Real Estate News and Commentary

February 3, 2017December 13, 2022

Home sale neuromarketing

If you’re selling a home this year, you most likely have read all you can about staging and selling your home. But now there’s new data to show a better way of home sale marketing and get home buyers to your sale, and have them stay for longer periods of time when they visit! Get ready to deploy home sale neuromarketing!

Neuromarketing is consumer behavior studies that applies neuroscience to describe and predict how consumers will react to specific stimuli. Compared to standard consumer research, that solely collects consumer data via questionnaire, asking preferences and attitudes; neuromarketing research also collects neurological data via electroencephalographs (EEG) and electronic imaging (MRI, CAP, PET). The data is used to understand why consumers make certain decisions. The application of neuromarketing is used in eliciting specific reactions to guide consumers in making a decision. “Home sale neuromarketing” is implementing those techniques when selling your home.

The Neuromarketing Science & Business Association describes neuromarketing as:

…the use of modern brain science to measure the impact of marketing and advertising on consumers. Neuromarketing techniques are based on scientific principles about how humans really think and decide, which involves brain processes that our conscious minds aren’t aware of.
Neuromarketing studies which emotions are relevant in human decision making and uses this knowledge to improve marketing’s effectiveness. The knowledge is applied in product design, enhancing promotions and advertising, pricing, store design and the improving the consumer experience in a whole.
The field is on the intersection of marketing, neuro-economics, neuroscience, consumer neuroscience and cognitive psychology.

In her 2010 article for CRM Magazine (Are You Smarter Than a Neuromarketer? Companies have always aimed for the customer’s heart, but the head may make a better target; destinationcrm.com) Jessica Tsai explained the importance of neuromarketing through an interview with neuromarketing expert Martin Lindstrom. In real estate, there’s a saying “buyers are liars…” However Lindstrom told Tsai that consumers don’t intentionally lie; but don’t tell the truth because “they are unaware.” Neuromarketing gets through how buyers decide they need to act, and records actual neurological responses from the brain.

Real estate agents often advise their clients in preparing and marketing a home for sale by suggesting pseudo-scientific “rules of thumb.” For instance, many real estate agents advise their clients about colors schemes and home staging citing specific anecdotes. However, consumer research on home sales have contradicted much of the commonly accepted advice. Take for example the notion that home staging can make your home sell for money. Research conducted by Lane, Seiler, and Seiler (2015. The impact of staging conditions on residential real estate demand. Journal of Housing Research, 24:1; 21-35) concluded that home staging is not a factor in getting a higher sale price.

Neuromarketing research also contradicts some of the standard Realtor advice, and provides insight in how to better market your home.

A 1995 study by Mitchell, Kahn and Knasko (There’s Something in the Air: Effects of Congruent or Incongruent Ambient Odor on Consumer Decision Making; Journal of Consumer Research; 22, 229-238) clarified how scents affect buying decisions. Past studies concluded that pleasant odors did not entice consumers to buy, although increased lingering. However, their research demonstrated odors actually increase buying behavior – but the odor has to be congruent with the object being sold. So, rather than filling your home with various aromas by baking cookies (which makes buyers hungry) and using heavy scented air fresheners – focus on “fresh and clean” odors. Fresh and clean elicits a relaxation response which can be beneficial to the decision making process.

Home sale neuromarketing can also guide you in using color schemes and sounds to evoke positive emotions from home buyers that can help sell your home faster.

When it comes to color schemes and a home sale, stay away from trendy. Instead focus on schemes that grab a buyer’s attention but also evoke feelings of trust and relaxation. Roger Dooley (author of Brainfluence: 100 Ways to Persuade and Convince Consumers with Neuromarketing) has talked about using colors to affect how buyers think and feel. The use of bold colors isn’t necessary to grab attention, but rather subtle hues of color schemes are enough to get home buyers to feel comfortable as well as envisioning themselves living in your home. Your agent’s clothing can make a difference too. He stated that, “…new research suggests that one clothing color could work better than others across the spectrum of sales situations….”

Neuromarketing research also has shown that background noises can influence perceptions and mood. Soothing music and or sounds may influence how a buyer perceives time, and may induce them to stay longer. Besides music, consider white-noise or other subtle soothing sounds that can fill the background while home buyers are viewing your home.

If you are implementing home sale neuromarketing techniques when preparing and selling your home, consider focusing on more than one sense modality. Recent research by Hagtvedt and Brasel (2016. Cross-Modal Communication: Sound Frequency Influences Consumer Responses to Color Lightness. Journal Of Marketing Research, 53:4, 551-562) has demonstrated that cross modality marketing (using odor, color, and sound) is exponentially more powerful in creating emotion than just focusing on one sense modality.

