The State of Real Estate Professional Opinions by Don Carr, ABR, GRI, REALTOR

Do you think know what is going on with real estate? If you do, would you tell me. Every week seems like it brings a new worry or a new outlook on what is going to happen. The media doesn’t help much. Every time they get a report from the National Association of Realtors or the Federal Housing Administration it is either the best thing that could happen or the worst. Actually a couple of tenths of a point change do not make that much difference, especially if you are sitting around waiting for your home to sell.

The President in a speech a couple of weeks ago noted that economists are saying the economy is rebounding, but not if you are the one looking for a job and wondering how to feed your family. We are so fortunate in Austin not to have had the great number of homes in short sale or foreclosure that many areas have, but we have had enough.

It is always very sad when someone looses their home. Many of us these days can find lots of people to point our fingers at as being responsible. There is plenty of guilt to go around. Buyers were offered mortgage deals they could not afford and that were too good to be true. They were almost sure to be unable to pay their mortgages. Mortgage brokers were making great money and who was to blame them if lenders could find a way to give anyone a loan, they did; sometimes for people that were no longer alive. I’ll skip the jokes on the origination of the word mortgage from the French verb “to die”.

Oversight was needed. Sadly enough not all realtors realized the pitfalls of bending a pencil and many have paid dearly. Some even went to jail. The biggest mortgage scam here in Austin resulted in a Realtor committing suicide. I have sat in many classes, even on ethics, and heard Realtors explain how to get around regulations. Just because someone could do something did not make it right. It seems to me that regulations are there for a reason. Whether it is real estate and mortgages or oil spills, regulations are a good idea. A rule of biblical proportions is that “the piper will always be paid”.

So where are we now? Now everyone is over reacting by following the regulations to the point of distraction. The pendulum has swung so far that sometimes the smallest thing can derail the dream of a new home. This affects buyers and sellers. Sellers find it harder to sell their homes because there are fewer buyers who qualify. Lenders are looking more closely at the conditions of properties, and many of the costs that sellers could pick up for buyers are now prohibited. As a result the smaller pool of buyers expect attractive homes in great conditions and a good price. Negotiations have become harder and more picayune. Buyers have to have good to excellent credit scores , down payments, and ready cash for costs. At least for people I know it has been a long time since anyone has seen a 100% loan (except VA or USDA loans) and I could not believe it when someone asked me not long ago if they could get a no-doc loan (a loan where no credentials are checked and they pretty well take your word as good enough to get the loan.) For a while it seems we were seeing only government secured loans. Now we are seeing a comeback from the conventional sector as more banks are encouraged to loosen the reigns on lending. It is going to be a while before real estate and the financing of homes comes back to a logical center.

An area of concern as a result of the tightening of lender regulations has caused considerable problems. This is the question of appraisals. From the changes that have come about one might think that appraisers were major offenders in the collapse of the mortgage industry. It did seem that there was a time when your appraisal was based primarily on the sales price. Oddly enough the appraisal rarely varied from the sales price. It was uncanny how two realtors and buyer and a seller could negotiate and come out with the correct appraised value of the property. As a result a lender cannot pick their appraiser. They have toapply to a government arranged pool that assigns an appraiser. Before we suffered when appraisers only looked at properties online, now we suffer from appraisers who come into an area about which they know nothing and appraise properties as experts.

This can create a big problem for a seller, but in the past two years I think the biggest problem I have encountered with sellers is the idea that “We have a figure that we have to get for the house”. There are some things that are just true and as I have said before and before, every house sells at market value. The market will establish the value of a house; that is why it is called a market. What the market was last year or even last week really will not determine what you are going to get. One of the major reasons for using a realtor to sell your home is the professionalism, experience and access to the materials to as closely as possible achieve a price where your home will sell. A lot of sellers will hear this and agree then look their realtor straight in the eye and say, “I have a figure in mind that I need to get for the house.” Usually that figure will be based on how that money is going to be spent not what the market is telling us about the property.

If your house is priced above the market value you can expect several things to happen.
Someone will offer you a fair price for your house and you will be offended forgetting that they would not go out and overpay for a home because the seller “had a figure” in mind. You will sit on the market and your home will get stale. You will keep paying interest every month that will be going to your lender when you could go ahead and sell your home, not waste your time and money and go on with your plans. You will become more discouraged, blame anyone you can find, your realtor, inspectors, your mother in law, and then sell your house at the market price you should have priced it at in the first place.

