Greedy home seller tips

Don't be a greedy home seller
Pricing Strategy for a Home Sale (infographic from forsalebyowner.com)

When there is a buzz about home sellers being greedy, you know home sales are doing well.  So, not surprisingly, along with last year’s record home sales came the reports of greedy home sellers.  Are you a greedy home seller?  Or are you adjusting to a market where home prices are increasing?

Greed has developed a bad rap.  Surely there is an evolutionary basis for greed.  Many believe that early hominids promoted personal and group survival by being “greedy” (although disputed by some).  Those who hoarded food, so as to have more than enough, lived through difficult winters and droughts. During times of financial prosperity, greed is looked upon favorably.  However, in the aftermath of a recession, greed is thought of as the basis for fiscal calamity.  Immortalized in Gordon Geckko’s famous “greed is good” speech in the 1987 movie Wall Street, “greed” is a cinematic vehicle to show the fine line between a healthy desire to prosper and a corrupt drive to have more than enough.

Avoid being viewed as a greedy home seller by creating a realistic pricing strategy.  Creating a pricing strategy is an art and a science.  When selling a home, you have to determine the list price.  There are many factors to consider besides recent neighborhood sales, such as condition of your home, sales trends, mortgage interest rates, economic trends, etc.  Like other home sellers, you fall into a conundrum.  If you price your home too high, then it will limit potential home buyers who visit.  However, if you price your home too low to increase home buyer interest, you may not get the price you want.

Contrary to some assertions that a home’s list price doesn’t play a role in the sale, there is evidence to suggest that it really does matter.  Lu Han and William C. Strange determined that a lower list price does increase home buyer visits – but only to a point (What is the Role of the Asking Price for a House? University of Toronto, Rotman School of Management; 2012).  They concluded that there is a point at which the home price is perceived to attract too much buyer competition, which may turn off other home buyers.  Furthermore, their data shows that there is a negative relationship between a list price and the number of home buyers: meaning that the higher the list price relative to the neighborhood, the lower number of home buyer visits, and vice-versa.

If you fear being a greedy home seller by asking for a high price for your home, there is research to suggest that you’ll let go of the greed in order to make a deal.  A 2013 study by Nuno T. Magessi and Luis Antunes looked at how the emotions of fear and greed compete internally (Agent’s fear monitors the spread of greed in a social network; Proceedings of the 11th European Workshop on Multi‐Agent Systems EUMAS, 12-13).  They concluded that greed is mitigated by the fear of loss within the confines of a social network.  When applied to a home sale, the fear of not selling a home competes with the impulse to hold out for the high price.  Deducing further, there is a need to fit within one’s social network by trying to sell a home for the most money, and yet avoid the stigma of a failed home sale.

Don’t be a greedy home seller. RealtorMag described three common home seller mistakes in a 2015 post (3 Mistakes Sellers Often Make; realtormag.realtor.org; April 12, 2015).  Included were “Not being honest with the home’s history,” “Not making a better home presentation,” and “Being unrealistic about the home’s value.”  About unrealistic home value, it was said:

“…Despite tight inventories of homes for-sale in many markets, sellers still need to be careful not to get too greedy with their list price, say real estate professionals…Home owners tend to get a much lower price when they overprice a home at the onset and then drop the price several times. The longer the home lingers on a market, the more likely it will receive a deeper discount…”

If your home doesn’t sell, you must examine your pricing strategy.  Was the price realistic, or were you too greedy?

Original published at https://dankrell.com/blog/2017/01/06/greedy-home-seller/

Copyright © Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Lot premium value on new home

There is an ongoing debate about the lot premium.  Essentially, is there a value of paying a “premium” for a home site when buying a new home?  Certainly, the home builder is seeking to increase their profit margin.  But for a home buyer, there is a question of future value at resale.

