Quick sale investor promise?

Is a quick sale to a real estate investor worth it?

House flipping is a misunderstood industry.  Sure, these investors promise a quick sale, but legitimate home flipping is valuable to the real estate industry and the community.  Home flippers revitalize run-down homes, and market appealing homes to home buyers.  In a low inventory housing market, home flips have become a significant percentage of home sales in a low inventory market.

House flipping data

quick sale
House flipping is a significant portion of home sales (Home Stats infographic from nar.realtor)

ATTOM Data Solutions (attomdata.com), the data solutions behind Realtytrac, recently released its Home Flipping Report for Q1 2018.  The report indicated that there were 48,457 U.S. homes that were flipped, which represented 6.9 percent of all home sales.  Although the number of homes flipped decreased 3 percent from last year, the percentage of flipped homes in the home sale inventory increased!  The number of flipped homes decreased to a two-year low, but the home flipping rate is the highest since 2012.  The average gross profit of $69,500 is at the highest point since ATTOM started collecting the data in 2000.

Given the stats and profits, it was just a matter of time for the mom and pop home flipping business to become corporatized.  Using the power of the internet and corporate financing, companies such as Opendoor, Offerpad, and recently Zillow have become players in house flipping business.  Whether corporate flippers are profitable or have a sustainable business model is for another column.  But, there is no doubt that home sellers are seduced by one-click instant offers and promises of a quick closing.

How real estate  investors operate

House flippers are known to buy foreclosures and other financially distressed properties.  However, these real estate investors also go after other properties too, as long as it’s financially feasible (it’s a business after all).  Other types of targeted homes include estate sales, divorce sales, long-time rentals, and outdated or obsolete homes.  So, if you haven’t already received a letter offering you a quick offer and fast closing, it’s just a matter of time.

For some home sellers, a quick sale to an investor is fitting.  The seller is disposing of a home that would otherwise continue to be a financial burden and deteriorate further.  However, many realize they can sell for more on the open market (MLS).

Is a quick sale to an investor all it’s cracked up to be?

If you’re thinking of selling your home (or even currently selling), you might be fascinated by the idea of a quick sale.  But for most, the dream of selling for a large sum and closing quickly is just a fantasy.  You should realize that home flipping is risky business, and the investors build their costs into their offer.  So, be prepared for a really low offer.  A typical investor offer is about 70 percent of the home’s value minus rehab, carrying, and marketing costs.

Before you sell to an investor, do your due diligence.  Compare multiple investor offers.  Verify that the investor is legitimate.  Be wary of investors who include extended contingencies.  Be aware that “wholesalers” will tie up your home while looking to sell their purchase contract to other investors.  Although most investors promise “cash” deals, the reality is that most investors actually borrow money.  It is not uncommon for investors to back out or default on a deal because their financing doesn’t come through.  Most important, have your attorney review any contract before you sign.

Also, talk to a Realtor.  You could possibly sell your home for more than the investor’s “instant” offer.  Marketing your home on the MLS at a price appropriate for its condition could net you more.

Original is located at https://dankrell.com/blog/2018/10/11/quick-sale-promises/

By Dan Krell.          Copyright © 2018.

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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.

Winter home sale profits

winter home sale
Reasons to buy (infographic from keepingcurrentmatters.com)

If you are planning to sell next spring, don’t wait!  Consider a winter home sale.  A National Association of Realtors survey indicates that a surge of home sale inventory is on the horizon.  The NAR third quarter Housing Opportunities and Market Experience survey indicated that 77 percent of Americans believe it to be a good time to sell (Homeowners Ready to Sell in the Third Quarter of 2018, says Realtor Survey; September 25, 2018; nar.realtor)!  This happens to be a record high for the survey.  NAR Chief Economist Lawrence Yun believes that the strong sentiment is due to recent home price appreciation.  He stated:

“Though the vast majority of consumers believe home prices will continue to increase or hold steady, they understand the days of easy, fast gains could be coming to an end. Therefore, more are indicating that it is a good time to sell, which is a healthy shift in the market.

