The truly fascinating thing about Blogs, e-newsletters, Twitter and the like, is the intimacy of the medium. Each week, I can count on several immediate responses from my loyal subscribers, but once in awhile, I get a rare response from someone completely anonymous to me that comes from the BIG BLOGOSHPERE out there (the final frontier?).
After recently publishing the two pieces about my favorite "Buyer and Seller myths," I received a thoughtful reply from one such reader who wondered if I would have the "courage" to print her favorite "real estate myths" and offered up some terrific suggestions below.
Yes Josie, I do have the courage (I find it helps to be a bit fearless in real estate) and thanks for your valuable input.
The welcome give and take from Readers like you is what keeps The Perspective relevant and I hope that an open and honest debate make for "fascinating rhythm" (I'm all a-quiver). Per your suggestion, I will offer my responses in turn.
Myth 1 - "Housing is a great investment, it always goes up!"
(Nobody says this anymore, but until two years ago, it was practically an article of faith among Realtors.)
Unfortunately it's true - real estate doesn't always go UP, as the past few years have reminded us. Like any market, home values fluctuate and are subject to economic pressures - even here in the beautiful Bay Area. But I believe we make a mistake when we think of our homes as an "investment" only. For most Buyers, homes represent more than a balance sheet. They are largely an emotional purchase; a fulfillment of the American Dream (as American as apple pie) and a tangible representation of our achievements. We want and often need, to own our own little piece of the pie. Even if there is no guarantee that the pie will appreciate - it shouldn't keep us from appreciating the pie!
Myth 2 - "Buy this house even though you don't like it all that much. You can always trade up!" (With the exorbitant transaction costs of buying and selling, plus the pain and emotional toll of moving, this is usually terrible advice.)
I would agree. Transaction costs are significant (they typically amount to as much as 8% of your selling price and include items such as transfer taxes, inspections, painting and staging and commissions) and packing up and moving is certainly no picnic either. You should LOVE your home or it should have the potential to meet your growing needs. Homes aren't meant to be traded like baseball cards. If you aren't planning on staying in your home for a minimum of 5 -10 years, the rental market may in fact, suit your basic housing requirements better.
Myth 3 - "The market is starting to heat up!" (For buyers, this never seems to change.)
Okay, call me an optimist, but I do believe the market is heating up. Based on the heavy (and I do mean HEAVY) recent activity at Sunday Opens, the incredibly attractive and artificially low interest rates, and the more affordable housing stock currently available, pending sales are UP in the month of August and expected to grow in September as well. Barring any unforeseen circumstances, I believe we can realistically predict a healthy and robust market through Thanksgiving with a seasonal decline through the holidays and then a significant bump come next Spring. Savvy buyers are cognizant that this window of opportunity may be limited. Sellers should take heed as well!
Myth 4 - "There was another offer that was the same price as yours. The seller wants another round of bids." (Really? The EXACT same price? How was this house on the market for four months with no sale, and as soon as I bid, another bid appears at the EXACT same price?)
The EXACT same price? Maybe not. So close, they are virtually indistinguishable? That's a very likely scenario and here's why. Buyers tend to be conservative until someone else makes the first move not unlike the gawky teenage girl who suddenly becomes incredibly attractive when your best friend starts expressing interest (Jessie's Girl). Homes that sit for awhile tend to lose their appeal, until another interested Buyer steps forward to "claim" the house.
Buyers often need their choices validated by another interested party before they are willing to commit. Once a move is made, any sharp listing Agent will immediately contact those prospective Buyers on the fence and leverage the first offer. (Don't get upset, that's part of our fiscal duties and why smart Sellers hire aggressive Agents to begin with!) That's why you may suddenly have more than one Buyer on a house that has sat virtually untouched for months.
And the identical offers? They are just a byproduct of time and market testing. (There's a learning curve that works to an Agent's advantage the longer a house sits on the market.)
Myth 5 - "It's no big deal to . . . add another bathroom, add a new floor above, build new stairs to an unfinished basement, replace a garage. (Um, actually, it is damn expensive, and sometimes impossible!)
Upgrades, remodels and renovations can be a BIG deal. Make sure you read ALL of the disclosures provided and secure your contractual right to inspect the property. Ascertain up front the projected costs of any repairs or changes you are likely to make in the near future and then do the math! Inspections can and often do include engineers, contractors, home inspectors, roofers, arborists, geologists, etc, to help you pencil out these necessary (or unnecessary) expenses - as the case may be. This is especially true for "fixer" properties that may prove more expensive than anticipated.
