Most home buyers, for any number of reasons, frequently ask, “Why are they selling?” The buyers may just be curious or they may be looking for a reason to offer a lower price to test the seller’s motivation to sell their house and move on.  Divorce, illness, job relocation and many other reasons may be an inducement for the Seller to take just about any price offered.  That’s why it’s not a good reason for Sellers to disclose the “why”.

More to the point, market value is determined by general home prices in the neighborhood.  Each seller is different and each seller has a different reason for selling.  The reason doesn’t determine market value and it really has no relevance on the price a buyer should offer.  Ditto whatever the original price of the home might have been.

Why Sellers Don’t Care About A Buyer’s Reason

As much as buyers want to know “why” a seller is selling, it is rare for a seller to even consider asking “why” a buyer wants to buy their particular home.  The seller just wants the money.  Hopefully, they want what the market says their house is worth.  Not a penny more.

Another reason sellers rarely ask is that their Realtor will have had the little Fair Housing talk with them.  In a nutshell, if someone can demonstrate that they have the financial ability to buy a house, the seller should sell.  Not must…should.

Wouldn’t it be interesting, though, if seller did ask “Why are they buying?” more frequently. If the buyers liked the school system or the two car garage or the fact it was so close to the Metro maybe they would pay a little bit more than they’re offering.

Maybe the buyers are in the midst of a divorce or a job relocation and they really need a place to live.  Some folks have been known to want homes without many stairs.  Great!  No stairs comes with a higher price.  Get the picture.

So, when it comes right down to it, “why” doesn’t really matter from either the buyer side or the seller side.

Price, condition, location.  They matter.

This is a question almost every potential home buyer asks. Why?

Of course, there are many possible answers.  The home sellers may be:

• downsizing into retirement
• upsizing into a larger home
• relocating for a job opportunity
• getting a divorce
• dealing with an illness
• wanting to move to another area
• in mortgage distress or close to it
• or, having passed away, the estate may be selling the house

There are dozens of reasons why people sell their homes.  Not one of them have any bearing on the market value of the home or what a potential home buyer should offer.

Motiviation

The answer to the question, “Why are they selling?” really only helps the potential home buyer assess the motivation of the home seller.  Are they willing to accept a “low ball” offer?  How quickly do they want to settle? Will they be willing to offer financial incentives to sell the house?  Will the seller make repairs?

The real challenge with seller motivation is that it changes with time.  It always amazes me when a seller digs in at a certain price at the beginning and then slowly and inexorably lowers that price as time goes on. Alternately, many sellers will never move on the price leaving the house to sit on the market, unsold, for months and, possibly, years.

Fair Value

The point is this: you never know what will motivate a seller to accept a buyer’s offer.  You certainly won’t get that answer by asking, “Why are they selling?”  The best thing a potential buyer can do is determine whether or not they:

• want to buy the home and
• what a fair offer for the home would be.

Many times it’s a crap shoot.  Many times a seller will be unreasonable. That’s the time for the potential home buyer to move on.

However, if an offer is fair or even a little low and the seller is motivated to sell their home, negotiations will begin and a happy ending is in store for one and all.

A professional Realtor can help with determining the fair market value of a home regardless of why the Seller want to sell.  After all, why a Seller is moving doesn’t affect the value of the home.

There’s no doubt about it.  We live in a fast paced world with lightning fast Internet connections, non-stop hookups via our smartphones, ubiquitous wi-fi and the ever present Mickey D’s, Wendy’s and BK combined with pizza delivery and sub shops in every gas station.

What does this have to do with negotiating a great real estate transaction?  Almost everything.

It seems that we are so tuned into the “I want it now!” culture that we don’t take the time to negotiate a perfectly goood real estate deal.

I Want Your Final and Best

This is the type of response many listing agents will toss over to buyer’s agents after the first offer. It indicates that the Seller or, more likely, the listing agent doesn’t want to spend a lot of time dickering around about price or closing help or the settlement date or any of the other terms in the contract.  They want to get to the bottom line just as quickly as possible so everyone can move on to the next phase of the process.