A winter home sale has less seller competition

The housing market conditions are such that we are on the verge of experiencing a déjà vu.  Two years ago, winter home sales were fueled by rising mortgage interest rates, low inventory and pent up demand.  As I predicted in a November 2016 column, rising interest rates and pent up demand were credited for the almost 10 percent jump in home sales by the end of January 2017!  The massive jump in home sales occurred during the deep winter, when existing home sale inventory dropped about one-third of the summer inventory.  Sellers who had a winter home sale during 2016-17 were greeted by eager home buyers and faced little competition.

Fast forward to 2018.  Yes, admittedly, home sales have slightly dropped off during summer.  But many are attributing this phenomenon to the lack of inventory.  Consider that Montgomery County existing single-family home sale inventory was almost 20 percent lower than that of the summer of 2016.  Although summer home sales dropped off, indicators point to a hot winter housing market.  Moderating home prices, combined with pent up buyer demand and a strong economy could make a winter home sale ideal.

It’s clear that home buyers facing rising interest rates have taken a pause.  But as rates approach 5 percent, positive economic sentiment is lessening the shock and many are planning to buy before rates creep higher.  Giving perspective to the mortgage rate hysteria, current mortgage rates are about the same as they were during 2014.  Additionally, the last time we saw mortgage rates above 5 percent was in 2010.  Rates exceeded 6 percent when home sales broke records during the market buildup of 2006.

Current sentiment is good for a winter home sale

Another indicator that a winter home sale may be primed is the most recent Fannie Mae Home Purchase Sentiment Index (No Thanks to Housing, Home Purchase Sentiment Edges Up; fanniemae.com; August 2018).  Home buyer sentiment increased the first time since May.  Economists attribute this uptick to a strong economy along with the awareness of the recent market slowdown.  The job and income related index components increased significantly indicating that buyers feel financially more secure with a home purchase.  There is also a belief that home prices may moderate due to the summer sales slump.

Winter home sales tend to have less competition and serious home buyers.  As I said in 2016, don’t wait until spring to sell your home!  If you wait until spring to list your home, you’ll be faced with a profusion of seller competition.

Original located at https://dankrell.com/blog/2018/10/03/winter-home-sale-profits/

By Dan Krell.          Copyright © 2018.

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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.

Fast home sale tips

fast home sale
Average Days on Market (infographic from keepingcurrentmatters.com)

Although the volume of home sales is below last year’s figures, most homes are still selling.  Of course, home sellers would prefer to have a fast home sale. When meeting with potential listing agents, home owners are typically overwhelmed by agents promoting their broker’s technology.  But the research is clear that it’s not technology that sells homes, but rather your MLS listing content and the audience that can sell your home fast.

Three years ago, I introduced cutting edge research by Allen, Cadena, Rutherford & Rutherford (Effects of real estate brokers’ marketing strategies: Public open houses, broker open houses, MLS virtual tours, and MLS photographs; The Journal of Real Estate Research; 2015; 37(3), 343-369).  Although the study focused on the listing agent’s motivations about spending money on promoting your home, it did shed light on the effectiveness of marketing staples such as: broker open houses, public open houses, MLS photos, and MLS virtual tours.  Although these tactics may not promote a fast home sale, the study revealed that all four methods used together positively influence the home sale price.

They found that having six or more MLS photos increases the probability of a selling your home, as well as positively influencing the sale price.  Having a virtual tour can decrease the home’s time on market as well as increasing the probability of selling.  Having open houses can help sell your home at a higher price, but can take longer to sell.  Contrary to conventional wisdom, having public open houses can increase your home’s time on market up to twenty-five days, while reducing the chances of it selling by 6.1 percent!  Broker open houses also adds to the time on market, however increases the likelihood of selling your home.  The conclusion was that all four tactics should be considered as a package if your goal is to get top dollar.  However, if your goal is a fast home sale, your focus should be elsewhere.

