Just Say No to Bidding Wars

Written by Jim Adair

Real estate sales are still booming in urban areas nationwide, as buyers get into the market before mortgage interest rates go up. With rates still hovering at near historic lows, it’s a great time to buy. However, it is also creating bidding wars for homes in neighborhoods across the country, driving prices up and leaving would-be buyers angry and frustrated after they are unable to get the home they want.

Losing a house you had your heart on buying is emotionally draining and it can also be costly if you’ve spent money on a home inspection and gone to the trouble of getting a certified check for the deposit. A recent survey by pollster Harris/Decima, conducted for BMO Financial Group, found that 15 per cent of homebuyers have been in bidding wars, and of those who didn’t get the home, 14 per cent say it caused them to overspend on their next offer.

Some bidding wars happen because a particular house strikes the fancy of a number of buyers who love a specific neighborhood or feature of the home. But encouraging multiple offers on a home is also a marketing tactic used by some real estate agents, who under-price the home and state they will not accept any offers until a specified time. The goal is to get a number of offers simultaneously and take the best one.

In many cases, unsuspecting buyers get excited about buying a home that seems to be in their price range, when it’s likely to sell for much more than they can afford. Once buyers discover they have competition for the house, they may already have an emotional and financial investment in the house (if they’ve paid for a home inspection) and it prompts them to push up their bids. In one city, some would-be buyers reportedly sent the sellers photos of themselves and their children, along with flowers and candies, in an effort to boost their offer. This is all great news for the seller, right?

Maybe not. Some agents say that multiple offers don’t necessarily net a higher price than if the home had been put on the market at its fair market value in the first place. Often many of the bidders can’t afford the home and are only involved because the house was priced so low in the first place.

Others argue that the under-pricing strategy is sleazy and unethical, because the seller has no intention of accepting an offer at the listed price. But real estate agents defend the practice as a way to get the best price for their client, which is their contracted duty. Sellers have the right to list their property for whatever price they wish.

Some of the under-pricing policies are extreme, including listing homes for sale for $1 and waiting for offers. A couple of years ago there was also a controversy in one city when an agent complained that “phantom offers” were being invented by agents to make it seem like there was competition for a home when none existed. A local Real Estate Board task force investigated the claims and determined that the law had provisions in place to prosecute any agent who was found guilty of this activity.

So if you’re shopping for a home and have fallen in love with that impossibly cheap home in a great neighborhood, how do you know if you should place an offer?

First of all, remember the old adage that if it sounds too good to be true, it probably is. Educate yourself about value of homes in the community by looking at the sale price of comparable homes or finding out from your real estate agent what other homes sold for recently. If it’s clear that the house is being underpriced to create multiple offers, you have a choice to make. You can play the game or walk away.

There’s a lot to be said for refusing to participate in bidding wars. Normally when you are thinking about buying a home, there’s time to look at the place carefully, come back a few times to make sure it’s what you’re after, compare it to other homes that are on the market, and have a home inspection done on the property. In a bidding war, you may not have time to do any of this. If you are bidding against others, you likely will have to come in with a “clean” offer – meaning no conditions. If there isn’t time to get a home inspection done before the offer deadline, you may have to buy without one. Your dream home may have all kinds of hidden problems.

It’s also good to remember that bidding wars are not happening everywhere. They are generally confined to the most popular neighborhoods or condo buildings. There are lots of other great properties available for sale, and although listings were in short supply early in 2010, they are now increasing every month. Look around and you might find something you like even better than this one.

What if you are absolutely sure this is the house of your dreams and you HAVE to have it?

First, before you even start looking, get a preapproved mortgage. Shop around among banks, mortgage brokers and financial institutions to get the best deal, and you’ll know exactly how much you can afford to spend and when to say no. Your total housing costs including mortgage payments, property taxes and utility payments should be no more than one-third of your household income.

For the best shot at getting the house, make an offer over the asking price. The more offers that are coming in, the more you’ll have to pay. In a bidding war you must make your best offer immediately because you may not get a second chance. Try to meet the homeowner in person at some point and get to know them a little – it can’t hurt. Put as few conditions in the offer as possible. Use the closing date that the vendor is seeking. Come up with a hefty deposit, in the form of a certified check, to show the vendor you are serious.

In the end, if you don’t get the house, just relax and let it go. Don’t worry – you’ll find another one!

– Copyright © 2010 Realty Times. All Rights Reserved.

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Does Moving Up Make Sense?

