Real Estate…Revisited
Froth? Bubble? We're not talking about bath products. We're talking about the housing market. That's how the economists and op ed columnists describe the extraordinary increase in real estate values fueled by low interest rates. Without using words like "cooling" or inflated, "they" are now telling us that the real estate market is slowing down. What does that mean to you?
If you're a seller...
In some geographic areas, prices are not decreasing, but the length of time it takes to sell is increasing. Be prepared to sit tight. In other areas, prices are down. Make sure your property is priced realistically. The market has changed suddenly, and your October 2005 asking price may be too high for Spring 2006. Have your property appraised, again, by an independent appraiser. Ask your local bank for a recommendation.
Before you sign an exclusive listing agreement with a broker, interview several and rely on their expertise in suggesting an asking price: it's in their interest to sell property, not to flatter your ego by overpricing. One of the effects of a slower market is more inventory for buyers to choose from. Brokers active in your area will know which properties are just like yours, and should be able to price yours fairly but competitively.
If there's urgency for your sale, if you need to cash out, for example, or your advantageous, adjustable-rate mortgage just adjusted not so advantageously, you may not be willing to wait. Sign an exclusive listing agreement with an aggressive broker (like true love, you'll know immediately) and price the property to sell. Which may be less than you wanted, but consider what you paid for it!
Your broker may suggest that you put some money into the property to make it more saleable. You may want to make a modest investment: repaint the fuchsia wall, take the magnets off the fridge, replace the air conditioning unit that stopped working last summer, retain a feng shui expert. There are consultants who redecorate for the sole purpose of attracting buyers. It's entirely up to you to determine how much money and time you want to, or need to, invest.
Don't be disappointed by low-ball offers. You may want to keep a price in mind, or a "drop dead" date to help you decide whether to take an offer or take a chance on getting a better one.
Talk to your lawyer about putting your property on the market. Have him review the broker's exclusive listing agreement before you sign it. These contracts are negotiable in many respects, though the commission, typically five or six percent, probably isn't. There may be discount brokers active in your area, but compare their exclusive agreement with others to determine whether the discounter is going to give you the same level of service.
Your lawyer will advise you on the tax consequences of your sale. She may suggest renting instead of selling your property, or he may suggest how to take advantage of "like kind" exchanges to minimize or altogether avoid the capital gains tax impact. Your lawyer can prepare a contract of sale or contact the title company, so you're ready to go as soon as you've accepted an offer, giving your buyer less opportunity to change his mind or continue to shop around.
If you're a buyer...
Now may be the time to get into the real estate market, whether it's a first house or a long-term investment. Typical of a slower market, prices may be more negotiable and sellers may be more flexible, but interest rates appear to be fairly stable or increasing only slightly. Lenders are still making generous offers: interest-only loans, adjustable-rate mortgages, "jumbo" loans, negative-amortization loans, high loan-to-value mortgages. If all that sounds confusing to you, you're right. Talk to your bank or consult a mortgage broker. They are the ones who will explain it all, and sift through all the options for you. Most important, they will help you determine your price range by getting you "pre-approved" for financing.
Be prepared to disclose your net income, budget, assets, and debts. Have copies of your latest tax returns, bank statements, brokerage statements, and a list of your current obligations. "No-doc" loans (without income verification) are available to self-employed people whose tax returns often don't reflect their actual disposable income.
There is more inventory, more properties to choose from. Shop around. This may be your opportunity to find an affordable unit in an expensive condo or a lower priced house in a more upscale development.
If you need to sell before you buy...
Coordinating your purchase with your sale may be more difficult in today's market. Selling is not a sure thing right now. Understand that you are taking a risk if you absolutely must commit to purchasing before you have a buyer for your present property. Try to get the seller to agree that to make the transaction contingent upon the sale of your present property. That way, if you haven't sold by a given date, you can walk away from the purchase. Or arrange with your mortgage broker for interim financing ("bridge" loan). Just be sure that you have sufficient income to support the carrying costs of both.
Always, before you decide to buy or sell, speak to your professionals, your accountant, your lawyer, your financial planner, your mortgage broker, your real estate broker. And your dog. At least your dog will agree with you.