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8 tips for pricing your home in a buyer's market

2008-02-18T16:34:00.002-05:00

Getting ready to sell? The more you know about conditions in your local market, the better your chances of getting the best possible price for your home.

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It's tough being the seller in a buyer's market. But you can improve your odds with the right research. In many cases, making a smart deal and getting the best price come down to studying your market and being an educated seller.

"You've got to know more than you would have if you'd sold a year ago," says William Poorvu, professor emeritus at Harvard Business School and author of the upcoming book "Creating and Growing Real Estate Wealth." "If you want to protect yourself, you have to become knowledgeable."

1. Recognize that housing markets are local.
Home prices are like the weather -- very different in different areas. In many markets, home prices have actually gone up from last year, says Dick Gaylord, president of the National Association of Realtors.

In addition, demand will change depending on the price range and even the neighborhood. What you need to know: What's the demand for a house like yours in your area? "You have to look at what's being sold and at what price," says Poorvu. "That's important."

Look at comparables for similar houses. Study prices and sales for one year ago, six months ago, three months ago and current numbers, says Gaylord. What are the trends? Are prices going up or down -- and by how much? How many days are homes staying on the market? If they are on the market longer, how much of that could be seasonal? In many areas, spring and summer are the busy seasons.

Pay special attention to "the delta between the list price and the sales price," says Ron Phipps, a broker in Warwick, R.I. That is, look for a meaningful relationship between list price and sales price. Perhaps most homes are selling for 5% less than the list price.

"An agent who works the market will be in the best position" to find "the tipping point between nice, attractive and interesting -- and being sold," Phipps says. You want to find the point between, "Hey, that's interesting," and "It's too good to pass up."

But you also need to realize that the paperwork alone tells only part of the story. While sales and prices are public, many times seller concessions are not.

2. Analyze who is buying and selling in your market.
What's your competition? Who are the buyers, and why are they shopping?
Do you live in an area like Phoenix, which Poorvu calls "a growing market with people coming in"? Or are you living in an area that doesn't attract a lot of new residents, where many shoppers don't have to buy but are looking to pick up a bargain?

Are you competing against a flood of new houses from builders eager to sell, or are you selling a newer home in an area where most of the housing stock is older?

3. Ask the professionals.
Don't ignore the elephant in the living room. When you interview real-estate agents, ask about the market conditions for your area and price range.

Specifically, ask about the "absorption rate," says Phipps. What that means: In the current conditions with the current inventory, how long would it take the market to absorb, or sell, all the houses on the market? If the supply is much larger than the demand, ask potential agents how they would "price to offset that inventory," he says.

4. Know what your house is worth.
Get an appraisal from a certified professional appraiser. Look at your comparables. Taken together, that information will give you a pretty good idea of what your home is currently worth.

5. Consider strategic pricing.
Here's how it works: If prices in your area are dropping 1% each month, and you want to sell within the next three months, you take 3% off your price right off the bat, says Phipps. So if you were going to put your home on the market for $400,000, you set the price at roughly $388,000.

The upside: You'll have the competitive edge over the guy who's dropping his price every month, without the air of desperation. Plus, in a market where prices are falling, you'll make more money if you sell quickly.

The downside: Predicting the market is a tough call, even for the pros. And it's really difficult to raise the price if your market starts to rebound, Phipps says.

6. Rebate your "commission."
If you're selling it yourself and need to move quickly, consider subtracting half of what would have been the commission from the sale price, says Healy. The standard commission is about 6%, so if you subtract 3%, your $300,000 house would go on the market for $291,000, he says.

Listing a home for "$9,000 to $10,000 under that value should create higher interest," especially if it's new to the market, says Healy. The downside: If the house doesn't sell and you end up hiring an agent, you'll need to cover the commission, which may mean raising your sale price or taking a smaller profit.

Editor's Note: (Or you can hire an agent from a Flat Fee company or one that offers Fee For Service Like Michigan Listing.com)

7. Evaluate whether you really have to sell now.
If you want to get the best possible price for your home and the local market is tanking, "see if you can delay the sale," says Poorvu. Otherwise, in a lot of markets, sellers have "to be willing to accept a pretty good haircut over what they thought their home was worth last year," he says.

The downside of waiting: The market could decline or your circumstances could change to the point that you might need to sell quickly. But for situations where the move is optional (or you might be able to rent the property until your local market improves), waiting is a solid option.

Just because you've already planted that "For Sale" sign doesn't mean you can't change your mind if you're not seeing the interest you expected. "If you know there are no sales or sales are decreasing, and you have the opportunity," taking it off the market is a decent solution, says Healy. "I think we're seeing a lot of that."

8. Assess the market where you plan to buy.
If you're selling one house and buying another, look at the market where you plan to move. Says Poorvu, "It might be that, with the housing there, it's a great time to buy."

By Dana Dratch, Bankrate.com

Which kind of buyers do for-sale-by-owners attract?

2008-02-13T08:32:00.002-05:00

Did you know there are only 4 kinds of Buyers?

(1) Serious and in a hurry (they sold theirs, are relocating, etc.)
(2) Those that are serious but in no hurry (includes first time buyers)
(3) Bargain Hunters (looking for sweetheart deals)
(4) Casual Lookers (those who will never buy)

Which kind of buyers are you attracting?

Buyers in the first two categories are usually working with buyer agents because they are either in a hurry or they want or need help in the real estate process, and an experienced, picky buyer knows it costs them nothing to have an agent do their homework for them.

Nearly 90% of all buyers are not qualified to purchase homes they are looking at - The serious buyers are pre-qualified and are looking where the bulk of listings are; in the MLS and on Realtor.com.

For-Sale-By-Owners are often left working with Bargain Hunters and the Casual Lookers because those buyers expect to pay less than market value by buying directly from the owner! In fact, the Buyer Expects to Save the Same Commission you are trying to save!!

Case in point; if you sell a car directly to a dealer, you’ll likely sell it for less than market value; and when a buyer buys a home directly from you, he expects the same treatment. But when a buyer buys a car from a dealer, he expects to pay fair market price!! That’s why on average, FSBOs sell for 9.5% less than listed homes! If you’re selling directly to a buyer, chances are they’re a Bargain Hunter!

Fact: 97% of all properties are listed with real estate companies. So then what? If the bulk of serious buyers are looking either on the MLS and/or Realtor.com, how do you get your property listed there and KEEP THE OPTION OF SELLING BY OWNER?

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Real Estate Your Way at MichiganListing.com

Most consumers don't understand foreclosure

2008-02-13T08:26:00.002-05:00

Many unaware that loan servicers get bonuses for doing loan workouts

When it comes to the foreclosure process, most homeowners are clueless.

According to an update of Freddie Mac's "Foreclosure Avoidance Research Survey," homeowners are generally unaware of many of the options available to them when struggling to make a mortgage payment.

Worse, the study found that 20 percent of people say that nothing would happen after missing three or more mortgage payments because "it takes a while for anything to happen if a person is late on a mortgage payment."

In fact, in some states the foreclosure process can begin as quickly as 30 days after you have missed a mortgage or home-equity-loan payment.

Why aren't more homeowners tuned into to the repercussions of the foreclosure process?

"Fear and embarrassment," explains Robin Stout Migala, senior delinquency resolutions manager for Freddie Mac. "Some borrowers bury their head in the sand, hoping that everything will be OK tomorrow."

In the survey, 75 percent of those who are delinquent on their mortgage said they tried to contact their mortgage lender directly to discuss their financial difficulties. But Stout Migala says industry observers commonly believe just half of those who go through the foreclosure process have spoken to their lender.