Are you better off buying the less expensive home and adding these upgrades to the cost of the price or are you better served paying the adjusted amount now and getting a house that comes closer to your current needs? Only you can make that decision, but decide with as much information as available in hand!
So there you have it. Thank you Josie for putting into words what so many of our Buyers have been silently wondering. I'll look forward to hearing what others of you have to say.
"Fascinating rythm -
You've got me on the go!
I'm all a-quiver. "
(I'll treat the first five people who can name the composer to lattes at Mulberry's Market!)
Last weekend I was heavily lobbied and recruited to play in a co-ed softball tournament at Coach's Field here in Piedmont. I gave up softball a few years ago and have blissfully avoided the baseball diamond ever since. But this team was facing forfeiture if they couldn't find enough women to fill their roster so against my better instincts, I grudgingly capitulated.
"I'm really no good at this sport," I explained to Nick, the team captain in my email.
"That's okay, " he assured me, "you'll do fine."
CUT! Had Nick known how truly limited my skills are with respect to a bat and a ball, I am sure he would have continued to hunt for someone (anyone) who might have proven to be a better asset in the outfield. I'm not exaggerating when I say I can't play. Think Lucy in Charlie Brown and you've pegged me.
"Why am I doing this?"I asked my husband after a particularly embarrassing fielding error that had to do with the ball bouncing over my head and my outstretched glove (two runs scored - yikes!).
"Because it's fun. Because you'll make new friends," and then a bit sarcastically . . . "Because it's a great way for you to network." Ah ha! Networking! Now that's a sport I can embrace!
When called upon, I register high school students for classes, work the middle school lunches, sign up for boosters, and walk the streets for elections. I sit on boards, volunteer for fundraisers, give money to sports teams and sponsor golf holes.
By nature (and nurture - I work at The GRUBB Co. afterall) I am an extremely social being who recognizes the importance of "networking" - both to build friendships and to expand my business contacts. Unfortunately for the Muffin Tops, (yes, that's the team name) I even agreed to play softball last weekend! (I really have no shame and apparently, no game either.)
Here's the thing; while I know it's important to "network," I believe it's more important to contribute when asked. Even with the concept of sales firmly embedded in my psyche (and my genes) I network because I truly believe in community, in supporting one another and in pitching in to do my share (catch the pun?). If you happen to refer a client my way, that's a lovely tertiary result (and much appreciated - thank you!) and all part of building a growing business, but make no mistake; before I sold homes, I drove on field trips and volunteered!
More importantly, here's what I won't do for business - I won't manipulate the truth. I won't tell you what you want to hear and I won't promise you an outcome that our recent sales activity simply doesn't support. In short, I won't "buy" your listing. I won't give you an inflated list price so that I can secure the listing and then hold you and your home hostage until I beat you down with price reductions more in line with where the market truly lies.
Has this cost me listings?
And admittedly, it is always a tough loss. I can think of several listings in the last two years that ultimately sold for my suggested list price after weeks and sometimes months, of protracted marketing (unfortunately, with another agent - ouch!).
Weekly analysis and market realities form the basis of my opinions and gut instinct and experience add to the equation. I also often rely on fellow GRUBB Co. agents to provide objectivity (some who have more than 30 years experience here in Piedmont)! Together, we rely on our history and intuition . . . this is interestingly, one of our most collective skill sets! Within reason, I try to be as accurate as possible with respect to your anticipated sales result. Promising you the moon only damages my credibility.
So beware the agent who promises you a guaranteed outcome.
NO ONE can promise you what the market will deliver! Simply put, the market will bear what the market will bear. At the end of the day, I believe that you are very likely making decisions based on your "great" expectations so I am extremely careful - because it matters to us both. How do I retain your trust if I blatantly mistreat or misrepresent your expectations?
Just ask Nick - he probably expected me to field that fly ball properly or to get on base (geez!). Still, he couldn't have been expecting Tori Hunter. I gave him full disclosure! Maybe he was just hoping to get lucky! Sorry Nick. (Sounds like some sellers I know.)
How can I help you?
Yeah! My first sequel! Here come my favorite "BUYING" Real Estate myths (thanks in advance to those of you who sent in ideas)!
MYTH 1* - "Sellers are desperate, I can write my own ticket."
