Tag Archives: Real Estate Consumer

real estate consumer

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.


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.


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.

Making a Backup Offer on a Home: A Good or Bad Idea?

This article was originally published on Realtor.com:

Given the recent scarcity of homes available for sale to the buying public, there has been a sharp increase across the country in home buyer competition.  Low real estate inventory has been driving more multiple-offer situations and bidding wars on homes than we’ve seen in many years.

The Seattle area is a prime example, with 60 percent of real estate listings near the major job centers being sold in under 30 days.  There are just 1.39 months of housing inventory available, when 6 months is the standard for a healthy, balanced market.

For so many buyers, when they find their dream home today, the seller has just signed a contract with a different buyer.  Whether it’s the first home that the buyer has missed out on or the third, there can be a desperate feeling that says “This home is perfect for me, what can I do to save it?”

Backup Offers

One potential tactic that is becoming more popular is submitting a backup offer.  The home is already under contract with Buyer 1, but Buyer 2 submits a contract to the seller, and the seller can add a backup addendum.  When the seller signs the backup contract, it means that if Buyer 1 should cancel their contract for any reason, Buyer 2 is automatically under contract to buy the home.

Multiple backup offers are rare, but are possible as well.  The order that the seller signs these contracts would be the order in which they are entitled to buy the home.  Later offers would, of course, most often be at higher prices.  This would to entice the seller to sign a backup offer instead of putting the home back on the market if the first sale failed.

False Motives?

The problem with backup offers in a competitive buyer situation is that the backup offer actually increases the chances that Buyer 1 will close on the home.  Buyer 2 may feel better that they’re doing something constructive by signing a backup offer, but they’re really giving more incentive for Buyer 1 to expedite the sale.

Buyer 1 has plenty of potential reasons to back out of the contract.  They may find something they don’t like about the neighborhood.  An inspection could reveal structural issues.  A new home just down the street that Buyer 1 likes better might come on the market just a few days later.

When there are multiple backup offers in place, though, Buyer 1 takes on a protective stance.  They know that others want what they have, and they are more likely to forgive inspection issues and be more cooperative in seller negotiations.  If Buyer 2′s offer is at a higher price than Buyer 1′s, it creates even more of a sense to Buyer 1 that they’re getting a great deal.

If It Fails, Do You Really Want It?

There is always the possibility that Buyer 1 will not be able to finance the home, and the sale will revert to Buyer 2.  That’s fairly rare today with how zealously loan originators are scrutinizing loan pre-approvals, but it is a possibility.

Far more often, however, a sale fails because of an issue with the home.  Maybe the roof is falling apart.  The walls could be filled with mold.  The alley behind the home might be a favorite of the local drag-racing kids.  The next door neighbor might play his drum set every night at 3 a.m.

A buyer who is in a backup position automatically takes on a contract for the home when the first buyer opts out.  If a material defect on the property is the reason for Buyer 1 to cancel the sale, why would Buyer 2 want to be automatically under contract to buy this same property?

In General, Backup Offers Reduce Your Competitive Edge

Buyers submit backup offers in competitive situations.  Negotiations require buyers to gain any competitive advantage possible.  By submitting a backup offer, buyers often pigeonhole themselves into a subordinate position, and motivate their competition.

This doesn’t mean that buyers can’t do anything.  Have your Realtor let the listing agent know that you’re waiting in the wings with your buyer if anything goes wrong.  Stay on top of the transaction as it moves along, and if for any reason the sale fails, have your offer submitted immediately.

A buyer can still scoop up a failed sale in one day if their Realtor is on the ball and ready to submit the offer.  By being prepared, but not motivating the competition, home buyers put themselves in the strongest position possible.

Home Buyers With Foreclosures On Their Credit Get Back In The Game

This article was originally published on Realtor.com:

There’s an interesting phenomenon happening in the real estate buying cycle.

Now that most of the country is five to seven years out from its real estate peak, and most major cities are actually into the upswing of home prices, distressed homeowners of yesteryear are becoming the home buyers of today.

Rules for qualifying for a mortgage vary widely between lenders and loan programs, but one of the most-often used loans today is the FHA mortgage.

