Offer, Offer, What’s Really an Offer?

In real estate, coming to the sale price vs. the listed price is the result of a negotiation. A fair market price is defined as that price at which a willing buyer and a willing seller agree. Negotiation is like tennis. The Seller “serves” a Listed Price. A buyer “returns” an Offer Price. The seller then “returns” a Counter Offer. The buyer then chooses to respond by either accepting the Counter Offer or “returns” their Counter Offer. It can go on and on until an agreement is reached or the process is abandoned. The same process also includes terms, such as closing date, repairs, allowances, occupancy dates and much more. Which is better, $700,000 “as is” or $725,000 with repairs? Ah, and you just thought it was about arithmetic!

Buyers tend to shy away from making an offer for fear of insulting a seller. Most sellers represented by a Realtor are shielded from the insult. They have a motivation to sell the home. Sellers should have an appreciation for any offer. It beats the parade of folks and their kids sweetly smiling and saying “that’s niiiice” as they parade through their home. An offer is a message of sincere interest. It needs to be viewed as the start of a dialog. But the buyer must be interested, since, once you accept their offer they are (generally) BOUND to buy you home of forfeit their deposit.

There are many kinds of offers. A full price offer is the seller’s best friend. But beware of any terms or requests for repairs that may reduce the net dollar value of the offer.

There is a “Low Ball” offer. Such an offer is a test to measure the seller’s motivation. It is a signal that a buyer believes (or hopes) the real value of the home is much less than the List Price. In today’s market, many homes are listed at 2005 prices and are not “priced to sell’ under current market conditions. They will remain for sale, and may not receive any offers until they become more aggressively priced. Buyers may be responding to their estimate of the changed market. There are other “bottom feeders” that are just looking for a bargain or a deep discount at a distressed seller’s expense. Normal and legal discriminatory issues aside, the thought that “it’s my home and I’ll sell it when and how I want to” is the seller’s right derived from private property rights in our Constitutions. But, a buyer is a buyer and we need to keep them in a dialog so they can be a buyer for OUR home. An offer is the first strep in a negotiation, no matter HOW low the starting point is.

We negotiate every day. We’re just not used to negotiating the sale of our largest asset, every day. An offer is a starting point. Just like in life, an outrageous offer gets a response that is the polite version for “and, just what kind of girl (boy) do you think I am!” Or, perhaps, we’re just fishing for a better offer so we send the “Oh, I’m sorry, but I wash my hair on Fridays” message. And maybe the old stand by, “I’m visiting my sick aunt that day, perhaps another time” gets us a faster close or a removal of a contingency or a better move in or out date.

The “Low Ball” offer causes much stress among sellers. But such an offer is easily qualified by a smart counter offer. When working with Realtors representing both parties, the personal feelings of buyers and sellers are insulated by their representatives. So, the insulting low ball offer is, at least, a starting point. The seller’s first response sets the tone for all negotiations.

The choices include outright rejection of the offer, rejection with guidance, a counter offer very close to the Listed Price or a counter offer at a percentage of the difference between the offer and listed price, all carry messages to the buyer on a seller’s expectations. And the messages aren’t just quantitative. For example, an offer must be evaluated along with the financial impact of the terms attached. An extra moth in closing means an extra month of mortgage payments, taxes, insurance and other costs. That’s a hit on the net final proceeds from the sale. Fence repairs may be $500 off the net proceeds to the seller.

Outright rejection tells the buyer and his agent that the offer price and the terms are too far apart from the seller’s expectations and continuation of discussions are unlikely to move toward an agreement.. The addition of guidance may tell which terms are unacceptable or how far apart the offer is from acceptability in the seller’s eyes.

 

The strategy of making a Counter Offer with a price gives hints to where the seller is on their price. A seller is always in the driver’s seat. Nobody can compel as seller to sell his home, even at full price. Negotiations can conclude at any time the seller declines to sell his home before an offer is accepted. Again, there are laws which can intervene if discrimination is involved but they don’t apply to price negotiations in general..

 

Negotiations are where Realtors earn their money. It is difficult to negotiate on your own behalf. In our culture, we are really well served by allowing intermediaries who are professionals in our area to shape an agreement and help the principals find agreement. With a “low ball” offer, the seller’s agent can quickly convey that their principal is not in distress and is very unlikely to sell at a deep discount and that the listed price is supported by recent sales activity. The buyer’s agent either will convince them that a more realistic price is in order or they will move on the next home for sale. This dialog is all but impossible between principals, and the thought of it gives many sellers a bad case of the “willies.”