Do pictures help with a fast home sale? A number of studies found that MLS photos and virtual tours have positive effects to home sale price, but are conflicted with regard to time on market.  However, a study conducted by Benefield, Cain & Johnson (On the Relationship Between Property Price, Time-on-Market, and Photo Depictions in a Multiple Listing Service; The Journal of Real Estate Finance and Economics; 2011; 43(3), 401–422) indicated that having more photos of the home’s interior can increase the time on market.

A study published this year suggests that getting more real estate agents to view your MLS listing can sell your home faster.  Allen, Dare, & Lingxiao (MLS Information Sharing Intensity and Housing Market Outcomes; The Journal of Real Estate Finance & Economics; 2018; 57(2), 297-313) found that just increasing the MLS listing view by one unit can increase the probability of selling your home by 5.7 percent, increase the sale price by 0.2 percent, and reduce time on market by 1.6 days.

A fast home sale

So, what does all this research mean to you if you’re selling your home?  First, consider that your agent’s marketing strategy will certainly affect your home’s sale price and days on market.  While possibly helping to get a better sale price, the research has demonstrated that having a broad marketing plan could increase your home’s time on market.  To decrease the days on market and increase the probability of a sale, pay attention to the pictures and audience.  Make sure your agent places high-definition photos of your home in the MLS, but limiting shots to the most relevant.  Also, make sure your agent has a plan to get your MLS listing in front of other agents.

Original published at https://dankrell.com/blog/2018/08/16/fast-home-sale-tips/ ‎

By Dan Krell.
Copyright © 2018.

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Protected by Copyscape Web Plagiarism DetectorDisclaimer. 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.

Open house and carry on

Open House Still Part of Home Buying Process

open house
Stats from NAR’s Profile of Home Buyers and Sellers 2017 (infographic from nar.realtor)

The tradition of having an open house, like other real estate customs, has recently become a source of debate over its value and effectiveness.  According to Rachel Stults, the tradition began over one hundred years ago when brokers allowed prospective buyers to “inspect” the house by having it open to the public (A Brief History of Opening Our Homes to Total Strangers; realtor.com; April 21st, 2015).  The house was advertised as “open for inspection.”  Of course, it was a much different time. Home buyers were not represented, and there was no home inspection as we know it today.  Hence, the “open house,” as first conceived, served an important function for the both the buyer and the seller.

As the housing industry evolved, visiting an open house morphed into a Sunday tradition.  Open houses were not just for home buyers, as it also became a form of Sunday afternoon entertainment for the general public.  The internet changed the tradition by virtually opening the house to the public through pictures and tours and allowing buyers to identify the specific homes they want to visit.

There is disagreement among real estate agents and other housing experts on the merit and effectiveness of the open house.  Additionally, home buyers have significantly changed how they use the open house over the last two decades.  According to the National Association of Realtors’ Profile of Home Buyers and Sellers (nar.realtor), twenty-eight percent of home buyers surveyed in 1999 indicated they found their home by visiting an open house, compared to only seven percent in 2017.

Adding doubt is a recent study that indicates having a public open house actually decreases the probability of selling a home by about 6.1 percent (Allen, Cadena, Rutherford & Rutherford; Effects of Real Estate Brokers’ Marketing Strategies: Public Open Houses, Broker Open Houses, MLS Virtual Tours, and MLS Photographs. Journal of Real Estate Research: 2015, 37:3, 343-369).  The authors indicated that having a public open house can increase your home’s days on market up to twenty-five days.