Today’s FHA mortgage requirements for foreclosures and bankruptcies (see your lender for exact details):

  • A foreclosure that was discharged three years ago
  • A bankruptcy discharged two years ago

The initial reaction by many to this situation is: Again?  We’ve certainly all seen enough shoddy lending and lax credit practices during the last boom-bust cycle and, on the face of it, this seems like an invitation to more.

However, the details of how these home buyers must qualify diverges widely from the way sub-prime home buyers were qualifying for loans in the past.  The new practices, while still generous to the buyer, create far greater protections for the lender and the American public who, in the long run, foot the bill for defaults.

Home buyers with foreclosures and bankruptcies on their records need to show a consistent history of pristine credit since the time of their foreclosure.

Additional FHA requirements (there are more, refer to a lender):

  • On-time bill payment on all credit accounts since the foreclosure/bankruptcy
  • A 640 credit score (responsible credit use is absolutely essential to gain this score 3 years out of foreclosure)
  • A verified down payment (3.5% or higher, depending on the borrower)
  • Upfront and ongoing mortgage insurance (which protects the lender from debts in case the buyer defaults)
  • Significantly lower debt-to-income ratios (ensures the buyer has ample discretionary income to make payments long-term)

Underwriters scrutinize these borrowers’ loan applications far more than an average home buyer.  In contrast, during the real estate boom, a buyer could be approved for a mortgage with very little credit history to support it.

Sub-prime mortgage approvals at the height of the real estate boom:

  • 580 credit score
  • 100% Financing or 80/20 1st/2nd mortgages (no money down)
  • Foreclosure 2 years out
  • Bankruptcy 2 years out
  • No income verification
  • Total debt ratios up to 60%

While the changes in lending to borrowers who have past foreclosures and bankruptcies may not satisfy all critics, there are also mitigating factors that underwriters take into consideration.  Remember that even though a home buyer’s past foreclosure may have been closed as of three years ago, the banks sometimes take up to a couple of years to push a foreclosure through.  That person may have essentially handed the home back to the bank five years ago and been repairing their credit ever since.  Underwriters can take this into account.

Moreover, there are many different situations that lead to foreclosure.  Certainly some buyers overspent, got in over their heads, and walked away from a bad investment.  Those are going to be viewed less favorably by a lender.  Others have lost their homes due to job loss, divorce, deaths in the family, and a host of other reasons.

When an underwriter can see that home buyers have been responsible with credit in every instance of their lives except for under one unforeseen loss of income or spouse, there is great reason to believe that these people, under the newer, more restrictive lending guidelines, are a good credit risk.  The lender and the public are protected by these buyers paying for mortgage insurance, and their re-introduction to the housing market in a new economy will allow them to re-establish a long-term credit track record and keep the housing market moving.

The Top 10 Real Estate Tax Deductions

This article was originally published on Realtor.com:

As the deadline to file income taxes approaches, it’s time to take a new look at the changing tax landscape for homeowners. The dynamic atmosphere in Washington, D.C. hasa different effect each year on which tax breaks are proposed, rescinded, changed and extended for taxpayers who own a home.

Many of the tax benefits homeowners enjoy have been protected and extended through the 2013 tax season but they will expire next year if Congress doesn’t act.

Disclaimer – This is only an informational summary of current tax issues in the news. If you need tax advice, please contact a tax attorney or CPA

1.  Mortgage Interest Deduction

Homeowners who itemize their deductions can deduct the interest paid on a mortgage with a balance of up to $1 million. While there is some movement to limit the total itemized deductions for taxpayers with higher incomes (more than $400,000), the current deductions hold for all tax brackets. Americans save around $100 million every year by deducting mortgage interest on their tax returns

2.  Home Improvement Loan Interest Deduction

The interest on home equity loans used for capital improvements to your home may be tax deductible. On loans with balances of up to $100,000, the interest is tax-deductible for a homeowner who uses the loan to make improvements such as adding square footage, upgrading the components of the home or repairing damage from a natural disaster. Maintenance tasks, like changing the carpet and painting a home, usually don’t count.

3.  Private Mortgage Insurance (PMI) Deduction

Homeowners who make a down payment of less than 20 percent are usually paying some sort of Private Mortgage Insurance. PMI (sometimes abbreviated as MIP or just MI) can be just a few to hundreds of dollars per month.