A home builder will typically sell certain home sites within a community at a higher price, effectively increasing the price of a new home.  Some home sites are deemed to be more “valuable” because of the lot’s characteristics and/or location.  A lot premium may be charged if a home site is larger, flatter, and/or more symmetrical than others in the community.  Lots tucked away from the main road or close to common areas are typically premium priced as well.

Don’t hate the home builder for charging a lot premium on your new home.  Home builders are trying to sustain a business by recouping the cost and financial risk of land development.  Placing a premium on home sites has become a science, and research consultants typically provide data on developing home sites and pricing.

However, there is also an economic factor.  When the housing market was still reeling from the Great Recession, charging a lot premium was not common.  However, home builders added lot premiums when sales recovered.

John Burns, CEO of John Burns Consulting, wrote about the rising premiums on home sites as the new home market recovered in 2013 (Lot Premiums Are Back!; realestateconsulting.com; May 23,2013), stating “Our consulting team has noted a significant trend in the market: lot premiums are rising substantially!” Burns broke down lot premiums based on region.  And, of course, lot premiums increased according to how the region’s housing market recovered.  For example, lot premiums in Florida were about 10 percent at that time; While Southern California was trending to include the premium in the list price to help stabilize prices.  Also, the DC region’s housing market was still recovering and home builders were only charging 1 to 2 percent for a lot premium.

Burns also noted that buyer demographics can also dictate lot premiums.  At that time, it was reported that home builders in Southern California were charging a 5 percent premium based on feng shui and home site orientation.  And a 20 percent premium was charged for home sites with “good feng shui” that were located on a cul-de-sac.

The availability of buildable home sites may also dictate lot premium charges in the near future.  A recent National Association of Home Builders survey indicated a shortage of home building lots (Lot Shortages Worse Than Ever According to NAHB Survey; nahb.org; May 26, 2016).  NAHB Chief Economist Robert Dietz stated, “We have monitored lot availability for the last two decades, and it is clear that the scarcity of building lots is growing… Whether due to land use policy, geographic constraints or other regulatory constraints, the lack of lots for residential construction will have negative impacts on housing affordability in many markets.”

To understand the relative numbers, NAHB stated “…this record shortage comes at a time when new homes are being started at a rate of under 1.2 million a year. In 2005, when total housing starts were over 2 million, the share of builders reporting a shortage of lots was 53 percent…”

If you pay a lot premium on a new home, however, it is not always clear that you would be able to pass on the premium when you re-sell.  But a recent study conducted by Paul K. Asabere and Forrest E. Huffman (The Relative Impacts of Trails and Greenbelts on Home Price; Journal of Real Estate Finance and Economics; May 2009; vol 38, p408) provides some data on what you might expect: home sites close to trails, greenbelts, and greenways can demand a price premium of up to 5 percent.  A similar effect can also be found in homes with a “view” or in a cul-de-sac; as well as homes that are adjacent to a golf course, playground, tennis court, neighborhood pool.

Original published at https://dankrell.com/blog/2016/12/29/lot-premium-value-on-new-home/

By Dan Krell
Copyright © 2016

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Housing bubble countdown

The March S&P/Case-Shiller U.S. National Home Price Index (spindices.com) was announced May 31st to reveal a 5.2% increase in home prices.  Although down from last March’s 5.3% increase, home prices seem to be appreciating at a regular pace, with the metro areas of Portland, Seattle, and Denver leading the way with double digit gains (year-over-year price increases of 12.3%, 10.8%, 10.0% respectively).  As home prices climb, so too are the claims that we are experiencing a housing bubble.

Those concerned about the next bubble have been ringing the alarm bells since last fall, when the combination of limited inventory, multiple offers, and rising prices created an environment in some regions that was reminiscent of the go-go market just prior to the last market bust.  And like the broken watch that is correct twice a day, those naysayers may eventually be correct – but it may not be for another eight years.