"They think foreclosure is the only option, and that there is no hope, and that nothing can be done," so they don't call, she says. "After we foreclose on a piece of property, we find all the literature from the mortgage servicer in the home, unopened."

The number of foreclosures jumped nearly 80 percent from 2006 to 2007. But if the more than 2 million Americans facing foreclosure this year don't wake up to the options that are available, the number of actual foreclosures could grow exponentially.

What most homeowners don't realize is that Fannie Mae and Freddie Mac, the largest players in the secondary mortgage market, encourage mortgage servicers to avoid foreclosure whenever possible. They grade servicers on how well they're working out delinquent loans.

"We not only rank them, we pay them to do workouts. They get a certain dollar amount for every workout type. We spent $7 million in cash bonuses" on the program last year, Stout Migala explains.

What should you do if you can't pay your loan?

1. Call your lender immediately. The sooner you contact your lender (look for the toll-free number on your monthly statement), the more options will be available to you. Ask for the loan mitigation department.

2. Talk with a reputable credit counseling agency. You can call the Homeownership Preservation Foundation (toll-free 888-995-HOPE) or find a local HUD-approved counseling agency (toll-free 800-569-4287 on weekdays) or go to www.hud.gov.

3. Know your loan modification options. Depending on how quickly you call your lender, the following loan modification options may be available to you: forbearance (an agreement to temporarily let you pay less or nothing while you get back on your feet); reinstatement (pay the total amount you're behind in a lump sum by a certain date); repayment plans (you'll be given a fixed amount of time to repay the amount you're behind by combining a portion of what's past due with your current payment); and, loan modifications (a written agreement between you and the lender that permanently changes one or more of the original terms of your loan to make it more affordable, such as extending the loan term or lowering the interest rate).

If your financial circumstances have changed so much that you can no longer afford to keep your house, your mortgage company may offer you one of the following options to forestall the foreclosure process:

Loan assumption. Even if your mortgage isn't assumable, your lender may allow someone else to take over the payments and bring the loan current. This may allow you to sell your home.

Short sale. This option, which has been in the news lately, allows you to sell your house for less than the amount that is owed on the mortgage. Recent, but temporary, changes to the IRS tax code mean that the difference between what you owe and the amount you're selling for may no longer be taxable as income.

Deed-in-lieu of foreclosure. You may be able to transfer title to your property to the mortgage company in exchange for the complete cancellation of your mortgage debt. In most cases, your lender will have required you to try to sell the house for 90 days before a deed-in-lieu will be considered.

If you find the possibility of foreclosure to be overwhelming, and want more information, be wary of going to friends and family or even the Internet for guidance, Stout Migala warns.

"There could be a lot of misinformation going around," she says.

You could also wind up being snared by Internet scam artists posing as credit counselors or in a foreclosure rescue scam. The best place to start your search for information on the foreclosure process is at the HUD.gov Web site.

By Ilyce R. Glink
Inman News

Do I qualify for mortgage debt relief?

2008-01-31T12:29:00.000-05:00

Tax help for Homeowners
Thursday, January 31, 2008

It's January, which means it's time to start thinking about filing your taxes. But you may need extra tax help this year, thanks to an active December on Capitol Hill.

In late December, President Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which provides tax help for homeowners facing foreclosure or who sell their homes in a short sale.

Previously, if the value of your home declined and your bank or lender forgave a portion of your mortgage debt, the tax code treated the amount forgiven as income that could be taxed, according to Eric L. Smith, a spokesman for the IRS.

In other words, if your lender forgave $20,000 in mortgage debt because your house was worth $20,000 less than your mortgage balance, the IRS treated this debt forgiveness the same as income that you earned from your job -- and required you to add $20,000 in phantom income to the amount of your annual income and pay tax on it at your marginal tax rate.

Instead of getting tax help at a time of great need, you were getting a kick in the pants the following April 15.

Under the new rule, taxpayers can exclude up to $2 million of mortgage debt forgiven in 2007, 2008 or 2009 on their principal residence. (The limit is $1 million for a married person filing a separate return.) According to Smith, mortgage debt reduced through restructuring, as well as mortgage debt forgiven in connection with a foreclosure, both qualify for the tax exclusion.

It's worth noting that the Mortgage Forgiveness Debt Relief Act of 2007 applies only to principal residences, not second homes or investment property, says Chet Burgess, an enrolled agent who owns Brookwood Tax Services, in Atlanta. The rules from IRS Section 121 define what a qualified principal residence is, but at a baseline, you must live there the majority of the year.

The IRS doesn't make it easy. You may need some additional tax help to be sure you're filling out the forms correctly. "The taxpayer will have to do some calculations on the side, off the tax return, in order to show the IRS how much has been forgiven," Burgess explains.

When a lender forgives mortgage debt, the lender sends the taxpayer Form 1099C or 1099A. The form should state the fair market value of the home. In the case of a short sale, Burgess says, that would be the sales price. In the case of a home that's been foreclosed upon, the lender may just put the value of the loan in the field where the fair market value of the home should be listed. Or the 1099C or 1099A form might not include a fair market value at all.

That's a problem because that number is key to the off-the-return calculations you must complete and submit to the IRS.

"Let's say someone buys a car for $10,000 and has a loan for the full amount. And let's say on the day the car is repossessed it is worth $8,000. The lender might put $10,000 as the loan forgiveness amount, even though the car is actually worth $8,000. The amount of the loan forgiveness is just $2,000, not $10,000," Burgess notes.

That's why you need to know the fair market value of the property, and be able to document that for the IRS. In some cases, Burgess has advised clients to hire an appraiser to document the fair market value.

Here's another important point: While the Mortgage Forgiveness Debt Relief Act of 2007 will allow loan forgiveness of up to $2 million on a primary residence, it's applicable only to acquisition indebtedness, Burgess says.

"The amount of money it takes to buy your existing home, build a new home, or the equity you cash out to make a substantial improvement to your home counts as acquisition indebtedness. But if someone took out $100,000 in home equity to buy a Hummer or send their kids to college, that doesn't count," he adds.

For example, let's say 10 years ago you paid $100,000 for your house and got a 100 percent loan. Five years ago, the value of your home had doubled to $200,000. So you did a cash-out refinance for $150,000, and pocketed around $50,000. If you used that money to pay college tuition or buy a fancy fur coat, and then later sold your home for just $100,000, the $50,000 that your lender forgave would still be taxable. Why? It's because you didn't use the money to buy, build or renovate your home.

How would the IRS know how you spent your cash? Burgess says you're required to submit your tax calculations along with the 1099C or 1099A with your return. If you get audited, the IRS will want to see your original warranty deed or perhaps your original HUD-1 form (that lists where all of the cash goes in a transaction). If you used home-equity money to renovate or improve the property, you'll need to provide copies of cancelled checks, original receipts and invoices and other supporting documents.

For those homeowners who are facing foreclosure or a short sale this year, Burgess said the IRS had not, as of Jan. 15, come up with a way to report all of this on your federal income tax form.

His best advice: Use electronic tax preparation software this year. The private tax software companies have poured tremendous resources into getting their forms updated electronically.

Once you complete the tax software, print your completed tax forms and then attach your calculations and paperwork to your return.

"You're supposed to be able to attach a PDF form with your statement to the e-file return, but I've heard from other tax preparers that it doesn't always work. In a case like this, I'd print the return to make sure that a human being is actually looking at each page to make sure everything is included," Burgess advises.