Not true. Many Sellers would like to sell but don't have to sell or prefer not to sell if the price comes up well short of their expectations. While some Sellers really must sell due to lending pressures, death, divorce or job loss/transfer, many other Sellers have had fantastic results - even in this more challenging marketplace. Regardless of the circumstances, well-priced homes continue to find a willing and able market.
MYTH 2 - "I can take my time. That house isn't going anywhere."
Maybe, maybe not. If the house is overpriced, it probably isn't going to move quickly but many Buyers are taking advantage of historically low interest rates and entry-level opportunities. While you wait, someone else is very likely to capitalize on the chance to buy a home or buy into a neighborhood that was previously unaffordable to them. Go on, make an offer. You have little to lose.
Remember that homes, especially here in Piedmont, Rockridge and Berkeley, are unique commodities. Some of them have never been on the market before and others won't come back for decades. Some have no parallel; they are truly one-of-a-kind estates. If you LOVE the house and plan on living in it for the next 5-10 years, it doesn't make much sense to wait - even if you believe prices may continue to correct (they may - or they may not!).
We may bump along in the bottom for the next several years or home prices may turn around rapidly as demand continues to grow and stocks climb. Either way, we won't know until after the fact. Will you have missed your window of opportunity?
MYTH 3 - "Interest rates will stay low."
This one is absolutely false! Interest rates are currently artificially low (courtesy of the federal government) to encourage a faster recovery (and it's working - sales are up)! If you wait for a property to reduce in price, but the interest rate jumps up just .05% during that time frame, you are very likely to experience a net loss!
MYTH 4 - "Everybody's in my shoes. I'll write a "contingent offer" when I find a home I like and then sell my home after I am in contract."
Okay, but you will be in competition with those that have already sold their homes. Many people are selling their current residence first so that they have a clear idea of what they can afford on the "buy" side. Those that choose to identify their next home before selling, have a much tougher hill to climb. Conversely, those that have sold or are in contract on their current residence are clear for takeoff!
The "contingent purchase" continues to be the weakest offer on the table and generally, last in line (although admittedly, a more frequent part of the landscape). If you employ this strategy, make sure your current home is ready to place on the market immediately and price it aggressively. Sellers who agree to "contingent offers" will have limited patience and expect to see quick results!
Myth 5 - I'll buy a foreclosure and get a cheap deal."
There are a couple of problems with this line of thinking. First, foreclosures (or REOs as they are known in real-estate lingo) are few and far between here in Piedmont, Montclair, Rockridge and Berkeley. (Now if you want to move to Stockton, Antioch or Modesto, you'll have plenty of inventory from which to choose).
Neighborhoods in Oakland where foreclosures are more prevalent, greatly reduce the value of the surrounding homes and bring neighborhood values down as a whole. These communities will have a slower recovery and may not be where you ultimately want to hang your hat. (However, there may be great investment opportunities in some of these neighborhoods if you have cash resources.)
Second, Buyers in the foreclosure market are generally heavy hitters. These ALL-CASH buyers can be stiff competition! Don't get discouraged just yet - these professional investors tend to offer wholesale value, so if you find a REO that meets your needs (it could happen if you are exceedingly vigilant and very, very lucky!) you will likely outbid the professional investor. Make sure you have a dependable loan and a decent down payment on your side to offset the all-cash offer he is likely to present.
Myth 6 - "What do I have to lose by bidding low? The Seller can counter the offer."
Warning Will Robinson! You stand to lose the house! Holding back is a reasonable strategy IF your offer is countered, but don't count on it. I worked with a Seller recently who received three offers on his home and took the highest one on the spot. When the Buyer in second position found out, she was devastated and phoned to say, "I could have (and would have) gone higher, if I'd known. I assumed the Seller would counter."
You know what they say about assumptions . . . Assume nothing when it comes to the house you desire and always put your best foot forward - especially in a multiple-offer scenario. It is very likely you won't get a second chance to improve your offer.
Myth 7 - "I'm looking for the perfect house!" (This one was sent to me by my good friend Jan, and it will always be my favorite.)
Listen up! Perfection doesn't exist - in a home, in a mate, in life. If "perfection" were the standard we lived our lives by, none of us would ever get into a bathing suit, let alone purchase a home!
Find a home that meets the majority of your needs and be prepared to compromise on the rest. Decide what's "non-negotiable" (for some of you that's location, for others, it's a back yard). The point is that some items on your "wish list" are less important than others. Clients I recently worked with were certain they wanted a house in the Wildwood School District until they found a wonderful home in the center of town (and no, it wasn't "perfect").
