Thorner Gets It Right

I'm usually pretty quick to point out things I don't agree with in James Thorner's (Un)Real Estate column in the St. Petersburg Times. I think it's fair that I do that. Besides, I have fun writing those responses and I think everybody -- including James Thorner -- has fun reading them.

Well, it is also fair for me to point out when James Thorner gets it right, and he does get it right in his latest column which appeared on page 1A of the paper for Friday, February 27th.

If you are a real estate buyer or a real estate agent who works with buyers, you need to read that column and tattoo the important parts to the inside of your eyeballs so you don't forget it.

Thorner's headline summarizes it all ... "Price break plus tax break equals bargain". You can't be any more clear than that, and that's the best reason on this planet for buyers to act NOW.

Thorner points out that buyers have three great discounts available now that they may not have in a year or so ...
1. A foreclosure discount;
2. A tax credit discount;
3. A mortgage interest rate discount.

Thorner writes that by using all three of these discounts wisely, your typical $185,000 house could actually be valued at only $121,000. That's pretty darn reasonable and smart buyers are going to take advantage of this opportunity by buying now.

You can read the story for the price of a paper, so I'm not going to rehash the entire article. Essentially, if you deduct from the $185,000 price about 25% for the "foreclosure discount", another $8,000 for the federal first time buyer's tax credit, and another $6,000 for the first six years of interest savings from today's low mortgage rates, the value of the house falls to $121,000. Read the story to get the details of how this works.

Agents who represent buyers have been saying that this is a great time to buy a house for quite a few months now. It is really refreshing to read in the Times that they too think this is a great time to buy, especially if you can qualify for that first time buyer tax credit. If I were a buyer, I'd take this advice and start making a few offers. You may find yourself sitting on a great deal!

For more information about real estate in the Tampa Bay area, please visit my website at www.TheStPeteRealEstateSite.com.

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It's A Half Price Sale!

The good ol' St. Petersburg Times is a regional newspaper -- at least, it is as far as reporting real estate news and trends. That's a good thing since I usually only concentrate on Pinellas County in this blog and we all need to keep in mind that we are not an isolated community.

In Thursday's newspaper, the lead story was about how far real estate prices have fallen, especially the terrible drop in prices resulting from the sale of distressed properties throughout Pinellas, Hillsborough, Pasco and Hernando counties.

In case you missed the story, written by James Thorner, the report is that home prices in these counties took a 16 percent drop from December to January mostly as a result of the sale of foreclosures, but we can probably ad the effect of short sales into that mix.

Sales are up, but only because prices are down. Way down, as it turns out.

Buyers and sellers need to keep these facts in mind:

• -16% drop in value from December 2008 to January 2009;
• -33% drop in value from January 2008 to January 2009;
• -49% drop in value from June 2006 to January 2009.

If you're a buyer who has been looking for a new home on-and-off since June of 2006, that 49 percent drop in value means you are practically looking at a half price sale today as compared to the prices when you started looking. The Florida Association of Realtors has reported a 17 percent increase in the number of homes sold in the year ending January 2009. Some smart home shoppers are out there taking advantage of these lower prices ... are you?

If you're a seller who has had his house on the market for a long, long time, here's a bit of advice: bring your price in line with today's real estate values if you want it to be sold. Simple as that. Overpricing is out. People won't come and make you an offer. They won't even stop by and look. The rules have changed, and you have to learn how to play by the new ones.

So, what does all this mean?

For buyers, it means this is probably a great time to buy. Maybe it's time to get off the fence and start making some offers. It's clearly a buyer's market and you might as well become a smart buyer and take advantage of this situation ... it likely will not last forever, you know.

For sellers, wise up. Your property is going to sell for its market value today. Not it's market value of two years ago. When you have your house on the market month after month after month, you are really saying "Hey, look here! Here's another overpriced house for sale. Want to buy it?" Buyers, of course, have already answered that question which is why you still have that big old for sale sign in your front yard.

When will it all end? Sorry, my crystal ball is still a little cloudy on that answer.

For more information on real estate in the Tampa Bay area, please visit my website at http://www.thestpeterealestatesite.com/.

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Buyer's Need To Act Now!

