As a Realtor, I need to have a list of contractors at the ready for my clients who run into issues either with home inspections or just getting their home ready for the market.  Occasionally, I’ll have the buyer client who, once they move into their new place, may want a recommendation for a contractor.  Hopefully, the buyers will have received a Home Warranty and their first call should be to the Home Warrnaty company to get their approved contractor — if something went wrong.  If they’re just looking to do some home improvement, that’s another story and that’s where I might be able to help.

Of course, I know a really good handyman type guy who is both thorough and very reasonably priced.  He can do the painting and fix up and some of the electrical and plumbing work, too.  In fact, my handyman is more often than not, my first recommendation.

Sometimes You Need The Credentials

Sometimes, though, you need an electrician or plumber or someone who has all the certificates. Licensed, insured, bonded — all the good stuff.  If you’ve had a home inspection, there is a good chance the home inspection addendum will require a licensed professional to complete the repairs.  This makes sense.  The last thing the home seller needs is for something to go wrong with a repair and have to do it over or have it done sloppily.

When you need the pros, I recommend Michael & Son Services.  They really do it all.  Plumbing, electrical work, roofing and even handyman type work.  They are not the cheapest guys in town but they do it right.  The initial service call is $29 which isn’t too bad to get the diagnosis and the cost estimate for the repair.  After that, it’s up to you to say “yes” or “no”.

I’ve used them, personally, for both electrical work and plumbing work and I heartily recommend them.  In addition to being thorough and competent, they are also very clean. They bring this cool Welcome mat thing they lay in front of your door and some shoe coverings they put on so they don’t mess up the inside of your house.  Anything that causes a little bit of a mess is completely cleaned up by the time the serviceman leaves your house.

Discounts

They also offer a whole house service plan that includes maintenance on your HVAC (heating and A/C) system as well as a 10% discount on electrical an plumbing work.  I also learned that they have a Facebook “Like” page where they put some cool stealth coupons for different things.  It might be worth it to “Like” their page to check on the coupons from time to time. You never know when you might need to get our garbage disposal replaced or get some plumbing work done.

Can you do me a favor?  Share the love and click on the “Like” button below and let other people know about this blog post!

A few days ago, the National Association of Realtors reported some pretty startling numbers — existing homes sales had dropped 27% or, put another way, the largest drop since the NAR started keeping records in 1999.  Holy Housing Recession, Batman!  What are we to make of this?

Here are some of the possible causes…and a possible upside.

Tax Credit Go Bye-Bye

As of April 30th, the tax credit was gone.  No more free money from everyone’s Uncle Sam.  Heck, who would want to turn down $8,000.  Even the Tea Partiers liked it.  However, it was really an artificial stimulus to try and jump start the housing market which, in turn would help jump start the economy, in general.  It worked while it was in place.  Now that it is gone, though, nobody is in a mad rush to buy a house.

Mortgage Standards are Much, Much Stricter

Remember the days when, if you could fog a mirror, you could get a mortgage?

You could “speculate” about your income and your assets and someone would lend you money to buy a house.  Sometimes the mortgage interest rate was high, sometimes you were only paying the interest, sometimes you agreed to an interest rate that was real low to begin with but would jump in about a year or two or three.  Those days are gone. Really.  They aren’t coming back, either.

Nowadays, to get a mortgage you need to be super platinum with lots of documentation to prove it.

• Great FICO score
• Good income
• Low debt
• Money in the bank

There are a few specialized mortgages in the world but, for the “Regular Joe or Jane” who just wants to buy a house, the choice is probably FHA or FHA (maybe VA, if they’re military).  That means a minimum of 3.5% down payment plus any of the closing costs that the Seller won’t or can’t pay on behalf of the buyer.

Not pretty

Mortgage Interest Rates

Normally low mortgage interest rates would be a good thing for stimulating home buying activity.  Not so much if they keep going down, down, down.  Home buyers will sit on the sidelines waiting for them to go back up before they realize that the “bottom” has been reached and they missed the interest rate gold rush.