Be open to possibilities and be prepared to adjust. (This is true for ALL price points!)
Besides, perfection is boring - just ask my husband - whom I'm sure would never have asked me to marry him if perfection had topped his list! Sometimes it's the imperfections that we really grow to love (at least I hope so).
That being said, how can I help you?
Whenever I take a break from writing, I really miss hearing from all of you so I am pleased when you write to tell me that you missed me as well. Or to quote one as my youngest fans (he's only two-and-a-half!) "Juie, I mythed you." Which got me to thinking about some of my favorite real estate myths -(I'll limit these to "selling myths" this week and share "buying myths" with you next week.)
MYTH 1* - "It only takes one Buyer!" I often hear this phrase from hopeful Sellers, prior to placing their home on the market (usually for more than the listing price I have suggested). Yes, it's true - it does only take one Buyer to sell a home - however, it may take two Buyers to get your list price and it may take three to go above it.
In today's marketplace, it may take many more than that - which is why your local Realtor often encourages you to list your home aggressively. (An aggressive list price is designed to attract more than one buyer!) Conversely, if you haven't received a full -price offer within the first two weeks, you aren't likely to get it.
Even with multiple offers, your home still may not go above asking in this much more conservative marketplace. Recently, a solid Mid- Century listing with bay views, sold well below asking, even though it had received several well-intentioned offers on its predetermined date. It closed for more than $150,000 under its retail price (not an infrequent scenario these days)!
What happened there?
The market clearly disapproved of the price, judged it too high and came in with a more appropriate estimation of the home's true market value. (Remember, the value of your home is what a willing and able Buyer will pay for it in any given market.) If three or four offers come in well below asking, it's time to adjust your expectations. Your home just found its real "market" value. (Don't forget that there is a difference between "intrinsic" value and "market" value.)
*There are exceptions to every rule. Truly exceptional homes may in fact, receive an offer above asking with only one Buyer! In this instance, the Buyer recognizes value and puts forth a strategy to dissuade the seller from entertaining any other offers.
MYTH 2 - "That's only the first offer, I'm sure the second will come in higher." Not usually. While there are a few bargain shoppers out there who make a habit out of throwing low ball and unrealistic offers at every home that strikes their fancy, the adage that "the first offer is usually the best," is as true now as it has ever been.
The first Buyer does typically represents the most enthusiastic, and motivated Buyer and is usually willing to pay the most for your home. (The third and fourth typically represent the most realistic!) While you may get lucky with a second or even a third offer, counting on "luck" to achieve a higher end result is not the wisest strategy.
It's not unusual to hear a neighbor say: "Did you hear that the offer they finally accepted was far less than their first offer?" Think long and hard before sending away your first Buyer and avoid becoming a cautionary tale!
MYTH 3 - "I'll take it off the market and get more next year when the market recovers."
Maybe, maybe not. No one can predict where the market will be next year. Market indicators suggest a 3 - 5 year recovery at best. You could find yourself netting far less.
MYTH 4 - "My home is worth more than my neighbors' home."
Unless it is substantially larger, recently remodeled, or very well appointed, it probably isn't. Taste is largely subjective. What you view as special, may have little or no value to someone else. Even if it is "more special," your neighbor's sale two doors down, just set the new comparable for the block - and that's what today's Appraiser is basing his/her appraisal upon. Even if you pull a rabbit out of the hat and actually get your "dream price," will the recent neighborhood sales support that value? Probably not! (Expect a renegotiation on the price in that scenario).
Myth 5 (and my current favorite) "Nobody's showing any interest, so we don't want to lower the price." Huh?
No one's showing any interest BECAUSE the price is too high. Here the Sellers are making the assumption that some other unidentifiable reason is keeping Buyers away. Let me assure you that EVERYTHING will sell at the right price - everything! List price is always relevant!
The constant with each of these myths is "ego." I'm reminded of the line from the Lord's Prayer (Yes, I've been known to pray) " . . . lead us not into temptation, but deliver us from evil. . ." With respect to real estate, the line should say ". . . deliver us from ego . . ." Here's the skinny, more deals fall apart due to ego than to market conditions (this may be true in marriages as well). Check your ego at the door and you are bound to consummate a good deal!
Look for my favorite "Buying Myths" next week in part two of Did You Myth Me? - and send me yours as well. I'm counting on hearing from you!
Julie Gardner, has been writing The Perspective for 18 years and has published more than 670 essays on life and real estate.