5 Real Estate Trends to Look For in 2012

by THE KCM CREW on JANUARY 3, 2012

Predicting trends during the most volatile housing market in American real estate history is no easy task. We strongly believe these are the five real estate items we should keep an eye on in 2012:

1. Buyers Will Return

In 2011, a lack of consumer confidence in the overall economy dramatically impacted the housing market. Buyers were afraid to make a purchasing decision on any big ticket item. By the end of 2011, consumer confidence began to return and sales increased. Economic conditions will continue to improve throughout 2012 and consumer sentiment will solidify. Once that happens, home buyers will realize that now is the time to buy.

2. Foreclosures Will Increase

The ‘shadow inventory’ of foreclosures which has been growing since the robo-signing challenges of late 2010 will finally be introduced to the market. Distressed properties sell at discounted prices. They will impact the housing values of the non-distressed homes in the area.

3. Prices Will Soften

As more and more foreclosures come to market, there will be greater downward pressure on the values of houses in the region. Foreclosures impact values of non-distressed properties in two ways:

• They will eat up some of the buyer demand in the market.
• They will impact the appraisal on ALL transactions in the area.

An increase in foreclosures will have a negative impact on values. This will cause more homes to be underwater.

4. Short Sales Will Increase

As mentioned above, we strongly believe that home prices will soften through at least the first half of 2012. Falling prices will force more homeowners into a position of negative equity. Negative equity is one of the triggers that cause people to strategically default on their mortgage obligations. If this happens, there could be an increase in the number of foreclosures. However, we predict that banks will take preventative measures which will help many of these homes avoid foreclosure by easing the requirements in the short sale process for both homeowners and real estate professionals.

5. Great Agents Will Be VERY Successful

Real Estate professionals who have invested the money, time and energy to truly understand what is happening and why it is happening will separate themselves from their competition and do very well this year.

Those who take that next step of learning how to simply and effectively communicate the market to their clients will be seen as industry leaders. These experts will dominate their markets.

A “Rentership” Society??

On October 31, 2011, in Breaking News, Mortgage Financing, by Robert Freedman

By Robert Freedman, Senior Editor, REALTOR® Magazine

Well, there’s at least one big Wall Street banker that’s betting on the United States becoming a “rentership” society: Morgan Stanley.

The company released a report just a few weeks ago saying now is a great time for institutional investors to snap up distressed single-family homes and turn them into long-term rental units. The company says the properties don’t compete with the classic apartment rental property, so investors don’t have to worry about cannibalizing their multifamily rental investment portfolios to take advantage of the huge opportunities in single-family rental property ownership. What’s more, Morgan Stanley doesn’t see this shift to rentership as a temporary waypoint while the country sorts out its housing problems; it sees this as a fundamental shift in how the United States will define itself into the future.

“America is moving away from a home ownership society and towards a rentership society,” the company says in its report.

To emphasize the point, one of the report’s authors, Oliver Chang of Morgan Stanley’s Housing and Securitized Products Strategy division, said in a video interview (above, after a 30-second commercial), “This is really the first time in history where there’s an opportunity for institutions to own single-family rental properties as part of a larger asset allocation strategy.”

The reason for the shift to rentals, according to the company?

• Home price declines: not only are millions of homes available to investors at deeply discounted pricing but the low prices are changing consumer attitudes on housing as an investment
• Hurdles to buying: down payment requirements, higher FICO score thresholds, and income verification are making it harder for households to even consider buying
• Costs of ownership: without home price inflation, costs like property taxes, home owner association dues, maintenance and repair make ownership less attractive
• Demographic effects: Gen Y growth is heading up while baby boomer households are downsizing
• Unemployment, labor insecurity and mobility: long unemployment durations make labor mobility (and thus renting) more important

 

 

Morgan Stanley says the U.S. home ownership rate, which has fallen to about 64 percent from close to 68 percent at its peak, is really closer to 60 percent when you factor in home owners who’ve stopped paying on their mortgage and only remain in their house because the bank hasn’t finished processing their foreclosure yet.  Once these cases make it through the system, they’ll move to the renter side of the equation.

When they do move to the other side of the equation, they’ll become renters of single-family houses, not of multifamily apartment units. That’s because these households, which tend to be a little older and often with children, want a single-family house in the suburbs, not a unit in an apartment building in the city. So, these households will be providing a big share of the demand for single-family rental houses into the future without necessarily adding demand to apartment rentals in the city.

To be sure, many of these households might like to buy again rather than rent given the historically low interest rates and deeply discounted home prices, but the reality is that many of these households simply can’t pass the credit score threshold. Financing is hard to get for the most creditworthy households today, so for credit-impaired households, renting is the only option.

