Category Archives: Realtor.com

Posts by Sam DeBord on Realtor.com

Writing Simultaneous Offers on Multiple Homes in a Competitive Market

This article was originally published on Realtor.com:

Some cities around the country are in the middle of extreme sellers’ markets right now, as inventory is scarce, prices are rising, and financing is inexpensive.

So there’s every reason in the world for a buyer to purchase a home right now, but there just aren’t enough of them available.

Weekly housing frenzy is tough to navigate

The feeding frenzy of buyers and lack of inventory are creating a repetitive situation each weekend in many neighborhoods: new listings come on the market near the end of the week, so buyers and their REALTORS® scramble to see them and even pre-inspect before the weekend is over.

These multiple offers are reviewed on Monday or Tuesday at a pre-defined time set by the sellers. Buyers write offers at or above the list price, waive contingencies, and do every creative thing they can think of to stand out from the other buyers.

In the end, though, every one of them loses except one single buyer. The scorned would-be buyers and their REALTORS® return to their research, reset their emotional meters, and plan for the next weekend of showings.

The cyclical nature of this process can be challenging for consumers and pros alike. A ready, willing, and pre-qualified home buyer should just be able to buy a nice home in a good neighborhood. In a perfect world, buying a home shouldn’t be a juggling act.

An advantage for buyers

The reality of the current marketplace, though, requires buyers to lean on every potential advantage they may have. While it’s not appropriate in some situations, the strategy of writing simultaneous offers on multiple homes can bring a buyer a bit of leverage in these markets.

If a home buyer is viewing multiple homes in a neighborhood with fairly homogenous sizes and styles, increasing their odds by writing simultaneous offers on multiple properties may be that little bit of an edge getting a buyer into a home and out of the seller’s market hamster wheel.

Some real estate agents will bristle at the thought of this practice, but as long as it’s done with integrity and honesty, it can be an ethical method of increasing a buyer’s likelihood of “winning”. Sellers, in this market, are holding all of the power and squeezing it for all it’s worth. They need not be sympathetic to a buyer who wants to write an offer the first day on the market.

Owners make everyone wait, lining the buyers up like cattle to write their offers on the same day, maximizing the competitive atmosphere and encouraging a bidding war. Leveraging buyers against one another is simply an effective and time-tested strategy to maximize the sale price.

So, why would a well-qualified buyer not use their own leverage? If there were just two or three similar homes coming on the market that week, why not write simultaneous offers on multiple homes Saturday morning and tell the sellers you’re doing so?

As long as the buyer is truly committed to buying any one of those homes no matter which seller responds first, giving each of the sellers 24 hours and the notice you have other outstanding offers may create a slight sense of urgency on the part of the sellers. Not every single home receives multiple offers. A bird in hand, in the form of a well-qualified buyer who obviously has options, might just be the thing motivating a seller to sign an offer early … or to select the buyer playing “hard to get”.

Always a risk

This strategy, of course, has some risk built in. The buyers might turn off the sellers, making them think they are not truly committed to purchasing the home. A less provocative approach might be to simply write simultaneous offers on multiple homes without the timeline restrictions. If all of the homes involved will truly be satisfactory to the buyers, when the first seller accepts an offer to purchase, the buyers can simply rescind their offers on the other homes.

In the end, there’s no real harm done to the other sellers who’ll probably have more offers to review, save for a little extra potential paperwork review. That’s something buyers in these markets who’ve been doing the purchase offer carousel won’t feel particularly bad about causing. Having multiple offers out on equally-desirable homes merely increases the buyer’s odds of buying a home this weekend instead of three weeks down the road.

Writing simultaneous offers on multiple homes requires a lot of research, forethought, and quick action. Buyers must be able to remove emotion from their decision process and verify that these various homes would all satisfy their needs.

They, and their REALTORS®, need to be prepared to act quickly on offers to fulfill their contractual obligations as well as to not unduly burden the sellers of homes which they won’t be purchasing. It’s a strategy that is not always appropriate, and the plan doesn’t always work. However, it is just one more valuable tool to have at your disposal as a home buyer in a seller’s market.

3 Concerns About Pocket Listings Every Home Seller Should Consider

This article was originally published on Realtor.com:

Home sellers today are often approached with a variety of marketing strategies from potential listing agents. They offer a wide range of options to get exposure for the homeowner’s property.

The local MLS has listings that feed out to every brokerage and agent website in your area, and even nationwide in many cases. Since nine out of ten buyers are searching online, it’s the MLS that is real estate agents’ #1 tool for generating buyer exposure for their listings.

There are also some agents who propose different kinds of listings, known as “pocket listings”. The strategy for pocket listings is to limit the exposure of the home to just a small pool of potential buyers and to not publish it on the local MLS for all buyers to see.

Homeowners considered pocket listings for many reasons in the past, including privacy and simplicity. With today’s cutting-edge MLS technologies, however, the reasons for limiting a home’s exposure with pocket listings have almost all gone away.

Concern #1: “I need privacy. I don’t want everyone to know I’m trying to sell my home, know my address, or see pictures of the inside of my home.”

MLS listings today have the ability to cover for all of these concerns. A homeowner can list their property with an agent on the MLS, but restrict the listing information so as to totally preserve their privacy. A photo of the view away from the home could be the only image in the listing. The address can be undisclosed, as well as the owner’s name.