The real challenge with this approach is that it really doesn’t give the buyer or the seller the time they may need to really think about the pros and cons of the offer.  A couple of nights to sleep on an offer may bring the realization to the Sellers that there is not a line around the block of people wanting to buy their house.  A buyer may realize that when a Seller comes back with financial terms that aren’t exactly perfect (in the buyer’s eyes) are really not that bad and, shucks, might even be a fair deal.

It’s when everyone feels pushed that bad decisions are made and both Sellers and Buyers start to dig their heels in because they don’t want to be the one to “lose”.

Take Your Time

So, it is important to take a breath or two before jumping back into the fray.  It’s important in the same way that it’s important to look at the offer and counter offer with a cool head.  Do the financial terms reflect fair market value? Can the settlement date be accommodated?

But a Good Deal is a Good Deal.

If the price and condition of the house shout “buy me!” it’s foolhardy to play around too long because someone else may very well be waiting just around the corner to swoop in and grab it.  Ditto for a Seller who gets a perfectly sweet offer from a buyer.  It may not be perfect but it’s close enough.  It may be more costly, in the long run, to stand firm than it is to give in a little.

I would say this is a good time to consult with your professional Realtor® but, then, you knew I’d say that.

The nice thing about blogging and being somewhat successful at it is that every now and then someone asks you to help them out.  Such is the case with author Jim Randel and his series of books called “The Skinny On™”.  These short, easy to read books cover a variety of subjects from real estate investing and the credit crisis to time management and credit cards.  The concept is to present a topic in a format that, according to Jim Randel, is the preferred reading method for young-ish adults.  These are the folks that grew up reading short blog posts, played a lot of video games and tweet.

This book — The Skinny On™ Real Estate Investing: An Introduction to the Subject — starts out with a scenario near and dear to my heart. A couple watching a late night infomercial that promises unimaginable wealth through the magic of real estate investing. They can learn all the secrets by attending the huckster’s free seminar.  Of course, when you get to the seminar, the secrets are really in the DVD set and workbook you can buy for only [fill in the blank] or the bootcamp for even more money.

This scenario is all too common.

Jim Randel to the Rescue

In pops Jim into the lives of our hapless couple to help sort them out about the real risks and possible rewards of real estate investing.  During a series of fanciful visits, Jim goes through some of the formulas people should know when considering real estate as an investment.  Jim even goes so far as to suggest that people’s personal homes should be considered as an investment first, then as a place to live and raise a family.  I’m not sure I would go this far but his point is well taken.

Most people get into the real estate investment game thinking that they’ll make a ton of money only to lose a ton and wonder what went wrong.

Worth a Read

This book, as entertaining and easy-to-read as it is, only touches the surface of real estate investing and it doesn’t pretend to be anything else.  The basic concepts and formulas laid out in the book are sound and you can breeze through the thing in about an hour.

The benefit, in my view, is that it may save someone who may have been taken in by some very flashy and convincing late night video from parting with their life savings.  It’s also a quick reference that you can go back to time and time again to remind yourself that there is more to buying and selling real estate than looking at a couple of foreclosures.

Except for the five to six years of the housing boom (some may call it “bubble”) condos have always been slow to move in this area. One reason is that there is a huge inventory of townhouses and single family homes. Another reason in the condo fee/property tax/condo fee delinquency one-two-three punch.

Homes For Sale

The fact of the matter is that, for right now, there are a ton of homes on the market.  Granted, a lot of them are short sales or bank owned foreclosures. Still. If a potential home buyer has the inclination to do any sort of repair work at all, they can grab a nice house at a good price in a decent neighborhood.  Even the homes that are not in any kind of mortgage distress and are in decent shape are going for prices that are much more affordable.  The only thing holding home buyers back is their ability to get a mortgage — no small challenge.