And finally the appraiser is not going to know about “your figure”. He or she is going to know about comps and will use the most readily available comps to achieve the value of your property. Chances are these are the same ones your Realtor used to present you market value. When the appraisal comes in too low there are three alternatives. The seller can drop the price to the appraised value, the buyer can throw in extra cash above the appraised value, if this will be allowed by the lender, or you can forget that contract put the house back on the market and wait for a cash buyer who will pay what you want. I’ve found most cash buyers to be pretty savvy folks.

Selling and buying Real Estate is a complex process. More complex than it used to be. It involves personal feelings, memories, relatives and friends opinions, needs and wants, expectations, realistic and outlandish, and it involves figures. Statistics, appraisals, comparables, market value, all are figures based on relevant research.

The real estate industry is in a mess, and there is plenty of guilt to go around, but the best realization a buyer or seller can have is that it is not business like it has been for the last decade or two . The piper will always get paid and the times, they are a changing.

The State of Real Estate: Miscellany

Have you seen the program on HGTV where the realtor is showing sellers comparable properties to theirs and he tries to get them to be serious about their properties and they are just not getting it. It is easy to see their misconceptions but sometimes we cannot look at our homes objectively. Here are a few concepts that I thought might be good to examine just in case we might be inclined to price our houses just a little higher – just to see what happens.

My house is the nicest one on the street. Or in the neighborhood. Generally we all think our houses are the nicest because we live there and because many times we have gotten them just the way we want them. Also if you live in a typical suburban neighborhood your house will be duplicated in many ways in the area. You may have a common floor plan, common exterior, even comparable finish choices inside and common landscaping outside. In this case we have apples and apples. When this is the case whether or not mine (or yours) is the nicest is a highly subjective situation. Remember what may appeal to you may not to someone else. It is often easy to change a house to fit what the buyer wants for just the little bit more you are asking or maybe even less.

I have done all of this work on my house; it must be worth more. The old adage is that kitchens and bathrooms sell houses and whatever you put into a kitchen or a bathroom you will get back and more. It is true that bathrooms and kitchens are the most interesting and the most individual rooms in our homes. Nowadays we expect a lot more in the way of luxuries and necessities than we ever have before. A refrigerator, be it avocado green from thirty years ago or stainless as new as tomorrow, still keeps the food cold. A basic stove cooks and bakes whether it does it with gas, electricity or has a combination convection oven. We all want the stylish things… the stainless, the granite, the newest fashion in cabinets and design. And there is nothing wrong with that. But we need to be careful when we start changing those kitchens and baths because the price tag can get very pricey indeed. You do not build or remodel for resale but you always should build or remodel with resale in mind. Enjoy your spa tub, your rainforest shower head, and my favorite, the alabaster under lit countertop, but remember much of what you spent will be for your enjoyment.

How do I know what is an upgrade and what is maintenance. This is a pretty easy question to answer. Does your house require it to function? Every house has to have a hot water heater, an air conditioner compressor, a roof, siding in good condition, windows that are clear and not fogged. You know the basic things you would think a house would have unless of course you are buying it to remodel for yourself or to flip, then you expect it to be in less than perfect shape. But for a normal house built to code in a specific year, the usual items we have to keep up or replace are not upgrades. Here in Central Texas we frequently get hail storms. Our insurance companies pick up most of the cost of new shingles and we can avoid the cost totally on our own. Whether or not the insurance company paid or I did, shingles that replace worn out shingles are maintenance, not an upgrade. So you put on a better shingle. Ask yourself how much you would add to the cost of a house you were buying for a little better shingle. In our case the thirty year shingle that gets to serve its lifespan is a lucky shingle indeed.

Fogged windows are a typical problem for us as well and aptly illustrate the difference between maintenance and an upgrade. Most of our homes have double pane vacuum sealed vinyl windows of varying grades of quality. They last a few years, always longer than their five year warranty, it seems. They do give way occasionally and have to be replaced. You can replace the panels (not the panes) for fifty to a hundred dollars usually or you could replace them with nice wooden windows which can be very costly. All houses have to have windows but in this case the replacement of the panel like your builder’s windows is maintenance, the fancy wooden windows are an upgrade and you might be able to get a little more for your house because of them.

When it gets to be time to put your house on the market think about what is maintenance and what is clearly an upgrade. Then ask yourself, how many buyers are going to care.