Original published at https://dankrell.com/blog/2017/02/03/home-sale-neuromarketing/

By Dan Krell
Copyright © 2017

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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.

January 27, 2017July 13, 2019

FHA mortgage insurance facts

There’s been a lot of reporting on FHA mortgages lately, creating some confusion. Of course I’m referring to the controversy surrounding FHA’s annual mortgage insurance premium (also known as MIP). Many were surprised to hear that one of the outgoing directives of the Obama administration was to lower the FHA MIP. And, eleven days later, many were just as surprised to hear that the new Trump administration reversed that directive. So what are the FHA Mortgage Insurance Facts?

FHA Mortgage Insurance Facts

Mortgagee Letter 2017-01, dated January 9, 2017 described revisions to the annual MIP for “certain” FHA loans. The effective date of the revisions was to be January 27^th. Meaning, that FHA mortgages that closed and/or disbursed on or after January 27^th would have had the lower MIP. Although the general reporting was that borrowers would save an average of $500 per year (an average of about $41 per month), the actual savings would have depended on the amount borrowed, term of loan and loan-to-value (percentage of loan amount to home value).

Additionally, the lower MIP would have been on new loans that were to have been disbursed (closed) on or after January 27^th. Contrary to some reporting (and more reporting and more reporting) and social media postings, existing FHA loans would not have benefited from the lowered the MIP. Also, the reduction was suspended before the effective date, so MIP did not increase for new mortgages.

The rational stated in Mortgagee Letter 2017-01 (Purpose and Background sections) for the lower MIP was that FHA has met the obligation to its Mutual Mortgage Insurance Fund (MMIF). The MMIF covers lender losses on FHA mortgages. Historically, HUD has adjusted the MIP (by increasing or decreasing MIP) as needed to meet the MMIF mandated requirements. HUD’s last FHA MIP reduction occurred in 2015. The November 15, 2016 Federal Housing Administration Annual Report to Congress reported that the MMIF increased from the previous year and the Fund’s capital ratio was 2.32 percent (above the 2 percent minimum capital reserve requirement). The Report did not signal any impending reduction to the MIP this year.

Some have talked about FHA mortgage insurance facts to include budget juggling and over projecting to make the MMIF appear solvent. Consider that the MMIF pre-crisis reserve ratio was well above the minimum 2 percent but needed about $1.7 billion to replenish reserves after the crisis. When the FHA MIP was reduced in 2015, many testified to congress about the potential risks. Douglas Holtz-Eakin, President of the American Action Forum provided such testimony February 26, 2015 to the United States House of Representatives Committee on Financial Services Subcommittee on Housing and Insurance “The Future of Housing in America: Oversight of the Federal Housing Administration, Part II.” Holtz-Eakin provided data stating:

Adding to concern surrounding premium reductions, FHA’s recent history has been plagued by missed projections. These missed projections enhance the perception that FHA downplays risks borne by taxpayers and cast doubt on the assumption that FHA will continually improve as projected despite cutting annual premiums. Since FY 2009, FHA’s capital ratio has been below the 2 percent minimum mandated by Congress. FHA has repeatedly projected marked improvement only to miss its targets…

In every actuarial review since 2003, the economic value of FHA’s MMIF has come in lower than what was projected the previous year …While FHA has in the past pointed to programs like home equity conversion mortgages (HECM) or the prevalence of seller-funded down payment assistance for losses greater than anticipated, erroneous economic assumptions and volume forecasts are more frequently to blame.

Following the dramatic fall in FHA’s economic value shown in Table 1, legislative attempts to reform FHA in the last Congress would have raised its mandated capital ratio even higher. Reform proposals have included a new capital ratio of either 3 percent or 4 percent, levels FHA’s MMIF is not expected to reach until 2018 and 2019 respectively before factoring in the effects of premium reductions. FHA’s capital buffer is meant to protect taxpayers in an economic downturn while preserving FHA’s ability to fulfill its mission; its restoration is critical. Furthermore, many rightly worry that FHA’s current economic value is overstated due to the influx of money from major mortgage‐related legal settlements and the one-time appropriation of $1.7 billion from the Treasury Department ..

An example of budgetary juggling is hinted by HUD Secretary Julián Castro in his July 13, 2016 oral testimony to the U.S. House Committee on Financial Services Hearing on “HUD Accountability.” In his statement earlier this year, he attributed the health of FHA’s MMIF to HUD’s Distressed Asset Stabilization Program (The DASP was put into place to help troubled home owners who were at risk of default, as well as dealing with delinquent and defaulted mortgages):

“…And when you consider that DASP has contributed more than $2 billion to the MMI Fund above what would’ve otherwise been collected, it’s clear this innovative program is a significant reason why the Fund’s capital reserve ratio is now above its 2 percent requirement.”

