That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.

The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.

“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”

The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.

Along with the sell-off in bonds, the Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing even more upward pressure on rates.  The 30-year fixed rate before the Federal Reserve bailout plan was 6%.  When the government bailout plan went into effect, consumers saw interest rates fall to historical lows below 4%.  Experts believe the end of the bailout plan on March 31 will spark a rise in mortgage interest rates back to levels before the bailout plan went into effect.

Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Christopher J. Mayer, a professor of finance and economics at Columbia Business School.

Mortgage Calculator

The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.

“We’ve gotten spoiled by the idea that interest rates will stay in the low single-digits forever,” said Jim Caron, an interest rate strategist with Morgan Stanley. “We’ve also had a generation of consumers and investors get used to low rates.”

Free Report: 6 Things You Must Know Before You Buy

For young home buyers today considering 30-year mortgages with a rate of just over 5 percent, it might be hard to conceive of a time like October 1981, when mortgage rates peaked at 18.2 percent. That meant monthly payments of $1,523 then compared with $556 now for a $100,000 loan.

No one expects rates to return to anything resembling 1981 levels. Still, for much of Wall Street, the question is not whether rates will go up, but rather by how much.

Some firms, like Morgan Stanley, are predicting that rates could rise by a percentage point and a half by the end of the year. Others, like JPMorgan Chase are forecasting a more modest half-point jump.

But the consensus is clear, according to Terrence M. Belton, global head of fixed-income strategy for J. P. Morgan Securities. “Everyone knows that rates will eventually go higher,” he said.

Source: New York Times

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/2008/04/09/10-things-to-ask-when-selecting-a-buyers-agent/ http://www.CrystalClearMarket.com/2008/04/09/10-things-to-ask-when-selecting-a-buyers-agent/#comments Wed, 09 Apr 2008 09:32:22 +0000 Elliot Lau http://www.CrystalClearMarket.com/?p=109 What’s a Buyer’s Agent?

You’d be surprised how common that question is. Most people barely understand the process involved in buying real estate. Few know what agency representation and fiduciary duty is. When it comes to buying real estate, most buyers spend more time deciding what to eat for dinner than they do thinking about choosing a real estate agent to represent their best interests in the transaction. It’s sad but true; they’ll spend more time deciding on Chinese or Mexican food, than who’s going to look out for them when they spend half a million dollars. Question: Who does the agent at an open house represent?

Why Do You Need Representation?

Did you know that if you walked into an open house, fell in love with it, and told the agent you wanted to buy it, that agent represents the seller. That agent has NO fiduciary duty to represent you or your interests. While it’s true both state laws and the National Association of Realtors’ Code of Ethics requires that all Realtors treat all parties fairly, there’s a big difference between fair treatment and fiduciary duty. That big difference can be subtle and could cost you tens of thousands of dollars.

How? Let’s go back to that home you fell in love with at the open house. You have the agent at the home write an offer for you. The same agent that represents the seller. As that agent completes the purchase contract, he comes to a section regarding assessments and who pays it if there are any. You aren’t aware that there’s a $20,000 assessment for every house on that street for upgrading the sewer lines. That agent representing the seller will naturally select the buyer pay this assessment. While that agent treated you fairly, his fiduciary duty was to his seller. On the other hand, if you had an agent representing you, your agent would automatically stipulate that the seller pay this assessment. That subtle difference of not having representation just cost you $20,000. That’s just one example. Every real estate transaction is different and you never know what to expect. In fact, I always prepare my clients to "expect the unexpected."

How To Select An Agent To Represent You

Hopefully you now understand the importance of being represented in all real estate transactions. It also makes no sense not to have representation since your agent usually costs you nothing. In most residential real estate transactions, the buyer’s agent is paid from the commissions paid by the seller. They work for you, but paid by the seller. While it’s important to have representation, it’s more important to select the right agent. So what do you ask?

10 Questions To Ask

1. How much experience do they have? How long have they been in the business? While not true 100% of the time, competence usually comes through experience. Experience and knowledge is everything when it comes to representation. Question: What do you call a med school student that graduates dead last in his class? Answer: A doctor. Assuming there’s no difference between all real estate agents is the same as saying all doctors are equal.