Whose fault is it when my house doesn’t sell. We all like to have someone else to blame. Mothers in law, husbands, wives...we all want someone else to be at fault. As a Realtor I am frequently at fault. After all I am the one who wants to market your house and claims to be doing my best. I may even think I have the key (and I do have the magic key) to selling your house. You may not want to know what it is, but it is the magic key. So whose fault is it when your house does not sell. It is nobody’s fault any more than hurricanes or earthquakes are someone’s fault…..it is the fault of situations that most of us have no control over at all. When prices in California, Washington D C , the Northeast, you fill in the blank , went through the roof and owners were making sometimes several hundred per cent more than they had paid for their houses, not one was asking whose fault it was. But when the market collapsed and foreclosures became common place and people added “short sale” to their vocabularies, then it had to be someone’s fault. A market is a market is a market whether you are selling a camel in Marrakesh or a house in Texas. Two things are laws. Like gravity, the market will set your price and the market will tell you at what price your house will sell. All you have to do is pay attention and be realistic. Realistically you may not get what you want for your house. You may have missed the golden moment. One may come around again, and it may not, but if you want to sell in the current market, you have to listen to what the market is telling you.

Remember the realtor on HGTV and the people who are not getting it. It is easy for us to be objective watching them. Selling a home is always an emotional experience; we all want the most we can get for our houses. You know what that is, what we always get—the most our houses will bring. Nothing can be truer…a house always sells at market value.

The State of Real Estate

What is happening in Real Estate? In this economy that is a real challenge and I feel a little like the start of A Tale of two Cities, “it was the best of times; it was the worst of times.” The economy across the country has helped to stall the Real Estate market in Austin. We hear a lot about how our “market is the best in the country” and that is partially the truth. The latest figures we have from the board of REALTORS show an 18% drop from the last year in the number of homes sold with the average sales price of $232,403. The Real Estate Center at Texas A&M shows we have a balanced market with 6.4 months of inventory. The national average is 10 months.

So what does that mean in practical terms, especially if you are seller sitting there with your home on the market, not many lookers and the very real possibility of having a long wait or dropping your price to sell your home. These are a few things that it means.

First, homes must seek their price in the market. Comparable sales are not telling us very much, since what sold last month or last week for one price may not even get showings at a similar price now. It is like fishing, you drop the line with the bait in the water and nothing happens. You have to keep going lower and lower until you find the fish.

Secondly, it is a real beauty contest out there. Remember when a nice house at $250,000 would sell pretty much as you bought it ten years before . Now the old adage that a house has to be updated every ten years is truer than ever. Colors change, styles in tile change, countertops, cabinets, etc. change as do styles in appliances. Granite counter tops (or at least hard surface) and stainless appliances are expected by today’s buyers. These characteristics may not seem very important when compared with your greenbelt lot and wonderful floor plan, but they are what keep the buyer in the house long enough to notice your floor plan and greenbelt lot. If you were assessing your house for sale to see what you might do to make it ready, think about what you want when you begin looking for your next house.

Next, think about value. What does value really mean? Value is what someone will pay for an item, in this case a house, at any given time. I find it very hard to believe that someone would not think that my house was not worth what I paid for it plus an additional 5%-6% increase for each year that I have owned it. Isn’t that how it is supposed to work? In California and many other parts of the country not that long ago , home owners were expecting their homes to increase 50% a year and selling them in days that way. Now many people understand that value is totally related to what the market will bring…often far less than what they paid. We are very lucky in Austin that most homes are still selling for pretty good prices, although the days of rapid increases are probably over.

Fourthly, always buy a house with the idea in the back of your mind that you might have to sell it. That does not mean to buy a house for investment only, but it means you must keep the factors that make a good resale in mind. When a market is soft the small flaws that might not have made a difference can become glaring. For instance, backing to a busy street may not have bothered you, but when you consider that it bother one in twenty buyers and you now have ten buyers who look at your house in a three month period instead of a hundred…well you do the math. Buying the best characteristics is always important . Schools, location, ease of getting around, and here in Austin, water and hill country views can make the difference between interest and no interest.

Finally, with all of this reevaluation of what used to be the American dream, is home ownership a good thing. Yes, definitely. For one thing the real estate market is always cyclical. What goes down goes up, when the pendulum swings one way it will swing back the other. I have never looked at the stock market or the real estate market as short term way to make money. Staying in for the long haul, although not as exciting will result in a slow and steady gain. I this case the tortoise not the hare is still the model. Over a period of time buying a home gives, in addition to the pride of ownership and the joy of having “your own place”, the most solid investment most of us ever have.

Sill, sometimes life brings changes and you have to sell or buy when you do not want to. Maybe it is just the wrong time, but you do not have a choice. When that happens I still believe that there is a silver lining somewhere in there if we look. Some days real estate is not as much fun as it used to be; sometimes I feel like a social worker. But I am always happy to share in your joys and in your troubles, if you will give me a call. It is one of my greatest honors in life to call you friends and clients.