Of course, FHA mortgage insurance facts include changes to DASP. This would most likely reduce contributions to the MMIF. A HUD press release outlines those changes (FHA Announces Most Significant Improvements to Date for Distressed Notes Sales Program; June 30, 2016):

In addition, FHA’s latest enhancements prohibit investors from abandoning low-value properties in high-foreclosure neighborhoods to prevent blight. FHA is also offering greater opportunity for non-profit organizations, local governments and other governmental entities to participate in DASP. Loans are not eligible to be sold through DASP unless and until all FHA loss mitigation efforts are exhausted. On average, mortgages sold through this sales program are 29 months delinquent at the time of the auction.

One of the FHA mortgage insurance facts is that FHA is supposed to be self-funded through its MMIF. Suspending the MIP reduction may be to assure the longevity of FHA to future home buyers. In suspending the MIP reduction, Mortgagee Letter 2017-07 stated (Background section): “FHA is committed to ensuring its mortgage insurance programs remains viable and effective in the long term for all parties involved, especially our taxpayers. As such, more analysis and research are deemed necessary to assess future adjustments while also considering potential market conditions …”

Original published at https://dankrell.com/blog/2017/01/27/fha-mortgage-insurance-premium-facts/

By Dan Krell
Copyright © 2017

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January 20, 2017November 23, 2021

Real estate legislation 2017

We are only two weeks into the New Year, but the Maryland General Assembly has been busy. They have already introduced real estate legislation that affect home owners, buyers, renters, and landlords. Surely there will be more real estate legislation proposed through the legislative session. Because these bills have a way to go before they are signed into law, you have an opportunity to voice your opinions to your State Representatives.

If you have a green thumb or you just like gardens, then Senate Bill 62 Real Property –Backyard Gardens–Prohibition on Restrictions should grab your attention. If you live in a single family home or townhouse, the bill provides for your right to have a backyard garden. The bill states “A contract, a deed, a covenant, a restriction, an instrument, a declaration, a rule, a bylaw, a lease agreement, a rental agreement, or any other document may not prohibit a homeowner or tenant from installing or cultivating a backyard garden on single–family property.”

If you’re one of the many military personnel who rent in the area, pay attention to Senate Bill 49 Landlord and Tenant – Military Personnel – Limitation on Liability for Rent. The bill clarifies circumstances where active duty personnel and their spouses have limited liabilities on their leases. The statute previously refers to “change of station orders.” However, the bill clarifies “change of assignment” to include: “Permanent change of station orders; temporary duty orders for a period exceeding 90 days; orders requiring a person to move into quarters located on a military installation; and a release from active duty, including: retirement, separation or discharge under honorable conditions; and demobilization of an activated reservist or a member of the national guard who was serving on active duty orders for at least 180 consecutive days.”

If you live in a Common Ownership Community (co-op, condo or homeowners’ association), consider these three bills (real estate legislation):

House Bill 34 amends the Maryland Homeowners Association Act by allowing a homeowners’ association to charge “a reasonable fee not to exceed $100” to inspect your lot before you sell it. The lot may or may not have a home on it. Your homeowners’ association may require a presale inspection of the exterior of your home as part of the process of preparing resale disclosures and documents. Many HOA’s already conduct an exterior inspection of homes before a sale, alerting the seller and/or the buyer of deficiencies that need to be corrected, so as to ensure the home complies with the association’s rules and covenants.

House Bill 41 requires common ownership communities to register with the State Department of Assessments and Taxation. The annual registration is to include the names and contact information of board members and property managers. Although the information may be useful to those who are renting or considering to purchase within a common ownership community, the bill indicates the registry is not a public record.

House Bill 26 amends Real Property section 7-105.2 Notice to record owner of property of proposed foreclosure sale; limitation of action. The statute indicates that the owner of record be notified of a proposed foreclosure sale and/or postponement of a foreclosure sale. The bill, however, requires that condo and homeowners’ associations also be notified within thirty days of a proposed foreclosure sale within the community. And the associations shall be provided notice within fourteen days after a sale has been postponed. Senate Bill 247 is similar requiring the same notifications.

Other real estate legislation so far relates to ground rents and foreclosures:

Ground rents are in the spotlight again. House Bill 44 provides a ground lease registration form required with the ground lease holder’s contact information (name, phone number and even an email address) to be required by the State Department of Assessments and Taxation. House Bill 45 requires ground rent to be redeemed at time of property transfer or refinance.

House Bill 200 increases the filing fee of a foreclosure of mortgage or deed of trust from $300 to $500. The fee is to be s distributed to the Housing Counseling and Foreclosure Mediation Fund.

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January 12, 2017January 13, 2017

Best home sale?