The listing could simply state a five-bedroom home in a certain neighborhood is available for sale at a particular price. All inquiries would go through the listing agent, who could screen the buyers and only allow showings to serious, pre-qualified candidates.

Concern #2: “I don’t want lots of people walking through my house every day. I’ll tell my agent a price, and if they can find the buyer, we won’t need to put it on the market.”

First, a homeowner can always limit showings. They can be as limited as one hour/week. The rest of the week no one is allowed through the home. Although this is somewhat limiting for potential buyers, it still allows the entire buying public to see the home is on the market and to schedule an appointment.

Second, and more importantly, homeowners often underestimate the value of their homes. Selling your home at a pre-defined price, without testing the market to see if there are higher bidders, can leave a lot of money on the table. With the number of bidding wars and homes selling above list price we’ve seen recently, homeowners risk a significant loss of profit when selling their home without exposing it to the full market of buyers.

Concern #3: “If my house doesn’t sell right now, I don’t want there to be a record of it on the MLS being an unsellable property.”

This is a reasonable concern for a homeowner but also one weakening their ability to attain their true goals. If a homeowner truly wants to sell their home, the most likely place for success is on the MLS where the most potential buyers are shopping online. We see homes every month sitting on the market until one perfect buyer falls in love.

Some homes only get one offer after months on the open market. If they had been exposed only to a small number of buyers in a pocket listing, the chance they would have been sold would be significantly lower. By trying to limit negative exposure, the home seller in this case would also be limiting the most important factor, positive exposure.

If you’re not a celebrity or in a very unique situation, pocket listings are rarely the best choice.

Realtors and real estate organizations nationwide agree getting the maximum exposure for your home from an MLS listing is essential to achieving top dollar on your sale. While there are some rare situations where home sellers are more concerned about keeping their sale quiet than what price they can get for their home, the vast majority of homeowners are best served by an MLS-listed property.

Whether it’s a simple listing with little information, or a fully-marketed listing with 25 photos, the exposure to potential home buyers with an MLS listing is invaluable to the process of getting a home seller the greatest return on their investment possible.

Beware the School District Map, It Could Cost You in Real Estate

This article was originally published on Realtor.com:

A big part of many home buyers’ real estate search includes researching school districts. As we’ve highlighted previously on realtor.com®, school districts affect home prices in a clear and measurable way. Buying the right home, near the right school, can significantly affect your home’s value, as well as the education of your children.

What’s missing in a lot of consumers’ research, however, is a guide for finding that information. A plethora of sources online purport to be the primary source for school information, but very few will actually tell you whether an individual home is in a particular district. Even more disturbing, some of them will attempt to give you that information without being particularly accurate in their results.

School districts’ maps are confusing. The boundary lines can look like a set of streams running back and forth through a city. They have nooks and crannies that seem geographically implausible, but to disregard them would be foolish. Some real estate-related sites attempt to match the nearest school to the nearest house, but this is a dangerous way to make a determination. Relying on the proximity of a house to a neighborhood school is one of the most common mistakes made by homebuyers.

To add more uncertainty, school district boundaries can change every year. There are some websites that attempt to integrate school boundary maps into their logic, which is a good start, but they can’t be up to date with every district in every city, nationwide, on a year-round basis. Even local homeowners with children in the schools, the people closest to the situation, can be caught off-guard when a district map changes. When people say “All real estate is local,” they’re particularly correct when it comes to school districts.

What, then, is your best method of verifying a home’s designated public schools? Try the actual real estate listing first. This isn’t a foolproof solution, but real estate agents have almost always asked the homeowner in which district their home resides. The homeowner is usually one of the most-informed people you can rely upon. Most of the time, when a real estate listing indicates a school or school district, the homeowner and their REALTOR® have verified this information, as it could create future liability if they disclosed it incorrectly.

Don’t let that stop you from going straight to the source, however. When you’re serious about a particular property, call that school district directly and verify the home is indeed part of their territory. Make sure that the individual schools you want are specifically designated for that home. Don’t rely on a map that could be outdated.

Take it even further and ask the district staff if there are any upcoming plans for redistricting, discussions of future redistricting, or policies in which students from some areas are bused to other districts. If there are, there will be notes from previous meetings you will want to review, and future events you may want to attend. You could ask your REALTOR® to do some of this research for you as well, but make sure you personally verify it to your own satisfaction.

The last home I purchased was in a tiny, outlying appendage of a school district boundary map. While scores aren’t the only way to judge a school’s value, my home’s designated elementary school was rated as a “10.” Just over a block away, the designated school was rated a “5.” The value of the real estate I was purchasing was significantly greater because of its connection to a school community that placed a lot of emphasis on education.

School districts matter. Whether or not you have school-age children, the schools that are accessible based on your home’s location give significant weight to the home’s value. “Buyer beware” has always been a pragmatic mindset for house hunters, and it applies particularly to investigating school districts. Don’t trust the first source you bump into. Your investment is significant, and the financial consequences require that you go directly to the source for school district information. In doing so, you, and your REALTOR®, will feel more confident and secure about your decision to buy.

Either Your Brand Is Personal or It’s not Your Brand at All

This article was originally published on Realtor.com:

In the real estate world, we talk a lot about the branding that comes from our organizations. We call ourselves Coldwell Banker or RE/MAX agents because of the brokerages we’ve associated ourselves with. We are Realtors when we affiliate with the NAR, and we have all kinds of designations like Women’s Council of Realtors, Accredited Buyer’s Representatives, 1% Club, Diamond Society, and so on.