The Condo One-Two-Three Punch

Condo Punch 1 – Taxes

All real estate has property tax.  This is the money that helps the particular County where the real estate is located to provide a lot of the services that people have come to expect. Things like education and public safety. Unfortunately, as time passes the price of things people get for “free” — like schools police and fire fighters — keeps increasing.  I don’t think anyone would say teachers and police don’t deserve to be fairly compensated.  Yet, the way these folks are paid is through the revenue generated through the sale of real estate and home ownership.

Thus, property taxes in the MD Suburbs of DC are pretty darn high. So are the transfer and recordation fees that are charged when real estate is transferred from the home seller to the home buyer.  For some reason, unknown to me, property taxes on condos are just as high as property taxes on single family homes and townhouses.  Go figure.

Condo Punch 2 – Condo Fees

Condo fees have also risen to astronomical heights.  To be fair, the condo fee includes a lot of maintenance, professional management, reserve funds, insurance costs and much more. Sometimes the cost of utilities like electricity and water are included in the condo fee.  All that cost big bucks.

Yet, if there is a large condo fee plus high property taxes it means that the actual listing price of a condo needs to compensate for both.  Mortgage companies factor in the condo fee and the property taxes when qualifying potential home buyers.  Outside of the condo world there may be relatively low Home Owner Association fees.  The condos, however, have a much higher fee which could knock a potential home buyer out of the running.

Unfortunately, many home sellers with condos can only price their home so low.  If there is any equity at all (a big if) it’ll get eaten up by offering a price that’s too low considering the common practice nowadays is to also offer the home buyer a credit to offset the home buyer’s closing costs.

Condo Punch 3 – Condo Fee Delinquency

Lastly, there is a disturbing trend of rising condo fee delinquency. This affects even the most responsible condo owner. If a lot of the neighbors and fellow condo owners are letting their condo fees slide or they made a conscious decision not to pay them, it affects the ability for anyone to sell their condo at any price.

Mortgage companies will not lend into a condo community where the condo fee delinquency is too high.  This is particularly true of investors who may want to buy a condo to rent out or to renovate and re-sell.  Even when a  individual home buyer wants to purchase a condo, the mortgage company may require a higher down payment or proof of reserves.

What To Do?

The only thing to do is hang on, price aggressively and keep the condo in wonderful move-in condition.

Yesterday, another listing went under contract after only about a week on the market.  This particular listing (Home #3 in my previous post about pricing) had a little fixing up that needed to be done.  So the choices were:

1. fix the place up prior to putting the home on the market (coordinate contractors, etc. and use up the time needed for the repairs) or
2. price the home to sell in “as is” condition and let the buyer make the repairs.

Selling “as is” had it’s challenges. FHA provides a 203(k) rehab loan that could work but most Realtors don’t want to go through the hassle.  The plain Jane FHA probably wouldn’t work since the repairs wouldn’t make it past the FHA appraiser. So it had to go conventional or cash.

Still, if the seller is willing to price the home aggressively to sell “as is” it takes away a lot of the sting of going through a different financing process for the buyer.  That’s what we did: “as is”, no repairs, what you see is what you get!

Within a week we had about 6 showings and then 2 offers came in. That’s right.  A house that needed some fixing up and required a little extra effort to get the financing got multiple offers.

Why?

1. The seller had the place cleaned up the best he could (carpet cleaning, general house cleaning and removing stuff from the house) and
2. The seller put a killer price on the house.

It’s not rocket science.  It’s called, “I want to sell the house. ” (note: equity in the house helps…a lot!)

Have you ever wondered why buying a house is not like buying anything else?  Here is a short video that explains all the closing costs and how the flow of a house purchase goes from buyer to seller  —

One of the “free samples” of a Realtor’s services we provide to Sellers is the CMA — the Comparative Home Analysis — sometimes referred to as the Competitive Home Analysis.  No matter what you call it, the Realtor takes some time to do some research into what a particular home might sell for given current market conditions, location and condition of the home.  Lots of factors come into play during the research, not the least of which, is the Realtors personal experience both with the area and in the profession, generally.  An experienced Realtor will be pretty close, if not dead on, when determining a recommendation for a selling price.