As the housing market strengthens, consumer confidence in real estate increases. Along with a stronger home sale market comes the increase of for-sale-by-owners (FSBO). The obvious upside to selling a home on your own is to increase your net. And a study conducted in 2009 may support your FSBO yearnings. But is FSBO the best home sale?

Research conducted by Hendel, Nevo, and Ortalo-Magné (2009; The Relative Performance of Real Estate Marketing Platforms: MLS versus FSBOMadison.com; American Economic Review; 99:1878-98) found that homes that sold on a FSBO website sold for as much as homes that were listed in the MLS. However, homes that sold on the MLS did so with significantly fewer days on market. The authors also found that a significantly higher proportion of home buyers bought homes listed on the MLS. The research concluded that “FSBO attracts a particular type of seller…” A FSBO seller is very patient to wait for someone to pay for their higher priced home.

The research conclusion about sale price is contrary to annual surveys reported by the National Association of Realtors. For example, the National Association of Realtor’s 2015 Profile of Home Buyers and Sellers reported that the average home sale price for a FSBO was $185,000, while the average home sale price for an agent assisted home sale was $240,000. Of course, the 2009 research indicated that homes that did not sell on the FSBO website were promptly sold on the MLS. Besides being limited to a specific market, excluding “failed” FSBO sales from their data set could have skewed results and could explain 2009 study’s conclusion about sale prices. From NAR’s Field Guide to Quick Real Estate Statistics:

For Sale By Owner (FSBO) Statistics

FSBOs accounted for 8% of home sales in 2015. The typical FSBO home sold for $185,000 compared to $240,000 for agent-assisted home sales.

Most difficult tasks for FSBO sellers:

Getting the right price: 18%

Preparing/fixing up home for sale: 13%

Understanding and performing paperwork: 12%

Selling within the planned length of time: 3%

Having enough time to devote to all aspects of the sale: 3%

Going FSBO sounds simple and maybe the best home sale; but going it alone is not for everyone. Selling a home is much more than putting a sign in the yard – especially if you are demanding top dollar. Take your efforts up a notch to increase the probability of realizing your sales goal. Among the many tasks that are essential for a successful home sale, consider a basic marketing plan. Attract more buyers with professional high quality photos. Prepare for buyers to visit your home by decluttering and making minor repairs. You should also have a contract ready in case there is no buyer agent. Even though you are selling FSBO, you still have to comply with federal, state, and local disclosure laws. Be prepared for the details of the transaction, which include: negotiating home inspection repairs; providing sale comps to appraiser; dealing with the buyer’s lender and title company.

If going FSBO is intimidating, consider hiring a real estate agent that offers à-la-carte services. The agent can assist you in many areas of your sale, only charging you for the pieces you need. You can even pay a flat fee for a MLS placement of your sale.

If you’re like many FSBO’s, you’ll realize the value of a Realtor. Real estate agents are housing and marketing experts that can assist you in setting a realistic sale price. Besides freeing up your time, experienced agents can facilitate offers and are expert negotiators. They know of latest home sale trends and are aware of any new legislation that can affect your sale.

The best home sale

You may find selling FSBO attractive. But selling a home is in the details that are executed throughout the transaction. The best home sale may actually be through a Realtor. The research supports the notion that hiring a Realtor can provide a more successful and satisfying home sale than doing it FSBO.

As I wrote about FSBO’s in 2005:

How much money can you realistically save? …there as been a trend of negotiated commissions, so actual savings for a FSBO have been reduced….Additionally, FSBO’s are contracting and paying commission with more Realtors and their homebuyers in this environment of limited home inventory. In the end, the FSBO’s savings from Realtor commissions may be marginal.

… there are some real negative aspects of selling your home FSBO, such as time, expense, and contractual obligations.

How much is your time worth? Selling a home requires the application of time to tasks. Among the many tasks of selling a home, the top things that a FSBO may do include (and is not limited to) preparing the home for the open house, contacting the paper to advertise, putting up signs, meeting potential homebuyers, and negotiating contracts. The time quickly adds up.

Selling your home FSBO is supposed to save you money right? Well, there is a bit of expense that is necessary. A FSBO must have signs in the yard, as well as directionals (the small arrow signs) to point homebuyers in your direction. Additionally, you might consider paying the local paper for advertising, as well as paying for an internet advertisement (although there are many websites that will allow you to post for free). Another expense may be to have your attorney to prepare and review the contract…. It seems that the expenses also quickly add up.

…even FSBO’s are responsible to adhere to certain federal and local laws pertaining to the sale of real estate (i.e., equal housing, lead paint, Maryland disclaimer-disclosure, etc). This is the one area that FSBO’s get themselves in trouble because of the lack of knowledge and expertise. There is an increased liability potential.

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January 6, 2017November 23, 2021

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/

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