These are all great bylines. They show consumers that you are a professional, worthy of being admitted to — or being a graduate of — a reputable organization. They support the idea that you have a solid base of credibility in your industry.

However, these credentials don’t distinguish you from the masses of others with the same designations. They are not your personal brand.

Personal Branding Requires Differentiation
Personal branding defines you, your company or your team as unique from your industry associates. The goal of branding is to set you apart from the pack.

To differentiate successfully, you must know the imminent needs of a consumer and your personal ability to satisfy one or more of those needs in a superior way. Not every agent can be the top salesperson in town, but each can find their own branding niche:  dog-friendly agent, houseboat sales team, modern design brokerage, stone-cold investment-negotiation expert. Then find visual guidelines and a business process to inform your specific customers that you are the right professional for their needs.

Start With Simplicity
If you decided in the last 10 seconds that you are the Condo Cat Lady in Cleveland, don’t rush out and paint your car like a Siamese just yet. A good personal brand should start with considering how your branding niche will be perceived by the public. Are you flashy, edgy, comforting or sophisticated? Does that fit the consumer base you’re looking for?

Once you’ve decided on the feel of your brand, you can move on to logos, fonts, colors and graphics that fit the theme and relate it to your customers. Keep it simple. It’s easy to add complexity later, but it’s hard to fix what you’ve previously cluttered. In most cases, consumers will recognize a brand more often when it is simple and clear.

Demand Uniformity
After developing your branding strategy, make sure it is carried out across all platforms. The theme and emotion of your personal brand should inform every piece of marketing: flyers, yard signs, business cards, social media profiles and so on. When your customer pulls up your website after seeing it on your business card, their eyes should easily flow between the two. When they drive by your listing later and see the sign, you’ll know you’ve done your job if they recognize the sign before they can even read the words.

Work the Way You Brand
Wouldn’t it be disappointing to hire a buttoned-down, upscale agent based on his website, only to have him show up on a motorcycle and ask you to get on back? Would you want to visit rural equestrian properties with a high-heeled agent in a two-seater? If you’ve defined your brand correctly, it should conform to the person you are in your work sphere. Clients want truth in advertising and feel comfortable when the professional they meet is the same one they saw advertised.

Follow the Examples of Others
Many real estate companies have used unique personal branding strategies, so learn from their example as you’re developing your brand.

For instance, take one glance at Christophe Choo‘s branding in Beverly Hills, and you know that he sells luxury real estate. The opulence of the background image, the bravado of the video and the sophisticated logo give the viewer an immediate upscale feel.

 

christophe-choo

 

On a totally different stage, Wild West Properties in Colorado promotes a feeling of comfort, space and country living. Robert A. Joslen looks like the kind of guy you’d trust to sell you a mountain home, and the branding surrounding him fits his style perfectly.

 

wild-west-co-homes

 

Branding can also focus on a business’s or team’s style or abilities as opposed to an individual’s. Our Seattle real estate team’s success has come from focusing on what buyers have told us they want for the past 15 years: the easiest-to-use, most complete home-search database in Seattle. We’ve found that first-time buyers and relocation buyers from all over the world are looking for a trusted source of homes first, and an agent second. Our marketing features our team, but much more subtly than it promotes our primary focus: home search.

 

seattle-home

 

We focus on telling the home buyer: This is the only company you need. We’re experienced and successful and can fulfill your needs. Call us when you’re ready. With such a laid-back approach, we have to be ceaselessly consistent with our branding across marketing, websites, mobile apps and other outlets to keep reminding our customers that SeattleHome.com is the same reliable company serving their needs.

Define Your Assets, Depict Them, Propagate Them, and Work Within Them
The steps in personal branding are actually fairly simple. They just require a professional to take a healthy chunk of time away from the usual work week and focus solely on the direction of the company.

When your unique skills match a relevant consumer need, all that remains is to design an image that transfers that message to your customers, and spread it throughout your marketing and business practices. There is plenty of legwork involved, but the long-term consumer recognition and repeat business make it worthwhile.

The Right School District: How Much Do Schools Affect Real Estate Prices?

This article was originally published on Realtor.com:

When people buy a home, a plethora of factors influence their decision. The look of the home, as well as its size, layout, age, and proximity to amenities are all important to varying degrees, depending on the individual buyer.

The local school district is one factor with significant influence. We’ve always known that good schools attract families with school-age children, but recent statistics add concrete numbers and surprising trends to the storyline.

Extreme School Buyers
When looking at trends, it’s often entertaining to find the extremes. The best school districts near Seattle have recently seen a huge influx of buyers from China, paying premium cash prices for homes that many are purchasing for their future grandchildren. Neighborhoods on the east side are seeing large numbers of buyers who merely want to know where the best schools are, and are then buying remotely, without viewing the houses in person. These buyers greatly value education.

The domestic home-buying population also clearly values the right school. Realtor.com’s recent survey of nearly 1,000 prospective home buyers showed that 91 percent said school boundaries were important in their search.

Dedication to Education
I personally know the importance of school boundaries. When our first child reached school age, my wife and I went house hunting with school-boundary maps in hand. If a home was one block outside our favorite elementary school’s boundaries, we didn’t even go in. The look of the home, the neighborhood, and how it was laid out were all factors that could disqualify it from our list, but the primary hurdle for every home was that school boundary line.