Morgan Stanley projects some 7.5 million more foreclosures over the next five years, what it calls “liquidated” houses, providing a golden opportunity for institutional investors to snap up properties for their portfolio and get into the long-term single-family rental business.

If the company is right, then this is a great opportunity if you work with institutional buyers of real estate, whether on the buying, selling, or property management side. You have tons of inventory coming onto the market to sell to big buyers who will turn these into long-term rentals.

But you might also challenge the company’s basic premise. Is the American Dream really transitioning into a “New Pragmatism,” as the company calls it, under which rental housing is the way of the future?

The fact is, if lenders simply dialed back their underwriting requirements to the sound policies they used before the housing boom, home sales would pick up, inventories would shrink, prices would start heading up in more than a few markets, and that 7.5 million in foreclosed houses Morgan Stanley predicts over the next five years will be a smaller number. And those that want to rent can rent and those that want to buy can buy rather than having to rethink their priorities in a new rentership society.

In any case, a survey that just came out today from Meredith Corp., one of the biggest magazine publishers in the country, finds that home ownership remains all-important to most households. Some of its findings:

Fall Lawn Care: 4 Ways to Say G’Night For The Winter

By: Lisa Kaplan Gordon

Published: September 16, 2011

Labor Day through Halloween is your window for preparing lawns for a lush spring.

“I’m already thinking about next year,” says John Dillon, who takes care of New York City’s Central Park, which features 200 acres of lawn in the middle of Manhattan. “The grass I grow this fall is what will be there next spring.”

Fall lawn care is no walk in the park. It’s hard work, and Dillon guides you through the four basic steps.

1. Aeration

Aeration gives your lawn a breather in autumn and provides room for new grass to spread without competition from spring weeds. Aeration tools pull up plugs of grass and soil, breaking up compacted turf. That allows water, oxygen, and nutrients to reach roots, and gives seeds room to sprout.

If kids frequently play on your lawn, plan to aerate twice a year — fall and spring. If your lawn is just for show, then aerate once a year — and maybe even once every other year.

A hand-aerating tool ($20), which looks like a pitchfork with hollow tines, is labor-intensive and meant for unplugging small sections of grass. Gas-powered aerating machines (rental, $20/hour) are about the size of a big lawn mower, and are good for working entire lawns. Bring some muscle when you pick up your rental: Aerating machines are heavy and can be hard to lift into your truck or SUV.

Depending on the size of your property, professional aeration costs about $150.

2. Seeding

Fall, when the soil temperature is about 55 degrees, is the best time to seed your lawn because turf roots grow vigorously in fall and winter. If you want a lush lawn, don’t cheap out on the seed.

Bags of inexpensive seed ($35 for 15 pounds) often contain hollow husks, weed seed, and annual rye grass seed, which grows until the first frost then drops dead. Splurge on the good stuff ($55 for 15 pounds of Kentucky Bluegrass seed), which resists drought, disease, and insects.

Water your new seed every day for 10 to 20 days until it germinates.

3. Fertilizing

A late fall fertilization — before the first frost — helps your grass survive a harsh winter and encourages it to grow green and lush in spring. Make your last fertilization of the year count by choosing a product high (10% to 15%) in phosphorous, which is critical for root growth, Dillon says.

Note: Some states are banning phosphorous-rich fertilizers, which are harmful to the watershed. In those places, look for nitrogen-rich fertilizers, which promote shoot and root growth. Check with your local extension service to see what regulations apply in your area.

4. Mulching

Instead of raking leaves, run over them a couple of times with your mower to grind them into mulch. The shredded leaves protect grass from winter wind and desiccation. An added bonus — shredded leaves decompose into yummy organic matter to feed grass roots.

A mulching blade ($10) that attaches to your mower will grind the leaves even finer.

5 Great Reasons to Sell Your House Today

by THE KCM CREW on SEPTEMBER 6, 2011 · 

We are often asked “Is it time to sell my home?” The answer to that question is based on what your families’ goals are. If you don’t need or want to move for a few years it might make sense to wait for the housing industry to recover and prices to appreciate. However, if you wish to move within the next six to eighteen months, it is probably better to sell sooner rather than later. Here are five reasons why:

Your House Will Get More Exposure Now Than the Winter

Housing sales usually level off in the summer and then regain momentum in September and October. The spring buyers’ market has passed. Don’t miss the early fall market. It has consistently outperformed the winter season.

