What about the possible treat from Nor-Easters and those dreaded Hurricanes? Sure, we are always anticipating the next named storm and when it materializes we all start thinking about how to prepare for it, not having too many choices for where to run. But we love it here, because that is where the action is.
Many of my clients are not only concerned about hurricanes and the flooding associated with it, but they even have included elevation above sea level to their shopping criteria. I suppose that has to do with Al Gore and all that global warming stuff.
For Martha’s Vineyard, there seems to be some good news to report. We have had an unusually cool spring and summer and not a lot of rain so far. That means the water around us will not heat up until much later in the season. Oh yeah, the fishing has also been really good. Hurricanes thrive in warmer water, so I guess that means we can relax more than we usually do, at least according to the latest Reuters news report.
Follow this link to read more > Forecaster cuts 2007 hurricane outlook
Monday, July 23, 2007
I'm A Real Estate Buyer's Agent, And I Love What I Do.
I do not post editorials to my Blog unless I am the author, or collaborating with a colleague. However, this account of a personal real estate interaction written by a gentleman I know is so hilarious and poignant, I cannot resist sharing it.
Steve and his wife, having returned from a Sunday tour of open houses, were reflecting back on the events of the day and here is his impression of the experience.
A Buyer's Plea for Some Respect
By Steve Burnett © 2007
Reprinted by permission
Just because I don't happen to have my agent with me on this visit, doesn't mean I don't have one. Without an agent with me, we both know that your first question is likely to be, "are you working with somebody?" This really means you're trying to find out if there's any chance you can function as a dual agent and double your percentage. Or, maybe that same question is your way of determining if I'm really a serious buyer or just one of the neighbors from down the block. See those MLS sheets and Google maps in my hand? I'm not a neighbor from down the block. I'm looking to buy something. You'll see that in my eyes once you stop worrying about "establishing a dialog" or "getting to know your buyer" or when you stop asking yourself, "How can I tuck in an extra 2.5 points on this deal?"
Aside from pointing out something notable or unusual, I really don't need you to announce, "...and this is the hall bathroom..." as we tour the house. I know what bathrooms and bedrooms and kitchens look like already, thank you. Perhaps you're used to dealing in twenty-room mansions where the function or location of each room might have to be explained, but I'm just a regular guy looking for your average 3/2 suburban rancher. It's not likely I'm going to get lost or confused about what a particular room is, so save your chatter until you have something really informative to tell me.
In fact, hold your chatter, period. Unbeknownst to you, my wife and I have just flipped a coin in the car outside to determine which one of us has to take the chore of talking to you and answering all your questions so the other one of us actually gets to look at the place in a somewhat uninterrupted manner.
If you think you're going to entice me into making an offer by claiming that you have other offers coming in soon, or telling me how many other folks have seen your open house today, expect me to turn on my heel and exit your open house. Attempting to create the appearance of scarcity is so 2004. There's no point in me getting into a bidding war, real or imagined. If you don't believe that, please revisit the months-of-supply and DOM numbers for your area. Hint: I've seen those numbers!
I know what new paint looks like, and I know what old paint looks like. It's not super important for you to point out the difference, since $50 bucks at Home Depot, a few beers, and a few hours on a Saturday are all that are required for me to solve any paint issues in a room. I'd rather you let me decide what the value of such "upgrades" are. Hint: You are not going to get a few extra grand in value just because the seller took $50 bucks, a few beers, and an afternoon to slap some trendy color on the walls. Same story applies with crown molding and wainscoting. Forget what you and your sellers have seen on HGTV; you are not going to get a 10X return-on-investment for a few hundred bucks worth of DIY projects. If the basic value of the house in not there due to the number of rooms, location, or dollars per square foot, no amount of superficial "upgrades" are going to change that basic value. Conversely, if the basic value is there, I'm very prone to overlooking lime green walls, chipped tile, and a myriad of cosmetic issues.