The IRS pre-printed forms were printed last October, and do not reflect the new tax law changes. "In fact, some of the forms have not yet been approved for filing," he says, noting that anyone subject to the alternative minimum tax (AMT) did not have the correct forms approved as of mid-January.

By Ilyce R. Glink, Inman News

House OK's Temporary Increase in Loan Limits

2008-01-30T08:01:00.000-05:00

Cap tied to median home price would limit increases
Wednesday, January 30, 2008

A $150 billion economic stimulus package overwhelmingly approved by the House of Representatives Tuesday would raise the conforming loan limit and the upper threshold for FHA loan guarantee programs to as much as $729,750 in high-cost areas -- but only until the end of 2008.

The bill would also restrict Fannie Mae, Freddie Mac and the Federal Housing Administration from guaranteeing or purchasing loans above 125 percent of the median home price for a given area. That means that should the bill become law, the existing $417,000 conforming loan limit for mortgages eligible for purchase by Fannie and Freddie would not increase in areas where the median home price is $333,600 or less.

It would be up to the Secretary of Housing and Urban Development to determine the median home price for different housing markets "as soon as practicable," but no later than 30 days after passage of the bill, relying on existing commercial data where needed.

The existing limit for Federal Housing Administration loan guarantee programs is $362,790. The higher limits for FHA loan guarantees are also set to expire at the end of the year, unless Congress passes other legislation intended to modernize FHA programs by introducing risk-based pricing and lowering down-payment requirements.

While House leaders thought they had reached an agreement with the Bush administration to include FHA modernization as part of the stimulus package, they agreed to continue working on that issue separately at the administration's request, the Associated Press reported.

Passed in a 385-35 vote, HR 5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008, would provide tax rebates of $600 to $1,200 per family and about $50 billion in tax breaks for businesses.

The Senate is debating an economic stimulus bill of its own, which could come to a vote this week. While Sen. Richard Shelby, R-Ala., has advocated tighter oversight over Fannie Mae and Freddie Mac before increasing the conforming loan limit, it's unclear whether opponents will be able to introduce amendments blocking the plan, which has the support of many Democrats.

But the Bush administration has warned that the entire economic stimulus package could be derailed if the Senate attempts to add more programs to it.

One Senator said Tuesday he will call for an additional $500 million in emergency foreclosure prevention measures in the stimulus plan, Reuters reported.

Inman News

S&P: Home Prices Plunge in November

2008-01-29T11:17:00.000-05:00

NEW YORK - U.S. home prices plunged by a record 8.4 percent in November, marking two years of slowing returns, according to a key index released Tuesday. The decline in the Standard & Poor's/Case-Shiller 10-city composite home price index was the biggest year-to-year drop since a 6.7 percent decrease in October.

The November performance was the 11th straight monthly decline. The index tracks prices of existing single-family homes in 10 metropolitan areas. "Nothing in these numbers suggest a bottoming out. The numbers universally are disappointing," said David Blitzer, S&P's managing director and chairman of the index committee. "Maybe when we get into the spring/summer home-buying season and with lower interest rates, maybe it will all come together."

The broader 20-city composite index also was down year-over-year, falling 7.7 percent in November.

Robert Shiller, chief economist at MacroMarkets LLC and one of the architects of the index, noted that 14 of the 20 metropolitan areas posted their single largest monthly decline on record in November.

Miami led the pullback with a 15.1 percent decline, followed by San Diego at 13.4 percent, Las Vegas at 13.2 percent and Detroit at 13 percent. Los Angeles, Phoenix and Tampa, Fla., also recorded double-digit declines in November.

Only Charlotte, N.C., Portland, Ore., and Seattle posted positive annual growth rates. However, Blitzer believes these cities will fall into negative territory in the next few months.

The index is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month.

It comes a day after the government reported that new home sales plummeted last year by the biggest amount on record. The Commerce Department said Monday that sales of new homes dropped by 26.4 percent last year to 774,000, marking the largest plunge since 1980.

The government also said the median price of a new home edged up only 0.2 percent in 2007 to $246,900, the worst performance since prices slipped by 2.4 percent during the 1991 housing downturn.

After five years of booming home sales and prices, housing stalled at the end of 2005. It fell into a serious slump last year as delinquencies and foreclosures surged on mortgages made to risky borrowers.

Foreclosure filing tracker RealtyTrac Inc. said Tuesday the number of U.S. homes that slipped into some stage of foreclosure climbed 79 percent in 2007 from the previous year.

So far, homebuilders and lenders have posted huge losses, while Wall Street investors, including major national banks, have taken billion-dollar write-downs on securities backed by mortgages.

On Tuesday, the nation's largest mortgage lender Countrywide Financial Corp. said it swung to a loss in the fourth quarter due to rising loss provisions and impairment charges. Earlier in the month, Countrywide said it will sell itself to Bank of America Corp. for about $4 billion in stock.

The fear has seeped into the broader market, creating a squeeze on all types of credit and curbing consumers' willingness to spend. Economists worry the prolonged housing downturn could plunge the economy into a full-blown recession.

The Federal Reserve has stepped in to stem the fallout by slashing a key interest rate by 1.75 percent since September, including an unexpected emergency three-quarter-point cut to 3.5 percent last week. The central bank begins its two-day meeting Tuesday.

Also last week, President Bush and House leaders agreed on a $150 billion economic stimulus package which included a plan to increase the size of mortgages Fannie Mae and Freddie Mac and the Federal Housing Administration can handle. But critics believe more dramatic action is needed.

By J.W. ELPHINSTONE, AP Business Writer

Homes in Foreclosure up 79% in '07

2008-01-29T08:16:00.000-05:00

Two studies cast doubt on potential for foreclosure relief
Tuesday, January 29, 2008

The number of households in foreclosure increased 79 percent in 2007, with about one of every 100 U.S. households at some stage of the foreclosure process, according to the latest numbers from data aggregator RealtyTrac.

The numbers come on the heels of two reports -- one by a consumer advocacy group, the other by an industry association -- that suggest the Bush administration's foreclosure prevention efforts will fall short of expectations.

Nationwide, RealtyTrac tallied 2.2 million foreclosure-related filings during the year on about 1.3 million homes, a 75 percent increase in filings from 2006.

Foreclosure-related filings include default notices, auction sales notices and bank repossessions. Because one home may be subject to several filings, the number of foreclosure-related filings is larger than the number of foreclosures.

Although not every foreclosure is captured by RealtyTrac, the numbers can serve as a benchmark for tracking foreclosure trends. The year-end statistics 2007 reveal state-by-state trends for the fourth quarter and December.

The foreclosure picture improved at the end of the year for some states in the Midwest and Northeast including Ohio, Indiana, New York and New Jersey. But foreclosure filings were up sharply in December in some of the states already hardest hit by foreclosure, such as California, Nevada and New Mexico. According to RealtyTrac, foreclosure filings fell dramatically during December in Ohio (-26 percent), Indiana (-34 percent), New Jersey (-23 percent) and New York (-20 percent).

But the number of foreclosure filings during the final month of the year rose sharply in California (up 33 percent), Nevada (up 64 percent) and New Mexico (up 58 percent).

California and Florida, with foreclosure filings on 414,804 properties, accounted for about one in three of the 1.3 million homes RealtyTrac determined were at some state of the foreclosure process during 2007.

Michigan, Ohio, Illinois and Indiana accounted for another 269,479 homes. All told, slightly more than half of all homes RealtyTrac said were hit by foreclosure filings last year were located in those six states.

