Four years after home prices hit their peaks, CNNMoney looks at how 330 metro areas have fared.

Source: IHS Global Insight/PNC Financial Service

1. Use a discount broker to sell your home.

When the market was going crazy just a few short years ago, selling a home meant putting it into the local MLS and prepare for the frenzy of buyers with multiple offers above list price. The market conditions at the time didn’t require much experience of the Realtor to get top dollar for your home.

That was then, this is now. Discount brokers rely on volume to make up the discounted commissions they charge. That volume doesn’t allow them to provide full services to the seller. Regardless of what they advertise, don’t believe for one second that they will. Their definition of “full service” means putting a sign and lockbox on the property, putting it into MLS, maybe hold an open house and review offers for you. If you consider that “full service”, you’re about to make the first costly mistake.

This market requires experience AND real marketing to get you top dollar for your home. Do some research on discount brokers. What you’ll find is either small 1-2 person operations or larger offices where most of their agents are new to the business with less than 5 years experience. They don’t have the experience or a real marketing system for getting your home sold. 2008 data shows that discount brokers take twice as long to sell your home and get 5% less than a full service broker. Lots of sellers lose thousands of dollars when they choose a discount broker because they’ll save 2% on the commission but net 5% less on the sale. It is totally acceptable to want to save money. But if you do your homework, you’ll realize that hiring discount brokers in this market is “being penny wise, and pound foolish.”

2. Cut the commission.

Just as in mistake number 1, the last real estate boom taught sellers to negotiate down the commissions. In that market, it was hard for Realtors to justify the 6% commission. It led to sellers expecting to pay reduced commissions as evidenced by a huge increase of market share for discount brokers. Once again, that was then, this is now. And now is not the time to be cutting the commission. You want to attract as many buyers as you possibly can. 91% of buyers in 2008 are introduced to the seller by a broker. With lots of inventory and choices available, which home do you think the broker will show their client; the home offering a reduced commission to the broker or a comparable home offering full commissions?

If you want to sell your home for top dollar, you should be increasing the incentive to sell your home, not decrease it. It’s natural to want to save money, but if your house sits for months on the market because there’s little incentive to sell it, how much is that going to cost you?

3. Price it too high.

I don’t care what your reason is. If you overprice a home in this market, prepare for a long and expensive lesson. The only market you can possibly overprice a home and still get it sold is in a rapidly appreciating market. In any other market, it just won’t sell. With so many homes for sale in this market, you’re better off not listing it then overpricing it.

If you have to sell, you’re going to have to bite the bullet and price it right. And don’t buy into the common thinking that you price it high so that you have room to negotiate. That mentality will be your next costliest mistake.

4. Keep it in the family or Sell it yourself.

It’s nice of you to want to help your niece who just got into the business, but underestimating this market and the need for experience is one of the costliest mistakes you can make. Thinking that all agents are the same and don’t see the need to interview and find the best agent with the experience to get your home sell will cost you both time and money.

Trying to sell it yourself falls into this same costly mistake. Thinking you have the knowledge and experience to sell your home in this market will be an expensive lesson.

I can’t emphasize enough how different this market is from a few short years ago. Making any one of these common mistakes in this market will be magnified and when you consider the value of your home, these mistakes amount to thousands of dollars. You wouldn’t consider going to an inexperienced doctor to treat a life threatening illness, or hire your part time nephew who just passed the bar exam to defend you in a big lawsuit. Just like these professionals, experience is everything. Don’t trust your biggest asset you own to someone without that experience. There’s a reason why professionals are paid well. They are entrusted with your most important things in life.

Hope this helps. Until next time, happy home selling.

Elliot Lau

]]> http://www.CrystalClearMarket.com/2008/07/14/4-costliest-mistakes-sellers-make/feed/ 1 http://www.CrystalClearMarket.com/2008/05/03/top-6-incentives-for-home-sellers/ http://www.CrystalClearMarket.com/2008/05/03/top-6-incentives-for-home-sellers/#comments Sat, 03 May 2008 11:12:02 +0000 Elliot Lau http://www.CrystalClearMarket.com/?p=167 To frustrated home owners trying to sell their homes in this market, it seems like the market continues to worsen daily as they are subjected to an endless media barrage of gloom and doom. These owners already know there’s a glut of properties on the market this spring. As if it wasn’t hard enough competing with highly motivated sellers for the shrinking universe of buyers, they now find themselves competing with banks and large lending institutions that are both willing and able to drastically slash prices to unload the record number of homes they’re getting back from foreclosure.

As of March 2008, there were nearly 4 million homes for sale in the U.S., up one-third from just two years ago. Parts of California have more than two years of remaining inventory now on the market.

