Homeowners Need to Know

In the Boy Scouts, a certification, called a Totin' Chip, is required for scouts to carry, and use woods tools like a knife, axe and a saw.  They must read and understand the use and safety rules from the scout handbooks and demonstrate the proper handling, care, and use of each.

No such certification is required for homeowners but there are a lot of good reasons why it should be self-imposed.  Making minor repairs is part of the responsibility of owning a home that will save both time and money.

A homeowner will certainly appreciate the need for such training the first time a call is made to a service company to fix their air conditioner that suddenly quit cooling.  When the repairman arrives, he has a checklist which includes verifying the unit is getting electricity.  If not, they go to the electrical panel to see if a breaker has been thrown.

It can be very humbling and expensive to have to pay a service fee to have a repairman flip a breaker to get your air conditioning working again.

The basic items every homeowner should be able to do the following:

• Turn off the water in case of an emergency.
• Reset a circuit breaker.
• Change the HVAC filters and clean the outside coils.
• Clean a dryer vent.
• Reset a garbage disposer and dislodge a jam by spinning the flywheel
• Unclog a sink or drain.
• How to plunge a toilet and when to use an auger.
• Re-caulk a bathtub or sink
• Light a pilot light on a water heater or furnace
• Change the batteries on a smoke alarm

YouTube can be a great resource for searching the millions of videos that have been uploaded to help homeowners with all sorts of do-it-yourself projects.  You should be able to find one that addresses your particular situation, and you can determine if you have the skills and tools to handle it.  If not, check our list of Service Providers or just ask for a recommendation.

No Need to Make Common Mistakes

A successful home sale, considered by many owners, is to maximize their proceeds in the shortest time with the least inconveniences.  Just because it is a seller's market doesn't mean that homeowners can shortcut some of the steps that make it happen and they certainly need to avoid commonly made mistakes.

Pricing too high

Low inventory and high demand have contributed to the rising prices of homes.  NAR reports that the median sales price is up 17.8% in the past year and CoreLogic recently released data that July set new record growth of 18% year over year.  This might give sellers a false sense of security about overpricing their home

Pricing a home too high initially can limit activity, attract the wrong buyers and ultimately, cause the home to realize a lower price than optimum.  There is an interesting dynamic that takes place when there is a shortage of homes to show, and a new home hits the market.  Buyers, who have been in the market but not purchased yet, will rush out to see the home.  They are familiar with what homes are selling for and possibly, have even lost bids on one or more.

These savvy buyers expect certain amenities based on the price of the home.  They can tell if a home is priced right or not.

Failure to do Market Preparation

There are people who will buy a home that is not pristine and does not have everything in good working order, but they usually will not pay top dollar for the home.  They recognize the money that needs to be spent and will adjust the price accordingly.

To command the highest price, the home needs to be spotlessly clean with everything working as it should be.  The home needs to be depersonalized to appeal to the broadest group of people.  The clutter needs to be removed so it isn't distracting or give the impression that the rooms, counters, or closets are small.

It is important to evaluate if painting is necessary along with replacing floor covering, appliances and/or light fixtures.

Thinking the agent doesn't matter

Market time is down to 17 days and 89% of homes are sold within a month.  These statistics might be used to rationalize that an agent is not currently playing an important role in the home but that would be a mistake.

Nine out of ten homeowners use an agent, and the four most important reasons were to help sell the home within a specific timeframe, help price the home competitively, help seller market the home to potential buyers and help the seller find ways to fix up home to sell it for more money.

Being present during showings

It may not be convenient, but sellers should try to leave the home when it is being shown.  Buyers like to look at the home freely and ask questions or point out things to their agent.  Sellers may have the best of intentions, but they have not established rapport with the buyer and don't really know what is causing the questions.

Not letting your agent negotiate for you

The role the agent plays as third-party negotiator is one of the most important things an agent does for a seller.  It begins long before buyers even make an offer.  The protocol is for the buyer's agent to go to the listing agent with the question and if necessary, they can ask you and get back to the buyer's agent.

Buyers and sellers have inherently different objectives.  Sellers want the highest price and buyers want to pay the least.  Sellers want the terms of the contract in their favor and the buyers want them to favor them.  Buyers want lots of contingencies to let them out of the contract and sellers want the fewest possible contingencies.  Sellers want the most earnest money and buyers want to put up the least possible.

Agents are skilled at negotiation not only because of training but also experience.  Sellers' experience is usually limited to personal transactions separated by years in frequency.   Agents see multiple transactions in their daily business and can guide people through difficult areas.

Not responding to offers in a timely manner

Normally, an offer can be withdrawn, at any time, up until the point that it is accepted.   The expression a bird in the hand is worth two in the bush reminds us that the offer you have is real and the ones in the bush, may never come to fruition.

A common situation occurs when there is large amount of activity on the home and an offer comes in quickly.  Instead of negotiating on that offer, the sellers wait to see if any better ones are received.  By waiting, the seller runs the risk of the buyer changing their mind.

Alternatively, in the same situation described, the seller may decide to put the home on the market on Saturday morning and let prospective buyers know that they will be deciding on all offers received over the weekend on Sunday evening.

Your agent is a valuable part of selling a home who can offer advice, bring perspective to the transaction, and suggest different ways to help you achieve your goals.  Once you have the right agent, everything else will start to fall into place.