The buyer’s equivalent is the fear of “leaving money on the table” or paying too much. Good negotiation strategies are characterized by putting yourself in the place of the other party. If you want a lower price, or a longer close or a fence fixed, then put your offer in a way that makes sense for the seller to accept it. We already know they want to sell. A clue to their motivation is that they have listed their home in today’s weak market, that is, a buyer’s market. Unless they are unrepresented or they are from Mars, sellers expect buyers to be looking for the best prices, and all they can get on terms, like closing date, repaired fences etc. However, contrary to the national press and media, today’s sellers are not in the mood to make a donation to a buyer’s net worth in return for being relieved of ownership of their home.

Be not afraid. A home that is priced to sell, verified with market statistics, in the Truckee, Tahoe and Reno market should sell within 95% of the listed price. A realistically priced home in today’s market will provide a buyer with a “market equity advantage” going forward. But, review my last post and you will see that waiting may not be the answer. I see the Incline and Truckee markets turning around and The North and West Shores of Tahoe and most of Reno not far behind. Buyers are in the unique position. By assuming an action bias and setting the “market price” of a home they like through well represented good faith negotiation. Earn you own “market advantage” today through sharp and courageous negotiations. Just remember that a seller of a well priced home is not a donor and a buyer is not a recipient. They are free acting participants in a transaction that represents hundreds of thousands of dollars and home that delivers benefits to your family and equity that in almost all cases will be applied to yet another home for your sellers. Wrapping dollars and the emotions invested in homes makes for very powerful feelings affecting negotiations.

 

For more tips, check out my posts on buying and selling right in a buyer’s market.

Remember, it takes economists at least six months to identify what was the top ot bottom of any market, real estate, included. Don’t let a TV analyst or Business Section writer make up your mind. Real estate is essentially local. Rely on your local Realtors, the credible and reliable professionals in your market.  

What is really an offer is the one that gets the negotiations started and creates a good faith dialog that ends in a happy and willing agreement of the parties. Buyers and sellers: sharpen your pencils! Get your good faith in order and get representation! Realtors, for the very most part, are in the “Dreams Come True” business. Get one of us working to help you get your market advantage on your dream home!

 

Tahoe and Truckee Sales for the First Three Quarters of 2007 vs. 2006.

Regionally, we have seen a general decline in the number of sales (transactions) of Single Family Homes and Condos. Bucking the trend (hopefully setting a new one) is Incline Village where transactions and Median prices are up 15% and for Reno Condos where transactions are up by 1% and for Single Family homes in Truckee where numbers of transactions have matched the 2006 numbers. 

For Single Family Homes on the North and West Shores of Lake Tahoe:

2007 Transactions  137            vs. 2006  197             -30%

2007 Median Price  $722.500    vs. 2006  $785,000     -8%

2007 Average Price $1,187,373  vs. 2006 $1,155,914  +3% 

One bright spot is Dollar Point, where 15 or the 17 sales in the first three quarters of 2007 in Tahoe City were in Dollar Point. However, the overall rate of decline in the numbers of transactions continues year over year and until sellers are willing to meet buyers price expectations, buyers are likely to sit on the sidelines until prices reach a level that entices them to re-enter the market  

For Single Family Homes in Truckee: 

2007 Transactions  336            vs.   2006  336            Even

2007 Median Price  $631,425    vs.   2006  $687,250    -8%

2007Average Price   $815,209    vs.   2006  $854,375   -5% 

These numbers suggest that the rate of decline of transactions in Truckee may be slowing or has stopped. Using Median and Average Prices as an indication, perhaps sellers have met the prices that buyers want to pay. The numbers of transactions have matched the number in 2006. If this trend continues and moves positive in the next quarters, we could be looking at returning to a more normal market in 2008. 

What does it mean to you? 

For a buyer, your best buy may be in Truckee, where the numbers of homes for sale may start to decline. Sellers are pricing homes closer to the market and the sales we are seeing are happening in less than 90 days. This is the time to buy, because we have very early, and tentative, signs of a bottoming market. Don’t wait to see prices rise, again, before you move to action. The time is NOW to make an aggressive offer on an aggressively priced home for sale. Let your realtor guide the negotiations to get the best buy for you. 

Best buys are still available on the West and North shores. Many of the transactions were for homes on the market less than 4 months. They were well priced and went for 95% of the final Listed Price. Reductions of listed prices of over $100,000 were not uncommon, as sellers brought their expectations more in line with current conditions. These homes attracted offers and were sold to buyers who made aggressive offers. Buyers bought and are now enjoying their dream homes for drastically lower prices they would have paid just a year ago. 