How to predict a housing bubble

According to Ted Nicolais, the real estate cycle has been steady since 1800 (How to Use Real Estate Trends to Predict the Next Housing Bubble; dce.harvard.edu; February 20, 2014).  Writing for the Harvard University’s Department of Continuing Education’s The Language of Business blog, Nicolais maps out Homer Hoyt’s cycles and found a regular 18-year cycle to the bubble and bust housing market (albeit two exceptions).

The 18-year cycle, as it turns out can be observed by analyzing trends.  An applying Henry George’s four phases of the real estate cycle (as modernized by Glenn R. Mueller), Nicolais can determine how and when the next housing bubble will occur.  (Henry George was a nineteenth century economist who studied the boom-bust cycle of the economy).

The first phase is the “recovery.”  Home prices are at the bottom, and demand increases.  Real estate vacancies decrease as economic activity increases, which fuels the economy.

real estate bubbleThe second phase is the “expansion.”  Housing inventories dwindle, there is little is available to buy, and finding a rental becomes difficult.  Nicolais explains that an issue with real estate is that once demand increases, filling inventory takes a long time.  New development can take two to five years.  Until new inventory is added, price growth accelerates; and rather than valued at market conditions, real estate becomes priced to future gains.  During a real estate boom, people buy into the prospect of “future growth” and believe the escalating prices are reasonable.

Phase three is “hyper supply.”  When the completion of new development begins to satisfy demand, inventories fist stabilizes and then swells.  Price growth begins to slow.  Nicolais stated that the amount of continued development will determine the severity of the impending recession; while demand is satiated, new inventory comes to market and vacancies increase.  He asserted that “wise” developers stop building during this phase.

Phase four is the “recession.”  New development is stopped, while projects coming to completion add to a growing inventory.  Occupancy rates and prices fall; property values and profits dwindle.  Developments in mid-construction may not be completed because they are no longer financially feasible.

Following the four phases and the 18-year cycle; Nicolais stated that the great recession was not caused by external forces, but rather occurred on schedule!  He figures that the current housing market is transitioning from recovery to an expansion phase.  And with the exception of the occasional slow down, he predicts that the next housing bubble will be in 2024.

Original published at https://dankrell.com/blog/2016/06/03/housing-bubble-countdown/

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Homeowners do better than renters

million dollar homes

Many years ago, buying your first home used to be a rite of passage that usually coincided with starting a family. Your first home was not just a place to live; but was considered an investment that was expected to grow and provide a “nest egg” for your later years.

Several generations later, a lot has changed. We view investments differently, and have become amateur number crunchers trying to get the most of our money. But what was once considered a sound long term investment has now been deemed as poor judgment.

Of course to real estate investors, housing is a commodity; they take risks to reap rewards. Short term real estate investors (“flippers”) are often viewed as opportunists, buying homes at a discount and selling at retail value. The flipper’s goal is to have a quick turnaround between the time of acquisition and resale (flip), avoiding as much carrying cost as possible. The risk for the flipper is very high, especially in fickle markets; but the payoff can be very rewarding. It is not unusual for a flipper to lose money on a project because of delays, unexpected costs, and/or poor timing.

Long term real estate investors acquire homes to be used as rental properties, banking on the properties’ appreciation when it comes time to sell. Although the financial reward for this investor is long term, the risk is considered to be leveraged over time as well. However, unexpected costs and loss of rent can make such an investor rethink their plan and cut their losses.

For the rest of us, however; housing may not be such a great investment after all, according to many financial pundits. One such pundit, Morgan Housel (of Motley Fool fame), wrote about his meeting with Robert Shiller (of Case-Shiller fame) to give some telling insight about home values (Why your home is not a good investment; usatoday.com; May 10, 2014). Shiller told Housel that the housing market is “a provider of housing services” and “not a good provider of capital gains.”

According to Shiller, home prices from 1890 to 1990 (adjusted for real inflation) are “virtually unchanged.” Housel further added that home prices between 1890 and 2012, adjusted for real inflation, “went nowhere;” and decreased 10% from 1890 to 1980, when adjusted for real inflation. Shiller even suggested that “real” home prices could decrease over the next 30 years, due to a number of factors including obsolescence and advances in construction techniques.