All that said, Realtors are not appraisers.

I take that back.  Some Realtors are appraisers.  They may have been appraisers that decided to help people buy and sell houses or they may have just decided on a change in career.  Sometimes, Realtors decide to go through the process to get licensed as appraisers, too.  However, the vast majority of Realtors are not appraisers. So, even though an experienced Realtor will, through their own research and experience, recommend pricing to a home seller, it is the appraiser that will determine the valuation for the house for the mortgage company the buyer is using.

The Buyer’s Perspective

Everyone knows that home sellers want to sell their homes for the highest possible price (we’re not talking bank owned foreclosures or short sales). We also know that home buyers want to purchase their home for the lowest possible price.Thus, an experienced Realtor working for the buyer will perform a CMA independently so they can advise the home buyer about strategies to structure an attractive offer.  Again, the CMA prepared by a Realtor working as a buyer’s agent should be pretty darn close to true market value.  What the home buyer offers is a different story.

Regardless of what the home seller and home buyer may agree upon, if the home buyer needs to obtain financing, the mortgage company, bank, or credit union will not (repeat: will not) provide a mortgage to the home buyer for more than the market value of the house as determined by a professional, licensed appraiser.

Many times the appraised value of the home comes in very near the contract price (the price agreed upon by the home seller and home buyer).  Sometimes, it comes in higher.  Some examples include:

• estate sales — the heirs just want to sell the house and be done with it
• divorces — there may be pressure for one of the parties in the divorce or the courts to sell the property
• job relocation — a home owner may not want a vacant property or the mortgage on home they aren’t living in
• illness — a home owner may need to move into a long term health care facility assisted care facility and need to sell the home to pay for it

One particularly sad reason homes may appraise for more than the contract price is that the home seller has over priced the home initially in the hopes of obtaining a price higher than the market will bear.  The house sits on the market for an extended period of time.  At some point, the home seller really either needs to sell the house or has just tired of the constant interruptions to their life by potential home buyers.  The home seller will then either lower their asking price substantially to attract a home buyer or they will accept a “low ball” offer just to be able to move on.

Mr. Market Calls The Shots

The sad truth about home pricing is that neither the home seller, the home buyer, the Realtor nor the appraiser control the price of the home.  The market does. Many economists call this the “invisible hand” — market forces that are not fully understood create the environment for fair value. As much as a home seller wants to sell their home for a high price  and as much as a home buyer wants to purchase the same home for a low price, it is the market that determines the price.

That’s why we saw such wild fluctuations in home prices over the last ten years. Home prices went wildly up because, oddly, the market was supporting the price appreciation (due to exotic mortgage products, mostly).  Now, market value has fallen because  a large number of home buyers can no longer pay their mortgages making huge numbers of homes in distressed condition available for sale at bargain basement prices. Simultaneously, credit has become extremely difficult to obtain reducing the potential home buyer pool even more.

The market has spoken.

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There are several ways real estate can be titled depending on the circumstances and who is involved in owning the real estate. Most residential real estate is titled so that it passes cleanly to one person such as a surviving spouse or partner or, perhaps, a relative.  Sometimes, though, the real estate is bequeathed in a will or Trust to several people — usually close relatives — as a way of providing for loved ones when there really isn’t a lot of cash or other assets to divide up.

This is where Tenants in Common comes in. This form of home ownership allows different people to have various percentages of ownership interests in the property.  It doesn’t have to be 50/50 (in the case or two people), the ownership interest can be divided all kinds of ways.

Even The Happiest Family Can Come To Blows

I was recently speaking with an old acquaintance who had taken care of his mother and and aunt in their last days. It took a lot out of him and he spent a good deal of time, energy and money.  Surprisingly, when my acquaintance’s mother died she left him  1/2 ownership interest in the house and three other family members 1/6 each.  Now, there are four people who own this house and really only one who has lived there for any length of time.