The states with the highest household foreclosure rate were Nevada (3.38 percent), Florida (2 percent), Michigan (1.95 percent), California (1.92 percent), Colorado (1.92 percent), Ohio (1.8 percent), Georgia (1.57 percent), Arizona (1.52 percent) Illinois (1.25 percent) and Indiana (1.03 percent). The U.S. average was 1.03 percent.

The latest numbers show growth in foreclosure filings leveling out during December and the fourth quarter in crucial foreclosure states like Florida, Michigan and Colorado.

In Florida, foreclosure filings were up 6.8 percent in December compared to November, and grew 4.8 percent between the third and fourth quarters in 2007. Growth in foreclosure filings in Michigan was essentially flat during December at 1.6 percent, and the number of filings decreased 16.6 percent in the fourth quarter. Colorado showed a 2.5 percent decline in foreclosure filings during December, and a 3.9 percent fourth-quarter drop.

Some properties may have just entered the initial stage of foreclosure in 2007 and could be going through the rest of the foreclosure process in 2008, unless lender and government intervention efforts begin to gain more traction, said RealtyTrac Chief Executive Officer James Saccacio in a statement accompanying the release of the report.

The Center for Responsible Lending released a pessimistic report Monday that estimated the Treasury Department's HOPE NOW initiative involving voluntary loan modifications by loan servicers will prevent only 118,200 foreclosures, or about 3 percent of outstanding subprime mortgages with adjustable interest rates. The report estimated that 3.5 million families with adjustable-rate mortgage (ARM) loans face interest-rate resets in the next two years.

Another study reportedly being circulated by members of the American Securitization forum estimated that the Bush administration's new FHASecure program, aimed at helping ARM borrowers who have defaulted refinance into fixed-rate loans, will help only about 44,000 borrowers.

According to a Reuters report on the study, it recommends expanding the FHASecure program to include borrowers with fixed-rate loans and seriously delinquent borrowers who have demonstrated the ability to make steady payments.

The study did not analyze the impact of a proposal to increase the maximum-size mortgage eligible for FHA loan guarantee programs from $367,000 to nearly $730,000.

A spokeswoman American Securitization Forum, Katrina Cavalli, said in a statement that the group "supports responsible expansion of FHA and other sustainable refinancing opportunities. While we are discussing a number of ideas with our members, we have not endorsed any specific proposals as yet."

Courtesy of Inman News

Real Estate Outlook

2007-11-30T13:12:00.000-05:00

Maybe it's the beginning of a trend:

For the second straight week, there's been more economic good news for housing and real estate than bad.

Pending home sales -- houses under contract but not yet closed -- rose by two tenths of a percent in the latest report from the National Association of Realtors. That's not a lot-but it's the first directional change in months on this important, forward-looking indicator.

The latest home sale projections for the year are also more positive than the impression you get from reading the papers. Existing home sales are now forecast at 5.7 million for 2007 -- making it the fifth highest sales year on record.

Yes, everybody knows that sales are down significantly in many areas from the record-setting boom years of 2004 and 2005, but those numbers were unsustainable and way off the charts.

New home sales will add another 800,000 onto that 5.7 million -- giving us total sales of six and a half million homes this year. Any way you look at it, that's a lot of homes changing hands!

Despite negative news stories, the economic fact is that the national housing market is very much alive -- and large numbers of consumers are successfully buying and selling every week.

A key reason this is possible is that mortgage money remains affordable and readily available for most applicants who can document income and assets and have moderately good credit. The Mortgage Bankers Association of America reports that interest rates rose slightly this past week -- but at 6.19 percent for 30-year money and 5.8 percent for 15 year loans-rates are still less than a point above all-time historic lows.

Another piece of positive news comes from the Federal Reserve Board: American homeowners' equity stakes are withstanding the post-boom correction phase very well, and continue to hover just under the eleven trillion dollar level.

That is down slightly from the prior quarter -- after all, that's what happens during cyclical corrections -- but it's still $48 billion higher than it was just 12 months ago!

A new study released last week by research firm First American Corelogic offers insight on why the Fed's home equity numbers remain high: It found home values stable or rising in twice as many markets as they are down.

That's the real economic outlook for real estate, though not necessarily the one you get on network TV.

By Kenneth R. Harney
November 30, 2007
Copyright © 2007 Realty Times.

The 'No Buyers' Market!

2007-11-11T09:32:00.000-05:00

There are two parts to this column. The first is for home buyers and the second is for home sellers:

Buyers, everyone is telling you it's a buyer's market. Guess what, they are not telling you the truth. We are not in a buyer's market now. We are in a "no buyers market." If it were a buyer's market then all the buyers out there would be buying, but they are not.

That is why the inventory of homes is creeping up and up. Buyers are waiting because they think they will get a better deal later on. Home prices have slipped a little this last year, but nothing is falling off the cliff. You can wait until next year and maybe the prices will go down some more ... by 1 percent or 2 percent. Have you saved enough to actually wait when you can get the same savings now by entering serious negotiations with a seller? And while you are waiting, some other smart buyer has bought that dream home out from under you.

The people who are finding the right home now and negotiating hard for a good price are the ones who are getting the good deals. All the other people who are "thinking about buying" are missing the good deals. They will wait until the market turns around and becomes a seller's market.

Think about that for a second. You don't get the best deal if you wait until everyone jumps back into buying homes again. Smart buyers are buying now.

The second part of this column is for sellers who are wondering where the buyers are and why haven't they bought their home. Any home can be sold today if you follow the three most important things about real estate:

Sellers, for years it was suggested that the three most important things in real estate were location, location, location. Once and for all, let's put that old joke aside. It has never been true. You can have the best location in the world for a home and it still will not sell. And there are homes in the worst locations that do sell. Why?

The location of your home may give you more money when you sell it. But you probably paid more for that same location when you bought the home, so the location did not really help you.

The real rules to know are price, presentation and management of the sale, which I will explain.

Rule 1: Price. We are talking about the asking price. In most cases the asking price is based on four factors. The first factor takes into consideration the homes similar to yours that have sold recently. Going back a year will give you a false price, because the market is always changing. The homes sold in the last six months will be an indicator of where the market is. It is not a perfect indicator, because we are looking backwards, but good enough.

The second factor is the homes that were for sale but did not sell. One of the major reasons homes do not sell is that the asking price is too high.

The third factor is the homes that are currently for sale. This is your competition. When it is time for a buyer to decide whether to buy your home or a home down the street, well, that is not the time for your home to be the bridesmaid. You want to be the bride.

Finally, the weakest of the four factors is that good old "gut" feeling. Too many homeowners rely more on that than on the other factors. Don't make that mistake. Your home is special, but until someone buys it, it's just another home for sale.

Rule 2: Presentation. When you go to the grocery store you pick out the best-looking fruit and vegetables. The same is true for home shopping. If it looks good, someone will buy it. If it looks bad, then only the cheap bargain hunters are going to make an offer, and they rarely give you a good offer.

Here are a few suggestions. Put in those higher wattage compact florescent lights to make the home look brighter. Don't just tidy up, throw the clutter out or give it away. Trim the shrubs. Shampoo the carpets. Paint the walls. Get rid of the animal smells. Set the dining room table as if royalty were coming to dinner.

The small amount of effort you make to present your home properly will reap significantly higher offering prices. Ask your agent to help you stage your home. And remember that your agent is trained and has many years experience selling homes, so listen when he or she tells you that you need to change a few things in order to sell your home.

Rule 3: Management of the sale. It is very difficult for homeowners to know all the information about pricing. The vast majority of homes are sold by a real estate agent who has ready access to that information. Online sites that offer to help you price your home properly are often badly out of date. But that is not the only reason to have a Realtor manage your sale.

