Predicting the Right Time to Buy or Sell

Predicting the Real Estate Market

Predicting the Right Time to Buy or Sell Real Estate

The decision to buy or sell a home can be driven by various motivations, some urgent and some not so much, which kind of messes with the idea of trying to offer any kind of relevant guidelines. Still, here are a few thoughts.

Sudden changes in employment or health will override whatever real estate market conditions are at the time; the buy or sell is pressed with urgency and must accommodate the new circumstances – economic and/or location. The luxury of choice and trying to anticipate the timing for the most favorable price and mortgage rate is greatly limited.

It’s a different story for those who are up or down sizing and are without the immediate urgency to act.

Having the benefit of time allows the buy or sell of real estate to happen when it feels comfortable and the right time to do so. It also matters what happens AFTER the buy or sell. The strategy for a seller to wait until real estate prices are peaking is not that relevant if the seller is also purchasing a replacement property; the increased net profit on the sell in an “up” real estate market is likely offset by the increased prices to buy. Those who invest in rentals or fix and flip have their own criteria based upon return and tax considerations.

Mortgage interest rates have a greater impact on real estate than home prices in general. Consider this:

Use this example: The perfect home selling at $300,000

Down payment $60,000
Loan amount $240,000
Mortgage rate is 4.25%
Base monthly payment is $1,180.66

Figure the same scenario at 5.25%
Base monthly payment is $1,325.29

Figure the same scenario at 6.25%
Base monthly payment is $1,477.72

Figure the same scenario at 7.25%
Base monthly payment is $1,637.22

Right now it’s almost impossible to imagine interest rates being much lower, but it takes very little imagination to believe we are heading back to something more “normal.” We have experienced 5 consecutive years of mortgage interest rates averaging under 6% – but the prior 18 years have an average mortgage interest rate above 6%, and 9 of those years it averaged over 7%.

The history is there to support a prediction that mortgage rates will find the 6% or 7% mark in our future, hopefully later than sooner – I really like the real estate environment of under 5% on average. Banks are doing just fine, real estate and Realtors are kept busy, and people are able to find property that fits both their living requirements and budget.

Predictions? Not here. You know what that is best for you – you have your own specific circumstances and know better than anyone else when to act, or not.

See the attached PDF for a yearly breakdown since 1983.
AVERAGE Mortgage Interest Rate by Year

Advertisements

Extending The Closing Date

imagesCAENSD4N

Extending The Closing Date

Closing dates should be chosen with care, allowing enough time for proper due diligence and also a surprise or two. Here is a typical timeline:

• Day 1: An offer is submitted to the Seller (which includes a closing date) that requires an answer within two days.
• Day 3: Seller rejects offer, but makes a counter offer that requires an answer within two days.
• Day 5: Buyer agrees and this begins day one of mutual acceptance.
• Day 6: Home Inspection ordered – figure it allows 10 business days to complete inspection AND reach a written agreement for all repair negotiations, if any. Extension of the 10 days is only possible if both parties agree to extend – neither party is required to extend.
• Day 6: Seller provides Property Disclosures (Property, Siding, Fire/Smoke, and others if applicable)
• Day 6: Seller provides (through agent or title company) any HOA or Condo documents that may apply.
• Day 6: Seller provides (through title company) Preliminary Title Report.
• Day 6: Buyer begins formal application to lender.

Note: All disclosures and reports have a time line that require buyer’s signed
Acknowledgement – also watch for time allowed to rescind offer if any of these
disclosures or reports show issues that not acceptable to Buyer. No penalty if
rescinded within allowed time.
• Days 7 and 8: Weekend
• Day 9: Buyer deposits Earnest Money into Escrow at Title
• Days 14 and 15: Weekend
• Day 16: Home Inspection contingency is removed with all repair addendums settled in writing. Possible this date is extended by mutual agreement.
• Day 17: Lender orders appraisal – figure 10 days for completion.
• Days 21 and 22: Weekend
• Day 26: Lender receives approved appraisal and makes final check into buyer: Credit Report, IRS Transcript, and possible other.
• Days 28 and 29: Weekend
• Day 36: Documents Ready. Appointment to have Buyer and Seller Sign.
• Day 38: All documents signed and monies received from Buyer.
• Day 39: New owner is recorded at county office and Buyer is given keys.