Written by Realty Times Staff

The following are some questions that will help you decide whether you’re ready for a home that’s larger or in a more desirable location than your current one.

If you answer yes to most of the questions, it’s a sign that you may be ready to move.

  • Have you built substantial equity in your current home? Look at your annual mortgage statement or call your lender to find out. Usually, you don’t build up much equity in the first few years of your mortgage, as monthly payments are mostly interest, but if you’ve owned your home for five or more years, you may have significant, unrealized gains.
  • Has your income or financial situation improved? If you’re making more money, you may be able to afford higher mortgage payments and cover the costs of moving.
  • Have you outgrown your neighborhood? The neighborhood you pick for your first home might not be the same neighborhood you want to settle down in for good. For example, you may have realized that you’d like to be closer to your job, relatives, or live in a better school district.
  • Are there reasons why you can’t remodel or add on? Sometimes you can create a bigger home by adding a new room or building up. But if your property isn’t large enough, your municipality doesn’t allow it, or you’re simply not interested in remodeling, then moving to a bigger home may be your best option.
  • Are you comfortable moving in the current housing market? If your market is hot, your home may sell quickly and for top dollar, but the home you buy also will be more expensive. If your market is slow, finding a buyer may take longer, but you’ll have more selection and better pricing as you seek your new home.
  • Are interest rates attractive? A low rate not only helps you buy a larger home, but also makes it easier to find a buyer.

– Copyright © 2010 Realty Times. All Rights Reserved.

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Top 10 Home Buying Mistakes

Written by Broderick Perkins

Buying a home is perhaps the most arduous, expensive and, ultimately, valuable acquisition you’ll ever complete

Just one mistake could mean disaster — perhaps the worst mistake you’ll ever make.

In order to avoid titanic trip ups during such a trying transaction, buyers should get to know the most common home buying blunders.

To know them is to avoid them.

  • Going solo: Buying a house is a complex transaction. It should be a team effort. You’ll need a REALTOR®, lender, inspector, insurer, perhaps a lawyer, and other team members to help you through each step of the way. Team build before you start the search.
  • Love at first sight: If you believe in fairy tales you probably shouldn’t be buying a home. You won’t live happily ever after if you emote your way through the home buying process. Your home should fit your real needs, not your yen for drama. Buy a home that fits your budget and your lifestyle. Be sure the home is in a community and neighborhood you desire. Visit neighborhoods several times before you buy to check out schools, noise and traffic patterns.
  • ‘Loanless’ shopping: Being pre-qualified gives you a general idea of how much you can afford to borrow. It’s better to be pre-approved for a given loan. Sellers will take you more seriously. You’ll stay on budget.
  • Overbuying: Home buyers buying more than they could truly afford, in part, led to the collapse of the housing market. Buy more than you can afford and your dream home will become the same nightmare. Analyze all your monthly costs including debts, food, transportation, entertainment, and savings. Your total monthly debts, including your mortgage, should not exceed 36 percent of your income before taxes. Don’t forget to budget closing costs (often two to five percent of the home’s purchase price), plus moving, redecorating and maintenance. Look ahead and allow for increases in ongoing expenses such as utilities and taxes.
  • Misplaced trust: You are engaged in what’s likely your most valuable acquisition ever. It’s a business transaction. Ask family, friends, co-workers, professionals and others you trust for referrals, but don’t take their word for it. Vet your team members.
  • Accepting oral agreements: Get it in writing. The rate lock, the home inspection, disclosures, the contract. Always. Should a dispute arise, you’ve got the details documented.
  • Skipping the fine print: Understand what’s really in any document before picking up a pen. Get documents in advance, take time to read them and ask questions. Get copies of your mortgage and closing papers a few days ahead of closing.
  • Forgetting or betting on resale: Avoid buying a home that costs 50 percent more than neighboring homes. Reconsider buying the most expensive home on the block. Neighbors’ lower home values will weaken yours. Buy intending to flip your investment only to have the market fail means when it’s time to sell your price may not cover your costs.
  • Making an unconditional offer: Protect yourself with these contingencies:
  1. Mortgage financing: You may be pre-approved but is the house? A formal appraisal confirms — or not — that there is sufficient value in the home to warrant the loan. If the house appraises lower than the sales price, the loan may be declined.
  2. Inspection: Never buy an existing or new home without a thorough home inspection. Walk through the home with the inspector to learn more about the house and any concerns he or she may have.
  3. Insurance: Confirm you can get adequate insurance coverage. In some areas, or following certain disasters, it can be difficult to get types of hazard insurance.