For sellers, the message is clear. While the numbers of transactions are well below those seen at the height of the boom, homes are selling. Recognizing that some of the appreciation gained during the hot market of a few years ago has evaporated, sellers acting accordingly, will attract buyers who are willing to negotiate the right price for your home. 

For the complete report, email me at craig@chaseinternational.com.              

Seniors Second Choice: Choosing a New Residence

There are three dimensions to this decision that many seniors face. After reading my Universal Design (UD) post, maybe you decided that those features would help you cope with those little “side effects” that come with longevity. Should I buy or build a new residence that includes UD? Should I seek a home in a Seniors Community? 

 

When shopping and choosing a new home be sure to give all of the UD issues strong consideration. Any senior who does not include single level living, easy in and out access and an attached garage may repeat this home buying exercise sooner than they imagine.

 

Older construction may require evaluation of the complexity of introduction of UD feature.. There’s not a reasonable cure for seven steps up to a single story home or a front hallway that is too narrow for a wheelchair to negotiate a full turn.

 

New construction typically includes the wider hallways and wider doorways seniors may need. But there are other UD issues and accessibility issues relevant to you that you will want to consider before making your choice.

 

Building a new home is the express route to getting what you want. All of the UD features are easily included at the time of construction. You get to choose your appliances and cabinet layout and all of the grab bars and plumbing is more easily installed from scratch. Many builders have stock plans. Be sure to ask how they fit your UD/seniors needs. You may add a few thousand dollars to your costs but you have earned “side effects” free living.

   

Practical thoughts on the Mortgage Market.

  My favorite characterization of today’s mortgage problems comes from noted economist, John Mauldin. He says it is like watching the Pig going through the digestive process of a Python.  

The essential “root causes” of the current mortgage problem are the intense appetite the world markets have had for mortgage backed securities and the current declining home prices nationwide.  

First, I am optimistic about the future. The “Python’s” metabolism is many times faster than when we had the S&L crisis of the ‘90’s. What took months back then, takes days or weeks now. In our current world economy, asset backed investments such as mortgage “bundles” are still very attractive. I believe that as soon as the “quality” issues are adjusted, there will be liquidity and the mortgage loan availability loans will improve 

What does it mean to the buyer and seller? 

When selling a home, you must monitor you buyer’s loan approval, documentation and funding process. Be sure your agent understands the process.  Be sure the loan approval comes from a reliable bank. Stories of prime borrower’s loans not being funded at the very end of escrow are becoming more common. This means that a seller could be all packed up ready to move, and ready to close their new home escrow on a Friday and find out that the buyer’s loan didn’t close on Wednesday. Sellers need to protect themselves by insisting that they have additional time to vacate their homes, just in case the buyer’s loan wasn’t funded. 

For the home buyer, be sure you are approved by a reliable lender. Try to keep your new loan amount under $417,000—an easy thing to do in Reno or Sacramento, but not so easy to do if you’re moving “up” to Squaw Valley. Despite very good credit, banks have failed to fund because of lack of funds.  How can they do this to me? When I was a Loan Officer, the best explanation given to me was; “Because they’ve got the money and you don’t!” 

This turbulent market should work itself out before the end of 2007. Keep a positive attitude, price your home to sell and protect yourself with intense attention to details. They buy side opportunities in most markets are fantastic. Remember, the first portion of your profit in real estate is achieved by buying right.

Seniors’ First Housing Choice Retiring in Place

 Let’s explore the choice to Retire in Place. The AARP calls it aging in place. Whatever you call it; chances are it will be a senior’s first choice for the early years of retirement. Retirement in place means that you stay for an extended period of time in your current residence. Getting along “just fine” with the stairs, and the kitchen, bath and the rest of the house just as it is.  Looking ahead, what if one of the residents develops diminished mobility, eyesight etc. Now, getting along in the old homestead becomes a little “less fine”. A little or a lot of adaptation may be required… Let’s take them one at a time…  If the current home is 2 stories with no first floor bedroom and a nearby full bath, someone who can’t negotiate the steps needs some adaptations. Sometimes floor plans lend themselves to modifications some don’t. At the least, there is some work to do. In the kitchen, a person using a wheelchair, walker or is otherwise limited in their mobility, strength or balance may have trouble using the stove, high counters, the refrigerator and freezer, sink and faucets, upper cabinets. In addition they may not be able to see displays from the angle they are forced to look.  In the bathrooms there are similar issues: counter height, a bench in the shower, grab bars around the toilet in the shower and bath tub. Around the whole house the need becomes apparent for wider doorways to accommodate wheelchairs and walkers. A senior’s limited range of motion can inhibit reaching for light switches, electrical plugs and, the peephole in the front door and opening that door with a traditional round knob. A senior’s diminished eyesight and manual dexterity limits the ability to operate many gadgets. For example, a modern thermostat, mounted 5 feet high on the wall with 8 point type on the controls and micro buttons to push. Other gadgets also need to be “error” proof.  The choice becomes to stay and modify as the need arises, or to remodel the entire existing home using the Universal Design standards or to move into a home that includes Universal Design. Making an informed decision and laying out all of the alternatives is the key to making the right moves without wasting money. Your team members: your Realtor and Universal Design contractors, for example, are there to make it as easy and cost-effective as possible.   