Consumers are willing to sacrifice certain things to live in the right school district. Some of Realtor.com’s survey results were surprising: One out of five buyers would give up a bedroom or a garage for a better school. One out of three would buy a smaller home. A full 51 percent would give up shopping for schools (maybe just the male half of the respondents).

Buyers are also willing to put their money where their mouths are. One out of five home buyers said they would pay 6 to 10 percent above their budget for the right school. One out of 10 would double that to 20 percent. Considering that number could be $100,000 in a lot of markets, it makes one wonder: How much investment in a school district is appropriate?

Do Schools Influence Home Prices or Vice Versa?
Conversations about schools and their effect on a home’s value are often of the “chicken or the egg” variety. Homes in the best school districts, on average, sell for higher prices than similar homes in less-popular school districts. A simple analysis might say that good schools are wholly responsible for this added value.

At the same time, on average, more affluent home owners live in more sought-after school districts. Statistics often show that for large sample sizes, the more affluence there is in a community, the higher test scores will be in that same community. Test scores are just one measure of “good schools,” but they’re a highly quoted measure. There can be a self-reinforcing mechanism here that might overemphasize the effect of the school itself on the prices of those homes. One might even hypothesize that the high home prices make the schools better.

Consumer Demand Shows Clear Connection
In the end, though, it’s hard to deny that there is strong consumer demand for good schools. Demand drives prices higher for a limited product like real estate. We probably can’t pinpoint exactly how much that demand has on home prices, because the market is so complex and every home buyer’s decision weighs so many different factors.

Clearly, though, consumer demand is large enough that we can conclude that good schools do increase home values in some measure. Half of the home-buying population is willing to pay more than their intended budget to get into the right school district, and more than half would give up other amenities. Making a decision on buying a home should definitely include an analysis of the school district, even for buyers who don’t intend to send children to those schools. Good schools provide stability for a community, and that’s good for the property values of everyone who lives nearby.

What Is an Escalation Clause and When Should You Use One?

This article was originally published on Realtor.com:

As real estate markets across the country heat up, competitive buying situations and bidding wars are becoming the norm. In many cities, the majority of new listings are receiving multiple offers. Real estate inventory continues to be extremely low, and growing buyer demand seems to be keeping pace with new homes coming on the market.

Home buyers in competitive situations are looking for any advantage that might win them their dream home over a competitor’s offer. Writing personalized home-buyer letters can create an emotional connection with sellers. Showing a clear picture of financial strength, whether through a strong pre-approval letter or proof of cash funding, can strengthen a buyer’s image.

Often, though, it all comes down to the final price. What a buyer is willing to pay for a home, versus a competing buyer’s offer, will be the deciding factor for the vast majority of sellers. When you’re deciding on what price to offer for a home, the situation may call for a single price or, in some cases, an escalation clause.

What Is an Escalation Clause?

An escalation clause is a real estate contract, sometimes called an escalator, that lets a home buyer say “I will pay x price for this home, but if the seller receives another offer that’s higher than mine, I’m willing to increase my offer to y price.”  In theory, an escalation clause is fairly simple. In practice, there are a lot of details involved.

How Does an Escalation Clause Work?

While escalation clauses vary significantly, the general escalation addendum has a few basic components:

  • What is the original offer of purchase price?
  • How much will that price be escalated above any other competitive bid?
  • What is the maximum amount that the purchase price can reach in case of multiple offers?

For example, buyer Brown offers $100,000 for a home. Her Realtor adds an escalation clause that, in the case of a higher competing offer, will increase Brown’s offer in increments of $2,000 above the competing offer. Her escalation clause goes up to a maximum of $110,000.

If no other offers are submitted, Brown’s offer remains at $100,000. If buyer Green offers the seller $103,000, then Brown’s offer would automatically escalate to $2,000 above that, bringing Brown’s offer to $105,000. If buyer Orange offers $111,000 for the home, then Brown’s maximum of $110,000 will be eclipsed, and Orange will have the top offer.

Will the Seller Accept an Escalation Clause?

Some home sellers simply state that they will not accept an offer with an escalation clause. They would prefer that every buyer submits exactly what they’re willing to pay. Sellers sometimes prefer this method because it motivates buyers to outbid one another on the first try. It also streamlines the paperwork and the decision-making process.

Will There Definitely Be Multiple Offers?

Escalation clauses should only be used when the buyer is fairly confident that there will be multiple offers, or when the buyer expects to pay an escalated price. If a buyer submits an offer with an escalation clause, they’re laying all their cards on the table: The seller knows immediately how far the buyer will go to secure the home.

If that offer ends up being the only offer submitted, it technically remains at its original price. A Realtor representing the seller will know, however, to counteroffer to the buyer at a higher, escalated price, since the buyer is clearly willing to pay more. While there’s no guarantee that the buyer will agree to the higher price, it is likely that they will. A buyer gives up a lot of negotiating power and potentially leaves money on the table when using an escalation clause that goes unmet by a competitor.

Has the Seller’s Agent Clearly Stated a One-Day Review or Multiple Rounds of Offers?

In hot markets, there’s a wide variety of offer-review processes. Some state that the property is going on the market on Friday, and all offers will be reviewed the following Thursday. The seller and their Realtor will make a final decision that day. This situation can be ideal for the escalation clause, when a buyer knows it’s an all-or-nothing offer.

Other sellers take a back-and-forth approach. They may collect offers from buyers for one week, and then respond to a handful of the best offers by saying “Send us your highest and best offer.”  This technique is particularly disliked by many consumers and professionals for its lack of clarity, but it’s important to know that it exists.