Research has shown that a home sold by an agent will produce anywhere from 16 percent to 30 percent more dollars for the seller than owners selling on their own. That easily pays for the professional fee. Plus the agent is going to make sure everything is done correctly to safeguard the sale. That includes all the marketing and showings of your home.

If you set the price correctly for the current market, if you present your home in the best possible light and if you have a professional real estate agent manage the sale for you, then your house will sell.

By The Times-Union - David Anderson is a licensed real estate agent for Watson Realty Corp. and a member of the Northeast Florida Association of Realtors.

Consumer Understanding of Credit Scores "Poor" and "Costly"

2007-07-30T10:31:00.000-05:00

A new national research study found that American consumers have a "poor" grasp of the mechanics and importance of credit scores -- a lack of knowledge that can cost them thousands of dollars needlessly when it comes to obtaining a home mortgage.

The study, conducted by pollster Opinion Research Corp. and sponsored by Washington Mutual and the Consumer Federation of America, surveyed a nationally representative sample of more than 1,000 consumers.

Misunderstandings about credit scores were rampant:

Less than a third (29%) of respondents were aware of the meaning or uses of credit scores -- that they predict the risk of nonpayment of loans.

Less than half (47%) knew that Experian, Equifax and Trans Union are national credit bureaus.

Less than a quarter (24%) knew that the lowest FICO score needed to qualify for a low-cost mortgage generally is around 700.

Only 45 percent of consumers polled were aware that they have more than one score-one each from the three credit bureaus. Scores on the same individual from the bureaus differ at least slightly because each bureau has different information on file.

A stunning three quarters (74%) of respondents said they believe that their income level influences their credit score -- despite the fact that the credit bureaus have no access to data on personal income, and do not maintain records on income. One third said they believed their scores were tied, at least in part, to their educational attainments.

Thirty-four percent of African-Americans said they believe that credit scores are affected by race or ethnicity, contrary to federal civil rights laws.
"Overall," said Stephen Brobeck, executive director of the Consumer Federation of America, "the results (of the study) were sobering." Consumers' "understanding is poor and has not improved over the past two years." CFA co-sponsored a similar survey by Opinion Research Corp. in 2005. The current study, conducted during the month of May, has a statistical margin of error of plus or minus three percent.

Americans' lack of correct information about scores and the credit system is costly, according to the survey. If all consumers raised their FICO scores by just 30 points on average, "total consumer savings would exceed $20 billion" a year.

The potential impact on home buyers is especially severe. Using data compiled by Fair Isaac Co. from regular surveys of mortgage lenders, if an applicant seeking a $300,000 fixed rate mortgage raised his or her credit score from 580-619 to 660-699, the applicant would save $5,148 in annual interest payments.

Raising the score from 620-639 on a 15-year home equity loan of $50,000 would cut annual interest costs by $1,044.

The same pattern of savings exist in other areas of consumer finance as well, noted Brobeck. For example, raising one's score from 590-619 to 660-689 would cut interest payments on a 36-month $25,000 auto loan by $708 a year. Significant savings can also be achieved by raising scores in advance of applying for insurance or even cellphone service.

But "mortgage finance is where the biggest savings are possible when a consumer understands credit scores" and knows what factors raise them and lower them, said Brobeck in an interview. CFA and WaMu said they recommend that consumers-and the professionals who advise them-redouble their efforts in the field of credit literacy. Vast educational resources to help in that endeavor exist on the Web, and a good starting place for understanding scores is Fair Isaac's site, www.myfico.com.

by Kenneth R. Harney
Published: July 30, 2007
Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation.
He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.

How to find a deal when shopping for mortgage insurance

2007-07-30T10:18:00.000-05:00

A puzzled new homeowner came up to me recently with a stack of junk mail in hand.

"Why would they send me letters about mortgage insurance?" she asked. "I made a bigger down payment just so I wouldn't have to have mortgage insurance."

What she didn't know is that there are two kinds of mortgage insurance and she didn't need either one.

Private mortgage insurance, or PMI, is insurance that lenders typically require if your down payment is less than 20 percent of the purchase price. It protects the lender if you default on your payments. When you build adequate equity, you can eliminate it.

Mortgage life insurance is what some companies try to sell to new homeowners. It pays off the mortgage if you die. Some varieties are offered as part of a broader "mortgage protection program" that will pay your monthly mortgage payment if you become disabled, lose your job or, in some cases, come down with a covered medical condition. (Limitations apply.)

If you get one of these solicitations, the first question to ask is whether you need any more insurance. If the answer is yes, the solicitations in your mailbox should be the last place on your list to shop for it.

A far better starting point: a few reputable insurance companies whose rates can be checked on the Internet or by telephone to find out what a standard term life insurance policy would cost you. You also may be eligible to buy term life insurance through a membership organization or your job.

Specialty insurance products tied to mortgages, credit card debt or dreaded diseases are rarely as good a deal as standard, more comprehensive insurance.

However, they can be beneficial as a last resort. If you have health problems and cannot qualify for a standard policy, a specialty product like mortgage life insurance could give your dependents some needed protection. A medical exam typically is not required, although you may have to answer some health-related questions.

Put your properties in the local MLS & Sell More!

2007-07-13T11:22:00.000-05:00

One of the first things you should do if you're thinking about selling is to walk through your home and examine it with a critical eye. Imagine yourself as a buyer and force yourself to make mental note of all the imperfections you've ignored for years.

Don't be surprised if you're overwhelmed by what you see. The drapes may be faded and frayed from years of sun exposure. If you have children or pets, the interior doors and baseboards may be nicked and need paint. Your furniture might be outdated and the floors might look worn. It may strike you that the place needs so much work that you ought to just move out, slap on a fresh coat of paint, redo the floors and sell the house vacant.

Painting and floor refurbishing are good ideas. Renewing the interior surfaces of your home when you sell is one of the most cost-effective improvements you can make to increase your net proceeds. Buyers usually pay more for homes that are in move-in condition.

However, selling a vacant home could result in a lower net return. The main reason for this is that first impressions play a big part in selling homes. When buyers walk into a home that looks bright, inviting and comfortable, they feel good. When most buyers walk into a vacant home, they feel that something is missing.

Many people have a hard time imagining what a vacant home will look like when it's furnished. For these buyers, a vacant house poses a problem. They walk into an empty living room and start worrying about how they'd furnish it. It can be a threatening experience.

Home buying is stressful enough without having to worry about how the floor plan works and which room is used for what. A strategically furnished house creates a more pleasurable viewing experience and reduces the stress of buying.

Granted some buyers, such as architects and designers, have the ability to conceptualize in three-dimension. Some experienced buyers have moved so many times that they've developed the knack of visualizing their furniture in an empty space. But, you are likely to sell your home for more money if you can appeal to the entire pool of prospective buyers, not just those who have a particular expertise.

You can certainly sell your home vacant. Virtually everything sells at a price. The question is how much more could you sell your home for if it was attractively furnished?

The cost of staging your home for sale may seem prohibitive, but it needn't be. Many sellers who stage their homes for sale use their own furniture after removing outdated pieces and rearranging the rest.

Tattered draperies can be removed and often don't need to be replaced, unless they cover an unsightly or distracting outlook. For selling purposes, it's important to let in as much light as possible.

It's a good idea to consult with a decorator who specializes in staging homes for sale. A stager can arrange to bring in furniture if you decide that's what you need. To keep costs down, you may be able to create an inviting ambiance without furnishing your entire house or condo.