– Copyright © 2010 Realty Times. All Rights Reserved.

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Interest Rate Watch

Selected Rates as of March 25, 2010:

  • 30 yr fixed: 4.99%
  • 15 yr. fixed: 4.34%
  • 1 yr. adj: 4.20%

– Copyright © 2010 Realty Times. All Rights Reserved.

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Buyers: Why Green is Worth It

Written by Carla L. Davis

For new and existing home buyers alike, the options to “green up” homes abound.

Green upgrades on homes offer two-fold benefits. They contribute to a healthier environment, both now and in the future, and they can save homeowners big when it comes to energy costs.

How much impact does a green home have on the environment, you ask? The government reports that Energy Star qualified homes built in 2009 are the equivalent of:

  • Eliminating emissions from 51,645 vehicles
  • Savings 312,399,672 lbs of coals
  • Planting 85,372 acres of trees, and
  • Saving in the environment 612,678,574 pounds of CO2.

Many homebuyers shy away from green construction and green upgrades because of the upfront cost. But while some estimates have put the construction cost difference at 17 percent, recent estimates from The World Business Council for Sustainable Development put the cost of green construction only 5 percent higher than traditional.

Green building means using recycled, renewable, and native building materials. It also means tapping into the energy sources that nature has to offer, including solar and wind.

Here are a few ideas of simple “going green” ideas to get you thinking.

Energy Star Appliances: Appliances are an easy way to make a home more friendly to the environment. One of the fastest ways to explore your options is to visit energystar.gov. At this government site you can find out more information on tax credits and rebates. As an example of Energy Star appliances and their efficiency, qualified washers use 30 percent less energy and over 50 percent less water.

Toxin-free Paint: Also known as “zero-voc, low-voc, and natural” paint, this is a good option for families that have asthma sufferers. According to the EPA, “Paints, stains, and varnishes release low level toxic emissions into the air for years after application.”

Renewable Flooring: Looking for a beautiful way to incorporate wood flooring into your home? Consider bamboo flooring. How is bamboo a green option? It grows and renews itself quickly, unlikes most woods, making it an ideal and cost effective option for green flooring.

Passive Solar: In effect this option can cost you nothing, if you choose the right designed home. The goal is to design to take advantage of the sun’s positioning throughout the year. o that its windows, roof, doors, flooring, etc to take advantage of the sun’s position through the year.

Low Flow Toilets: Looking to keep utility costs down in your new home? Low flush toilets use 1.6 gallons per flush versus 3.5 in traditional toilets. That’s a lot of water saved. Worried about the efficiency of low flow? There have been major strides made in recent years in improving these toilets. Be sure to talk to your plumber about your options.

Hopefully, these items spur you to seek out your own ways to make your home as green as it can be.

– Copyright © 2010 Realty Times. All Rights Reserved.

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Interest Rate Watch

Selected Rates as of February 25, 2010:

  • 30 yr fixed: 5.05%
  • 15 yr. fixed: 4.40%
  • 1 yr. adj: 4.15%

– Copyright © 2010 Realty Times. All Rights Reserved.

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Taxpayers Seeking Homebuyer Tax Credits, Refunds Must File Paper

Written by Broderick Perkins

Homeowners filing for the home buyer tax credit are not allowed to use electronic filing and must file hard copies due to special documentation requirements.

Earlier this year, the Internal Revenue Service (IRS) deployed new home buyer tax credit forms and instructions requiring forms that will force taxpayers to file on paper, rather than electronically.

The new home buyer tax credit filing rules are to ward off a repeat of 90,000 taxpayers who fraudulently claimed the credit, according to the U.S. Treasury.

Under the new and expanded home buyer tax credit rule , the credit is worth up to $8,000 for first-time home buyers and up to $6,500 for qualifying existing home buyers, in both cases, who buy a primary residence or have one built.

The tax credit is refundable. A credit that is larger than the taxes owed is returned to the taxpayer in the form of a refund.

The home can cost no more than $800,000 and qualifying income is limited to a maximum of $125,000 for single taxpayers and $225,000 for joint taxpayers.

Get the full scoop online from the IRS’ “First-Time Homebuyer Credit” page online.

All taxpayers (first time and move up buyers) seeking a credit or refund, must use the new IRS Form 5405 “First-Time Homebuyer Credit and Repayment of the Credit” (Taxpayers must pay back the credit if they sell the home within three years). The instructions, which teach taxpayers what documents are required, are available on IRS FORM i5405.