Just because sellers have shifted into survival mode doesn’t mean they need to push the panic button as well. However, it does mean sellers have to get creative to make their home stand out from the others. Sometimes desperate times call for desperate or even bizarre measures and incentives. Stories surfacing include a seller who threw in his classic 1967 Pontiac GTO, others buying $10 St. Joseph Statue Home Sales Kits, featuring a small plastic statue of the saint that owners are supposed to bury under for-sale signs. (If you’re into that sort of thing, the company’s phone number is 1-888-bury-joe), and even a woman in California who offered to bake cookies for a would-be buyer every week for a year.

But before they even get to that point, many sellers have considered offering a variety of incentives to sweeten the pot in this buyer’s market. Two distinct sets of guidelines seem to be emerging for sellers: one for those who need to sell almost immediately and another for slightly less-pressured sellers. The following is to help the first group of desperate sellers.

Top 6 Incentives for the Must-Sell Seller

For owners who absolutely, positively must sell, here are the top incentives and strategies currently in use:

1. Paying the buyer’s down payment: With the elimination of nearly all 100% financing loans came the elimination of a large pool of buyers with no cash for the now required down payment. While most loans don’t allow the seller to furnish the down payment for the buyer, a seller is allowed to do it in conjunction with certain types of loans. Sellers who need to sell are putting their homes onto a list of homes that are participating with DPA programs. While most people know about FHA loans, few have heard of “down-payment assistance” (DPA) programs. Buyers needing 100% financing can purchase a home using this method, and since FHA limits were raised, it’s now possible to get 100% financing on a rather large purchase. To participate, sellers must agree to contribute 1%-6% of the selling price to the DPA who in turn gifts the down payment to the buyer. The normal amount is about 3%; a drop in the bucket compared to the price reductions many sellers are making in this market. As a bonus, the contribution amount is tax deductible. Go to The Nehemiah Program to learn more about the largest DPA.

2. Cash-back offers: These include offering to pay a year’s worth of property taxes or even a year’s worth of mortgage payments. How much attention do you think a seller offering to pay the buyer’s first year of mortgage payments would attract? Sounds like a lot? It amounts to about 5%-7% of the purchase price. Again, depending on the urgency, that’s not much compared to the alternative of not selling. Also increasingly common are "cash-back" offers that can be credited towards repairs, landscaping, closing costs or mortgage points.

3. Glamour and glitz: Exotic vacations, timeshares, cars, season tickets for professional sports or even the opera, art, high-definition TVs, thousand-dollar gift cards for gasoline, and more. The more exotic, the better your chances of luring that dwindling number of buyers.

4. Lease-to-own options: This can be a motivator for tentative buyers who fear the market will drop further or for buyers who are short on down payments or who can’t get traditional financing in tightening credit markets. Option structures differ greatly. A rent-to-own agreement, also called "lease-to-own" or "lease-purchase," is generally a binding agreement to buy a home at a set price at the end of a set period. It offers a little better security for the seller. A lease-option arrangement gives the renter a legal buy-option after a given period, but isn’t an obligation.

5. Increase, not decrease the commission: Not all incentives have to be for the buyer. During the last real estate frenzy in which sellers enjoyed multiple offers before the home was even listed and buyers lining up to offer more than the list price for their homes, it started to seem like all you had to do to sell your home was put it on the MLS. The commissions could hardly be justified which led to sellers expecting discounted commissions. That same mindset doesn’t work in this market. With a glut of homes offering full commissions, agents aren’t having to show homes that aren’t offering full commissions anymore. Sellers that need to sell should think about offering bonuses or higher percentages, not less.

6. "Mr. Big" of incentives — proper pricing: It’s pretty simple, a home is going to have to be priced correctly in relation to comparable sales as they exist today, not the 2004-2005 pricing that your neighbors got. Incentives and everything else take a back seat to a home priced correctly.

The Value of Staging

Many developers are offering big incentive packages. While many of those can add up to tens of thousands of dollars in the form of price breaks, throw-ins, credits and add-ons, buyers should be aware that the biggest home-value drops also occur in those same areas where there’s an abundance of new construction. Incentives offered by owners in more established, mature markets carry more relative weight.

Too many concessions and incentives on the other hand can backfire by making buyers suspicious. It can lead to some buyers thinking the seller must really be desperate. And then begin to wonder, ‘What’s wrong with this house?’" Bottom line is, two things really sell a house, pricing and staging.

Don’t under-estimate staging. A home that’s priced correctly but sits on the market is typically cluttered, dirty and poorly presented and have been branded as tough sells by agents. Agents don’t show these because they are embarrassing and a waste of people’s time.