Before writing an offer, a buyer’s Realtor can inquire to feel out the details and make sure the buyer is prepared for the situation. Writing an escalation clause on the initial offer in a multistage situation could put the buyer in a weak position during the second round. It’s perfectly legal for a seller’s Realtor, with the seller’s permission, to reveal to all potential buyers what the top initial offer is and to ask everyone to beat it. In this case, the escalation clause would flesh out that buyer’s maximum, and they would lose a competitive edge.

Bid With Careful Confidence and Know That Each Situation Is Unique

If you’re considering an escalation clause, your Realtor is probably knee-deep in researching the circumstances around the seller’s process of reviewing offers. The Realtor’s knowledge of normal practices and probable outcomes in your market will make your offer much more likely to succeed.

Escalation clauses can cause a lot of stress for home buyers, but when they’re boiled down to the basics, they’re fairly straightforward. Remember to be realistic, to be comfortable with how much you’re willing to offer, and to confidently go after a home at that price. Buyers shouldn’t be tempted to escalate their purchase price above what they are comfortable paying. At the same time, they should realize that inventory and interest rates are low, and aggressively pursuing a good home at a good price is necessary to winning in a competitive market. Potential buyers who are only looking to get a steal often end up not being buyers at all.

“Buy Now Or Be Priced Out Forever!” The Real Estate Bubble Pitch Resurfaces With A Twist

This article was originally published on Realtor.com:

Most consumers can quickly recite a few of the ubiquitous pitches used in the real estate industry.

“It’s a great time to buy!”
“Now is the time to sell!”
“This is the chance of a lifetime!”

The real estate business is about sales, and although these lines may lack creativity or specificity, they are all true at certain points in time. Even if the generic nature of the pitch seems to show a lack of effort, most of these statements are viewed as a forgivable part of a sales-based business.

One sales pitch that we heard during the last real estate bubble, however, seems to draw more pointed ire than others. As home prices rocketed upward in the early 2000s, some real estate industry sales pitches shifted to drawing out a consumer’s fears as opposed to aspirations:

“Buy now or be priced out forever!”

This was the cry of many companies who projected never-ending home appreciation. The price of real estate was said to be outpacing gains in income and, since it would always continue at that pace, only those who owned a home and shared in those equity gains would be able to keep up with the market.

Of course, we all know what happened next. In the past 5 to 7 years, before our current recovery, we saw markets across the country take 20 to 50 percent hits in real estate values. Nearly every home became an affordable home. Many folks who bought a home out of fear were rightly upset when they ended up underwater by six figures.

No matter the cause or the blame for the downturn, the clear lesson to many was to make a real estate purchase decision based on fact, not on emotion. Of course that’s easier said than done when buying your first home for your family. Still, there are poignant reminders every day that refocus consumers on making rational buying decisions–short sales and foreclosures in our local markets.

The Fear Pitch Makes a Comeback

Interestingly, the much-maligned sales pitch is returning to our newly-recovering markets today. Real estate values are still down from their peak, and most analysts don’t see overvaluations at current prices. The new “priced out forever” pitch focuses much more on consumers’ buying power.

Historical data on home prices made it clear that we were heading into a bubble the last time around. Many just chose to ignore it. Home prices were on an unprecedented rise, and it was far out of line with historical peaks and valleys of the real estate market.

Home buyers today, wary of a repeated downturn should be focused on two things:

1. Are home prices likely to sustain their current values or appreciate?
2. Can I afford a home in this community long-term?

Today’s market looks much different than it did during the bubble. While we’ve seen an increase in prices during the recent recovery, the overall recovery is modest. Some areas are seeing greater gains than others, but these are often the cities that took the largest hits during the downturn. In general, our current market seems to be in a relatively healthy growth pattern. Adjusted for inflation, there appears to be slow, sustainable appreciation across the country.

Another indicator of the reliability of home prices is the relative value of buying vs. renting. Homes have a basic value as a place to live. Buying a home certainly has many additional benefits that consumers value which don’t apply to renting. However, there is a limit to that premium, and when we see renting becoming far cheaper than buying, we often see a downturn on the way.

It’s fairly clear that our current market points to well-priced, if not underpriced, real estate values. When buying becomes less expensive than renting in terms of monthly costs, it’s usually a sign that markets are undervalued and are ripe for investment.

Of course, interest rates have much to do with this affordability. Price decreases during the downturn certainly helped affordability somewhat. The dramatic drop in interest rates, however, has created more affordability than any other factor.

“Buy Now Or Lose Your Buying Power Forever?”

This is where the rubber of the new fear pitch meets the road. For cash buyers, these affordability concerns are not an issue. For home buyers who are financing the majority of their purchase, however, today’s ultra-low interest rates have created a yin and yang effect. Mortgages are cheaper than ever, but every increase of 0.25% has a far greater drag on their buying power than it ever has before.

A quick explanation of buying power: when mortgage rates are floating around 8% (the historical average), a market increase of 1 percent in rate would increase a buyer’s mortgage payment by 12.5 percent. That’s 12.5 percent more cost for the same loan, a significant strain on buying power, but not overwhelming. At today’s rates of 4 percent, a market increase of 1% would increase the mortgage payment by 25 percent, doubling the reduction in buying power. This is a major shift in what the buyer can afford.