A Lesson from a Pro

A well-known professional home stager, recently, decided to sell the 4,000+ square foot home which she lived in with her husband.  It was certainly well maintained and by most standards, could have gone on the market immediately.  However, she still went through a full staging effort before she listed the home.

The work included painting inside and out especially, changing the kitchen cabinets from gray to white.  The carpet was replaced along with a few dated light fixtures.  They stained the fence and added minor landscaping to make it look fresh and inviting.  They removed personal items from the home that might be distracting and replaced some furniture that was too large and might have limited a buyer's imagination.

The home looked, smelled, and was clean.  It had great drive-up appeal.  Each room looked like it belonged in a magazine and the professional photos let potential buyers see the home before they visited it in person.  When the home did come on the market, it sold in five days, above list price, with multiple offers, and for a considerably higher sales price than previous comparable sales had indicated it would.

The lesson to be learned is that even if a home is in good condition, taking the time to go through the steps to make it look its best will generate the kind of results that every seller hopes for when selling their home: the highest possible price, in the shortest time with the least amount of inconvenience.

Equity, Price and the Agent You Select

A Seller's equity in their home is the difference between what the home is worth and what they owe.  At any point in time, it is an estimation because value is a very subjective term.  If the seller thinks the home is worth more than an actual buyer will pay for it, the estimated equity is too high.  If a buyer is willing to pay more than the seller believes the home is worth, the estimated equity is too low.

A true determination of equity becomes more objective when the home is sold, and the value is solidified by the sales price.  This value is determined by negotiations between a seller and buyer and eliminate speculation and conjecture because money and title are being exchanged.

The equity being defined above is more accurately referred to as Gross Equity.  After the ordinary and necessary expenses connected with the sale of a property are deducted from the sales price, along with any mortgage balance and/or liens, the proceeds are referred to as Net Equity.

Like in business, the goal is to maximize revenue and minimize expenses, the same is true in selling a home.  The goal is to achieve the highest possible sales price while keeping the expenses as low as possible.

Setting the price of a home is ultimately, the seller's decision.  It is critical because not only will it impact the amount of proceeds the seller realizes, but it can also affect the length of time it takes to sell, how much activity it will generate from buyers, and eventually, whether it sells at all.

The cost of a home is what the seller paid for it and the improvements made.  Cost has no relationship to value.  Market value is the most probable price willing and informed buyers and sellers can agree upon in a competitive market in a reasonable period.

Price the home too low and the seller has unrealized proceeds.  Price it too high and it eliminates interested buyers.

Preparing the home to go on the market has expenses involved.  Things like painting the front door or adding landscaping to increase the initial appeal is an investment to attract the buyer's attention. While it may not add value to the home, it is an important element.

Decluttering the home takes time and may even involve temporarily renting a storage facility for things that may make your home feel smaller or detract from making your home as visually appealing as possible.

There are obviously selling expenses involved in the sale of a home which can vary based on the price of the home, what is customary in your area and negotiations in the sales contract.  Your agent can advise you on these so that you don't pay anything out of the ordinary and can provide you an estimate of what is to be expected.

Your real estate professional can provide you the information necessary to decide on price.  However, do not confuse your decision on whom to market your home by the price indicated by the market and reported by the agent. 

The market determines the value, and the seller sets the price.  Your decision in selecting an agent should be based on trust, reputation, integrity, and the ability to execute a successful marketing plan.

In today's market, on average, homes, are selling in 17 days and sellers are seeing an average of five offers.  It is not uncommon for homes to sell for more than the list price, assuming they are not priced dramatically over the market initially.

Discuss with your real estate professional pricing your home slightly below market value and using a "coming soon" promotion to encourage increased buyer interest and possibly, encourage multiple offers.

Rising Rents - Music to Your Ears?

Rents going up may not be pleasant to hear for tenants, but it could be music to your ears if you are an investor.

The recent CoreLogic Single-Family Rent Index, April 2021, showed a 5.3% increase in national rent year over year which doubled the increase experienced in April 2020.  This is the largest annual rent price increase in nearly 15 years.

Interestingly, detached rentals are experiencing an even higher growth rate of 7.9% year over year compared to the 2.2% annual rate for attached rentals.  This is supported by the CoreLogic report that half of millennials and 2/3 of baby boomers "strongly prefer to live in a single, stand-alone home."

From an investor's point of view, single-family rentals offer large loan-to-value mortgages at fixed interest rated for long terms on appreciating assets with definite tax advantages and reasonable control. 

Rentals are considered to be the IDEAL investment because if offers income to offset the carrying cost of the investment; depreciation contributing to annual cash flows with a non-cash deduction; equity build-up because a portion of each payment is applied to principal reduction; appreciation with increases in value; and, leverage that increases the overall yield through the use of borrowed funds.

Most homeowners are very aware of the housing inventory shortage that has caused homes to rise over 12% in the past year.  The increased demand for homes coupled with the shortage of supply has contributed to the rapid appreciation.  The trend is expected to continue for years.

While appreciation is a large component to the rate of return, cash flows are bolstered by the increasing rents.  This combination makes investments in single-family rentals very attractive.

An added appeal is the familiarity and understanding of this type of investment because it requires the same aspects as homeownership.  The same service providers a person uses for their home can be used for the rentals.  For the investors who don't want to manage the property themselves, professional management is available for placing and qualifying a tenant only or the entire process including collecting the rent and maintenance.

For more information, download the Rental Income Properties.  Contact me if you'd like to have a more in-depth conversation and address any personal questions you might have.