Real Estate 101: Renting versus Owning

There are some basic rules of Real Estate: Location, Location, Location. Buy the least expensive house in the neighborhood. Purchase what you can actually afford…etc. One rule has faced challenge, particularly from the Wall Street Equity ‘gurus’ like Jim Creamer: “It is better to own than to rent.” Some ‘experts’ suggest that it is better to rent now than to own, particularly with prices dropping. As with all rules, they need to be qualified and explained. It is, in fact, better to own rather than rent over the long term. . Lawrence Yun, the chief economist for National Association of Realtors reported the following data from the Federal Reserve: "The median wealth accumulation for renters from 1995 to 2004 was $4,000. The median wealth accumulation of a homeowner was $184,000." Obviously, owning, over the long term, is better than renting. The qualification is important. If you are going to move within 18 to 24 months, it may not make sense to own given the cost to acquire and the cost to sell. However, if you are going to be in a place for few years it is foolish not to own. There is an income tax deduction. Assuming you pay principle in your mortgage payment, you are increasing equity in your property. Both of these fact happen, even if the property does not appreciate, increase in market value, at all.
So in a correcting market what should you do? First, get some expert advice from a professional, ideally a Realtor. This person can help you find, negotiate, obtain financing and complete the acquisition of a home under preferred terms. You want to buy the best value, in the strongest location, with the least risk of detrimental conditions, at the best price. A Realtor can provide you with comparable sold information and price trends within neighborhood and towns. Make certain to study this information. Secondly, make certain that you can afford to own the house. Do not purchase more than you can afford. Pre-qualification with a mortgage originator is critical. Also, remember to look at the maintenance and repair costs of owner ship. Think about negotiating a home warranty like, AHS or HFS, into the purchase price of your new home. If you negotiate a buy down for the payments for the first couple of years, you need to make sure that you can afford the actual cost. We just negotiated at 2.1 buy down for a client. The monthly payment should have been $1400 per month, but with the buy down it is $1050 the first year and $1175 the second year. The seller pre-paid the difference for the buyer. It was great for the buyer, but the buyer was ABLE to pay the full amount. This is important that you be able to pay the ‘real cost’ of the monthly payment. Third, you must do a home inspection to make sure the property is in good condition. It will cost around $400. plus, but it is very important. A roof repair could cost thousands. You want to know what you are buying and what its condition is. Agents and most homeowners do not really know what the overall condition of property is. Bring in a pro! Finally, do not rush the process. Have a criterion for purchase. The most effective buyers have alternative properties. They avoid becoming emotionally committed to one possible choice. It will take time, so be patient and take the time necessary.
The market has great selection and prices have come down. In short, there are some great buys available right now. Take advantage of the market: it is better to own rather than rent.

Real Estate Progress Report: November 2007

For some of us it may be a distant memory, for others it may be a regular occurrence: Do you remember your mid semester progress report? This is the real estate equivalent of that evaluation. We will have year end numbers in February, but the trend lines are rather clear. Let’s look at our review on three levels, national, state, and local:

National: Markets across the country are showing slow rates of sales, and lower prices. There are some hot markets although they are in the micro minority. The majority of metropolitan areas have more supply than demand. Jim Kramer and other Wall Street experts are suggesting the market is much worse than it is: Kramer: Over 1.25 trillion dollars of residential real estate are currently available in the United States. Perspective: Total value of residential real estate in the US is just over 20.1 Trillion dollars. So approximately 6% is currently on the market. Moreover, according to Fannie Mae, the total value of mortgages leveraged against that real estate is 11 Trillion dollars. Therefore, there is 9 Trillion dollars of net equity in US residential real Estate.
Finally, in 2007 approximately 5.7 million single family residences will be sold. This lines us with 2002 and would be the 5th highest level of sales since we began keeping records.

State: The end of the year will conclude with a reduction of sales of approximately 10% in single family sales, but an increase in condominium sales. In most statistical ways we are lining up with 2004. Average single family price in 2004 was $264700. It rose to a high of $282,900 in 2005. At the end of the 3rd quarter of 2007, median price was $279,900. Number of days on market is up to 84. The absorption rate, (that is the time it will take to sell all of the current listings, if no new listing come on, based on the current rate of sales-number of sales a month), is now at 11 months. A normal market in Rhode Island would have a 5 to 6 month supply. Additionally, there are a significant number of house that are coming off of the market because they have not sold in the past couple of years. The other fact is that the entry end and the upper ends of the market are healthy and active. The 500-800k range is more challenging. Economic indicators do offer some rays of encouragement over the long haul. The short course is steel and cold.