Remember that 8% interest rates on 30-year mortgages are the norm. We’ve gotten used to cheap financing, but history points to a very strong likelihood that rates will turn upward soon. As a home buyer’s buying power is reduced by 10-25 percent annually, and home prices simultaneously appreciate, that buyer’s ability to purchase is weakened quickly and significantly.

Emotional Pitches Aside, Data Points To Buying Now

So, for the home buyer who is financing a purchase, could you actually be “priced out forever”? That probably depends on your local community’s real estate and job markets. There are certainly areas where incomes adjust to meet housing prices, and vice versa. At the same time, there are always communities that become “the next big thing” and rise in value far faster than their nearby surroundings.

Without a doubt, there will be consumers who don’t buy a home today in a certain community and realize years from now that they missed out. Current interest rates offer an opportunity to finance a home in a way that, in all likelihood, will not be available in the near future.

Rather than being priced out forever, we’ll probably just see many consumers who missed the opportunity of a lifetime. As overused as that statement may be, historical interest rate data points to it being highly likely. Buyers who can lock in long-term financing at today’s prices and today’s interest rates will be sitting on much more lucrative investments than if they were to wait until after rates rise.

Most home buyers won’t be priced out forever if they don’t buy in the current market. That being said, a few years from now there will be a large portion of them looking at the current cost of financing and kicking themselves for not buying earlier.

Finding Foreclosures Online: The Truth About Princes, Frogs, and Phonies

This article was originally published on Realtor.com:

There’s an old adage that says women searching for their true love may have to kiss a few frogs before finding their prince. If those women are also searching online for a foreclosure today, they might just be kissing a whole lot of frogs, or something worse altogether. Someone should tell them that there is a frog-free market full of princes right at their fingertips.

The landscape of “foreclosures” in online real estate search is unnecessarily confusing. Real estate websites use a vast array of terms to draw potential buyers in to their claws: Foreclosures, pre-foreclosures, auctions, bank-owned, REO, ORE, defaults, and sheriff’s sales, just to name a few. While these terms mean many different things, they’re often used to draw buyer traffic, but not necessarily educate the consumer about their meaning.

So, for that frustrated frog-kisser, here is a straightforward guide to what foreclosures really are, and where you can find one online that you might actually be able to buy:

Princes:  Bank-Owned Homes

The vast majority of home buyers searching for a foreclosure are actually looking for a bank-owned home. These properties are sometimes called REO (Real Estate Owned) or ORE, and they are homes that have already gone through the entire foreclosure process. They are now owned by a lender, and that lender wants to sell them.

These homes will usually, at some point, be listed by a broker on the local MLS. A buyer can get a mortgage to finance the home. Most of the regular home buying transaction applies to buying a bank-owned home. Buyer protections, including most seller disclosures and contingencies, are available to a buyer who wants to purchase a bank-owned home.

The best part: these homes are easy to find. Consumers don’t have to scour county records or subscribe to foreclosure-tracking services. They’re listed on sites like Realtor.com, and your local Realtor’s website, directly through the MLS.

As far as minimizing risk to the buyer, allowing for mortgage financing, confidence in the sales process, and ease of finding the foreclosure inventory, bank-owned homes are by far the preferred foreclosures of most consumers. There will still certainly be buyers competing for bank-owned homes, but they’re sold in a much more transparent playing field than other types of foreclosures.

In short, bank-owned homes on the MLS are princes–ready, qualified, and able.

Frogs:  Foreclosure Auctions

Buying a foreclosure at an auction is a strikingly different process. In most cases, all-cash purchases are necessary. This rules out a lot of buyers.

More importantly, there are much higher risks to the buyer in an auction, or sheriff’s sale, scenario. The title or lienholder may selling the home, but the home could still have other outstanding associated liens that the buyer may not be aware of. Buying a home at auction requires detailed research of a property’s title history to ensure there are no other outstanding debts that the buyer might automatically take on if he/she purchases the home.

Furthermore, homes sold at auction can often not be entered by the buyer until after the closing the transaction. Since the current owners retain property rights until the sale takes place, the tenants can not only forbid buyer tours, but also trash the home before leaving. Auction buyers often have to pay the former owners or tenants a “cash for keys” bribe to get them to move out of the home peacefully after the sale has concluded.

There are definitely some diamonds in the rough that can net a foreclosure auction buyer a princely profit. There are a whole lot of plain old frogs in the pond, too.

Pre-Foreclosures:  Phonies

 Imagine this scenario for a moment: A hospital administrator goes to a headhunter and says, “I need to hire a new doctor. Find me one.” The headhunter comes back to the administrator with 10 college freshmen and states, “These are all pre-PhDs. They’ll be doctors soon.”

This, in a nutshell, illustrates the validity of the term “pre-foreclosure.” The term encompasses a wide range of properties in a vast number of situations, and attempts to market them as homes for sale. They are useless to most consumers.

Pre-foreclosures are simply homes that, at some point, had owners who missed mortgage payments and received some sort of default letter from their lenders.  They very well may be:

  • Homes that are now back on track, current with mortgage payments
  • Properties with a loan modification in the works
  • Houses that will be transferred to a family member
  • Homes that will actually go through foreclosure–1 to 3 years from now

The reality of pre-foreclosures is that there are only a small fraction of them that will ever be available to the public who are viewing them online. These homes are not “for sale”, and most never will be foreclosure sales. Even the few that do go through the foreclosure process will often not be made available at auction until a couple of years down the road.  This is in no way useful to a home buyer who is trying to purchase a foreclosure now.