With all the stats and figures, are those who touted the investment value of long term home ownership – wrong? Not necessarily. The consensus is that home ownership offers stability as well as many other benefits including: a place to live, a place to raise a family, and belonging to a community. These intangibles may be responsible for the research conclusions by Harvard University’s Joint Center for Housing Studies, that indicated there is an association between home ownership and growing wealth; where home owners fared better than renters (Herbert, McCue, and Sanchez-Moyano; Is Homeownership Still an Effective Means of Building Wealth for Low-income and Minority Households? Was it Ever? Joint Center for Housing Studies Harvard University, September 2013).

Is buying a home a bad investment? Housel pointed out that even Robert Shiller owns a home, and (at the time of the interview) indicated he would buy a home if he were in the market.

by Dan Krell
Copyright © 2015

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

The cost of doing nothing – deferred maintenance and home values

HousesIf you want to have one of the faster home sales in the area, you’re probably going to have to wait until you die. According to a 2012 study, “estate sales” sell faster than other homes. Benefield, Rutherford, & Allen’s study compared time on market and price of estate sales to regular sales, and quantified what many ostensibly know: estate sales sell about 3.4% faster and about 3.6% less than other homes (Justin, D. Benefield, C. Rutherford Ronald, and T. Allen Marcus. “The Effects of Estate Sales of Residential Real Estate on Price and Marketing Time.” Journal of Real Estate Finance and Economics 45.4 (2012): 965-81).

Although the study is one of many recent studies raising awareness about real estate outcomes in our aging population, one of the main considerations for the rapid time frame and discounted sale price is deferred maintenance; and the issue of postponing home repairs and updates is prevalent among all age groups.

Before Kermit Baker wrote “The Return of Substandard Housing” for the Harvard Joint Center of Housing Studies, it was not quite known how much less home owners spent on home maintenance during and immediately after the Great Recession. However, the 2012 study indicated that “improvement spending” decreased 28% between 2007 and 2011, which essentially “erased” such spending during the housing boom (housingperspectives.blogspot.com).

And as the economy slowly improves and home prices increase, you might expect that home owners will reduce deferred maintenance and once again spend on home improvements. According to Craig Webb (Remodeling Activity Rose Again in 1Q, RRI Shows Nation remains on track to hit record remodeling pace this fall; May 18, 2015; remodeling.hw.net), the Residential Remodeling Index (RRI) increased 1.4% in the first quarter of 2015 compared to the previous quarter, indicating that improvement spending is indeed on the rise (albeit below the 2007 peak).

But what’s the cost of doing nothing? Deferred home maintenance is cumulative, and its effects can be wide ranging. For many, having put off home maintenance and repairs has impacted home sales in recent years, and may continue to be a factor in years to come. Although average home prices have increased, many home owners have found that a lack of home maintenance, repairs and updates over the years is an impediment to selling their homes at higher prices – or even at all.

A mindset exists among many home owners, and even real estate agents, that years of deferred maintenance can be overcome with some updating and minor repairs just before a home sale. And although improvements will certainly make your home more appealing to home buyers, it won’t necessarily increase your home’s value as much as you think (or as much as you’ve been told).

Before undergoing any project, crunch the numbers and determine the value of your repairs/updates, and how that might realistically affect your estimated sale price. Remodeling Magazine’s annual Cost vs. Value Report (costvsvalue.com) can give you an idea of the return-on-investment (ROI) for improvement projects. Getting back to your expectation of adding value – most improvement projects will only return a fraction of the cost in today’s market.

If you are making improvements, you should consider hiring reputable, licensed contractors who are familiar with the permitting process and building code requirements; because ROI is not always determined by the amount spent on the project, but on the quality of workmanship as well.

Original published at https://dankrell.com/blog/2015/06/12/the-cost-of-doing-nothing-deferred-maintenance-and-home-values/

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Copyright © Dan Krell


Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.