East Greenwich: This market is fascinating. First East Greenwich actually began to cool in early 2005 in terms of price and number of sales. Average price has dropped from $559500 to $522,500 as of 3rd quarter 2007. Time on market has increased from 67 days to 84 days (average). Yet sales increased from 48 in 2006 to 68 in 2007. Yes we have identified the price at which sales occur. There is a convergence of reasons for this activity: First people choose the best location and East Greenwich enjoys a strong location reputation. Secondly, East Greenwich is similar in terms of list price to alternative communities, so buyers are gravitating to stronger location at a similar price point. Third, East Greenwich enjoys strong relocation resale reputation. Transferees are being more prudent in their pursuit of shelter in Rhode Island. As the result more are buying in East Greenwich.

Conclusion: It is clearly a good time to buy a new home. Selection is generous, rates are historically low, and sellers are motivated. Please give us a call to help you find a great value! It is true that some sellers need to sell and will sell significantly below value.
It is, also true, that many sellers will sell at fair value, but will not give their homes away.
In short, the market and its value is stronger than the headlines would suggest. If you are a buyer who has been waiting on the fence, it is a great time to get off.

Ron Phipps, CRS, ePro, GRI
www.phippsrealty.com

Our National Association of Realtors Installation Toast

Joel Singer, CEO of the California Association, and I delivered this Toast at the 2008 Officers Installation in Las Vegas:


The National Association of REALTORS is just like a great symphony. The music that we collectively create enjoys great volume, intricate rhythms, and breathtaking harmony. The balance between instrument and voice is inspiring and heartwarming. Although our volunteer leaders select the music and provide the brilliant sound, it is the orchestra, our professional staff, who bring it to life.

As we celebrate and salute our friend Dick Gaylord upon his installation as the 100th President of the National Association of REALTORS, we all recognize that great conductors inspire and liberate the best in all the people they touch. Through compassion, energy and enthusiasm they transform inspiration into excellence. Few individuals have inspire as many people as Dick Gaylord. He has and will continue to conduct our symphony and to perfect the relationship between volunteer leaders and dedicated staff. Let us raise our glasses to salute Dick and all of organized Real Estate's professional staff. Let us seal our commitment to an extraordinary pursuit of the perfect REALTOR sound.

Happens Chance: Random Lessons of Life

There are many life lessons to learn: some more important than others. Among the most important is that relationships, friends, family, business, etc are among the most critical.
Sometimes when you are pretty confident and excited, the forces of life converge to remind you of your, minor place in the Universe. Humility is a great thing. No one has ever gotten anywhere without help from others. Sometimes funny things just happen.

The National Association of Realtors has approximately 1.4 million members in the Fifty States and 4 U.S. Territories. This past week over 30000 Realtors met in Las Vegas for their National Convention and to celebrate the beginning of the organization’s Centennial Year. Yes, the National Association of Realtors was formed 100 years ago in Chicago. Its purpose was to improve the professional and ethics of ‘brokers and agents.’
This year a good friend of mine, Richard Gaylord of Long Beach, California, (also a fellow 2003 Regional Vice President), was installed at the President. The position is a one year voluntary position. Over 2500 Realtors were on hand for his pledge.

When my wife and I arrived in Las Vegas there were some problems with our registrations. Our tickets to the Installation and International Night had been already picked up. There was actually no concern about it because NAR senior staff is always ‘taking care of logistics’ for volunteer leaders. Staff advised me that we were at table 11. You should also know that the other 2003 Regional Vice Presidents were going to be seated at tables 11 and 12. When we arrive, RVP Carole Horn said that she ‘needed’ to introduce me to someone. As I glanced, there no seats at the table for us, but I followed Carole’s lead: “Ron Phipps, I would like to introduce you to Ron Phipps and his wife Jenny”. Ok…I thought I misheard. Excuse me; you are Ron Phipps, too? Ronald J. Phipps is a Century 21 Agent in Las Vegas Nevada. Obviously, Rhode Island is my home State. The moment was awkward as we did not have enough seats. My namesake offered to move to another table, but convenience prevailed. Two of my RVP classmates moved to the next table and we made room for the 2 Ron Phipps families. The conversation that followed as really quite enjoyable. We compared family histories and shared contact information. Strangely enough, neither of us knew our family history with any real precision beyond three generations back.