The Top Seniors Issue in Choosing a New Home

Where to Live in Retirement Principles of Universal Design Understanding Universal Design (UD) is essential for seniors evaluating their current home or who are shopping for a replacement home. Just because a community calls itself a Senior Community or an Active Adult Community doesn’t mean that they used the latest Universal Design Principles that make a senior’s life comfortable when the aging issues must be addressed. Here are the basic principles and examples of what to look for. Equitable use. All members of the household can use at lease one of each of the home’s amenities such as cooking, laundry bathing and toilet, outdoor access and indoor ease of movement. Flexibility and simplicity of use.  A fixture or appliance should be easily used; left or right-handed, reachable and give tactile and audible feedback as well as visual indications. Directions and labels should use large fonts that they are easily read and felt. Written instructions should include diagrams. Design should accommodate errors that might be easily made by impaired eyesight or hand tremor operating buttons and switches, Low physical effort.  A user should be able to maintain a neutral body position while operating to maintain balance. Minimize operating forces, repetitive action and sustained force. Examples are lever door handles, faucets and touch lamps and light fixtures, switches and plugs. Layout. Dwellings with a single story, hallways and doorways that accommodate wheelchairs with room to turn around at entryways and the garage.  While every dwelling may not have all of the latest UD features, be sure that it includes the highest priority features and can be easily retro-fit to accommodate an issue that arises later. Resources: www.aarp.com, www.abledata.com www.microsoft.com/enable/at/default.aspx

Seniors Real Estate investments

Real Estate is still a great investment. It combines intrinsic value-land they’re not making much more of it, and leverage. While there is a bit of turmoil in the mortgage markets, you can still get a loan for investment property that will allow you to invest a fraction of the total worth of a property and control the entire appreciation and income.

The first profit in an investment is made at the purchase. Buying right is essential. Take your time, follow the “buying right” rules and negotiate your best deal.

What not to buy:

1. Homes in a bad location.
2. Homes in a bad school district.
3. Homes that’s have negative cash flow.
4. Homes that need major work. Anything but a little landscaping and painting and window covering is MAJOR!
5. Homes that will be vacant for more than a month or two. At a good return on investment of, say 10%, one month’s vacancy represents nearly a year’s net income.
6. Homes more than a 45 minute drive from your residence. The prospect of driving a half a day and getting any painting done is NOT a good “senior moment.”
7. Homes where the market will take too long to rebound. We’re not getting any younger!

If selling your long term family home results in more cash equity than you need to re-invest in a new residence (or 2), real estate represents a great opportunity for that cash to continue to grow. Buy right, rent judiciously and sell on the next up market represents a great strategy for an active, engaged and savvy senior.

The Real Bite From the Mortgage Market

 

Here is the essence of the fallout for buyers and sellers of real estate. Buyers who are today “sitting on their hands” waiting for the market to bottom out may also find their buying power drastically reduced by the prevailing credit markets. Sellers who have their homes priced too high will find themselves chasing the market to ever decreasing prices.

The call to action is NOW for the waiting buyer! While prices may be falling further, be sure to get into the game while you have comfortable credit vehicles available to you. Call your agent and loan officer today!

The realization and confirmation of a declining price real estate market is that the mortgage money market is protecting itself going forward by greatly tightened qualifying standards for all loans. All borrowers will find it more difficult to get a loan, even at higher rates, than just 6 months ago. That translates to a buyer population with reduced ability to pay for homes. A favorite loan type for the self-employed and investors, people who have difficulty documenting their incomes, but do actually have the cash to make their payments is the “stated income” loan. This loan will be more difficult to get and will be available for a smaller portion of the total sales price of the home.

NOW is time to get it done. See my recent posts about buying and selling right in a buyer’s market. Get you agent to show you the best buys. Fall in love with one, in “like” with 2 others and negotiate for a price that represents “the bottom” for you! You will get a home you will be happy with, you will get a great price and you will finance it in a way that is comfortable for you. Price your home for sale aggressively and make it easy to show and easy to buy. Homes are selling, let yours be one of them.

