Second Guessing Price

Second Guessing Price

Imagine a homeowner consulting with their agent about the price to place on their home. The agent suggests that the market data indicates that $200,000 to 210,000 would produce a quick sale by pricing it properly. The owner puts a $210,000 price on the home.76605908-250.jpg

The first person who looks at the home offers $205,000. When the seller receives the offer, he comments that he thinks he priced the home too low and counters for  full price. The counter-offer is rejected, the home stays on the market and at the end of the first month when based on market conditions, the home should be sold, no other offers have been made.

It may be human nature that when an offer is received so quickly, the first thought to come to mind is that it was priced too low. A more appropriate thought might be that it was priced correctly. In some cases, when a home comes on the market, there is increased competition (real or perceived) among the buyers waiting for the “right” home to come on the market. The home can sell for a higher price than if it sits on the market for several months.

There may be stories of sellers who turned down the first offer and ended up receiving a better offer that would net more money. However,  real estate professionals say the first scenario occurs frequently.

The wisdom of experience advises owners to find a real estate professional that they trust and have confidence. Allow that professional to become familiar with your home and compare it to similar homes in the market that have sold recently and ones currently on the market. Determine the demand for homes in the area compared to the inventory. Decide on a price that will allow the home to sell within a relatively short period of time. And lastly, be satisfied if your home sells quickly near the price you put on it.

Til next time… May all your deals be easy ones!
Follow me on Twitter @yourmendorealty

Clint Hanks                                   707-391-6000

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Solving the California Housing Shortage in Ukiah

City leaders are currently discussing ways to address the local impacts of our statewide housing shortage. This is a complex problem, so I don’t envy their task. What I can offer is a perspective, one based on more than 40 years in the real estate business.

First, it’s important to gather accurate data. To that end, the City of Ukiah just completed a housing survey. Although the survey was flawed (the way information was collected skewed the results and the questions didn’t differentiate between homeowners and renters very well), some information is better than none.

Shortcomings aside, the City found that 70 percent of respondents—renters and owners—are unsatisfied with available housing. Forty percent said it took more than nine months to find a home they wanted. Most people cited the cost of housing as a primary barrier, while others said the lack of available housing options prevented them from moving into a more satisfactory home.

In the past decade, an average of 80,000 homes a year have been built in California, which is less than half the units needed to keep pace with population growth through 2025, according to a California Department of Housing and Community Development report. Ukiah has a similar problem. Since 2010, only 92 residential building permits have been pulled in the greater Ukiah Valley most of which were for middle to lower income subsidized homes). During that time, to keep up with population growth 420 new housing units should have been built.

Even with housing prices as high as they are, regulations prevent developers from investing here—it isn’t cost effective for them.

I was particularly disappointed to read Phil Baldwin’s ill-informed op-ed on this subject earlier this month. Baldwin clearly doesn’t understand the complexity of the housing market nor the basic laws of economics, but he is fairly good at spreading fear and distrust.

He noted that the Realty World Selzer Realty website listed 48 residential properties for sale and suggested that if there are that many properties for sale, we must not have a housing shortage. Based on the number of prospective buyers my Realtors are working with, there are about 200 active, qualified buyers in the Ukiah Valley. Even if 48 of the buyers were perfectly suited to buy the 48 homes for sale (whether those homes be mobile homes or million-dollar properties), we’d still have about three-quarters of the prospective buyers left with nothing to buy. And if you assume that many renters would also like to buy, the number of prospective buyers skyrockets. There is more demand than supply. This means we have a housing shortage.

Baldwin also rails against community leaders who support the Lover’s Lane development. He assures us that this development will cause urban sprawl and implies that when the free market determines the cost of these new homes, it is somehow evil. By the way, this development is on ag land that isn’t very productive, according to local farmers. By building market-rate housing, we’ll be able to keep the qualified professionals who want to serve our community but cannot find a place to live, the ones we are currently losing to other communities.

By building a new subdivision, we don’t prevent infill development. We have enough of a shortage to build a new subdivision and build on vacant lots throughout the city. As for the idea of creating a mixed-use, commercial/residential zone, we’ll have to see if there’s a market for it here. Baldwin cites the city of Windsor’s town square where people live in condos above retail space. In Ukiah, we didn’t allow that type of zoning for a long time, so now we’d have to rethink things.

The point is this: we have a housing shortage. Baldwin would have us only build subsidized housing for the poor and elderly. Price controls don’t work. Does anyone remember what happened with gas lines in the 1970s? Not pretty. Let’s reduce regulation, invite developers to build more housing at various price points, and go from there.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

Retirement – A Home for Tomorrow

A Home for Tomorrow

As people near or enter retirement, one of the decisions that typically comes up is whether to sell their “big” home and buy a smaller one. If you know anyone who has been faced with that situation, selling one home and buying a smaller one may not save enough money to make it worthwhile.79996505-250.jpg

There are sales expenses on the property being sold and acquisition costs on the replacement home. Generally speaking, homeowners may not mind a home with less square footage, but they usually don’t want to give up amenities or locations that they’ve become accustomed.

After a little number crunching, the move may not make enough difference in savings and they end up staying in their current home even if it doesn’t fit their needs anymore.

What if while this couple were still in their peak earning years, they acquired a home in an area where they would consider retiring and rent it during the interim. They could put it on a 15-year mortgage and possibly, even accelerate the principal payments to have it paid off by their anticipated move.

In the meantime, they could continue living in the “big” home until it is time to make the transition. Sell the “big” home that may be paid for by then and avoid up to $500,000 of capital gain. Take part of the proceeds and remodel the rental/transitional home and invest the proceeds for retirement income.

