FACT or FICTION? Common real estate "rules"

Posted by Laurel@LaurelGrandle.com on March 25, 2012 at 10:55 AM


Common real estate “rules”

Laurel Grandle

Often we want a “rule of thumb” to help us make decisions. Purchasing and selling real estate is complex and involves many factors. Each scenario is unique. To apply a “rule of thumb” indiscriminately to your real estate transaction can spell DISASTER.

Let’s take a look at some of the more pervasive rules of thumb and cast a suspicious eye at all of them!

Rule #1:
Location, location, location.

Fact or Fiction: Fact—to a point!

One of the elemental truths of real estate is that almost everything can be changed about a home - except its location. By the same token, location is essential to our ability to afford and enjoy living in a place, given that it impacts everything from the schools our children will attend, commute to work and activities, safety, nearby amenities, ambiance, cultural offerings,

the beauty, quiet and convenience of our surroundings—it impacts our whole lives and the lives and well being of those who live with us.

Location impacts whether you hear train tracks or birdsongs in the morning, whether your neighbors bring you cookies or bring you drama when you move in - it can even impact your career and job prospects. The deep, numerous impacts of where we live give location a powerful role in determining resale value.

The specifics of what makes a location desirable have and continue to evolve rapidly. For example, urban homes with super-short commutes to bustling job centers have grown more and more interesting to buyers as their prices have come down and gas prices continue to rise.

The other side of location, location, location is PRICE, PRICE, PRICE.

It is PRICE that determines whether a home sells or not. I’ve argued this point for the entire 30 years I’ve been a REALTOR. If the home has the ideal location and is severely overpriced, it won’t sell. If it has the worst possible location and it’s priced properly for that location, it will sell. I maintain emphatically that if the home is properly priced, regardless of where it is, I can sell it! And if it’s decidedly overpriced, no one can sell it.

Rule #2:
It costs more to buy than to rent your home.

Fact or Fiction: It depends upon where you live.

TRULIA recently released its latest Rent vs. Buy study, showing that in 98 percent of American cities, it's actually less expensive to buy a home than it is to rent! Of course, the type of home you might want to buy could be more pricey than what you’d be satisfied living in as a rental, and buying a home requires an larger upfront investment (i.e., down payment and closing costs) that renters don’t have to come up with.

But the age-old would-be buyer objection that “I can’t afford to buy a home” is now frequently shattered by the reality that when you take all things into account, buying a home at today’s prices and interest rates can actually cost less than renting at today’s relatively high rental costs in many areas.

It behooves every buyer to actually do the math, factor in the tax advantages of homeownership and see which is truly more expensive for you. And make sure your decision accounts for the massive opportunity costs you might incur if you don’t take advantage of today’s prices and rates to buy a home of your own and start building equity - something you can simply never do as a tenant.

Short on cash for your purchase? Loan programs are NOW available that will allow the purchaser to receive gifts for down payments and closing costs. There are NO MONEY DOWN loans available. Call me TODAY and I can show you a way to own a home of your own!

Laurel Grandle: 865 389 2551

Rule #3:
List it high, to give yourself bargaining room.

Fact or Fiction: PURE fiction.

If you are selling a home in a strong buyer’s market, your competition is steep. The home that presents the best value for the price is the one that is the most likely to sell. Listing your home higher than what you know it is worth is a surefire way to alienate that relatively rare specimen: a qualified buyer with a sense of urgency who might otherwise be interested in making an offer on your home. Smart buyers who are ready to leap off the fence into homeownership do their research, and may have seen dozens - even hundreds of online listings before they make an offer. If your home is overpriced, chances are good that they’ll pass your home up, even if they like it, waiting for you to get a clue and cut the price.

There are simply too many other great homes at great prices on the market. Overpriced listings are much more likely to be a source of prolonged stress for their owners than a source of successful sales.

If you're tempted to list your home high, there’s something else you need to be aware of: the sweet spot phenomenon. Homes that are listed too high sometimes go through one, maybe even several, price cuts before they hit a sweet spot - the price at which buyers are drawn to the value like moths to a flame, sometimes even generating multiple offers over the discounted price (but below the original list price). Here’s some good news: you don’t have to wait months and months and go through the agony of showing upon showing and price cut upon price cut to get your home’s list price to the sweet spot where it sells.

Work with a local agent who has a strong, recent track record of selling homes, quickly and at or near their list prices, in your area. Then, trust their pricing advice. (You might find it easier to trust them if you select your agent after speaking with several.) It’s the most efficient way to leverage local market expertise to get to your home’s pricing sweet spot, quickly and with minimum drama.