So, why would a website advertise these kinds of “pre-foreclosure” listings? Simply put, to sell subscriptions to foreclosure data companies, and more ad space to their partners. These listings generate traffic, generate home buyer leads, and drive revenue. The two things they don’t generate: foreclosure purchases and education for the buyers.

It’s cynical. It’s a disservice to consumers. Wasting hours searching through these phony listings only to find out they were never even for sale might make you feel like you kissed something far worse than a frog.

Trust The Sources That Align Their Goals With Yours

You want to buy a foreclosure. You want clear options, and you want them quickly. Focus your foreclosure search on a real estate site that displays the integrity to only list properties that are actually worth your time. Whether that is Realtor.com on the national level, or your local Realtor’s MLS-fed site in your city, you’ll find only bank-owned foreclosures that are available now.

Now that you understand how to discern the princes from the frogs and the phonies, go find your foreclosure and pucker up.

Top 10 Tips: How To Write A Home Buyer’s Offer Letter To A Seller

This article was originally published on Realtor.com:

Home buyers trying to stand out from a crowd of offers in today’s competitive market are often told to write a personal letter to accompany their offer. Buyers who are financing a home, or have a smaller down payment, often have trouble competing with all-cash buyers. Appealing to the seller as a person, as opposed to a contract, can sometimes give a buyer an emotional edge.

What isn’t often explained to buyers is how exactly to write that letter. The best ideas are often squandered by poor execution. Here is a quick guide to framing the home buyer letter and leveraging your best attributes by thinking from the seller’s point of view:

1) Flatter First
This is an emotional pitch. You’re attempting to tell the seller, “I’m such a good person that you should ignore the numbers.” They need to like you. Tell the seller how great their taste in color is, how much you’d love to have their lifestyle, and what an amazing neon bottle cap exhibit they have over the fireplace. Lay it on thick, but keep it sincere. You’re selling, but you don’t want them to feel like they’re being sold a used car.

2) Get To The Point
You may have 10 great ideas that you’d like to tell the seller.  They will only remember two. The seller may have 10 other letters to read. If you mix in your best points with your lesser points, they may all just become a jumble.

Pick two or three reasons why you will be the best buyer for this home, and make them distinctly recognizable. The more streamlined you make your message, the more memorable it will be.

3) Paint A Picture
People remember what they’ve read at a far higher rate when they can see a picture of it in their head. “I really love this neighborhood because I’ve lived here and gone to school here,” doesn’t resonate.

On the other hand, “I spend half of my time walking the cobblestone streets around this block, dropping my daughter off at Gilman School and volunteering at Schnitzelfest every summer,” will trigger a visual memory for a seller.  Think “I’d be so happy in the summer to be cooking Neapolitan pizza for friends and neighbors in your outdoor wood-fired oven”.

4)  Don’t Remodel The House
Planning on adding a second story or changing the landscaping? Don’t mention it. You might be correct that the seller’s sewing room would make a great workout room for you, but this isn’t the time.

If you’re going to expand to create more bedrooms, you might be changing the seller’s favorite eyebrow windows in the roofline. They may have buried their dog under the tree you’re planning to pave over.  he sellers may have awful taste, but homeowners are very protective of their homes.

5) Show Stability
Present yourself as a stable buyer who will have no problem closing the purchase.  Whether that is a reference to your lack of contingencies, stellar employment record, or commitment to moving in as soon as the sellers are comfortable, ease the sellers’ fears of a shaky transaction.

6)  Show Humility
At the same time, be humble and ask for the sellers’ blessing on your offer. “We would be so honored to live in your home,” goes much further than “We are confident that you will accept our generous offer.” The ball is in their court, and your letter should acknowledge that.

7)  Don’t Whine
The emotion of your letter must be upbeat and high. It needs to make the seller feel good.  Everyone wants to play with a winner.

The seller doesn’t care how many other homes you’ve lost out on. They don’t care that your rent just doubled.  They don’t want to know about your wife’s sad condition that requires you to have a home like this. They just feel uncomfortable now.  In fact, they’re already tossing your offer in the round file as they finish this paragraph.

8) Close With Clarity
Remember the five-point paragraphs and five-paragraph themes you had to write in school? While those formulas are too long and rigid for this letter, their closing advice should be noted. Your excitement, motivation, and ability should be reiterated at the end of your letter in a quick recap.

Remember that the sellers could be reading a few letters. Make sure that the closing of your letter reminds them of your best qualities and reinforces them.

9)  Sign with Appreciation
The feeling your sellers will leave with can live or die on the signature line:  “Sincerely”, “Cordially”, “Best Regards”, and “Yours Truly” do not apply. This is not a business correspondence of equals. Thank the sellers for spending their valuable evening reading the ode that you wrote about your unworthy self.

“Thank you so much for your time,”  “Thank you for the opportunity,” “Your consideration is greatly appreciated,” or even “We are honored to have the opportunity,” will leave the seller understanding that you value their time and are grateful for it.

10) Spell Check.  Grammar Check.  Buddy Check.  Do It Again.
As the recovering son of a former Catholic school English teacher, there is a dark secret I’d like to let you in on. We’re prejudiced. We look down on people who aren’t like us. There is a heinous belief ingrained in us from birth that says people who misspell and use incorrect grammar are lesser beings and not worthy of our respect.

