Following your Peers It's easy to get caught up in frenzy of a group of people. When you see everyone around you buying a home and paying over asking price for the home, then you think, hey, these are smart people and they are doing it, so why should I not do it also? Try to make your purchase price decision based upon as many concrete factors as you can gather. Buyer in a Hurry Typically, buyers spend months or more searching for a home. But not all buyers have that kind of time, especially if the purchase is driven by a life change, such as a new job or a divorce. Any time a lengthy process is condensed into one or two weekends, the potential for mistakes is amplified. If not handled properly, a rushed purchase during a potentially stressful life change can often lead to buyer's remorse on multiple levels, including overpaying or choosing a home in the wrong area. A buyer in a time crunch can mitigate the problem by working with an experienced agent who is active in the area. Neighborhoods tend to have nuances and trends that are not necessarily obvious to most buyers. An experienced agent may have specific knowledge about a property that can be advantageous to the buyer, especially if they're on a tight timeline. It could be that they know of a house that's a better fit, or they might have a local's understanding of maintenance issues, for example. Lowball Offer Backfires Unless the property has been sitting on the market for months or more without so much as a nibble, most real estate agents advise buyers against making lowball offers, which are substantially below the asking price. The reasoning is that lowball offers really aren't offers at all because sellers either don't take them seriously or see them as an insult.
Aside from the strong possibility of losing out to a higher bidder, the big risk is starting off on the wrong foot with the seller. If the seller gets insulted, or feels that yours is not a serious offer, they are less likely to respond with a reasonable counteroffer, and you've basically shot yourself in the foot. While that doesn't mean the deal is dead, it can mean that the seller will be reluctant to negotiate when the buyer makes a serious offer. By starting off with a respectful offer, even if it's below the asking price, buyers create an opening to adjust the price downward as the deal moves toward closing.
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A client asked me how she can find out whether she would save money by either making additional principal payments each year or refinancing my mortgage?
I created a calculator for her using Excel so that she can visually see the answer to her question and I thought it was kind of cool so I have decided to share it with all of you. She owed $167,000 and had about 25 years left on a loan with an interest rate of slightly less than 5 percent. She could either lock in at less than 3 percent on a 15-year fixed-rate mortgage or she can make additional principal payments each year on her current 30-year loan. The first thing I determined is determining how long she planned to remain in the house. If she anticipated moving in a few years, it would not be a good idea to pay thousands of dollars in closing costs just to lock in that lower interest rate. Making additional principal payments will reduce her total interest expense, but she will be stuck with the higher interest rate and refinancing, would get a lower rate of interest, but she could make additional principal payments. The chart below, while only estimating her situation, shows how she could make additional principal payments on her current loan equal to the difference in payments between the existing loan and a new 15-year loan at 2.95 percent interest, and she would still pay $48,533 in interest expenses versus a new 15-year refinancing. Another benefit is refinancing also shortens her loan term by 3 ½ years. Additional payments vs. refi Current loan w/additional principal payments 15-year refinancing Difference Loan amount $167,000 $167,000 Interest rate 4.95% 2.95% 2% Loan term (months) 222 180 42 Payment $971.41 $1,149.26 $(177.85) Additional principal payment $177.85 $- $177.85 Total monthly payment $1,149.26 $1,149.26 $- Total payments $255,400.16 $206,866.74 $48,533.42 Total interest expense $88,400.16 $39,866.74 $48,533.42 This analysis doesn't include closing costs from a refinancing or the potential reduction of the mortgage interest deduction on her income taxes. Even so, it's clear refinancing is a better option than making additional principal payments on her existing loan if she plans to be in her home for a long time. Are you thinking about refinancing? Allow me to provide an analysis of your situation to assist you make the decision. Till next time my friends! Real estate has distinct momentum heading into 2013, with demand finally