In addition to Form 5405, also include at least one of the following documents:

  • A copy of the HUD-1, Settlement Statement, showing all parties’ names and signatures, property address, sales price, and date of purchase.
  • For mobile home buyers who don’t get a settlement statement, a copy of the executed retail sales contract showing all parties’ names and signatures, property address, purchase price and date of purchase.
  • For new home buyers who don’t get a settlement statement, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

Existing home owners applying for the $6,500 maximum tax credit must additionally prove they lived in their old home for the required period.

To do so, options are:

  • File IRS Form 1098, “Mortgage Interest Statement.” IRS Form i1098 offers the instructions.
  • Also, supply mortgage interest statements or property tax records or homeowner’s insurance records.

Again, because some of the documents required are not standard tax forms, taxpayers seeking the credit cannot file electronically.

They can, however, use off-the-shelf tax software or the IRS Free File online software to prepare returns, but they must still print out the return and mail it in with the required documents.

In addition to accuracy and compliance, the only other way to speed up any refund is to request, with the return, that the home buyer tax credit refund be deposited directly into a bank account.

– Copyright © 2010 Realty Times. All Rights Reserved.

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The Offer: There’s More to It Than Just The Price

Written by PJ Wade

Fixating on price in real estate may cost you the deal:

  • Sellers who decide that a specific dollar figure will buy their home and won’t budge from that bottom line may sell themselves short.
  • Buyers who drop out of a transaction for a property they love because the seller’s counter-offer shocks them may be quitting before they have really started negotiating.

When a buyer makes an offer to purchase a house, condominium unit or commercial property, the purchase price is a prime consideration, but it represents only part of the total value offered to the seller. Problems may arise for both sides of the transaction when this fact is forgotten.

Value Elements in an Offer

The value expressed in a buyer’s offer to purchase, or in a seller’s offer to sell, involves five key elements — a financial package:

  • Purchase Price, the stated amount of dollars offered by the buyer, represents a significant contributor to value, but there are other important factors which can reduce the amount the seller receives or which can compromise the transaction. It’s not the purchase price, but the net proceeds of the sale that sellers — and savvy buyers — should concentrate on.
  • Closing Date, or the day ownership changes hands and the seller receives the money, can represent cost or value to both parties. Savvy buyers usually attempt to meet the seller’s preferred moving date, especially when the seller has committed to purchasing another property or needs the proceeds of the sale on a specific date. For instance, a closing before that date may be expensive because the seller would have to move out and store everything until they could move into their new home. That double move and the inconvenience represent out-of-pocket costs and time lost that make the actual purchase price lower than stated. A closing date later than the seller’s preferred date may leave the seller owning two homes – and paying off two mortgages – at once. The seller may incur extra costs in arranging bridge financing to meet legal obligations to close on their new home before they receive proceeds from the sale of their current home. Choice of closing date may represent costs or value to the buyer as well. Balancing this reality for both parties is key in negotiation.
  • Inclusions and Exclusions to the sale also represent costs and value for both parties. Appliances, heating systems and draperies are common seller inclusions designed to boost value for buyers. If warranties for everything from a new roof or solar panels to new appliances cannot be transferred to a buyer, these items become “second-hand”and will probably represent less value to buyers. Buyers are also free to include excluded seller items, like an antique light fixture, in the offer to purchase. Deals have been lost to disagreements over light fixtures, fireplace accessories and vintage furnishings, so prudent sellers remove contentious items before listing. A buyer may offer less than list price and ask for nothing; a seller could sign back for more money and include items to sweeten the pot. Value is very subjective for these non-real-estate items and that’s where negotiations can get heated.
  • Terms and Conditions are clauses in the offer which cover “what if” risks for one party and the obligations of both parties. These clauses detail what the buyer asks the seller to do for the purchase price. Arrange a survey or include a treasured light fixture? Sellers can create conditions in an offer to sell, but usually conditions are of greater concern to the buyer, particularly if approval of a third partly like a lender or city planning department is involved in determining the property’s suitability. Conditions to arrange financing or a home inspection are among the “ifs” that define the offer to purchase. The degree of uncertainty attached to the conditions and the buyer’s related ability to close effect the value of an offer. For instance, a buyer who is pre-approved for a mortgage of sufficient size offers less risk to a seller. However, if the purchase price is significantly-above market value, the lender may not approve the mortgage, so a condition for financing is essential to protect all parties. A full-price offer with conditions that will be difficult to meet may hold less value than an under-list-price offer with no conditions. Alternatively, if the conditions are merely formalities, the conditional offer could represent greater value. Would you recognize the difference if you were the seller? That’s where the expertise of the real estate professionals involved becomes valuable…
  • Intent and Sincerity are vital aspects of an offer although difficult to quantify. How determined is the buyer to buy, and why? How determined is the seller to sell? If either party changes their mind after the contract exists and before the closing date, the injured party has remedies in court. These legal steps may not make up for lost time and, perhaps, a missed market. An investor or flipper may decide to cut losses and bail out of the deal if the market drops significantly before closing. A seller may have second thoughts if their plans to move fall through. For both parties, value should lie in the certainty that the other party will close in spite of market shifts.