The average cost of staging a home is about $2000 — far less than a price reduction on the average home. Staging focuses on the "three C’s": cleaning, clutter removal and colors – mostly neutral colors with bright accents thrown in for balance. Staging reveals the benefits of the home and helps the buyer "imagine themselves living there."

A 2007 survey encompassing all regions of the U.S. indicated that staging a for-sale home nets a 343 percent return on investment . Another survey of 400 homes in the U.S and Canada revealed that homes prepped for sale by an accredited staging professional sold in an average 31.8 days compared with 161 days for non-staged homes.

Hope this helps. Until next time, happy house hunting!

Elliot Lau

Here are eight quick fixes:

1. Buff up curb appeal. Don’t make the critical mistake of overlooking your home’s curb appeal. I can’t tell you how many times I’ve pulled up to a home with my buyers and they weren’t interested in looking inside just based on what they saw as we pulled up to the home. It’s critical to get buyers to want to look on the inside. You could have the nicest home in the neighborhood on the inside, but if the buyer doesn’t come in, it doesn’t matter. Be objective. Check the condition of the landscaping, paint, roof, shutters, front door, knocker, windows, house number, and even how window treatments look from the outside. Add something special to help buyers remember your home from the rest.

2. Add value with color. Paint’s cheap, but forget the adage that it must be white or neutral. Just don’t get too bold with jarring pinks, oranges, and purples. Soft colors that say “welcome,” lead the eye from room to room, and flatter skin tones. Think soft yellows and pale greens. Tint ceilings a lighter shade.

3. Upgrade the kitchen and bathroom. These are the make-or-break rooms that spur a sale. Make your kitchen and baths squeaky clean and clutter-free, update the pulls, sinks, and faucets. In a kitchen, add one cool appliance, such as an espresso maker. In the bathroom, hang a flat-screen TV to mimic a hotel.

4. Install crown molding. At least six to nine inches in depth, proportional to the room’s size, and architecturally compatible. For ceilings nine feet high or higher, add dentil detailing, small tooth-shaped blocks used as a repeating ornament.

5. Screen hardwood floors. Buyers favor wood over carpet, but refinishing is costly and time-consuming. Screening cuts dust, time, and expense. What it entails: a light sanding, not a full stripping of color or polyurethane, then a coat of finish.

6. De-clutter! Humans are packrats by nature, but cluttered homes take more time to sell and for less money. The look you want to go for is “Does anyone live in this home?” Clean out and organize closets. Get sorting – organize your piles into “don’t need,” “haven’t worn,” and “keep.” If you must keep it, consider renting storage and getting it out of your house. Closets must be only half-full so buyers can visualize fitting their stuff in.

7. Update window treatments. Buyers want light and views, not dated, fancy-schmancy drapes that darken. To diffuse light and add privacy, consider energy-efficient shades and blinds.

8. Hire a home inspector. Be proactive, since busy home owners seek maintenance-free living. Fix problems before you list the home and then display receipts and wait for buyers to offer kudos to sellers for being so responsible.

You’d be surprised at how much a difference these 8 quick fixes make. Do a little prep work before you list your home for sale. You’ll be glad you did.

Elliot Lau

So stated in another way, if no new homes came on the market how long would it take to sell all homes?

Let’s look at real data. The graph below shows single family homes in Orange County California. Last month in February we had 15.6 months of remain inventory. Essentially, stating that it would take over 1 year to sell every single family home on the market.

You can use the following as a guideline to determine market conditions:

0 to 3 months of remaining inventory Seller’s Market

4 to 6 months of remaining inventory Neutral Market

7 or more months of remaining inventory Buyer’s Market

Let’s look at more data that goes further back:

This graph shows 5 years of Orange County single home data. You can click on the picture to zoom in for more details. For the most part you can almost predict what is happening to the market place.

Also if we went back and looked up major events that had impact on the market you will find that it directly effects this ratio. We find that in San Bernardino and Riverside we’re seeing months of remaining inventory in excess of 2 years and in some places 3!

What does this mean for real estate prices? Well, you can be the judge and decide. If there is a lot of inventory and it remains high (that would indicate that Seller would need to sell, otherwise they would take their home off the market and wait) and the rate of home purchases place a months of remaining inventory past 1 year, how would motivated sellers usually compete? Price.

Hope this helps, would love to see your comments.

