Thursday, April 7, 2011

Real Estate Season is Here

(Editor's Note: Paul Schatz, President of Heritage Capital, LLC, in Woodbridge, will be contributing to Fi$callyFit every Friday. Read his biography here)

Thank you for the flood of emails from last week’s piece, The Man Who Changed My Life.  It was one of the more enjoyable posts I have done.  Surprisingly, the majority of replies were from folks requesting more information about Sloo and what he said that was so bad I couldn’t sleep.  They wanted to know how they could have me manage their money based on Sloo’s forecasts.  The problem is that is the post was done on April 1, otherwise known as April Fool’s Day!  Sloo Flipra spelled backwards…
 
Before I get into this week’s real content, I want to share something else.  Having essentially lived in the greater New Haven area my whole life, except for college and five years on Wall Street, I have been so fortunate to have friendships from nursery school, some 40 years ago.  I still have pictures from my three and four year old classes with Joanna Katz, Lauren Farber and Elisa Scholson, all friends to this day.
 
Lauren sent me an email last night about a bike ride she is doing. Sadly, she was diagnosed with a brain tumor and is now trying to raise money to help find a cure.  If you are so inclined, please click on the link for me information on you can help the cause. Brain Tumor Ride.
 
And now, on to the topic at hand.
 
It’s that time of year again.  The birds have flown back for the warmer months.  Local golf courses have put the pins back in the greens.  There are buds on the trees and bushes.  Ski areas are closing and the Yankees have taken the field.  It’s also the beginning of prime residential real estate season!
 
As I have done in previous real estate posts, I leaned on my good friend and real estate super agent Judy Cooper for advice.  Similar to last season, it is clearly and unequivocally a buyer’s market.  While the pace at which prices were dropping has diminished, prices remain weak and as I opined in two blogs last year, Real Estate I and Real Estate II, I think it’s going to be years and years for a real, sustainable recovery to take place.
 
We have less competition in lending and banks are much more stringent in putting their money to work.  The employment numbers remain at very elevated levels and I do not believe the unemployment rate will get back to the “normal” zone until after the next recession.  Finally, mortgage rates are at historically low levels.  Best case scenario, they remain there, which would not help the refinance boom.  Worst case, rates begin to rise and become an anchor on any real estate recovery for some time.

Nonetheless, each year, roughly one million new homes are needed to satisfy demand.  When things were humming along in 2005, the U.S. had roughly a six month supply on the market.  In the darkest days of 2009, that figure had ballooned to about 24 months.  The last figures I saw still had the supply at more than 12 months.
 
Those of you, like me, who are in the market for a new house should feel okay, not rushed or pressured.  We got lucky and sold our house last summer to a family who needed to close in a very short period of time.  My wife and I made a deal that I would agree to find a larger house for our larger than expected family if she agreed to sell first and rent.  That would give us a significant advantage coming buying time as we would have cash on hand with nothing to sell.

So here we are.

As I mentioned before, since my entire professional life revolves around making informed, non emotional decisions concerning money, I took a page from the business and created a quantitative model that values local real estate.  Obviously, it can’t take into account intangible items like the immediate need to buy or the lack of a catalyst to sell.  But overall, it’s usually within 5% of the transacted price. 
 
Although the season is young, it’s unfortunate to report that sellers have come out from the long winter hibernation as though it was 2005 all over again.  Some of the homes I have personally seen make me wonder if folks are caught in a time warp, overly medicated or living on Mars.  As a previous seller, we clearly thought our house was worth more than it was.  That’s the emotional attachment.  But very quickly after we listed, Judy Cooper came back to us and advised reducing the price if we were serious about selling.  So we listened and the rest is history. 
 
Sellers like we have experienced are part of the problem, not the solution.  The system remains full of inventory and desperately needs to be flushed before real stability can set in.  With the recent housing numbers opening the door for a double dip housing decline, buyers need to be very careful letting emotion enter into the negotiations.
 
Two vital stats I strongly suggest using are the listing price divided by the either the town’s assessed value (usually 70% of appraisal) or listing price divided by the appraised value.  Additionally, I would keep a close eye on the listing price divided by the square footage.  Of course, the condition of the house can add or subtract from these figures, but at least they give you a general apples to apples comparison.

I asked cooperjudy@aol.com to offer advice for both buyers and sellers on the whole home buying/selling process.
 
Here you go…
 

For sellers:


1) Trust your Realtor! Choose someone who has experience, knowledge and has a 'complimentary' personality. If necessary, interview several to find the one who clicks best.
 
2) Let him/her explain how the price was arrived at....with lots of comparable homes, etc.
 
3) Stay unemotional!! The market sets the price a seller will receive. After 5-6 weeks, take a look again at your listing price...is it realistic? What feedback have you received? Revisit the price and see how many other houses have gone under deposit if yours hasn't.
 
4) Stage your house to make it looks its best.
 
5) Have a pre-listing inspection so you know what you're dealing with before the buyers tell you.
 
6) The first offer is usually the best...and if you don't accept it, you're essentially saying you would buy your own house back at that price. The question is: would you???
 

For Buyers:
 

1) Trust your Realtor: interview several to make sure they have experience, knowledge and a personality that clicks.

2) Learn the market. Go to open houses in the towns that interest you. Get a list from Town Hall of all houses sold in the past year for comparative purposes.  Be especially interested in recent sales on streets you are looking at. 

3) Prioritize your needs. Are hardwood floors more important that the location of a neighborhood? Learn the difference between cosmetic and structural changes when you see a house you like.
 
4) Get a pre-approval letter from a reputable lender BEFORE you start looking so you don't have unrealistic expectations.
 
5) The primary consideration in choosing a house is (yes!) LOCATION!! Neighborhoods trump main roads, level lots trump houses set down from the road or those on a steep driveway.

6) Do not negotiate with emotion--be willing to walk away.
 
7) Offer the seller non financial items of value: a closing date that suits their needs (if it doesn't impact yours), etc.
   

Feel free to email me with any questions or comments at Paul@investfortomorrow.com.
 
Until next time…
 
Paul Schatz
 Heritage Capital LLC
 
Follow us on Facebook at www.facebook.com/heritagecapital and on Twitter at Paul_Schatz
 

5 comments:

  1. Very informative indeed. I couldn't agreed more to the advices that you have provided. Truly the real estate season is already here.

    ReplyDelete
  2. Thanks for sharing such a wonderful article and I look forward to reading your article blog.

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  3. You nailed it with the emotional attachment. I'm a realtor and the single largest hurdle I have to overcome is pricing the home so that it's competitive based on what has sold recently and what's on the market now. Many of my buyers have "their number" for what they want the house to sell for (usually at or above what they paid for it) and generally it's unrealistic.
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  5. Valuable information and Great post. I would like to thank you for sharing your thoughts and time into the stuff you post

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