That means that there are probably lots of people who are watching the mortgage interest rates and trying to “time the market”.  This never works well but that doesn’t mean people don’t do it again and again and again.  Of course, the lower the mortgage interest rate, the lower the monthly mortgage payment will be.  So it makes sense to try and get the lowest rate possible.  More to the point, people who are on the sidelines are not really eager to buy a house.  They will, if the planets are in alignment, but not until.

Home Owners That Are Not In Distress

In my opinion, a big reason home sales are down is because home owners have finally come to grips with the fact that they will not get anywhere near the price they would like.  Home owners that are paying their mortgage every month like they signed up to do, home owners that are not in any kind of mortgage distress or income distress and consider their home to be a place to live vs an ATM machine have no reason to sell.

Let’s look at it like this:  a home is a nice place to live because it keeps you dry when it rains, warm in the winter, cool in the summer and has indoor plumbing.  You may or may not like your neighbors or even know your neighbors but they probably leave you pretty much alone and that’s just fine.  You know what school your kids are going to and waht grocery store you can buy your food from and you get that nice mortgage interest tax deduction, too.

So, if you don’t have to sell, why should you?  There’s no good reason.  Result: less home sales.

Fewer Homes For Sale Equals Stabilizing Prices

Finally, fewer home sales could be a good thing for home prices.  Fewer homes on the market (i.e., housing inventory) means that there are fewer choices for the real home buyers (as opposed to tire kickers) in the marketplace. That means that home sellers can stand a little firmer on their asking price.  All this is good.  We need a stable housing market.  No question about it.  The sooner we reach an equilibrium where neither the home buyer nor the home seller have an out sized advantage the closer we will be to a real housing recovery.

As most people know, real estate practitioners work on commission.  The commission is worked out between the person selling the house and their agent (the listing agent) and that agent shares the commission with the buyer’s agent once everybody shows up at the settlement table.

The commission amount itself may vary but the bottom line is that it is usually a certain percentage of the sales price of the house. That’s the price it sold for not the price it was originally listed for. Sometimes it may be a flat fee. You pay [x] dollars and you get [y] services.  Usually the minimum.

So a lot of sellers try to take that into account even though the commission or whatever a home seller pays for real estate brokerage services really has no bearing on the market value of the house.  Mr. Market doesn’t care what you pay for real estate services. Mr. Market only cares what other homes like yours are selling for in today’s marketplace.

The Ala Carte Menu

What if home buyers and sellers went to the “pay as you go” approach or the “I’ll take this service but not that service” approach.  Instead of the “free CMA” that most real estate practitioners offer, you would pay $50 to $100 for a full blown market analysis free of a lot of hype about why I’m the best and why my company is so wonderful.  In other words, you pay for a certain product or service and you get it. No more. No less.

What if home buyers paid their buyer’s agents to show them houses?  Or write the offer with all the appropriate and needed forms? What if the home seller knew that the buyer’s agent was actually getting paid by the buyer and, thus, the listing agent would not have to “share” the commission which means the seller could save some money on the real estate services he is using?

A New Model

Anytime a new model of business is proposed there will be those who can’t imagine things working any other way than the way they work today.  Yet, it seems that virtually every industry and profession needs to re-invent itself from time to time in order to survive.

To be honest, I have no idea how a smooth, workable ala carte real estate transaction would look. I’m not sure what would be a fair price for Service A or Service B or Service A +  B.

What got me to thinking about this is some recent tweeting (yes, I spend time on Twitter) with a Realtor from the left coast — Bob Watson from out in Orange County, CA.  It’s an interesting concept.

So…what do you think?  Would you pay ala carte for real estate services?  No more of this “free” stuff or real estate practitioners waiting until settlement to get paid.  Home buyers and home sellers would “pay as they go”.  It could be a big money saver… or it could be a big pain in the patootie.