Distressed Properties Will Impact Prices

Distressed properties (foreclosures and short sales) on the market will increase this fall and winter. This will put tremendous downward pressure on prices for at least the next 12-18 months. Get your home sold before they become your competition.

Mortgages Will Become More Difficult to Attain

Lending standards are continuing to tighten. There is legislation currently being considered that will make it even harder for buyers to qualify. Less demand will equate to lower prices.

It is the Perfect Time to Move-Up

With prices where they are and interest rates at all time lows, there may have never been a better time to move-up into your dream home. If you move into a more desirable home now, you will be in position to gain larger equity as prices eventually appreciate.

You Get to Move On with Your Life

Probably the most important reason to sell is so you can get on with your life. You are considering selling for a reason. Do not allow a less-than-stellar housing market prevent you from reaching your goals as an individual or as a family. Think about the reasons you are thinking about moving. Are these reasons really important to you? If you have to take less than you were originally hoping to get for your house, your family has a question to ask each other: Is the dollar difference in sales price worth putting off our plans? Only you and your family know the answer to that question.

Harmful Effects from Changing the Listing Price?

by KEN H. JOHNSON on JULY 20, 2011 · 

 Ken H. Johnson, Ph.D. — Florida International University (FIU) and Editor of the Journal of Housing Research as our guest blogger. To view other research from FIU, visit http://realestate.fiu.edu/. - The KCM Crew

The Research

Are there any negative effects from changing the listing price of a property?  This question haunts Brokers/Agents as well as sellers of property every day.  At present, there does not seem to be a consensus answer to this question within the professional real estate community.  Fortunately, this question was scientifically investigated by John R. Knight. Unfortunately, few know the results of Professor Knight’s research.

In Knight, the impact of changing a property’s listing price is investigated.  Additionally, the types of property that are most likely to experience a price change are also estimated.  The findings from this research indicate that, on average, properties which experience a listing price change take longer to sell and suffer a price discount greater than similar properties.  Furthermore, bigger price changes are found to experience even longer marketing times and greater price discounts.  Finally, as for which properties are most likely to experience a price change, Knight finds that the greater the initial markup; the higher the likelihood that any given property will experience a listing price change.

Implications for Practice

Sellers as well as Brokers/Agents should therefore be aware of the critical necessity of getting the price correct from the start.  Sellers wanting to over list will ultimately take longer to sell and will sell their property for less, on average, according to Knight.  Brokers/Agents’ desire to take a listing and get the price right later will ultimately lead to their working harder according to Knight, and they are not doing their sellers any favors.  Thus, an initial and detailed analysis of the proper price is much more critical than many originally thought.

Interestingly, I have found in my own research that the direction (up or down) of the listing price change does not matter.  A listing price increase and decrease both lead to similar results found in Knight’s work – longer marketing times and lower prices.  Therefore, get the price right from the beginning.  It is best for all.

Endnotes

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[1] Knight, John, R.  (2002).  Listing Price, Time on Market, and Ultimate Selling Price: Causes and Effects of Listing Price Changes.  Real Estate Economics.  30:2, 213-237.

Why Do People Actually Buy a Home?

by THE KCM CREW on JULY 19, 2011 

 

It seems that every time we talk about real estate today the conversation immediately goes to the financial aspects of buying a home. Where are prices headed? Where are interest rates headed? Should I wait to try and get a ‘better buy’? Should I wait until I can get a ‘steal’?

The odd thing about all these questions is that survey after survey keeps telling us that price is not the reason families actually buy a home. When money is considered at all, it is in light of not paying rent to a landlord. Let’s look at two recent surveys as examples:

National Housing Survey

The top five reasons given in the survey for buying a home, in order, are:

• It means having a good place to raise children and provide them with a good education
• You have a physical structure where you and your family feel safe
• It allows you to have more space for your family
• It gives you control of what you do with your living space (renovations and updates)
• Paying rent is not a good investment

The Myers Research and Strategic Services Survey

The top five reasons given in the survey for buying a home, in order, are:

• Home ownership provides a stable and safe environment for children and other family members
• Home ownership means the money you spend on housing goes towards building equity, rather than to a landlord
• Home ownership creates the opportunity to pay off a mortgage and own your home by the time you retire
• Home ownership creates the opportunity to live in a neighborhood that you enjoy
• Home ownership allows you the right to decorate, modify and renovate your home as you see fit

Bottom Line

Price dominates conversation when we talk about buying a home. However, when it comes down to it, we actually buy for the same reasons our parents and grandparents did – we want a better lifestyle for ourselves and our families.

Let’s Talk Real Estate

Are You Working For Me?