Best to add 5 business days for negotiation and another 3 days or more for surprises. It’s possible that the appraisal may be subject to certain repairs before being approved at the sale price or a survey may be prudent if there appears to be an encroachment. Adding 45 days from the offer submittal to closing date is usually the very minimum.

Remember, this is kind of generalized and easily possible to be shorter or longer depending upon specific circumstances.

There are important things to do that are not mentioned above because they are not time sensitive, although they must be done before closing. Homeowner Insurance should be determined early in this process is one example; there are literally a dozen more tasks that need attention.

It is prudent for a Buyer to consider the property in light of its unique qualities, and to make the closing date reflect as much time as they believe the Seller will accept. The date can always happen sooner, but if the Buyer cannot close on the date stated in the contract then that Buyer is at risk – the deal does not move past the assigned time unless the Seller agrees. Most often it won’t be an issue, but never assume that; the idea is to manage risk so that you have as little as possible throughout the process.

Of course it is possible that the Seller is responsible for delays – that usually happens when they cannot move into their replacement property – and then it is the Seller who is at risk.

Scheduling the movers and the right of possession in such a way that neither party becomes homeless is critical for obvious reasons, because whoever causes the delay could be liable for quite an expense. Storing furniture and renting hotel rooms adds up quickly.

Consider the closing date with the seriousness it deserves.

Why Is That Seller So Nosey?

quidnunc-2

Some Buyers are so confident in their knowledge and ability to close a deal that they resent the due diligence required of their own real estate agent and especially that of the Seller’s agent.

This is easy to understand since they have nothing to feel nervous about, they have the whole picture – all the facts, but other parties are involved and the Buyer has an obligation to justify why those parties should have just as much confidence.

Let’s talk about the financing as an example:

The Buyer needs to be specific about the purchase funds, both the down payment part and the lending part. Sellers need to know the source of funds, plus any changes that happen during the course of the transaction process must be disclosed and approved by the Seller. Seems kind of intrusive doesn’t it? Why is it anyone else’s business to know as long as the deal is solid?

The answer: It’s simple risk management. The money part of a real estate transaction is a contingency and cannot be removed from the real estate contract without mutual agreement or fulfillment. There cannot be mutual agreement unless both parties have the same information. If the deal falls apart due to money and the most current facts were not disclosed then the Buyer has a risk of losing all Earnest Money that was deposited into Escrow.

The Seller has every right to know the facts about the Buyer’s ability to purchase, which usually involves a lender. However, even “All Cash” purchases can be considered a financial contingency if the source of cash has any chance of disappearing or being disrupted. Gifts can be rescinded and Retirement funds can lose value; there are few things involving money that are not without some risk.

The point is this: the Seller needs to express their willingness to hold Buyer harmless whatever the risk. The Seller can only do that if they have the facts so it is in the Buyer’s best interest for the Seller to have those facts.

Full disclosure is the best way to shift risk to the other party. It is also the best way to build trust and good will, which may be a deciding factor in completing the purchase or avoiding future law suits when/if difficulties arise.

Be smart, well prepared, following best practices, complete the obligations of due diligence, and deal in good faith. You will never be sorry.

Is A Realtor Necessary?

R%20Logo%20Blue
Are Realtors Really necessary?

Absolutely not. However it is a matter of risk management that should be considered; let’s talk about it

Buyers and Sellers of real estate, for the most part, are quite capable of doing the “work” that Realtors do. It looks easy to:

• Advertise property
• Search for property
• Hire a Home Inspector to discover repair issues
• Write an Offer – The Internet has forms and/or an attorney can be hired
• Choose a Title/Escrow company

Advertising a property — There are some terrible photos posted by Realtors on the RMLS (some have shown homes sideways and almost completely dark) so it’s not a stretch to imagine that some Sellers are capable of doing better than some Realtors in posting photos.

Searching for property — Nothing hides in the world of cyberspace.

Home Inspectors — A little diligence and any Buyer or Seller can find a competent Inspector.