Rule #4:
Always offer 10% below the asking price.

Fact or Fiction: 100% fiction.

Few decisions in real estate are so nerve-wracking as that of how much to offer for a home. These days, we search online for comparables, try to ferret out their similarities and differences between those homes and our target property, run some more numbers - there might even be a spreadsheet or two involved. We ask our agent to talk with the listing agent, get a feel for the seller’s motivation level and figure out whether there are any other offers, then try to factor the competition level and any credits or bank involvement into our thinking. We touch base (again!) with our mortgage broker to understand how rates have changed since our last conversation and exactly what the monthly payment will be if we offer X or Y or Z.

And at the end of all that, buyers often still feel like the final decision about exactly how many dollars and cents to offer amounts to something like licking their finger, sticking it into the wind and just picking a number. And that just seems wrong, for a decision so important.

Every state, county, city and neighborhood has a different dynamic - as does every listing. Every seller, bank or individual, has its own particular motivations, situational constraints or influences (like how much they owe on the home, or the need to split proceeds between divorcing or sibling co-owners) and thought processes. If the seller feels they listed the place at an discounted price, they might respond very differently to a particular offer than a seller who gets the same offer, but felt like they were building cushion into the list price. If the home is in a neighborhood where most homes sell for more than the asking price, or the property has multiple buyers competing for it, even a full-price offer might get laughed at.

The specifics of each listing’s situation absolutely must be taken into account when deciding how much to offer, along with the comparable sales data and the buyer’s own (a) financial concerns and (b) motivation level for getting the home.

Rule #5:
Listing your home as a FSBO will save you some money.

Fact or Fiction: Fiction (with the occasional exception)

The data is unequivocal: homes listed for sale by owner (FSBO) simply sell for less than similar homes listed by agents. According to research statistics from the National Association of REALTORS, FSBO homes sell for an average of $24 a square foot less than agent represented properties!

From my own observations, I’d also argue that FSBO listings often simply don’t sell at all, and many end up listed by an agent after wasting months and months of the seller’s time and advertising dollars.

Sellers sometimes think that listing a home for sale by owner might save the commission otherwise paid to a listing agent. But the FSBO sellers who are successful generally do offer to pay the buyer’s broker’s commission, so the prospect of saving the agent commission is more realistically the prospect of saving half of it...and the FSBO remains unrepresented, with all the advertising costs, legal liability and details to complete on their own.

Beyond that, the smartest FSBO sellers also often end up:

  • paying a limited service broker to list the property on MLS,
  • paying for professional staging or investing in some level of property preparation, even if they do the labor themselves, and
  • paying for an attorney to assist them with the disclosures and contracts involved in the sale

all services that are frequently included in an agent’s services. And even those FSBO sellers still forgo the objective pricing advice and marketing expertise that a good, local listing agent would bring to the table, all included in the commission.

Fact is, many sellers who don’t hire an agent, but do cobble together a similar level of professional services and account for their own time spent on a FSBO listing, soon see that they’re not actually saving much money at all. And even those who think they can save soon see that there’s no savings if the house doesn’t sell - a common fate of FSBO’s on today’s market.

Rule #6: Bank owned properties are great deals

Fact or Fiction: Fiction (with the occasional exception)

Many times a buyer works under the false impression that banks will sell for far less than a home is worth and making a low offer is in their best interest.

Bank owned properties have cost the lender $25,000 or more in legal fees just to achieve foreclosures. Many times they have not received payments from the borrower for a year or two or even longer. They are significantly “upside down” on the property. They want to recover as much of this deficit as they can.

A greatly underpriced property typically draws multiple offers resulting in a “bidding war” and many times will sell for more than the initially offered price.

Bank owned properties are frequently an opportunity for “sweat equity”, if you can do the repair work yourself. Rarely are they “move-in ready”. They are purchased with NO warranties, NO property condition disclosures. They are best suited for experienced owners who can repair and replace deficiencies efficiently and economically.

There are many excellent opportunities in today’s market. Many good buys are available from today’s owner/occupants and these homes usually have Property Condition Disclosures and home warranties and are frequently move-in condition.

Laurel and electric car

Farragut, Knoxville, TN properties for sale and real estate services. Laurel Grandle, Broker and your real estate expert for Knoxville, Farragut and Hardin Valley areas. You now have free access to Knoxville, TN’s ultimate real estate search engine! Google or call me today and let’s discuss how I can help you save $1000’s when you buy, invest or sell real estate. Exit Realty Knoxville (each office individually owned and operated). 865 690-4300 or—direct (865) 389-2551

Categories: Real Estate Solutions, Miscellaneous

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