starting to catch up with supply and significantly fewer distressed properties weighing down the system. As 2012 wound down, the national vacancy rate for owned homes had dropped to 1.9 percent from a downturn high of 2.9 percent. That's still above the 1.5 percent norm but nevertheless encouraging. The ever-optimistic National Association of Realtors predicts a 5 percent rise in median existing home prices through 2013, though most forecasters see a more modest 3 percent upswing in real estate prices. Either way, the real estate market is thawing, unless you're living in such hard-hit areas as California's Inland Empire or dodgier parts of the Rust Belt. With the new year upon us, here are 10 real estate tips to see you through a more promising 2013. Tip 1: Get off the sidelines For good-credit buyers waiting for the bottom of the market, it has passed, but the good news is that home prices and interest rates are still quite low. For sellers waiting for market improvements, they're here. Stretch, take a deep breath and jump back in the game if your budget allows. The rules have changed a bit, however, and lenders want buyers to put a little more skin in the game. So expect to make higher down payments than in those pre-bust years. Another caution: Sellers will likely find that buyers have a harder time qualifying for mortgages. Tip 2: Screen your buyers Save your time, and weed out the tire-kickers. Make sure potential buyers are preapproved, which means they've already had their credit and employment checked thoroughly to determine how much they can borrow. Have your agent call their loan officers. Serious borrowers will find this acceptable because it shows they are ready to act. Tip 3: Create a good impression Most folks start their home searches online these days, so the number of murky, drab photos posted on website listings is baffling. Consider hiring professional photographers or videographers to create an optimal presentation, particularly for high-dollar spreads. Winter exteriors might show sun shining off the snow, spring shots could sport blossoms, summer shots ought to spotlight that shimmering pool or well-coifed lawn, and fall photos might show vibrant leaves. Think vividly, but not deceptively. Shots should accurately reflect the depth of rooms. Interiors should show bright, uncluttered spaces and highlight the best outdoor views. Remove a few furnishings for your photo session and brighten up (or even repaint) dark rooms Tip 4: Renovate wisely A thorough remodeling can help seal a deal, but it rarely pays for itself. In fact, the average remodeling payback in the past 10 years has dropped from 82 percent in 2003 to about 57 percent, according to Remodeling magazine. Bringing up the rear are added back-up power generators (47.5 percent return) and sunroom additions (45.9 percent). Topping the list are steel entry-door replacements (73 percent return) followed by garage door replacements (71.9 percent). Unless the place is a wreck, focus on the small stuff: Sellers routinely underestimate the positive impact of simple home improvements such as repainting and minor fix-ups, say 3 out of 4 Realtors. Tip 5: Build your team wisely Vet the help. This goes for such crucial players as your agent (interview at least three), your inspector, appraiser, title company and if applicable, your attorney, surveyor or even energy auditor (a good idea if you're buying a large home). Look them up at the Better Business Bureau, Angie's List and any of a number of websites where service reviews can be found Tip 6: Don't let the heart lead the head No clinging to false hopes, please. Win the game of "the price is right" by pricing your house correctly from day one. Find a proven, seasoned agent and follow his or her lead on listing-price suggestions. Pricing should be based on comparable sales, specific neighborhood time-on-the-market trends, an up-to-date appraisal and the home's inherent pros and cons. No amount of marketing hocus-pocus or staging can overcome a bloated price tag. Cut your price if no serious offers emerge in the first 30 to 45 days. It's not 2006 again. Tip 7: Open your marketing options Give your agent (or yourself) the green light to creatively market your home in varied venues, be they virtual or terra firma. Sellers are tapping into Twitter, Facebook, Pinterest, LinkedIn and any number of sites to tickle buying bones. Agents and owners are customizing websites and blogs as well. But be tactful and imaginative. For example, a blog called "What you'd like about living in my town," might cover culture, education and other quality-of-life niceties -- followed by a playful pitch for your home, of course. Social media, unlike listings on the Multiple Listing Service or newspaper ads, allow for quick feedback and Q-and-A. You might also suggest your agent market your home to foreigners via overseas property sites or local partners abroad and to corporate relocatees. Tip 8: Run the numbers Are you really poised to buy? The housing market is improving, but that doesn't mean exuberant buyers should write a check and empty their savings accounts. Back up a bit and first get a free copy of your credit report, then fix any blips to save on higher mortgage interest rates. Break down your essential monthly bills and reconcile them against your family income, then use an online mortgage calculator to see how much wiggle room you'll have once you buy. Remember to factor in closing costs, inspection fees, loan fees, legal fees and emergencies. Tip 9: Work your ground game You're not just buying brick and mortar, you're buying a neighborhood. Consider this short checklist before making your buying decision.
Tip 10: Leave nothing to chance Switch on that stove, run the faucets (including the baths), check the water pressure, activate the sprinklers, turn on all the lights, flush the toilets, turn on the air conditioning and heat, test the remotes and venture into the closets and look for signs of brown splotches or fresh paint for evidence of roof leaks. Granted, you might not feel comfortable doing all these at the open house, but you certainly can at the final walk-through. Sometimes agents and inspectors miss things. |
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