The whole staging thing is getting really old. Does the house you live in have strategically placed bottle of wine with a pair of glasses on the patio table every night of the week? My current house doesn't, I can assure you that the only time there's a big bowl of fresh-cut flowers on the kitchen table is on Valentine's Day, or when I've made my wife mad. Normal people live in homes where the coffee table has a bunch of remotes, chewed-up dog toys and six-month old magazines. A staged house always seems to have a book of Tuscan sunsets, a bowl of teal-colored marbles, and nothing else on that coffee table. Sure, ask the sellers to tidy up a bit. But don't stage the place to the point where it's a cliché, or to a point where it's not even plausible that actual people might live in the house. Really, I'm trying to look through all the fruit bowls, cute soap bars, and other doo-dads you've carefully placed. It insults my intelligence that you think crap like that might make me want a particular property more than what I would have without the staging. In spite of what you have heard, a vacant house with no furnishings whatsoever is fine.
You know all those apple pie-scented candles in your trunk you've been packing around for each open house you do? Dump them. Put them in your own garage for the next power outage. Give them to some homeless. Do anything but use them to give potential open houses that "home" feeling. Virtually every single one of your competitors is already trying the same idea. Unless your property has dead animals underneath the floor boards, or had the living room used as an indoor kennel, there's really no scent that you can add that is going to want to make me want to buy something I wouldn't otherwise. Back to the intelligence thing: Do you honestly believe that people make large, 30-year financial commitments because they caught a whiff of punkin' pie? Don't even get me started on chocolate chip cookies or popcorn. Yes, I've read the studies about how the rational mind can be strongly influenced by scents. When you try that play, all I really smell is your desperation.
Basic literacy: FYI, the windows that you're trying to tell me about are spelled: "dual pane", not "duel pain" or duel pane". I only bring this up because I've really seen these spelling variants in many listings. Same issue with !!! $ALL CAPS DESCRIPTION$ !!!! and TXT THT LKS LK A 14YO GRL might be sending me a text message. I expect to see that kind of writing for Beanie Babies on eBay, not on a $500,000 home listing. Again, it's a mistake for you to think I might be dumb enough to give your listing any more than the usual amount of attention due to the number of exclamation points. Fact is, I'm less likely to look at such a listing because your writing skills look like you dropped out of high school and I'm not likely to trust you with such an important purchase.
It's not 2005 anymore, and buyers like me are getting back to pure fundamentals: Dollars per square foot, and location. Stuff you can't change with new paint or by "spicing up" your listing description. Remember, I'm looking at buying in a down market and maybe having to sit through a few years of little or no appreciation. You can help me by explaining how the fundamentals of your property might work for me. You can save us both some grief if you can help your seller to understand that it's not 2005 and that the next buyer is not likely going to enjoy a 20% per year price appreciation and the price should be set accordingly. Sorry, it's a new market now.
Steve and his wife, having returned from a Sunday tour of open houses, were reflecting back on the events of the day and here is his impression of the experience.
A Buyer's Plea for Some Respect
By Steve Burnett © 2007
Reprinted by permission
Just because I don't happen to have my agent with me on this visit, doesn't mean I don't have one. Without an agent with me, we both know that your first question is likely to be, "are you working with somebody?" This really means you're trying to find out if there's any chance you can function as a dual agent and double your percentage. Or, maybe that same question is your way of determining if I'm really a serious buyer or just one of the neighbors from down the block. See those MLS sheets and Google maps in my hand? I'm not a neighbor from down the block. I'm looking to buy something. You'll see that in my eyes once you stop worrying about "establishing a dialog" or "getting to know your buyer" or when you stop asking yourself, "How can I tuck in an extra 2.5 points on this deal?"
Aside from pointing out something notable or unusual, I really don't need you to announce, "...and this is the hall bathroom..." as we tour the house. I know what bathrooms and bedrooms and kitchens look like already, thank you. Perhaps you're used to dealing in twenty-room mansions where the function or location of each room might have to be explained, but I'm just a regular guy looking for your average 3/2 suburban rancher. It's not likely I'm going to get lost or confused about what a particular room is, so save your chatter until you have something really informative to tell me.
In fact, hold your chatter, period. Unbeknownst to you, my wife and I have just flipped a coin in the car outside to determine which one of us has to take the chore of talking to you and answering all your questions so the other one of us actually gets to look at the place in a somewhat uninterrupted manner.