  

Real Estate Reality and the National Press

All real estae is bought and sold in neighborhoods or price ranges I call “micro markets.” It is difficult to interpolate median and average prices from a single MLS’s  report to these “micro markets.” At Tahoe, I have a cleint who is looking for an entry level condominium. The market has presented them with opportunities that were not in their price range as recently as 2 months ago. Great news! However, they asked if the “Countrywide Report” would predict prices falling further and should they wait. Here are some things to keep in mind about any national report:

1. If I can’t track relative market statistics within “micro markets” in my MLS without extra analysis, how can a national report be of specific use in predicting the movement in a “micro market?”

2. The national press, espcially the business editors, are sensitive to publicly traded securities like Countrywide or large builders like Lenar, KB and others. As any of these companies releases news (as required by the SEC) it is extremely germaine to the shareholders and possilbe buyers of the security that represents shares of that stock. They also reprint, practically verbatum the relases fron the National Association of Realtors without much analysis beyond the local MLS President’s most generalized quote.

3. How germaine is any national report to a buyer or seller of a home in a specific “micro market?” Not! For example, the Countrywide report  states that some “prime” (good credit risk) borrowers have increased their indebtedness to 100% of their home equity using Home Equity Lines of Credit (HELOC’s). If they, in turn,  have difficulty making their payments because of loss of a job, reduced earnings or illness, they become vulnerable to default. Because, in a declining price real estate market,  borrowers cannot refinance or sell homes that may be worth less than they owe. They are upside down!

4. We can point to some primary home owners in Tahoe and Reno who are facing a similar problem. I got a call from on just last week. However at Tahoe, where 70-80% of the homes are vacation homes, HELOC’s are a less attractive debt vehicle, and going to 100% is less likely. Secondly, vacation or 2nd home owners are generally more financially secure. Most live in diverse economies like Sacramento, the Bay Area or Southern California. So the market impact of a national report is far lower on entry level condos at Lake Tahoe than on entry level homes in, perhaps, Natomas, CA, Fernley or Dayton, NV.

5. I expect declining prices in most markets in Reno and Tahoe, and yes even the entry level condo “micro market” for the rest of 2007. How far will they fall? I dont know and neither does anyone else. But I do know that if you pick a price that represents your predicted low, and put it in the form of an offer, you will buy real estate in your “micro market” for less today than you ever thought you could yesterday.

Call your agent, find some homes, fall in love with one, in “like” with 2 others and make your own market of one! If you think the market is bloated, squeeze the bloat out on YOUR deal, and in the case of a Tahoe condo, start enjoying the beach before Labor Day.

Californis Real Estate Statistics and Craig’s view.

Here are the latest CAR stastics for all of California.  The message here is that this is a great time to buy. My motto: “Squeeze the bloat out of the market one deal at a time!” See my earlier posts on buying and selling right. As you can see, money is still pretty cheap and if you want to be REAL as a buyer and a seller, there are plenty of great deals to be had on BOTH sides of the transactions. Calif. median home price June 07: $594,260 (Source: C.A.R.)
Calif. highest median home price by C.A.R. region June 07: Santa Barbara So. Coast $1,375,000 (Source: C.A.R.)
Calif. lowest median home price by C.A.R. region June 07: High Desert $306,310 (Source: C.A.R.)
Calif. First-time Buyer Affordability Index First Quarter 07: 25 percent (Source: C.A.R.)
Mortgage rates - week ending 7/12: 30-yr. fixed: 6.73%; Fees/points: 0.4% 15-yr. fixed: 6.39%; Fees/points: 0.4% 1-yr. adjustable: 5.71%; Fees/points: 0.5% (Source: Freddie Mac)

 

C.A.R. REPORTS HOME SALES DECLINE 24.7 PERCENT IN JUNE
Home sales decreased 24.7 percent in June in California compared with the same period a year ago, while the median price of an existing home increased 3.2 percent, according to a C.A.R. reported today.

“The focus on foreclosures and subprime lending is ongoing and, coupled with higher inventories of homes for sale, is prompting many would-be buyers to play a ‘wait-and-see’ role,”‘ said C.A.R. President Colleen Badagliacco. “However, well-maintained homes with curb appeal that are priced for today’s market continue to sell. It’s often a matter of counseling buyers and sellers to set realistic expectations on both sides of the transaction.”

“First-time buyers continue to be impacted by tighter mortgage underwriting standards and the affordability challenge, which has not improved significantly despite price declines in most regions of the state,” she said.

Closed escrow sales of existing, single-family detached homes in California totaled 364,280 in June at a seasonally adjusted annualized rate. Statewide home resale activity decreased 24.7 percent from the 483,690 sales pace recorded in June 2006.