Yes, price matters, but there’s a lot more involved in creating an offer that demands to be accepted. That’s why an experienced real estate professional is a valuable contributor to success. Professionals can calculate, or at least estimate, the seller’s net proceeds after costs related to the offer and deduction of commission. This information helps the seller accurately evaluate an offer to purchase. Understanding cost and benefit for all elements of an offer helps a buyer intent on ownership to create the best financial package possible.

Tip: Re-read this article when you are ready to make an offer, counter an offer or accept one. This will ensure value is visible to you on all levels before you decide to walk away or sign on the dotted.

– Copyright © 2010 Realty Times. All Rights Reserved.

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Interest Rate Watch

Selected Rates as of February 5, 2010:

  • 30 yr fixed: 5.01%
  • 15 yr. fixed: 4.40%
  • 1 yr. adj: 4.22%

– Copyright © 2010 Realty Times. All Rights Reserved.

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Homebuyer Tax Credit Boosts Economy

Written by Broderick Perkins

A new survey reveals that savvy consumers cashing in on the new and improved homebuyer tax credit are helping fuel economic recovery.

The vast majority of current homeowners say they would spend the expanded version of the homebuyer tax credit on repaying existing debts, home improvements, savings and investments and household expenses, according to a National Association of REALTORS® survey of 1,000 homeowners.

Paying off debts affords consumers more spending power, home improvements likewise put more equity money in their pockets and savings and investments generate income.

Consumer spending, of course, is the real fuel for the nation’s economic engine. And much consumer spending is fueled by the housing market — provided the housing market is energized.

Helping to energize the housing market and the economy is the idea behind the homebuyer tax credit and it’s recent extension and expansion.

By October 2009, before President Obama signed the latest extension and expansion, more than 1.2 million tax returns had claimed about $8.5 billion in the refundable tax credit, for both new and resale homes – according to the Treasury Inspector General for Tax Administration (TIGTA).

The new law extends the existing credit for first-time homebuyers, worth up to $8,000, through April 30, 2010.

A new credit of up to $6,500 is available to qualifying existing homeowners who buy a new primary residence (or have one built) by April 30, 2010, if they owned their existing home for five consecutive years over the last eight years. Second homes don’t qualify.

The new rule also raises the qualifying income limits to $125,000 for single taxpayers and $225,000 for joint taxpayers, from the current $75,000 and $150,000.

The maximum allowed home purchase price is $800,000.

More information is available from the Internal Revenue Service (http://www.irs.gov/), including its question and answer page.

As a tangible asset with a host of other tax breaks and the potential for equity gain, a home is often a consumer’s most valuable asset.

As the economic theory goes, when more consumers buy homes, the economy gets a boost.

NAR’s survey appears to confirm the theory.

Among those surveyed, 83 percent said if they purchased a home and qualified for the tax credit they would engage in “smart spending” on things that could ultimately increase income available for spending.

Only 6 percent said they would squander the money on luxury items such as vacation or shopping spree.

According to the survey most consumers would spend their tax credit:

  • To pay off debts (34 percent). Paying off debts leaves more money to spend or save and invest for returns that again generate spending money.
  • To make home improvements and potentially increase the value of their home and home equity (29 percent). Home equity, can be a way to consolidate other, more expensive debt or spend further on capital improvements that generate more returns on the money.
  • To put into savings and investments (28 percent). Saving and investing for returns is a much better personal financial approach than using credit for purchases.

The survey also found, after learning about the tax credit expansion, 20 percent of those surveyed said they were more likely to consider purchasing a home than they were six months ago.

Of course, what will happen when the tax credit expires in 2010, without another extension, is anyone’s guess.

– Copyright © 2010 Realty Times. All Rights Reserved.

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