The living and dining room, kitchen, family room and master bedroom are the most important places to concentrate your staging efforts.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Copyright 2005 Dian Hymer

Preparing to Make Retirement Move

2006-11-17T12:29:00.000-05:00

Making a retirement move can be daunting. It involves a complicated decision-making process. When should you make the move? Where do you want to live? What kind of care will you need? How much can you afford? The mere thought that a retirement move could be your last move is enough to stop many seniors in their tracks.

Deciding where to move is never easy. There are arguments for staying in the community where you've lived for most of your life. You still have friends in the area. You have doctors with whom you've developed relationships over the years. You know the area; it's familiar. This can be a comfort during later years.

On the other hand, many seniors prefer to be close to children and grandchildren. This could mean moving to a community in which they've never lived before. The trade off is having family close by, which can add significantly to one's quality of life.

Seniors who are still independent, but who want a simpler lifestyle, may decide to make their retirement move in two phases. One couple, who weren't ready to move to a retirement facility, sold their Brighton, MI. home and bought a condominium in the same area.

In doing so, they freed themselves of the burden of maintaining their large family home, which left more time and money for travel and other pursuits. They were also able to adapt to living in smaller quarters before they moved to an even smaller apartment in a continuous care facility.

A recent article in the New York Times reported that two-phase retirement moves are becoming increasingly common as seniors live longer. Independent seniors first move to an active retirement community in states like Florida and Arizona where the winters are mild. When they need more care, they move to a second retirement community closer to their children.

Seniors who are contemplating moving to a smaller home before full retirement should consider buying early as a hedge against inflation. A retired nurse who lived in a large house with stairs bought a smaller, single level home years before she needed it. She rented the smaller property to a tenant until she sold her family home. Using this strategy, she came out ahead financially. She paid less for her retirement home than she would have if she had bought it later. And she netted a higher price on the larger, more expensive home than she would have it she had sold it earlier.

The retired nurse mentioned above had no difficulty implementing her retirement move. She had worked in hospitals where she'd cared for far too many seniors who hadn't planned for their later years. They waited until they were desperate to make the move, only to find that their options were limited.

It's wise to plan a retirement move well in advance. Most good retirement facilities have waiting lists. It could be difficult to find a place where you'd like to live on short notice. Also, many facilities will only accept seniors who are in good health, and who are not yet 83 years old.

A Hartland, MI. senior didn't want to be a burden on his children as he aged. He researched his retirement options and picked a retirement facility years before he needed it. He even selected the precise unit in which he wanted to live. He was put on a waiting list and waited for over two years. During this time, he de-cluttered his home and prepared it for sale. When he received the call that his unit was available, he was ready to go.

THE CLOSING: To find retirement options by area, visit www.NewLifeStyles.com or www.seniorhousing.net.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Copyright 2005 Dian Hymer

Pros and Cons of Owning Rental Property

2006-11-17T12:28:00.001-05:00

Tired of being priced out of the market? Perhaps you should consider buying an income-producing property that you can live in, such as a duplex or triplex. The additional income could help pay your mortgage and enable you to qualify to buy a more expensive property.

Ideally, your wealth-building strategy might go something like this. You move into the property and own it long enough to accumulate equity through appreciation. Then you sell. You use the proceeds earned from the portion of the building that you occupied as a down payment on a single-family home.

You exchange the proceeds from the rental portion of the property into a larger rental property that will have more upside potential, thereby avoiding capital gains tax. Or, if you're tired of being a landlord or need more cash for a down payment, you can pay capital gains tax on the rental portion of your proceeds and plunk what's left into a new home.

Be aware that the tax consequences of owning a single-family residence are different than they are for rental properties. For example, an owner of a single-family residence is entitled to a capital gain tax exemption at the time of sale, under certain conditions.

This exemption doesn't apply to owners of rental property. In order to avoid paying capital gains tax when you sell a rental property, you have to sell subject to a 1031 exchange. So, if you buy an income property to live in, you'll be subject to two different sets of tax laws. Consult with a tax advisor who knows the ins and outs of owning real estate before embarking on a project like this.

Taxes aren't the only issues to investigate before buying a property where you'll simultaneously be an owner and a landlord. A primary consideration is the price you pay. In areas where single-family home prices are high, you may also have a hard time finding a small income property that makes sense financially.

Preferably, the rents on an income property should cover the costs of ownership (mortgage payment, property taxes and expenses). Otherwise, you will pay extra each month to make ends meet. There are tax benefits for income-property owners, such as depreciation, that can help offset negative cash flow.

Since you'll be living in the property, you can afford to pay a higher price than someone who wants the property strictly as an investment. However, keep in mind that you will be re-selling it someday. If you overpay today, you may be disappointed at your returns when you sell.

Make sure to check on the local landlord-tenant laws. Some communities have rent-control ordinances. Where rents are controlled, you may not be able to raise rents to market rates. Small income properties are notorious for having low rents. Base your projections on actual and allowable, not overinflated, rents.

Find out the strength of the local rental market. The rental market, like the housing market, fluctuates over time. The most successful rental properties are often located near shopping, transportation and good schools.

Financing is usually less expensive and easier to obtain for properties with four units or less, so you may want to restrict your search to properties of this size. Also be aware that the lender may factor in a vacancy allowance in calculating how much income the property will generate. You should do the same. There will be times when you'll be without a tenant.

THE CLOSING: Finally, carefully consider if you can handle being a landlord, with all the responsibilities that entails, and one who will live in very close proximity to the tenants.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Copyright 2005 Dian Hymer

Signs the Market is Changing

2006-11-17T12:27:00.001-05:00

Hot real estate markets don't stay hot forever. In some areas around the country, the home sale market has already slowed after being robust for several years.

For years, the unsold inventory index has been used to predict which way the market and home prices were moving. The unsold inventory index reports how many months it would take to sell the existing inventory of homes for sale at the current sales pace.

Changes in the unsold inventory index are directly related to changes in supply and demand. When the demand for housing goes up, the pace at which homes sell accelerates and the existing inventory of homes for sale decreases. As inventories shrink, prices often go up as more buyers compete to buy a limited number of listings.

When demand for housing goes down, it takes longer for homes to sell. Inventories tend to rise, as does the unsold inventory index. In this sort of environment, prices may decline.

Recently, the unsold inventory index has been at an all time low nationally. However, national trends don't necessarily tell you much about the pace of your local real estate market.

The local economy, particularly the job market, has a direct impact on the local housing market. People who lose jobs don't buy houses; in fact they often sell. In areas where job growth is strong, you often find a strong housing market. On the other hand, over-building in an area can also lead to excess inventory, which can put a downward pressure on prices.

The National Association of Realtors tracks existing home sales on a national and regional basis. These figures are often quoted in the media. However, existing home sale figures aren't necessarily a reliable predictor of the direction of the housing market because they are based on closed sales. Home sales typically take 30 to 60 days to close. The Existing Home Sale Index measures past sales activity. It doesn't tell where the market is going, or even where it is today.

On March 7, 2005, the National Association of Realtors unveiled a new diagnostic tool that will be much more useful in determining the future direction of the residential real estate market. The new Pending Home Sale Index, which will be released the first week of each month, measures home sales based on the date the sales contract is accepted rather than on the date the sale closes.

NAR touts the PHSI as a "leading indicator" of future home sale activity. However, like all tools used for predicting the future, the PHSI has its limitations. For one thing, a certain number of pending sales fall apart and never close. Even so, NAR analyzed existing home sales and pending home sales for the period from 2001 through 2004. For that period, the two sales indices tracked very close to one another with pending home sales lagging 2 months behind existing home sales.