Although the open house may have lost its clout as a selling tool, it is still a major aspect of the home buying process.  Open house data from NAR’s 2015 Profile of Home Buyers and Sellers indicated:

-48 percent of all buyers surveyed used the open house as part of their home search process.
-Repeat home buyers are more likely to find their home from an open house compared to first-time buyers.
-The income bracket most likely to frequent an open house has a median income between $250,000 and $499,999.
-Home buyers below the age of 65 (but older than 24) are more likely to frequent an open.
-The Northeast and West regions of the US have more successful open houses.
-Buyers seeking a new home visit open houses more than those seeking a re-sale.
-Couples (married and unmarried) are more likely to visit open houses than single home buyers.
-And, ninety-two percent of home buyers surveyed indicated that open houses were at least “somewhat useful.”

If you decide to have an open house, put away your valuables and medications so as not to tempt thieves who may wander into your home.  Have a discussion with your agent about focusing on selling your home, instead of trying to get more clients.  And finally, don’t distract from your home by having an “event,” which employs food trucks, bounce houses, and other open house gimmicks.

By Dan Krell.
Copyright © 2018.

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Protected by Copyscape Web Plagiarism DetectorDisclaimer. 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.

Home pricing psychology

home pricing psychologyPricing your home correctly is the foundation of a successful sale.  I have often talked about the science and art of pricing a home in various market conditions, but did you know home pricing psychology also plays a role?

With vast amounts of public data available on the internet, you may be tempted to price your home on your own.  However, keep in mind that unverified internet data can be inaccurate or outdated.  Moreover, the most recent sales data may not yet be available on your favorite real estate sites.  Asking a Realtor to help you analyze relevant comparables from the MLS can help you decide on a sales price that is in line with home buying trends.

The science of pricing a home is a straight forward method of analyzing the sale prices of similar neighborhood homes.  The analysis will provide you with a potential sales price range.  When selecting comparable homes, make sure that the homes are similar in style (colonial, split level, rambler, etc.).  Select comparable homes that are similar in size (usually within 15 to 20 percent of your home’s living area).  Also, try to find comparable sales that sold within the last six months to be relevant to current market trends.

The “art” of pricing your home is a process of fine tuning the sale price range derived from comparable homes.  Looking at various factors for each home, you can make adjustments on your calculated sale price range.  Interior differences, such as number of bedrooms, bathrooms, or having a finished basement, can change a sale price significantly.  Likewise, exterior features, such as a deck or fence, can also affect the price.

Let’s talk about your home’s condition.  Whether you like it or not, your home’s condition should be a major factor in determining a sale price.  You should be honest and objective when it comes to your home’s condition.  Have others offer their opinions about necessary updates and repairs.  Are there any comparables that are in similar condition?  You may have to make adjustments to correspond to deferred maintenance and lack of updates.

Home Pricing Psychology

To attract home buyers while trying to get top dollar, you may also have to apply home pricing psychology.  Of course, many of these home pricing psychology strategies are not sound or based on facts.  An example of this is the use of a “totem” price.  A totem price is when the second half of the number is a mirror of the first (e.g., 543,345).  This was a strategy that was highly touted during the “go-go” market of 2005-2006.

Until recently, there hasn’t been much research into the psychological effects of real estate pricing strategies.  An empirical study by Eli Beracha and Michael J. Seiler revealed how sellers can ask for a higher price without turning off buyers (The Effect of Pricing Strategy on Home Selection and Transaction Prices: An Investigation of the Left-Most Digit Effect; Journal of Housing Research; 2015; Vol. 24, No. 2, pp.147-161).  Their study revealed that “just-below” pricing can help you sell your home faster and get a higher price.  Just-below pricing is a strategy that lowers the price by reducing the left most digit by “1.”  However, they suggest that when using the just-below strategy in real estate, it should be rounded to the nearest hundred or thousand.  For example, if you decide on a list price of $450,000, then the rounded-just-below price will be $449,900.

Original published at https://dankrell.com/blog/2018/06/05/home-pricing-psychology/

By Dan Krell
Copyright © 2018.

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Protected by Copyscape Web Plagiarism DetectorDisclaimer. 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.