Buyers should take specific note of this important bit of information from the most recent Standard & Poor's/Case Shiller Home Price Index:

Bay Area Home Prices Dropped 22% In 2008

They should also take special note of this Case/Shiller factoid:

Bay Area Home Prices Have Dropped 35% Since July 2006

Here's something else to keep in mind if you are considering the purchase of a new home. Right now, the Tampa Bay area has been seeing home prices dropping steadily for just over 2-1/2 years.

How much longer do you think a trend like that is going to continue? How far down do you think prices are going to fall? How long are you going to sit on the sidelines while great buys get grabbed up by other people?

Right now is the time to buy. Sure, prices may fall a while longer. But once you own the home, the loss will be nothing more than a paper loss if you bought for the long term. Eventually real estate prices will stabilize and then start moving back up and you'll have made a great investment. Frankly, given the length of time we've been in this downturn, the return to higher prices may be closer than you think. Historically, these "corrections" have probably just about run their course.

Look, if you have a steady income and are in a stable business environment, there's no reason not to buy right now. Mortgage rates are very low again. Banks and mortgage companies are making loans to qualified people. Sellers are willing to negotiate lower prices. The number of homes for sale means you have a great selection and can probably find just the kind of property you want in a neighborhood that is perfect for you.

The smart move is to act now. If you wait and try to guess where the bottom of the market is, I will almost guarantee that you will miss it and will buy on the upside of the bottom. By the time the news media starts saying "now's the time to buy" or "real estate sales are exploding", well, it will be too late and you will have missed your best chance. Why? Because everybody will be in the market again and they will compete with you for the best buys -- that competition means prices will go up pretty darn fast.

Buy now if you can. You won't be sorry.

For more information about real estate in the Tampa Bay area, visit my website at http://www.thestpeterealestatesite.com/.

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Don't Reduce Commissions Now

Recently, a few sellers have been asking me if I would reduce the amount of the selling fee, or real estate commission, for listing, marketing and selling their property.

I understand the logic behind that request. Sellers are faced with falling prices and need to recoup every dollar they can when selling their property to try to make up some of the loss which has been thrust upon them by the falling market and the recession.

On its surface, such a request seems logical from the seller's viewpoint.

In actuality, reducing the commission will also reduce the chances of selling the house. It is not to the seller's advantage to reduce the sales commission in the current market.

Here's why.

Real estate agents make their living solely by the commissions they earn from selling properties. Nobody pays a real estate agent a salary or covers their monthly business expenses. Real estate agents are true independent contractors who cover their own costs and earn only the commissions from what they sell.

So, if a seller reduces the commission he is really taking away the incentive for real estate agents to show and sell the property. Fewer showings mean less of a chance for a sale. That's why a reduced commission puts the seller at a huge disadvantage compared to other sellers who are offering a larger selling fee. To be candid, it always has been this way no matter what the market conditions are like.

"But," some sellers may say, "I'm only asking for a 1 percent reduction in the commission. How much can that hurt the agent?"

Well, you need to look at it from the real estate agent's viewpoint. Let's say you want the agent to reduce the commission from 6 percent to 5 percent as an example. To the seller, that's just a 1 percent reduction. To the agent, that's a reduction in income of 16.67 percent. Why should the agent show your property, market it at his own expense, negotiate all the closing matters, and provide all the other professional services required in selling a house and earn less than normal?

Many buyer's agents today immediately go right down to the bottom part of the MLS listing sheet where the buyer's agent commission is disclosed. Usually, it is one-half of the total commission amount the seller agreed to pay on the listing agreement, about 3 to 3.5 percent normally.

But when that commission is reduced, you are also reducing the commission and income of the buyer's agent. Instead of receiving 3 to 3.5 percent, the commission may be cut to 2.5 percent. If we are selling a $300,000 house, the buyer's agent quickly calculates that instead of receiving about $9,000, he will only receive $7,500 for bringing the buyer to the closing table. From that, many agents must then split with their broker by as much as one-half of the commission amount, meaning the buyer's agent may take home as little as $3,750 for selling the $300,000 house instead of the $4,500 or more that might be earned at a higher commission figure. That $750 difference is significant in many family budgets.

Frankly, I know of few industries where a salesman would sell $300,000 worth of product for a commission of only $4,500. Back in my advertising agency days, a $300,000 media buy would earn a commission of $45,000 and I thought that was too low!