Another shortcoming is that, like all national statistics, the PHSI is of limited usefulness on the local level. To compensate for this defect, it's helpful to look at the relationship between the number of new listing and pending sales in your locale. Analyze the statistics for one month, and then compare this to the statistics for two and three months ago. Your real estate agent can assist you with this.

THE CLOSING: When there are more pending sales than available listings, this indicates a high demand market, and one that is likely to put upward pressure on prices. When there are more listings than pending sales, this indicates a softer market.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Copyright 2005 Dian Hymer

How to Make up to $250K Tax Free Every 2 Years

2006-11-17T12:27:00.000-05:00

Have you ever met a "serial home seller?". They are fascinating people, usually the "handyperson type." They also enjoy bragging about how much tax-free profit they earn buying and selling fix-up houses. Perhaps you're getting the picture.

THE 5 EASY STEPS FOR EARNING $125k TAX-FREE PER YEAR: Virtually every homeowner knows about the Internal Revenue Code 121 principal residence sale tax exemption up to $250,000 (up to $500,000 for a qualified married couple filing jointly). To be eligible for this tax exemption benefit, home sellers must have owned and occupied their principal residence at least 24 of the 60 months before its sale. Millions of home sellers use this tax break each year.

However, few home sellers use this tax exemption to create a repeatable tax-free home sale business every 24 months. Here's how to create your own tax-free home sales business:

(1) Buy a sound, well-located house needing cosmetic fix-up work.

(2) Move in, making it your principal residence for at least 24 months.

(3) Fix up the house, making profitable improvements, which cost less than the market value they add.

(4) Sell the house at a tax-free profit not more than $250,000 ($500,000 for qualified spouses).

(5) Repeat every 24 months.

HOW TO CREATE PROFITABLE HOME IMPROVEMENTS: Years ago, Mark Haroldson wrote the book "Wake Up the Financial Genius in You," which invented the term "forced inflation." The author explained that term means adding more real estate market value than the improvements cost.

Examples of profitable cosmetic improvements include painting (the most profitable home improvement of all, often adding $5 or more of market value for each $1 spent), new light fixtures, fresh landscaping, new carpets and flooring, and adding a second bathroom to a one-bathroom house.

Examples of unprofitable structural improvements (which don't add as much market value as they cost) include new roof, foundation repairs, plumbing replacement, new wiring, siding replacement, and window replacement.

In the classic best-selling real estate book of all-time, the late William Nickerson's "How I Turned $1,000 into $5 Million in Real Estate in My Spare Time" suggested the sound basic formula of spending $1 to add at least $2 in market value by making profitable cosmetic improvements. However, some improvements are obviously necessary, such as a new roof or new wiring, but they won't add as much market value as they cost. Thankfully, other improvements often add $2 or even $3 in market value for each $1 of expense.

Some home improvements are "break-even." Examples include kitchen remodeling and bathroom upgrades. Before undertaking such expensive renovations, consider their influence on the home's ultimate resale value and the home's marketability. Ask yourself "Is this improvement really necessary?"

THE MAJOR DRAWBACK OF BEING A SERIAL HOME SELLER: Just in case you haven't yet figured out the major drawback of repeatedly buying and selling homes approximately every 24 months, it is living in the house while the fix-up work occurs. Marriages have been known to end in divorce while a home is being renovated, especially if the kitchen isn't useable and the family must suffer dining out every night.

A bit of advance planning can pay off. For example, after you purchase a fix-up house, having the upgrading work completed before moving in will avoid the hassles of having workers around. My neighbors took another approach: they spent the summer in Europe while their home was completely remodeled so they could come back to a virtually new renovated home.

THE BONUS ADVANTAGE OF BEING A SERIAL HOME SELLER: Home market value appreciation is a bonus advantage, on top of "forced inflation," of being a serial home seller. In the last 10 years, U.S. homes have enjoyed the greatest market value increase in history. Percentage market value increases vary wildly by community, but houses in most towns have benefited from at least 75 percent increased market value during the last decade.

Historically, houses appreciate about 5 percent annually in market value. But some economically depressed areas have lower or even negative appreciation. Of course, you wouldn't want to become a serial home seller in such a community lacking sound economic conditions.

MISTAKES TO AVOID: If the idea of earning up to $250,000 tax-free (up to $500,000 for a qualified married couple) every two years by purchasing and living in a fixer-upper house appeals to you, there are some pitfalls to avoid:

(1) Avoid buying a house in excellent condition (it lacks fix-up profit potential).

(2) Avoid buying a "tear down" or "scraper" house. If you acquire such a property, be sure you don't pay more than its land value alone. Profiting from such run-down houses is extremely difficult.

(3) Avoid condominiums and townhouses. Even if you find a condo or townhouse needing profitable improvements, there is usually little profit opportunity because the market value is held down by recent sales prices of comparable condos and townhouses in the vicinity. You can fix up your unit to look great, but if the surrounding units are run-down, you won't earn much profit.

(4) Avoid buying a house in a bad location, high crime area, or a poor quality school district. As with any house purchase, these three criteria of home buyers will hold down the resale value of a house no matter how nice you fix it up.

HOW TO FIND PROFITABLE FIXER-UPPERS: The best way to find profitable fixer-upper houses is to work with a savvy buyer's agent who knows the local market. After explaining your criteria, your agent will alert you when a house meeting your standards hits the market, whether it is listed in the local multiple listing service (MLS) or is a "for sale by owner".

Additional sources of profitable fixer-upper houses include foreclosures, probate and bankruptcy properties, and even vacation or second homes. As always, the key to profit success is spotting houses needing profitable improvements. In other words, look for "the right things wrong" if you want to earn up to $250,000 tax-free every 24 months.

Pre-Offer Considerations

2006-11-17T12:20:00.000-05:00

Home buyers often go through an approach-avoidance dance when preparing to make an offer to buy a home. Buying a home is not only a huge investment for most people, it's also a big commitment.

If you've been renting, you will no longer have the luxury of calling your landlord when the plumbing breaks down or the roof leaks to get the problems fixed.

If you're a repeat home buyer, you're probably already used to the home maintenance drill. But if you're trading up to a larger home, you may be taking on a much bigger responsibility. That can be intimidating.

The first order of business is to sort out your feelings about making the move. Are you ready for the increased responsibilities? If you're not, perhaps you should stay put for now. On the other hand, if you continually find yourself straddling the home buying fence, maybe you need to give yourself a nudge. A fact-finding foray could help you make a prudent decision.

For some people, it's useful to make a wish list of all the features you'd like to have in a home. You should also make note of the things you don't like about your current place. Be sure to check your wish list first when you're on the verge of making an offer.

You could be attracted to a listing because it has been beautifully decorated. But in most cases, you will buy the house without the furniture. Does the house work for you without the decorations? Home buying involves compromises. But don't compromise by accepting features that you know from experience don't work for you.

Ideally, the home you buy should suit your long-term needs. Keep that in mind even if you have friends who recently made a lot of money on a home they bought a short time age. There's no guarantee that appreciation will continue at its recent breakneck pace.

If you're new to home ownership, you may have the impression that home prices only go up. But history shows otherwise. During the early 1990s, after a big run up in prices, home prices dropped in many areas. In some places, it took years for those markets to recover.

Before making an offer, make sure that you're buying in the right location. Recently a buyer found a property to buy that suited her needs perfectly. She made an offer on the property and it was accepted.

However, after a sleepless night, she realized that she could never feel safe living in the neighborhood and she backed out of the contract. Your deposit could be at risk if you back out, depending on how your contract is written. To be on the safe side, spend some time in the neighborhood before you make an offer.