Write an Offer — Better be careful here. It’s kind of like golf, when everything goes right a 10 handicap player can have a real good day. Next day, play a different course, add a little wind and shooting 90 isn’t out of the question. This work should be handled by someone who has played the course many times. Still, a Buyer or Seller can do this work and make it out alive.

Choose a Title/Escrow company — not that difficult.

Wait. Taking a closer look, is it really that simple?

Advertising a property — A good Realtor will do good advertising and have a deep network of potential buyers/investors in addition to those looking on the RMLS. There are also tools on the RMLS to locate agents who are showing specific properties to their buyer clients, properties that closely match the seller’s property. Using these tools to market to those agents can be profitable for the seller.

Searching — A good Realtor will not just search for property – they will research property. Most Realtors knows how to dig out information about the property and its past owners that could affect the negotiation of price and proper contingencies. If someone doesn’t do this every day, and have the special research tools available that a Realtor has, it isn’t a simple matter and it surely isn’t anything that can be done quickly.

Home Inspectors — choose any two certified home inspectors that are highly rated and recommended on ANY LIST. One inspector may complete their work in less than two hours and the other in just over three hours. If you are the buyer which home inspection would you want? A Realtor might have had the opportunity to watch over home inspections completed by a dozen or so different inspectors, and the same inspectors on that many inspections again. Does that kind of experience and observation have any value?

Writing the offer — simple, just fill in blanks on pre printed forms, right? Not quite. Contingencies need to be written properly or they may become worthless – look at this example:

The buyer adds this contingency, “purchase is subject to Radon test.” Problem? The seller can perform any Radon test and the results can be whatever they are with no consequence; all they are required to do is have A TEST and there is nothing that binds the seller to the result. The test could fail miserably – so what?

That was a basic example. The point is that writing a purchase agreement is not simple, it requires experience, hours of continued education, and constant monitoring of new regulations. There may be thirty pages of transaction forms to manage the process, including necessary disclosures and critical time lines.

Using a Realtor may not be necessary, but is it wise to discount this option based upon the “work” alone? Handling the process with professional expertise is one thing, but there are other elements here that carry significant importance.

The Intangibles
• Do you know the true and documented identity of who is visiting your home? Have you done a criminal background check on them? Every Realtor, as a condition of obtaining a real estate license, is fully vetted. The background check is thorough, too – they found a misdemeanor I had committed back in 1973 when I had lived in the Chicago area. My folly had been forgiven years ago, I HAD FORGOTTEN ALL ABOUT IT, but the Oregon Real Estate Agency still found it and I had to explain it! Every time a Realtor enters your home through the RMLS Lock box they are immediately identified and a record is documented, time stamped, and stored by secure third party. The Realtor is responsible for their client also, and that is hugely important.

• Buyers usually do not want the owner present when they tour a home. They will almost always rush and almost never think or speak in terms of what they would do if the home were theirs, which is a critical step in making a buying decision. Why mess with that?

• Emotions. It would be no exaggeration to say that Realtors may saved well over 70% of all transactions simply because they are able to absorb the heat. If the other side makes an unreasonable request – or perhaps the Realtor’s client is the one who is unreasonable – someone needs to be able to edit the presentation or accomplish the same outcome another way. A Realtor must be willing to be the fall person – take the blame for bad news and give credit for the good parts. It keeps the deal moving forward as far as the client wishes. It is not uncommon for things to get so personal, in a negative way between Buyer and Seller, that one would rather eat raw rats than do business with the other. Having at least one Realtor in the deal holding things together is critical.

With few exceptions, it really is best if Buyer and Seller never meet face to face until the keys are passed. Unless, of course, there is nothing to negotiate.

Note:
Buyers almost never pay Realtor commissions. Sellers pay a commission to the Listing Broker (Agent) when a successful sale of their property happens, and part of that commission is shared with the Buyer’s Realtor.

Sellers can expect this Realtor to be flexible about commissions – I am willing to work out whatever terms the Seller needs in order to make good things happen for them. Just saying. No reason to avoid a conversation and I can be a lot of help up front.

We can talk obligation free.