The keys to success in life, career, investments, or anything else are proper planning and execution. Today's discussion is to help motivate you to succeed in real estate for 2012 and beyond.
Selling your Home:
If I were to poll the general population, the biggest frustration for most people would be selling their home. The Alabama Center for Real Estate reports recent sales data on their website for residential and new construction homes. The statewide figures for residential homes show an average sales price drop of 10.6% from $157,687 in 2007 compared to $140,930 in 2011. The median price also shows a loss of 8.8% for this same time period. All homes are selling for less today than they once did. Higher priced homes are struggling to sell in most markets which help explain the drop in average sales price. Also, the homes sold in 2011 are mostly the same homes sold between 2003 and 2006, however, they are now foreclosures sold at lower prices. A high percentage of homeowners owe more than their home is worth which creates challenging market. You probably feel the pain and don't need another discussion on home prices, but the following ideas may be beneficial to you selling your home this year:
- Education and Pricing:The market is price driven. Sellers need to possess "strong determination" and "thick skin" to tackle one of the most challenging markets in history. The reality is most buyerswill notoverpay for a home even if it's extremely unique. Every buyer wants to feel they are getting a great price in this market and they "expect it" if they buy in today's environment.I recommend educating yourself on your competition's pricing and what your home is really worth using Realtor.com and other real estate sites.Be careful to use only sites that access current MLS information because many sites have outdated home information.For your home to sell, you must look for the "best deals" available in your area and work to be the "best deal" when comparing your price to theirs. There will be many comparable homes in your neighborhood priced at old prices which are great comparisons if you intend to keep your home. These homes are not sold and have been on the market a long time because they are using old pricing and are limited by their mortgage payoff.Pretend you're a buyer and look for the deals in your area for comparison. The best deals are selling at the quickest pace. Ask an informed friend or Realtor to give you an honest opinion and try not to be defensive when you hear their response. It's hard for even Realtors to be objective when pricing their own homes so realize that you may be surprised to hear what others think of your home's price or what your competition is willing to offer for a sales price.
- Strategy:Have I mentioned that this is a price driven market? Sellers with newer homes are usually limited in how much they can reduce their home price but having a great marketing strategy with a terrible price will not work right now. I would highly recommend being realistic and pricing your home without the excess negotiation room. I suggest pricing the home at your lowest price with little negotiation room and waiting until you get your price. It works best to create activity and a competitive environment by great pricing versus being too high with no prospects. You only need one buyer so hopefully someone will see those unique features that you see and be willing to pay your "best" price. Remember, price resolves all problems. There is a buyer for everything if the price is right and the financing can be found. Financing seems to be more available today than any time in the last 5 years. If you can sell in the near future, you may be able to capitalize on the current market and replace your lost equity when buying your next home. Owner financing and lease purchase are also options for the sellers who may be at risk of losing a home to foreclosure. These options have risks therefore I would seek legal counsel to your particular situation. I would recommend treating any of these options as rentals knowing that you will probably get the home back with painting, carpet, and other maintenance items to be repaired after renting. I have never seen a renter follow through and buy the home they leased or owner financed, but the rent payments can mean financial survival until prices return and the home can be sold. One positive effect of the Federal Reserve printing money is that home prices are almost guaranteed to return as inflation dilutes the dollar thus raising prices on everything including housing. If demand and financing do not cure our pricing issues, inflation should as we remember how home prices have risen since the 1970's and 1980's independent of a buyer's or seller's market.
- Presentation: The home is priced right...now what? Have you considered that your pictures will be visible to everyone and may be a reason people are not calling to see your home? If you haven't had at least 3-5 people view your home lately then you are either over priced or may have poor photos. The main goal for a Realtor is to get buyers or their agents in your home while guiding you through the process of contracts and closing. If you are having success in obtaining traffic through your home with no offers, the price is probably too high for this market. If there are no showings, the price is either too high or the marketing needs adjusting starting with the photos and comments on the home. Limit your pictures to those which accent the positive features of the home. There is no reason to show the outdated and small bathroom or other areas that will scare off a buyer. There may be many positives about your home, but the buyer may be scared off by one picture showing negative aspects of the home. I would rather show only 2-3 photos and tease the buyer to come look versus showing too much for them to say "No" prior to looking. Use your best judgment, but people earn degrees in marketing for a reason.
Building Your Dream Home:
You probably have a home to sell so you have decided to wait until the market comes back prior to doing anything. However, once the market comes back so will the pricing. The Federal Reserve released a report on January 25, 2012 stating plans to hold the federal funds rate low through 2014 to support an "economic growth recovery" with a "subdued outlook for inflation over the medium run" (FederalReserve.gov). However, the Federal Reserve monetary policy is based on broad economic conditions such as job growth, consumer spending, financial markets, housing, and other factors. If you have noticed a rise in your grocery bills lately, then you have seen inflation progressively at work. There are signs that inflation is alive and well even in today's environment including new home construction as tornado victims rebuild across Alabama. Now is a great time to buy that low price lot or tract of land to save on land prices and construction costs. Negotiate a deal with the architect and homebuilder so you will be able to beat the price upswing when demand returns. New construction is at an all time low, but is generally expected to rebound after this election year. Proper planning can insure you build the home you want while saving money in the process. When you realize inflation has arrived, the savings will be gone.
Rental Homes and First Time Homebuyers:
The stock market remains volatile, interest rates are low, and everyone is wondering where to find a good investment in today's market. Currently, rental homes are a good option in today's market as home prices will eventually rebound. Buying low priced homes in great areas can create huge future returns. Let others pay for the home over time and you take advantage of the equity when the market returns. Financing is available to investors, but conditions exist where the investor must put money into the deal from 10-20% depending on the property and finance company. Foreclosures can be great buys for those talented in repairing homes. On the other hand, first time homebuyers still have 100% financing options for USDA rural housing in specific locations. The homes must qualify for financing which has been an issue for those wanting foreclosure pricing. The 100% USDA and traditional FHA programs require that the homes be in great condition which is usually not the case for foreclosures. There are many existing homes owned by motivated sellers at great prices which meet these lending guidelines. Regardless, deals are available during this once in a lifetime opportunity that appears to be ending its historic run.
Land Investments versus IRAs:
I have heard about many people halting all IRA contributions and even a few who cashed out their IRA's in favor of investing in land. Long term advantages of land investments along with attractive low prices have created buying opportunities for savvy investors looking for better returns. There are many people enjoying their retirement investments by spending their weekend deer hunting or 4 wheeling instead of worrying about their fund balances after a market crash on any given week. Land investments do have expenses associated with these types of investments such as property taxes, bush hogging, and other fees. However, these expenses are acceptable to many investors as recreational activities as most outdoorsmen incur some costs to enjoy the outdoors. Nearly everyone would rather pay fees on something they own versus paying commissions and fees for IRA contributions. These investments are not for everyone, but they are great for those who can pursue these investment options. Investors must consider one's retirement age, capital requirements, risk tolerance, and selling period as factors in their decisions. The main factors to favorably consider are: 1) the market appears to have reached the bottom and should start back up in the next couple of years; 2) raw land has held its pricing better than most types of real estate especially if it's timberland or other income producing property; and 3) most economists would agree that inflation is coming and the best way to protect your investments are in vehicles other than cash or taxable accounts. Land will always be one of the best investments since they're not making any more of it.
Brian Camp is a licensed real estate broker and consultant for Lovejoy Realty in St. Clair County, AL. Brian currently serves on the ACRE Leadership Council. For more info on Brian or to view more of his "Frontline" articles, visit www.BrianCamp.com.