This is such a good question, but one you shouldn’t ask in the middle of a transaction.  Mississippi real estate licensees are required to disclose which party they represent and to allow each party (buyer or seller) the right to choose or refuse among the various agency relationships.  This is the very first thing that needs to be done… understand your Agency relationship AND sign off on an Agency Disclosure.  This isn’t a binding contract, but a way to document acknowledgement that you have been informed of your choices.

One of the definitions of “Agency” with regard to real estate is “…authorized to act for others.”  This authorization comes in the form of either a Listing Agreement (if representing a seller) or a Buyer’s Agency Agreement (if representing a buyer).  Once a contractual relationship is formed, your real estate agent will be working for you—acting on your behalf; representing your interest; providing the fiduciary duties of loyalty, confidentiality, obedience, disclosure, full accounting and the use of skill, care and diligence, honesty and fair dealing.   The lines of “obedience” can get fuzzy at times.  I once had a client ask me to help his child collect insects for her science project.  I declined and did not lose my license.

But representation doesn’t mean compensation.  For the Seller, the listing agreement not only establishes the details of the listing like the legal description of the property for sale, the price, the list date and the expiration date, whether the listing broker is authorized to use a lockbox, place a sign or accept earnest money on their behalf, but also the compensation the seller will pay for their services.  The majority of these listing agreements authorize the listing broker to publish and disseminate the property information to other agents through their local Multiple Listing Service (MLS).  It is through the MLS that the listing broker agrees to share their compensation with a buyer’s agent.

A real estate agent working hard for a buyer has no guarantee of payment for their services unless their client actually buys a home offered through the MLS.  If their buyer decides to buy a home directly from a builder, a brother or from a For Sale By Owner (FSBO), they will probably not be compensated no matter how many months or previous offers they have handled for them.  Additionally, if a buyer calls the listing agent directly, from the sign for example, or starts working with a listing agent through an open house…if a buyer doesn’t inform them they are working with another agent, there’s a good chance, depending on the circumstances, their original agent will not be compensated.

However, a Buyer’s Representation Agreement, between a buyer and their agent, will not only outline the duties of the agent, but will also outline the duties of the buyer to their agent; such as loyalty, honesty and fair dealing, as well as the terms of compensation if, by chance, a home is purchased outside the agreement offered through the MLS.

I say all this to remind buyers to not only have representation, which is very important, but to be mindful of how representation and compensation work in the world of real estate.  Your agent will explain your agency choices, but if they ask you to consider a Buyer’s Rep Agreement, at least take the time to look over the terms.

What’s Eating You?

Let’s Talk Real Estate        Article for wk 6/20/11

Or rather…what’s eating your house?  First thing I have to disclose is that I’m not a licensed pest inspector/exterminator.  However, I have been present and have read through possibly 100’s of “Wood Destroying Insect Reports.”  I’ve been there holding my clients’ hand as the sheetrock (which to them is their beloved dining room, kitchen or bathroom wall) was cut away so we can check for damage.  I’ve held handfuls of dirt with live, active termites scurrying everywhere looking for cover.  I’ve even bought a personal home, which got a “clean” termite report, and then 2 days after closing found the $6,000-$7,000 worth of termite damage to the support beams.  Now that was fun…it involved the Department of Agriculture and attorneys.  I don’t want that to happen to you.

To say the least, I’m particularly sensitive to termite issues.  I have the “termite talk” with every seller that works with me…”If they find termites, you will have to treat.”   Then when they find them, I have to remind them that we had this talk when we listed the house.  But let’s say you bought the house; no active termites or no new damage, plus it already has a termite contract in place.  Great!  So, a couple of years down the road you decide not to renew the contract.  Why is that I wonder?  Oh…. you don’t want to pay the money.  I get that.  Approximately $125 or so to keep the contract in place, so if active termites are found again, the termite company will treat for free, saving you approximately $900-$1500.  And, depending on the contract, may even repair any damage found.  It’s insurance.  Like any other insurance, you weigh the risk against the cost.

However, with termites, I’ve learned that getting your home treated will kill active termites and will establish a chemical barrier to prevent access to your home from new termites.  That is until the barrier is compromised.  But folks, these guys are tiny.  Just a very small patch of wet wood is all they need, if that much.  Plus, you need to know that termites live in colonies in the dirt.  If you have had termites before, even if you treated your home, those guys didn’t pack their bags and move away.  They’re still there, in the dirt, looking for something to eat.  Just eating; searching and eating.  Eat, eat, eat.  That’s all they do.  They need only moist soil, warm weather and some wood.  Have you noticed how much warm, moist weather we seem to have around here?  Perfect conditions.