If your mortgage was originated after Jan 1, 2007, and you have PMI, it can be a tax deduction. The deduction is phased out, 10 percent per $1,000, for taxpayers who have an adjusted gross income between $100,000 and $109,000 and those above that level do not qualify. This deduction won’t be available next year unless Congress renews it for 2014.

4. Mortgage Points/Origination Deduction

Homeowners who paid points on their home purchase or refinance can often deduct those points on their tax returns. Points, also called origination fees, are usually percentage-based fees a lender charges to originate a loan. A 1 percent fee on a $100,000 loan would be one point, or $1,000.

On a home purchase loan, taxpayers can deduct the entirety of points paid in the same year. On a refinance loan, the points must be deducted as an amortization over the life of the loan. Many taxpayers forget about this amortized benefit over time, so it’s important to keep good records on the deduction of points on a refinance.

5. Energy Efficiency Upgrades/Repairs Deduction

Homeowners can deduct the cost of building materials used for energy efficiency upgrades to their home. This is actually a tax credit applied as a direct reduction of how much tax you owe, not just a reduction in your taxable income.

Ten percent of the total bill for energy-efficient materials can be used as a tax credit, up to a maximum $500 credit. Insulation, doors, new roofs, water heaters and other items qualify for the energy efficiency credit. There are individual limits for certain items, such as $150 for furnaces, $200 for windows and $300 for air conditioners and heat pumps.

6. Profit on Sale of Real Estate Deduction

If you’ve sold a home in the past year, you’re likely aware individuals can claim up to $250,000 of profit from the sale tax-free and married couples can claim up to $500,000 tax-free. The home must be a primary residence, meaning you must have lived in the home for two of the past five years. A homeowner could potentially claim this tax break on multiple homes within a fairly short time frame, but each tax-free sale must occur at least two years apart from the previous tax-free transaction.

Also new for 2013 isn’t a deduction, but a tax enacted by the Obama administration. Some individuals—those with an AGI more than $200,000—may be subject to a 3.8 percent tax onsome income from interest, dividends, rents and capital gains.

7. Real Estate Selling Cost Deduction

For those lucky folks whose profits on the sale of their home might exceed the $250k/$500k limits, there are still some ways to reduce the tax burden. The costs of selling a home can be claimed as tax deductions.

By adding up all of the fees paid at closing, capital improvements made to the home while you owned it, money spent to make repairs to damaged property and marketing costs necessary to sell the home, you can add a significant figure to the cost basis of your home. This basically raises the original price you paid for the home. Your cost basis begins with the original price of the home, and then adds in the improvement and selling costs.  When the new cost basis price is compared to your selling price, it reduces your potentially taxable profit on the home.

8. Home Office Deduction

Starting for the 2013 tax year, tax filers who work at home can use the IRS’ new simplified option for deducting home office expenses. With this form, you can get a $5 deduction for each sq. foot used as an office, with a maximum of 300 sq. feet. The office must be the primary office location where you get the majority of your work done, and it needs to be used exclusively for business (it can’t be in your bedroom). You should be realistic with its size anduse—start stretching the truth and you could increase your risk of being audited.

9. Property Tax Deduction

While it may sound strange to have a tax-deductible tax, the overall effect is that you don’t pay income tax on money that was spent on property taxes.

Homeowners should only deduct the amount of property tax actually paid to their local municipality for the year. This is not necessarily the amount you paid to your escrow account, and should not include any other city or county fees that might potentially be on the same bill as your property taxes.

10. Loan Forgiveness Deduction

The Mortgage Debt Forgiveness Relief Act of 2007 made forgiven debt on some mortgages not taxable. For example, a homeowner makes a short sale of their primary home at $100,000, but they owe $150,000 on their mortgage. The lender forgives the extra $50,000 owed, but the government views it as $50,000 in taxable income as a gift from the lender to the borrower. The Mortgage Debt Forgiveness Act temporarily relieved the taxpayer of that burden, up to $2 million, or $1 million if filing separately. The act applies to primary home sales made from 2007 through 2013, but it will expire next year if Congress doesn’t act.

IRS-suggested disclaimer: To the extent that this message or any attachment concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.  This message was written to support the promotion or marketing of the transactions or matters addressed herein, and the taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax adviser.