Brian Laughlin

If this is your third visit looking for the next lesson, congratulations! It shows that you are eager to learn; an essential ingredient of all successful real estate investors. If you are new here, go back and read the previous lessons. We’ll wait. You don’t want to miss any lesson since each builds on the last. This lesson will focus on conditions and types of different real estate markets. You need to understand each because different conditions will dictate different strategies. A market condition can last for months or years. They can also change very quickly. In hot markets, delaying a decision by as little as an hour can be the difference between making or losing thousands of dollars. How do you keep tabs on the current “temparature” of the market? The best way is by carefully choosing your Realtor. If you’ve done your homework and have chosen a Realtor that’s an expert in both his/her market and real estate investing, you will get the most up to date information and conditions. No one has a better pulse on the market than an experienced Realtor.

Types of Real Estate Markets

While there are many variations, real estate markets basically fall into three categories; Buyer’s Markets, Seller’s Markets and Neutral Markets.

This lesson will cover Buyer’s Markets; what is considered a Buyer’s market, the advantages and strategies for buyers.

Buyer’s Markets -A Buyer’s market exists when the inventory of homes for sale exceeds the number of buyers looking to buy homes. Experts agree that “months of remaining inventory” is the best indicator to determine what type of market exists. A Buyer’s market is one in which there are 6 or more months of remaining inventory. The higher the number, the stronger the Buyer’s market. The formula to compute Months of Remaining Inventory is: Total number of active listings divided by the total number of closed or sold transactions for last month. That number will be your Months of Remaining Inventory or MRI.

When the number of homes for sale is up, buyers make the rules. Buyers have more choices, less or no competition; and Sellers know that. In a cold real estate market, serious sellers are more willing to negotiate. Buyers can offer less money and ask for more, including closing costs, contingencies, even inventory. When I bought my last home, it was a Buyer’s market. As I was touring the home I eventually bought, I noticed a beautiful brand new big screen TV in the living room. Joking, I said “how about throwing in the TV?”. Not expecting anything but a chuckle from the owner, he responded without even a pause by saying “Put it in the offer.” Long story short, I now have a $4000 TV in my living room.

If you are a buyer, the best time to buy is in this market. Ironically, during Buyer’s markets, I often hear “I’m going to wait for prices come down even more.” As you learned in lesson 1, no one can precisely time a market. I’ve seen countless people try, only to miss out on another great opportunity. These people sit on the fence looking for the market’s bottom and find it after it’s too late. It’s easy to spot these people. They’re the ones saying “I remember when…, If only I had bought then.” You also learned in lesson 1 that it’s okay to buy “high”. Remember that “high” is relative. If you bought a home considered high at the time for $250,000 and 5 years later it was worth $500,000, does it matter that you bought that home for a “high” price? Not only does it not matter that you bought high, it would have been a mistake not to have bought that home. Everyone wants a deal, but you will never know when the market has hit bottom until it’s on the way back up.

What to Look For

Signs of a Buyer’s Market include: inventory increases each month, there are more than 6 months of remaining inventory, comparable sale prices (sales of recent comparable homes) are higher than active listing prices, the number of closed sales in current month is lower than previous months, median sale prices are declining, properties remain on market longer (DOM).

Buyer Benefits & Strategies in Buyer’s Markets
Lower Sales Price - in a Buyer’s market you will generally see both lower list and sale prices. Buyers many times can get properties at prices below market value. Be careful though. A Buyer’s market doesn’t mean that buyers can offer less for all properties. Buyers must consider other factors including days on market, desireability, scarcity and the list price. If a property was just listed yesterday at a price already below market value and is in excellent condition, that property will more than likely sell at list price.

Concessions and Repairs -in Buyer’s markets, buyers can ask for a lot more. Regardless of the market, all terms of the sale are negotiable; buyers are just more likely to get sellers to agree to give more. Common consessions include having Seller pay Buyer’s closing costs and inspection costs. Buyers can also ask for repairs or credits. Once again, other factors need to be considered. It’s not uncommon to have multiple offers in Buyer’s markets. In that case, a serious buyer would forego asking for much.

Renegotiate the purchase price after the inspection -depending on what is found during the inspection, major repair items can be the basis for negotiating either credits or lowering the purchase price.

Other Strategies - Ask for contingencies. Shorten the period a seller has to respond to your offer. Ask for extras (remember my $4000 TV?). Ask for things you don’t want. If a Seller doesn’t want to give it up, use that to negotiate. “Well, since you won’t give in on that item, let’s lower the purchase price.” Sometimes that works. If it doesn’t, who cares, you didn’t want it in the first place.

Get in the game!

These are just some of the strategies buyers can use in a Buyer’s market. An experienced Realtor that’s an expert at negotiating will know how and when to use different strategies. The bottom line is, if you’re a serious Buyer, get in the game. This is your time. Don’t be the one years later saying “If only…”

Up next – Seller’s Markets

Until then, happy house hunting!

Elliot Lau