Ideally, the former rental would be mortgage free by this point, so the retirees would not have a house payment. Even if at this point, they changed their mind about retiring to this particular home, they still have a property that acted as a hedge against rising prices and have sufficient equity to purchase something else without using the proceeds from the “big” home.

It is difficult to know what the situation will be years from now when a person retires. It is clearly advantageous to have a plan that allows for options and choices. To find out more about purchasing your retirement home today, give me a call at (707) 467-3693.

Til next time… May all your deals be easy ones!
Follow me on Twitter @yourmendorealty

Clint Hanks                                   (707) 467-3693

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Avoid These Expensive Mistakes on Home Furnishings and Maintenance

Owning a home can be costly in the best of times, so there’s no reason to waste money on expensive mistakes. Here are a few to avoid.

Using Incandescent Light Bulbs – Replace traditional light bulbs with compact fluorescents (CFLs) or light-emitting diode (LED) bulbs. LEDs especially may be more expensive to purchase, but they’ll save you money in the long run. Incandescent bulbs cost about a dollar per bulb and their average lifespan is about 1,200 hours. CFLs cost about $2 per bulb and go for about 8,000 hours. LEDs cost about $8 per bulb, which seems expensive until you realize their lifespan is about 25,000 hours. Let’s do the math: to get 25,000 hours of light, you’ll spend about $20 on incandescents, but only $6-8 on CFLs or LEDs. When you add in the cost of electricity used, it’s still a no-brainer. For every $100 you spend on light with incandescents, you’ll only spend $24 on CFLs or $19 on LEDs. You also save the hassle of changing bulbs.

In using CFLs and LEDs, you’ll need to figure out how much light you want. These bulbs aren’t sold by wattage (how much energy is used), but rather lumens (how much light is emitted). More lumens equals more brightness. To replace a 100-watt incandescent bulb, choose a bulb with about 1600 lumens. To replace a 75W bulb, choose a bulb with about 1100 lumens. To replace a 60W bulb, choose a bulb with about 800 lumens. To replace a 40W bulb, choose a bulb with about 450 lumens.

Ignoring Leaky Faucets – A leaky faucet that drips one drop per second can waste more than 3,000 gallons per year, which is enough water to take more than 180 showers. I recently had a leaky toilet valve that cost an additional $50 in just a couple months. I figured it out when the excess water caused a pretty green patch on the hillside next to my house where the leach lines for my septic tank drain.

Using the Wrong Air Filters or Forgetting to Replace Filters Regularly – If an air filter doesn’t fit properly or it gets too dirty, it can’t function well. This can not only increase your power bill, it can shorten the life of your furnace.

Not Adjusting Vents – In many offices, some areas are burning up while others are ice cold. Rather than having employees bring space heaters and fans, adjust vents to balance the temperature throughout the office.

Water Heater Temp Set Too High – Most of us have traditional water heaters that keep water hot 24/7. If you set the water temp too high, you’re wasting money (and putting family members at risk of getting scalded). In our rentals, we set the temperature to 120 degrees. You can turn this down in the summer.

Overwatering Your Lawn – Automatic sprinklers that come on early in the morning are great, unless you have a broken sprinkler head that is gushing water or misdirected so you’re watering the fence instead of your lawn. Periodically run your sprinklers during the day so you can see how they are performing when you’re not around.

Hiring a Handyman for Simple Repairs – If you have YouTube, you can probably figure out how to do most of the minor repairs in your house and save a lot of money. However, if you’re like me—not handy with tools—by all means, leave repairs to the experts. If you need a referral to a fix-it professional, from plumbers to electricians, ask your Realtor.

Ignoring Roof Repairs – If you see curled shingles or damaged flashing and mastic around roof penetrations (like chimneys, stove vents, or bathroom vents), do not ignore them. Water is really good at finding small flaws and making them bigger.

Houses are expensive enough without allowing these mistakes to bite into your pocketbook.

If you have questions about getting into real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

Assumptions May be an Alternative

Assumptions May be an Alternative

For the last 25 years, most buyers have gotten a new mortgage or paid cash when purchasing a home. For a practical reason, owner-occupant buyers have another alternative: assuming a lower interest rate existing FHA or VA mortgage.29377293-250.jpg

In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. Prior to that, good credit or even a job wasn’t required. The real reason there haven’t been significant numbers of assumptions in the past 25 years is that interest rates have been steadily going down. If a person had to qualify, they might as well do it on a new loan and get a lower interest rate.

Even though mortgage money is currently attractive and available, it is at a four-year high. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages originated in the recent past, it may be more advantageous to assume the existing mortgages.  Conventional loans have due on sale clauses that prevent them from being assumed at the existing rate.

FHA loans that originated with lower than current interest rates have great advantages for buyers and sellers.

  1. Interest rate won’t change for qualified buyer
  2. Lower interest rate means lower payments
  3. Lower closing costs than originating a new mortgage
  4. Easier to qualify for an assumption than a new loan
  5. Lower interest rate loans amortize faster than higher ones
  6. Equity grows faster because loan is further along the amortization schedule
  7. Assumable mortgage could make the home more marketable

This financing alternative can save money for the buyer in closing costs and monthly payments. While the equity may be more than the down payment on a new mortgage, second mortgages are available to make up the difference. Call us at (707) 467-3693 to find out if this may be an option for you.

Til next time… May all your deals be easy ones!
Follow me on Twitter @yourmendorealty

Clint Hanks                                   707-391-6000

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