So, when a seller tries to negotiate a reduced commission, he is tampering with his own success. Some agents will cave in and reduce the selling fee for no good reason. When that happens, the astute seller should ask himself this question: "If this agent is unable or unwilling to defend his own income, how good a job will he do when negotiating the price for the sale of my property?"

The agent who just reduced his own income may not have a particular interest in getting the highest possible price for your property. Your interests may, in fact, become sacrificed in favor of a "quick sale" for the agent. A few seasoned sellers will, right at this point, go find a better agent who is willing to be a tougher negotiator.

So, think about these things if you're a seller. A commission that gives the buyer's agent a financial incentive to show your house in this market is the best way to go because as you can see, reducing the commission also reduces the incentive to sell the house.

With so much property on the market today, many buyer's agents simply decide not to show the house with the reduced commission and move on to show other houses that offer a larger selling fee. It's the way of the world, folks.

For more information about real estate in the Tampa Bay area, please visit my website at www.TheStPeteRealEstateSite.com.

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Real Estate's Three Rules Have Changed

Do you remember the three rules of real estate?

Sure you do.

Location. Location. Location.

Right?

Well, those three rules have changed.

Recently, I heard a real estate agent say that the three rules are "Price, Price and Condition". I think those are two rules. But the comment got me thinking about what today's three rules might actually have become.

As far as I can tell, I think the three rules of real estate today are Price, Condition and Marketing.

Rule #1: Price

In this part of Florida and in many other markets across the United States, buyers are hesitating to purchase real estate because they believe prices will continue to fall. As far as I can tell, many real estate markets have not bottomed-out yet and may continue to fall for the rest of 2009. That's why price is such a key rule in real estate today.

Property that is priced at or above market value is simply not selling. Moreover, buyers are reluctant to make offers on overpriced property fearing that their offer will not be low enough and they will find themselves upside down as the market continues to fall. Overpricing is the fastest way to assure that a property will not sell.

To sell property today, you must price it at a very competitive level. This means you must not be over the market value presented in your agent's CMA or your appraiser's valuation report. As a general rule, you need to be below that number. I think you need to look at nearby competition as well. If you are competing against short-sales or foreclosures, you need to at least be competitive with those properties -- after all, if a buyer can purchase a property similar to yours at a short-sale price, why would they pay market value for your place?

In addition, you must make sure your property stays at a competitive price. Your real estate agent needs to re-price your house about every sixty days just to make sure you are still in the ball game with other properties in your area. If not, you are going to be overpriced in a short time and then you will find yourself chasing the market by constantly lowering your price in knee-jerk reactions.

Proper pricing has to be the first rule of the new real estate laws.

Rule #2: Condition

Today's buyer has changed. When prices were rising rapidly, the market was filled with buyers who thought of themselves as real estate investors. They were oftentimes real estate novices with tools and an SUV who would buy property in ill-repair, invest a few thousand dollars and some labor, and then sell the house to somebody else for a substantial profit. Some people actually made considerable money in this line of work.

Those days are gone and most of those kinds of investors are gone with them.

Today, buyers don't seem to want to do much "remodeling". They want that to have been done by the current owner. If it isn't, they just go on to the next property in this inventory-heavy real estate market.

If the property you are trying to sell is not in top condition, you cannot ask a top price. Simple as that. If it is in less than tip-top condition, you must offer it at a reduced price. If you aren't willing to evaluate the property and price it accordingly, the market will do it for you. Problem is, you may not like where the market puts the number.

When a real estate agent pulls up in front of a house, they can tell within the first ten seconds if a buyer has any interest in the property. The buyer gets an immediate idea about the entire property based on its curb appeal. If it looks good from the curb, buyer's show positive signs because they think the rest of the house will look as nice. If it does not have curb appeal, well, I've had some buyers just turn to me and say they don't even want to go inside and ask if we can just move on to the next property.

The interior of the property must look clean, neat and show pride of ownership. If you don't have the "latest and greatest" in appliances, flooring, bathroom decor and the like, don't even think about asking a top price. Buyers are very quick to say this-or-that needs to be replaced or remodeled, discounting their offer so they can afford to get that done, and then living with the un-remodeled interior for years. Nevertheless, if you want the sale, you have to accept the offer.