Many buyers in high priced housing markets are opting for potentially risky mortgages in order to be able to buy at all. According to Harvard's Joint Center for Housing Studies 2005 State of the Nation's Housing Report, adjustable-rate mortgages, no-down payment and interest-only mortgages all gained in popularity this year.

Interest-only mortgages now make up one-third of all new home mortgages originated nationally. The percentage is much higher in high cost housing markets like San Francisco and New York City. As with any mortgage, there are advantages and disadvantages.

Make sure you understand the potential risks involved in a mortgage product you're considering by asking your mortgage broker or loan agent to present you with a worst possible case scenario.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Copyright 2005 Dian Hymer

Fix Up Work on Your Home

2006-11-17T12:14:00.000-05:00

Usually it's worthwhile for a seller to fix-up a home before putting it on the market. Listings that are in move-in condition attract more buyers. The more interest there is in a listing, the more chance a buyer will make a strong offer. Buyers tend to pay more for homes that they can move in to without doing a lot of work.

The prospect of a profitable sale is a strong incentive for some sellers to turn themselves into general contractors, for the short term. This can have a positive result because most buyers have difficulty imagining what a listing might look like if they were to do the refurbishing. There's nothing like showing the finished product to convince buyers that they'll feel at home in your home.

Another reason to consider fixing your home up for sale is that it will make it easier for real estate agents to sell it. Houses that show well are a pleasure for agents to show, so they are shown more often. If your home is a show stopper, word will get around. This can only help bring about a quick and profitable sale.

But beware. A good fix-up for sale job, including a well staged décor, can blind buyers to defects that they will surely discover after they move in. Keep this in mind when you embark on your fix-up for sale endeavors. There's a fine line between making a listing presentable and misrepresenting the condition of the property.

Disclosure laws vary from state to state. Check with your real estate agent or attorney to make sure that you don't violate your disclosure obligations in your effort to show your home in a better light.

One seller figured that his three-bedroom home would sell for a lot more if it had a family room. So, before he listed his home for sale, he converted an area of his basement to a separate room by adding paneled walls and a dropped ceiling with recessed lights. He painted, installed a carpet over the cement floor and moved furniture in to create an inviting setting.

Thanks to the seller's improvements, the house sold for a good price. However, the seller ended up being sued by the buyers because he failed to disclose that the house had a serious drainage problem. The house was located in California where home sellers are required by law to disclose all material facts when they sell.

Not only did this seller fail to disclose the problem, he intentionally led the buyers to believe that the downstairs room was usable living space. However, during the first heavy rain storm after the buyers moved in, the basement flooded. The basement improvements were damaged beyond repair.

Before tackling a major fix-up-for sale project, have your home thoroughly inspected so that you are aware of any serious problems. You may want to make some repairs while you're preparing your home for sale. However, if your renovations conceal rather than correct a problem, make sure the buyers are aware of this before they make an offer.

Sellers often fear that disclosing defects will keep their home from selling. Actually, the opposite is true. Buyers who are aware of defects before they buy usually don't sue the seller after closing. However, when buyers find out after closing that the sellers intentionally concealed a defect, it's a different and often unpleasant story.

It's good to prepare your home for sale in order to show off its potential. But, concealing material defects in the process can get you into trouble.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Copyright 2005 Dian Hymer

Pricing Your Home to Sell

2006-11-17T12:10:00.000-05:00

The number of home sales in July was the third highest ever recorded, according to the National Association of Realtors. But anecdotal evidence suggests that the market is changing. In some areas of the Midwest, home sales have slowed considerably.

It's still a great time to sell provided you have realistic expectations. Interest rates are low, which means that buyers can afford to pay more than they would if rates were to rise significantly.

Here's what home sellers should consider if the market shifts from a strong seller's market to a more sensible balanced market.

You will probably face more competition than you would have if you sold last spring. Other homeowners also think now is a good time to cash in on the phenomenal appreciation that has occurred over the past few years. This doesn't mean it's not a good time to sell. But it does mean that you might not sell with multiple offers, so don't count on extreme overbidding. It could also take longer to sell. You might face more negotiation.

Lately some sellers who waited to hear offers ended up with none on the designated offer date. In most cases, this was due to over-pricing. The listings that are still attracting multiple offers are those that are priced competitively. With all the talk about home prices being over-inflated, it's easy to understand why buyers would have no interest in making offers on overpriced listings.

Sellers who overprice their homes have two options: They can either play the waiting came, or they can reduce their asking price to a level that attracts buyers' interest. It's risky to wait. If the market slows further, you could have to make a much larger price reduction.

Think big when you consider discounting your price. A reduction of less than 5 percent of the purchase price is not likely to have much effect. If you're going to lower your price to ensure a sale, make a meaningful price reduction.

When the inventory of homes for sale increases, buyers have the luxury of being more discriminating. They will also tend to be less forgiving on inspection issues. During a hot seller's market, buyers often agree to purchase listings in their "as is" condition regarding such things as wood pest damage. So if you have the time, you might consider making some repairs before putting your home on the market.

THE CLOSING: Don't waste your time testing the market at an unrealistic price. This market is for serious sellers. There are plenty of serious buyers for listings that are priced for sale at current market value.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Copyright 2005 Dian Hymer

Are Fixer-Uppers a Good Idea?

2006-10-26T10:59:00.000-05:00

There was a time when no one wanted to buy a dilapidated "money pit." That was before the days of high appreciation rates and low inventories of homes for sale. Now fixers are almost as popular as homes that are in move-in condition.

For example, a couple of years ago, a home that was in such bad shape that it wasn't livable sold with nine offers. In fact, the buyers didn't fix up the house for immediate resale. They fixed it up for themselves and lived in it for a couple of years. When they sold, they did recoup their investment, but only because home prices appreciated more than 10 percent the year before they sold. However, they did not sell for significantly more than they invested, much to their disappointment.

Before jumping into a fix-up project, do your homework and be objective about the upside potential of any project you consider. The primary considerations are the price you pay, the cost of improvements, your carrying costs and the expected selling price.

The most difficult part of rehabbing for profit in this market is finding suitable property to buy at the right price. In some areas, low inventories and high prices are causing more buyers to consider buying a less expensive home that needs work. It's hard for an investor to compete with a buyer who plans to fix up the property for himself rather than fix it up to sell for a profit.

The key to success is being able to walk away from a project that doesn't make sense. If you pay too much going in, you'll make less when you sell unless you skimp on renovations or home prices escalate. Don't be too quick to wrap up a deal. Successful real estate investors often make offers on hundreds of candidate properties before finalizing a purchase.

Be realistic about the renovation costs. It's wise to pad the estimates on the high side to cover for unexpected expenses. When renovating an older property, there's always the risk of an unknown defect that will push you over budget.

The best fixer projects are the ones that need only cosmetic improvements. But, these are also the ones that attract buyers who will fix the property up for themselves. These buyers can afford to pay more because they don't need to pay themselves a profit.

Beware of the fixers that no one wants. These might have a serious or incurable defect, like freeway noise, that will limit your upside potential. The buyers in the above example would have realized more from the sale if it weren't for the fact that the property was subject to freeway noise.

Buying fixer-upper properties in this market is risky because of the fact that home prices have experienced extreme appreciation in some areas during the last few years. No one knows for sure where the market and home prices are heading. But, if your buy now and the market slows down and you can't sell quickly for a profit, you'll be looking at higher carrying costs and perhaps a lower price.

THE CLOSING: Keep in mind that your goal is making a profit. It there isn't profit potential, save your money until you find a project that makes sense.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Copyright 2005 Dian Hymer