It turns out that my acquaintance — the son — would like to buy the other family members’ interest in the house and own it entirely so he can live there. It turns out the other family members are not so keen to go along with this plan.  They want to sell it on the open market and try to grab as much money out of the sale of the house as possible.  Everyone disagrees on what the house is worth.  Although an appraisal has been performed there is still no agreement. To make matters worse, my acquaintance has sunk some of his personal funds into some home improvement projects like painting and some other updating after his mother passed away.  Obviously, if he has to sell the house and his 50% interest than he wants to recoup the money he spent fixing the place up.

Can There Be A Resolution?

Unfortunately, this will probably end up in court. Family member against family member bickering and fighting over money and real estate.  What was once a family that, at a minimum, got along and, under the best of circumstances, really enjoyed each other and felt a bond, is now fractured and will probably never be repaired.

The other aspect of this is that now that there are tenants in common, each of the four people who have an ownership interest in the real estate could, theoretically,  a) sell their portion of the ownership interest to someone else or b) bequeath their ownership interest in the real estate to anyone they choose.  As you can tell, it can get very complicated and very messy.  My guess is that the lawyers are the only ones who really win in a case like this which is a shame.  It was probably the intention of the original owner (the mother, in this case) to be generous to her family.

Everyone says there will never be a problem because, after all, they’re all family.  However, when it comes to money and real estate, blood is not as thick as you’d think.

What do you think?  Is it a good idea to leave real estate to more than one person in your Will or Trust? Leave a comment in the COMMENT section.  I’d love to hear!

I’ve been taught from Day 1 in real estate that it is really best to meet a potential client, for the first time, in the office.  The concept is that we can talk about the needs and desires of the potential home buyer or home seller in a comfortable environment and get a feel for whether we would be a good fit for one another. Another good reason is to establish the  client’s ability to realize their dreams.

This is true of home buyers as well as home sellers.

For the buyer, it is important to know a lot about where they want to live, what type of home they would prefer, what is really important to the home buyer about what will, most likely, be the biggest commitment of time, energy and money they will ever make. It also gives the Realtor (that would be me) an opportunity to talk about the person’s financial ability to make a home purchase.  It doesn’t do anyone any good to look in Bethesda, MD when they may not be able to afford College Park, MD (and to the people in the MD Suburbs of DC — you know the difference).

Meeting for the First Time at the House

I recently broke my own rule.  I met a potential client at a house they had found on the Internet.  I had spoken to this potential home buyer a few days earlier and tried to set up an “in office” appointment.  No.  He just wanted some listings e-mailed to him.  OK, I thought.  Easy enough.  A few days later he called and asked to see a house that was decidedly not on the list. Hmmm.

I went to meet the guy and his wife and they had picked out this nice foreclosed home in Columbia, MD.  Cheap.  As is.  OK part of town.  I didn’t have anything else on the calendar so I made the appointment.  The place was trashed (like quite a few foreclosed homes). Holes in the wall.  Destroyed appliances. Destroyed carpet.  On and on.  They looked at it and looked at me and said (and this is a quote) “This isn’t what we expected.”

Well, I could have saved them the time they took to look at the place if I had talked with them at some length first.  I could have also found out that they aren’t really ready to buy for about four months and that they really don’t have a set place on where they want to live.  They are also guessing at the price range for the house they are looking for.  They haven’t talked to a mortgage professional and they really have no clue about the costs of buying a house.

A Good Reminder for Me

So we talked a bit and I referred them to a mortgage professional to get an idea if they are a) financially qualified to buy a house and b) what price range they can purchase in.  You see, I’m not into the tour guide thing. I’m not interested in “just looking around”.  I know that sometimes it takes a lot longer than people think.  There’s lots of good reasons to lay the ground work for making a home purchase far in advance of the actual purchase.  I am happy to help guide anyone through the process from beginning to end whether it takes a few months or many months.  The respect needs to go in both directions.

That’s why this experience was a good reminder to me that it’s important to sit down with a potential client to see if we will be a good fit.  I want to know about my client’s needs and desires.  If we talk and get on the same page it can be a beautiful thing.  If not, it’s a drain on both of us.

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