So, should you remodel your house before you put it on the market. NO! It's probably too late now and you'll never recoup the remodeling investment. Better, I think, to make sure what is there is in good condition, clean, working well, and then lower the price to get a quick sale without investing any more money into the property. One thing I think every seller should do, however, is to put a fresh coat of paint on the property -- inside and out. Make it a neutral color. We like to call it "real estate agent beige".

So, the second rule is that the property must be in tip-top condition.

Rule #3: Marketing

It does a seller no good whatsoever to have a property that is priced perfectly for the market and in absolutely A-1 condition if nobody knows it is available. Making the sale known to the public is the job of your real estate agent's marketing plan. If you are more comfortable with it, instead of calling it marketing you can just as easily call it advertising. For the sake of this article, it's the same thing.

Either you, if selling as an unrepresented seller or FSBO, or your real estate agent needs to prepare a comprehensive marketing plan designed to promote your property to those buyers who are most likely going to be ready, willing and able buyers of your property, and to real estate agents who represent the most likely buyers.

If you can't prepare and implement such a plan, you need to hire a real estate agent who can.

If you have a real estate agent who cannot or will not prepare such a plan, you need to find an agent who can.

We live in a world of marketing. Your plan must include components for internet marketing (MLS system, various internet sites, e-mail), print advertising (newspaper and magazine advertising, direct mail, brochures), realtor contact (caravans, broker opens), and buyers events (open houses, neighborhood opens). This is the minimum marketing you must do today. It is absolutely imperative that these kinds of things be done to get your property sold. If it is a commercial property, your marketing plan must be even more expansive and more tightly targeted.

The third rule has to be marketing. It just has to be.

Well, there you have the new rules for today's market. By the way, I still think "location" counts an awful lot. But I think it is now rule three-and-a-half. Today's buyer will almost instantly evaluate the location of your property and give it a value in their purchase decision.

For more information on real estate in the Tampa Bay area, please visit my website at http://www.thestpeterealestatesite.com/.

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Brother, January Was Pretty Sorry!

I guess I missed writing the January sales report for everybody. Actually, January sales were so dismal I just couldn't bring myself to write anything until now.

We'll start with the Absorption Rate for January, 2009. For single family homes, the AR for January was only 4.9 percent. That's a pretty large drop from December's 6.8 percent AR. Condo sales fell badly in January as well, down to 2.8 percent from December's 4.2 percent. AR, as you know, is calculated by dividing the number of units sold in a month by the total number of units listed in the MLS.

Single Family Home Sales

During January, the MLS had a total of 7,835 single family homes listed in the inventory. That's down from December's inventory of 7,930, but not down by very much. Sales took a real pounding in January. Only 381 single family homes managed to get sold during the month, as compared to December's 536 sales. What's more, the median price for a single family home fell a bunch, from December's median of $145,000 to January's $124,500.

Condo Sales

The number of listed condos for January increased from December's 6,593 to 6,701. So, if you're a condo seller this means your competition has increased -- just what you wanted to hear, I know. Here's some even more disturbing news for condo sellers. The number of units sold in January decreased substantially, from December's 280 sales to January's 189 sales. As you might also expect, the median selling price also took a nosedive, falling from December's median price of $140,000 to January's $125,000.

If you're a seller, none of this is good news. Sales are dropping. Prices are dropping. Competition is increasing. Not good.

If you're a buyer, this is all good news. Sellers are getting more desperate. Prices continue to fall. There's a wider selection of property from which to choose. All good.

So, why aren't more buyers out there grabbing up all these bargains? Perhaps we need to start recognizing the negative effect the overall economic situation in this country is having on people's motivation to buy. It's probably hard to get motivated to buy a new house when you read everyday in the newspaper about job losses by the thousands, economic bailouts of mortgage-based financial institutions and hardship at every turn. "After all," I can hear buyers say, "my job might disappear next. Then where would I be?"

Nevertheless, if you have a stable job, some money to put down and a good credit history, this may be the best time of all to go buy your dream house or condo. Remember, if you're a buyer waiting for the best time to buy, well, this may be it. Don't miss out. We've been in this housing downturn for over two years in this area. How much longer do you think it will last? How are you going to know when it's turning around? Just something to think about.

For more information on home sales in the Tampa Bay area, visit my website at http://www.thestpeterealestatesite.com/.

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