Truthfully, though, there is an unbelievable amount of weight that some sellers will put on the preciseness of the letter. Right or wrong, the buyer’s personality will be judged from their attention to detail, ability to follow-through, and level of care in the letter. Buyer reliability is often gleaned from how well the rules of grammar are followed. If grammar isn’t your thing, find someone whose thing it is.  You never know:  the house you want to buy just might belong to my mother.

Write The Letter, Check It Twice, and Send It Off
There are many tactics being used by home buyers to stand out from the crowd.  While not all sellers will read them, personalized letters are the most-accepted and popular form of unique buyer strategies available. Don’t rush the letter. Take the time to write it correctly. It just might be the most valuable single page of text you ever write.

Why Do Realtors Love Open Houses So Much?

This article was originally published on Realtor.com:

Super Bowl Sunday–The Fourth of July–Christmas Day–Have you ever been out on one of these famous American holidays, and driven by an “Open House” sign? If so, you probably thought, “Who would be crazy enough to hold an open house today?”

Realtors seem to have an almost-unhealthy addiction to holding open houses at their listings, and clients are often surprised at the attraction. There are a wide range of opinions on the efficacy of open houses producing home sales.  There is certainly evidence that open houses bring in potential buyers that might not have seen other methods of advertising, but you can also find consumers and professionals who will point to statistics that say they’re only marginally successful. Where you will find agreement, however, is between Realtors who hold open houses and use them to succeed in business.

Realtors Need People To Be Successful

Realtors are in the business of making connections with people. Market knowledge, experience, and marketing ability are all important components of a Realtor’s ability to sell a home, but without making personal connections, there are no clients to provide these services to.

Real estate practitioners spend a great deal of time and money making connections with people in their communities. Postcards, flyers, drip campaigns, local events, and social media are all designed to get an introduction to a potential home buyer or seller. The holy grail, of course, is an in-person meeting. That’s where the open house provides the most bang for its buck.

The Characters At Your Open House

Home sellers often dismiss a large percentage of the attendees at their home’s open house. Neighbors, looky-loos, and interlopers are seen as a waste of time to the home seller. For a Realtor, though, these groups are defined sets of potential buyers, or highly-qualified candidates for their database of contacts. They just need to be examined in a different light.

Neighbors

People who live near a listing are probably the biggest potential listing source for an Realtor holding an open house. While they’re often not interested in buying this particular house, they may very well know someone who is. They’re also supremely interested in something else–how does their home measure up?

This conversation-starter can quickly turn a casual chat into a Realtor displaying his/her knowledge about the local market and discussing the neighbor’s home. From what this house is worth, to the comparison of the neighbor’s home, and a list of the recent sales nearby, a Realtor can quickly gauge a neighbor’s interest in potentially selling their home. Add in a level of comfort to the conversation (the neighbor knows that this home seller already trusts the Realtor), and the experience becomes more about providing the neighbor with knowledge and less of a sales pitch.

Looky-Loos

This is one of the most-widely heard nicknames for open house visitors. The range of people associated with this moniker goes from home shoppers who aren’t particularly motivated at the moment, to folks who have no intention of ever buying a home and just like to pass the time in open houses.

A seasoned Realtor knows very well, however, that a looky-loo’s motivation can change in a minute. A buyer who is on the fence can turn into a buyer writing an offer the same day when the right home comes along. The Realtor’s job is first-and-foremost to attempt to sell the home that they’re holding open. In reality, though, there will always be plenty of open house visitors who just don’t connect with this particular home.

The transition from “Buy this house!” to “What are you really looking for?” is a quick one, and well-recognized to anyone who has attended a fair number of open houses. A well-prepared Realtor, armed with a list of other potential homes for sale nearby, is in a position to display their local knowledge and have a new buyer client in the car 30 minutes after the open house ends. While the current seller’s home must take priority, a good Realtor will not miss the chance to take a disinterested buyer to a different property later.

Interlopers, i.e. “Oh, she’s just a friend of mine.”

Sometimes, just being a “friend of a friend” is the best connection a Realtor can make. Potential home buyers often tour open houses with friends, relatives, or acquaintances that happen to be sharing a weekend outing with them. From a Realtor’s perspective, these interlopers are not a hindrance or a nuisance at all.  They’re not only a new connection to make in their community, they’re also a trusted confidante of a qualified home buyer.

Birds of a feather flock together. When a young couple buyers their first home, you can be sure that a large number of their friends are at or near that same point in their lifetime. When a retiring couple is selling their large home and downsizing to a condo, it’s highly likely that their circle of acquaintances includes a fair number of people who are doing the same thing.

Realtors who make connections with friends of home buyers and sellers, are making their way into a circle of people with a high potential of being future clients.  Every open house visitor who is “just a friend”, or “just coming along with me before we head to dinner”, is a quality opportunity for a valuable connection or two.

Value To The Home Seller, Value To The Realtor

It should be fairly clear that a Realtor wouldn’t hold an open house on the Fourth of July just because it sounds like a good time.  There is definitely value for the home seller who knows that a holiday, or any weekend, has the potential of bringing in buyers who just don’t have time during the week to see the home.

At the same time, the value to a Realtor of making numerous connections, displaying his/her knowledge and experience, and potentially selling the home they’re holding open, combine to make an open house a rewarding experience.  So, the next time you see a Realtor waving to you from an open house while you’re heading to a Super Bowl shindig, you’ll no longer feel the need to stare at them like they’re totally crazy–maybe slightly crazy, but only in terms of making their clients and their business more successful.