2. Do they work alone or do they have a team? Lone agents are stretched for time, hard to reach and are a "jack of all trades, master of none". An agent that has carefully assembled a team of experts for each phase of the transaction, is the one you want working for you. There are so many facets to every real estate transaction, having a team comprised of specialists for each phase will reduce your anxiety and save you time and money. On top of that, having more people looking out for you means you get to the great deals before other buyers. That lone agent barely has time to return your calls, let alone be on top of the great deals when they come available.

3. How many homes do they sell each year? This goes hand in hand with their experience. Would you rather have an agent that sold 4 houses last year (the national average) or one that does 30 or more a year? Don’t worry about an agent selling 30+ homes a year being too busy for you. If they answered question 2 correctly, they’re set up to handle the volume without sacrificing the service.

4. Is real estate their ONLY occupation? Unlike doctors, lawyers and accountants, there are a lot of part time real estate agents. Would you go to a doctor that had a full time job doing something else? Why would you have someone that "dabbles in selling real estate" represent you in buying a home that could cost you a million dollars?

5. Are they a real estate agent or a Realtor? They are not the same. A real estate agent is someone who satisfied the licensing requirements of their state and passed a licensing exam. A Realtor has done that and are members of both local and national associations of real estate agents. Realtors are required to complete professional standards courses on a continuing basis. Membership in these associations also require the member to adhere to stringent ethics and duties to their clients. The public can file complaints against Realtors through local associations for Code of Ethics violations while in the practice of real estate. Violators are sanctioned and membership can be revoked. Without membership, the agent has no access to the local MLS. Without MLS access, the agent is useless to you.

6. Has the agent had any disciplinary actions against them? You can check this through the state’s regulatory agency and the local Realtor association. Complaints usually are on record for life.

7. What technology do they use? Having access to timely information can be the difference in getting the "hot deal" or not getting it. Also, what technology do they use to coordinate the entire team and ensure each member is completely up-to-date with your transaction? Missing just one contingency on a purchase contract could cost you thousands. One of the reasons a well-oiled team is so efficient is due to the technology they employ.

8. What is their best strategy to meet your needs? How do they plan to find you the perfect home at the lowest possible price? What sources for available homes do they know of and have access to? How strong are their negotiating skills? Do they have trusted professionals in related fields that they can refer you to if needed?

9. Can they provide references? Look at the list. Ask if any are related to the agent. You’d be surprised that many agents only get business from family. Those same agents are usually the part time agents. Can you call these references?

10. What are the top 3 things that separate them from the competition? A good agent won’t hesitate for a second to tell you. The two biggest complaints consumers have about Realtors are 1) Poor communication and 2) Doesn’t fight hard enough for them. Other standards you want to look for include honesty and trustworthiness, assertiveness, excellent negotiators, available by phone and email, good communicator, friendly, analytical and able to maintain a good sense of humor under trying circumstances.

If you want to maximize your chances of finding your dream home at the lowest possible price all while maintaining your sanity, do a little homework in the beginning. Most buyers spend the time finding the perfect home on their own. Instead, spend the time finding the perfect agent and let them find you the perfect home.

Hope this helps. Happy house hunting!

Elliot Lau

1.  Get yourself financially prepared.  For the first time buyer, this may be the single largest purchase.  Evaluate your financial situation and create a budget.  This will determine how much mortgage payment you can afford. Pay down debt if possible to free up more income for the mortgage payment. 

2. If possible save for a down payment.  A 3% down payment is the minimum and all can be gifted funds. 

3.  Remember  a paper trail is needed for your funds.   Be sure to keep 3 months bank statements to show the funds have been in your account.

2.  Get pre-approved for a mortgage loan.  This will help determine how much of a mortgage payment you can afford.  Don’t forget to include property taxes, maintenance, insurance and mortgage insurance, if applicable, in your payment.

3.  Look around for a real estate agent (See article “10 Things You Need to Know Before You Hire an Agent”

4.  Do not make any sudden changes in your employment or financial condition.  For instance, don’t go out and incur additional debt by buying a new car or furnishings for the house you want to buy, before the purchase is complete.

While the above may not get the house you want, it’s a good start.  Good Luck.

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