I had an “almost” client call me a while back and tell me the termites had eaten up his wall, eaten through the sheetrock and then through the matt board of his certificate hanging on the wall and was waving at him through the glass.  I say an “almost” client because he was one of those that you work with and work with and then they buy from a For Sale By Owner.  (A perfect example of why we should use Buyer Representation Agreements….which is another article for another day.)   My point is if they were there before, they are still there.  This guy admitted that he just didn’t want to renew his contract.  Hadn’t had any problems, so it didn’t seem necessary.

Please make sure you have annual inspections, keep your home under contract with a reputable company (opposed to not-so-reputable companies) and keep an eye out for “conducive conditions.”  Your licensed professional can educate you on what you can do to minimize exposure and what to look for.  But don’t be naïve or lulled into thinking that just because you can’t see them, they’re not there.  They’re there and they’re making babies!

Fence Etiquette: Tips to Avoid Neighbor Disputes

By: Ann Cochran

Published: March 23, 2011

If you practice fence etiquette and bone up on local zoning regs, you can avoid neighbor disputes.

 

Must-dos

Observe boundaries: Don’t risk having to tear down that fence by going even one inch over your property line. Study your house line drawing or plat or order a new survey ($500 to $1,000) from a land surveyor to be sure of boundaries. Fence companies usually install a foot inside the line, to be on the safe side.

Respect limits: Fencing companies obtain permits and must know local zoning regulations for height, setbacks, and other restrictions. Height limits typically are 6 feet for side and back yards; 4 feet for front yards. More restrictive rules often apply to corner lots, where blind curves can limit driving visibility. To avoid disputes, review restrictions with your fence company before choosing a fence.

Follow HOA rules: Fencing companies are not responsible for knowing home owners association dos and don’ts; that’s your job. Unless you want to suffer committee wrath, and engage in a dispute, follow HOA guidelines. HOAs can dictate style, height, and maintenance. If your HOA wants all structures to match, you won’t have much wiggle room.

Nice-to-dos

Share your plans: No one likes surprises. Before installing, save yourself a fence dispute and have a conversation with neighbors. If property line issues exist, resolve them before installation. No need to show neighbors the design–that’s just inviting trouble. They have to live with your choice unless it lowers property values or is dangerous.

Put the best face outward: It’s common practice to put the more finished side of your fence facing the street and your neighbor’s yard.

Maintain and improve: It’s your responsibility to clean and maintain both sides. If an aging section starts to lean, shore it or replace it.

Good-to-knows

• The term “fence” includes trees or hedges that create barriers.

• If you have a valid reason for wanting an extra high structure, to block a nasty view or noisy street, apply to your zoning board for a variance. Neighbors can comment on your request during the variance hearing.

• If your neighbors are damaging your fence, take photos and try to work it out with them first. If they don’t agree to repair it, take your fence dispute to small claims court. Award limits vary by state: $1,500 in Kentucky to $15,000 in Tennessee.

Ann Cochran has written about home improvement and design trends for Washingtonian, Home Improvement and Bethesda Magazine. 

Why You Need a True Professional to Sell Your Home

by THE KCM CREW on MAY 27, 2011 

 

Many people ask us whether they should hire an agent to sell their home or whether they should first try as a For Sale by Owner (FSBO). In today’s volatile market, we believe this is an easy decision: you need an experienced professional!

You need an expert guide if you are traveling a dangerous path

The field of real estate is loaded with land mines. You need a true expert to guide you through the dangerous pitfalls that currently exist. Finding a buyer willing to pay fair market value for your home at a time that there are mass inventories of foreclosures and short sales will take a true real estate professional. Finding reasonable financing can also be tricky in today’s lending environment.

You need a skilled negotiator

In today’s market, hiring a talented negotiator could save you thousands, perhaps tens of thousands of dollars. Each step of the way – from the original offer, to the possible re-negotiation of that off after a home inspection, to the possible cancellation of the deal based on a troubled appraisal – you need someone who can keep the deal together until it closes.

Realize that when an agent is negotiating their commission with you, they are negotiating their own salary; the salary that keeps a roof over their family’s head; the salary that puts food on their family’s table. If they are quick to take less when negotiating for themselves and their families, what makes you think they will not act the same way when negotiating for you and your family? If they were Clark Kent when negotiating with you, they will not turn into Superman when negotiating with the buyer or seller in your deal.

Bottom Line

We believe that famous sayings become famous because they are true. You get what you pay for. Just like a good accountant or a good attorney, a good agent will save you money…not cost you money.