Below are some charts that show Median Price for single family homes over the past year. Of course, median means that there are the same number of homes above this price level as there are below this price level. It can sometimes be a bit misleading. But, in this case, the trend is the important thing to notice rather than any one particular number at any one particular point in time.

The trend is unmistakable and, if you ask me, pretty discouraging.

Beltsville, MD

College Park, MD

Greenbelt, MD

CNBC did a piece yesterday during their Realty Check segment that talked about two things:

1. the oncoming wave of bank foreclosures that heretofore have been in the “shadow: and
2. the fact the the number of home buyers in the marketplace will remain low even with record low mortgage rates.

The “shadow” foreclosure market I’m referring to is the vast number of homes that the banks have already foreclosed on but haven’t released to the market for sale.  The thinking was not to glut the market with foreclosures since the idea is to get them sold.  Too many at any one time and they will sit and sit and sit on the market.  That’s not good for the banks.

However, the fact that more foreclosed homes are about to hit the market at fire sale prices cannot be good for the home owner with equity.  If a lot of the houses around you are selling for cheap, cheap, cheap that means appraisers are going to use them as comparables to your house when it come time to sell.  Not good.

Still Not Enough Buyers

The flip side  of that is that there is still not enough buyers in the marketplace to soak up all this housing inventory.  Even as mortgage interest rates continue to fall (now at or below 4.5%) there is hardly anyone buying homes.  Lots of people are trying to refinance but that will become even more and more difficult as home values decline due to the aforementioned foreclosure wave.

Throw in some uncertainty about the future of Fannie Mae and Freddie Mac and you have a humdinger of a dilemma for people who have been responsible home owners and mortgage payers all these years.  It’s beginning to look like the only people who will be able to sell there homes are the folks who bought before 1999 and did not refinance or take out home equity lines.

Everywhere I go and almost everyone I talk to ask, “Are home values coming back, yet?”…or variations of that question.

Unfortunately, the answer is “No”.

It really shouldn’t be that way.  Interest rates are hovering around 4.5% — the lowest on record — for 30 year fixed rate mortgages. What that means is that, everything else being equal, a $300,000 house is much cheaper to live in month-to-month than it was even a year ago.

House prices, themselves, are low.  Yes.  A lot of that has to do with foreclosures and the like. However, even people who have equity in their homes are pricing them low in order to sell them.

So why aren’t houses selling and why aren’t prices moving back up?

FUD – Fear, Uncertainty, Doubt

FUD is something that’s used in business a lot and in politics to get people a little nervous about the other guy or the other product or just plain “the other” whatever that might be.

In the housing market the FUD is a combination of people’s insecurity about their employment, about the money they’ll need to live on now and into retirement, about home prices and about neighborhoods.  It doesn’t help that we are in the midst of an election year where there is also a ton of uncertainty about what policies will be put into place after the election.

Maryland is strongly Democratic (with a capital D) but with all the screaming and yelling in the rest of the country it’s hard to tell how thing will turn out.

The bottom line is that when people are filled with FUD they don’t act.  They sit on their money, their homes, their jobs.  They don’t take the chance that things will change for the worse if they sink their life savings into a new home.

Hunkering Down

So it looks like most people are going to hunker down.  Don’t get me wrong.  There are always people buying and selling real estate. 24/7. Christmas. Halloween. Sunday. Whenever.  It’s just not as many and because it’s not as many it looks like home values are going to stay pretty flat for awhile.

Better than going down.

Below is a graph found in a blog post I found floating around the blogosphere that has me scared out of my wits.

It’s interesting at some level because it shows a 100 year history of the housing market and actually provides some perspective to where we are today.  What is a little unnerving is the little red dotted line to the right of the graph.  This is the projection.

Now, to be sure, no one can really predict the future.  Lots of unforeseen events can intervene.   However, it’s food for thought.

Source: The Big Picture Blog written by Barry Ritholtz. The original blog post is here.

Click to enlarge and to be able to read the text!

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.