If you think you're going to entice me into making an offer by claiming that you have other offers coming in soon, or telling me how many other folks have seen your open house today, expect me to turn on my heel and exit your open house. Attempting to create the appearance of scarcity is so 2004. There's no point in me getting into a bidding war, real or imagined. If you don't believe that, please revisit the months-of-supply and DOM numbers for your area. Hint: I've seen those numbers!
I know what new paint looks like, and I know what old paint looks like. It's not super important for you to point out the difference, since $50 bucks at Home Depot, a few beers, and a few hours on a Saturday are all that are required for me to solve any paint issues in a room. I'd rather you let me decide what the value of such "upgrades" are. Hint: You are not going to get a few extra grand in value just because the seller took $50 bucks, a few beers, and an afternoon to slap some trendy color on the walls. Same story applies with crown molding and wainscoting. Forget what you and your sellers have seen on HGTV; you are not going to get a 10X return-on-investment for a few hundred bucks worth of DIY projects. If the basic value of the house in not there due to the number of rooms, location, or dollars per square foot, no amount of superficial "upgrades" are going to change that basic value. Conversely, if the basic value is there, I'm very prone to overlooking lime green walls, chipped tile, and a myriad of cosmetic issues.
The whole staging thing is getting really old. Does the house you live in have strategically placed bottle of wine with a pair of glasses on the patio table every night of the week? My current house doesn't, I can assure you that the only time there's a big bowl of fresh-cut flowers on the kitchen table is on Valentine's Day, or when I've made my wife mad. Normal people live in homes where the coffee table has a bunch of remotes, chewed-up dog toys and six-month old magazines. A staged house always seems to have a book of Tuscan sunsets, a bowl of teal-colored marbles, and nothing else on that coffee table. Sure, ask the sellers to tidy up a bit. But don't stage the place to the point where it's a cliché, or to a point where it's not even plausible that actual people might live in the house. Really, I'm trying to look through all the fruit bowls, cute soap bars, and other doo-dads you've carefully placed. It insults my intelligence that you think crap like that might make me want a particular property more than what I would have without the staging. In spite of what you have heard, a vacant house with no furnishings whatsoever is fine.
You know all those apple pie-scented candles in your trunk you've been packing around for each open house you do? Dump them. Put them in your own garage for the next power outage. Give them to some homeless. Do anything but use them to give potential open houses that "home" feeling. Virtually every single one of your competitors is already trying the same idea. Unless your property has dead animals underneath the floor boards, or had the living room used as an indoor kennel, there's really no scent that you can add that is going to want to make me want to buy something I wouldn't otherwise. Back to the intelligence thing: Do you honestly believe that people make large, 30-year financial commitments because they caught a whiff of punkin' pie? Don't even get me started on chocolate chip cookies or popcorn. Yes, I've read the studies about how the rational mind can be strongly influenced by scents. When you try that play, all I really smell is your desperation.
Basic literacy: FYI, the windows that you're trying to tell me about are spelled: "dual pane", not "duel pain" or duel pane". I only bring this up because I've really seen these spelling variants in many listings. Same issue with !!! $ALL CAPS DESCRIPTION$ !!!! and TXT THT LKS LK A 14YO GRL might be sending me a text message. I expect to see that kind of writing for Beanie Babies on eBay, not on a $500,000 home listing. Again, it's a mistake for you to think I might be dumb enough to give your listing any more than the usual amount of attention due to the number of exclamation points. Fact is, I'm less likely to look at such a listing because your writing skills look like you dropped out of high school and I'm not likely to trust you with such an important purchase.
It's not 2005 anymore, and buyers like me are getting back to pure fundamentals: Dollars per square foot, and location. Stuff you can't change with new paint or by "spicing up" your listing description. Remember, I'm looking at buying in a down market and maybe having to sit through a few years of little or no appreciation. You can help me by explaining how the fundamentals of your property might work for me. You can save us both some grief if you can help your seller to understand that it's not 2005 and that the next buyer is not likely going to enjoy a 20% per year price appreciation and the price should be set accordingly. Sorry, it's a new market now.
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