The other Ron and his wife are moving back to her homeland in Singapore in two months. The odds that we will see each other again are in fact remote, but what we did was uncover a relationship that we did not know. We have exchanged emails and thanked each other for a delightful evening. It was in every sense of the word happens-chance, a chance meeting for both of us. But it cannot help but remind you that we are all related. Maybe it is 6 degrees in the rest of the world and less than 3 degrees in Rhode Island, but we are at the end of the day ‘connected.’

But there is in classic fashion was more. My fellow RVP’s wanted to remind me, that despite my advancement in NAR leadership, that my replaced was already in the wings.
Ronald L. Phipps.

Survival Skills for Home Sellers

So you are attempting to sell your home and it just is not happening. What should you do? This market is about strategy and for some homeowners; it is about home ownership survival. The recommendations fall into three categories: the basics, the advantageous, and the critical.

The BASICS:

1. We have an over supply of residential properties and lower demand. While the demographics suggest that we have a balance between the number of households and the number of potential purchasers, the fact is that we have an eleven month supply housing. Specifically, if no new listings come onto the market, based the on the number of sales per month, it will take us eleven months to sell the current inventory of houses. A healthy market is a 5 or 6 month supply. In 2004, we had a 3 month supply. (Obviously, that was a seller’s market).
2. Price matters. You have heard the advice, but it is very simple: limited demand, high supply equals lower price. Many people are under the impression that the town or city assessment is ‘below’ the real value of their property. Unfortunately, that is just not true, particularly in East Greenwich which completed it last town wide revaluation at the height of the market. Additionally, those properties that are actually selling are priced slightly below fair market value. If you do not want to sell your house at a low price as compared to 2004, then do not put it on the market. Wait. They market will get better in time.
3. The buyers have the upper hand. It may seem obvious, but in a buyer market the buyers have the advantage. The goal is to sell the property, which means that you need to work with the buyer. While your predisposition may be to be adversarial, you do so at your own peril. You need to work to get the buyer, then get the proposal, and then get to closing. If you do in fact close, you have done well.
4. The agent and the marketing strategy matter: There are many good agents in the market. They have many business models. You need to evaluate their results, their approach, and their effectiveness for you. The best agents, and their teams, have many sales for a reason. Ask them for their results. Newspaper advertising, according to the National Association of Realtors, is not effective. Less than five percent of all sales are generated from Print media. Eighty-five percent is generated from the web. You need to have a strategy that is web based. Among the skills set required is a comprehensive understanding of both the market and of financing. Your agent should be able to talk about the competing properties and the recent sales in your neighborhood. More importantly, you need an agent who can close the buyer and negotiate effectively for you. This is not a luxury, it is a necessity. Finally, your agent needs to be persistent in the marketing process as well as the closing process. Realtors are the best agents. Work with the best Realtor, and/or agent you can find.





The Advantageous:


1. Price below ‘fair market value.’ In a market in which prices are continuing to go down, you need to price below what was fair value 90 days ago. While they are the comparables, they are old and misrepresentative of what is happening today. You need to price in anticipation of where the market is going. The good news is that they you may be getting less than you want for your home, but you should also be paying less for your new home.
2. Offer financing incentives. The vast majority of buyers will need a mortgage. As a seller you can significantly reduce their monthly payment buy paying some of the cost of the mortgage. One seller, with whom we are currently working, is offering the buyer either 3 months of mortgage payments or a 1% reduction in the mortgage rate for five years. Incentives matter for everyone involved in the transaction. Give the buyer a reason to give your property serious consideration.
3. Prepare the House for Maximum WOW impact. With almost 7000 single family homes on the market right now, the buyers will ignore those houses with problems as well as those houses that are tired. The fixer-up buyer can buy great at low price, why would they pay fair price for a project? They won’t! If your septic is failing, or the roof is leaking, fix it. There are dozens of competing houses in great shape without issues. “Tired houses” sell in a sellers market, but they are difficult in a buyers market. Get advise from your Realtor on how to stage and freshen up you property. Recently, we had an estate house on the Hill that needed repairs and updates. The family followed our recommendations, which included repainting interior and exterior, refinishing the floors, painting the kitchen cabinets, etc. We sold the property quickly and at a strong price. If they had not done the work, it is likely the property would still be on the market.
4. Availability to view. Your home should be available to be seen on the web as well as in person. There is much conversation in the real estate industry about the 360 degree tours and their value. One thing is certain, potential purchasers ‘view’ the properties with multiple photos. The importance of visual images in marketing real estate cannot be overstated. The same fact is true of brochures. Moreover, the brochure should re-enforce the value of the property, not detract from it. State law requires the buyers be given certain forms. They should be packaged in a professional an appealing format. Information about the state, city/town is helpful. One other inconvenience of a buyers market: When you receive a request to show your property, do not postpone it. With so many properties on the market, you give the buyer a reason to eliminate your home because it is not available to be seen. If you need to move the appointment an hour or two, no problem, but to another day may be enough to take you off of the agenda permanently. Incidentally, make sure that your agent is available and flexible for showings as well.

The Critical:


1. Respond to all offers: If you do the preceding steps well, you should receive an offer. It is really difficult not be offended, but do not be. A buyer needs to start somewhere and does not want to pay too much. By making an offer, they are telling you that they are really interested in your house. You should be encouraged by that fact alone. It does not matter where they start, but rather where they end up. The wisdom and advice of a strong agent is most critical in this element. Do your best not to take it personally.

2. If you cannot make your mortgage payments, get help and assistance early. Ideally, you should contact your lender, before you are late with a mortgage payment. It is important to try to avoid foreclosure. Beyond losing your house, you will seriously hurt your credit, and making getting back into the homeownership ranks very difficult. Most lenders will work with you. Some will work with you to do a ‘short sale.’ This is when the lender agrees to take less than you own on the mortgage in order to sell it. Some lenders will also provide’ forbearance.’ This is when the lender agrees to suspend mortgage payments. In both situations, it is the lenders decision whether to reduce the payoff or suspend payments. Our experience recently, is that they are willing to work with you. You need to call them before the situation is desperate. Also, let your agent know what is going on. They can help you with the lender, too.
3. It’s not over, until it is over. Many sellers expect that negotiations are over once the sales agreements are signed. In some instances and in the best case, that is true, but it is no longer common. Inspections are also a renegotiation of the agreement. Some transactions are negotiated all the way to and including closing. The media onslaught suggests that you should not buy. Buyers cannot ignore the repetitious and shortsighted advice. You need to live somewhere and it is a great time to buy. Prices are low and selection is great. The transaction is not complete until it is closed and you have received your proceeds.


You can prevail in your goal of selling your house. You need to be smart and strategic. With the best professional assistance, you can make it happen.


Ron Phipps, CRS, ePro, GRI
www.phippsrealty.com

Rhode Island Why's and Why Nots

Familiarity breeds complacency. One of the advantages of being a Rhode Islander is having a critical eye and a loud voice, (albeit with an unusual accent). Every so often as you look around, it makes sense to ask why or rather “why not.”

My travels have produced some unrelated observations:

1. Why aren’t the traffic lights on Route 2 timed so that traffic flows freely? Have you noticed in Florida, or Kansas, or Indiana that the lights are timed to facilitate the flow traffic if you are traveling the speed limit?
2. Why do we clean the breakdown lanes in the latter part of the summer, rather than early? As a state with a significant number of cyclists, winter sand and glass is a real problem. Removing the sand early in the year translates to safer cycling.
3. Why do we have a shortage of RIPTA buses and service when we are trying to encourage the use of public transportation?
4. Why does the light on Main Avenue at the end of the Green Airport Runway cycle to red when no one is there?
5. Why don’t we use EZPass on the Newport Bridge?
6. Why are Rhode Islanders trained to make left hand turns in front of on-coming traffic?
7. Why are directional signals optional use equipment on Rhode Island cars?
8. Why aren’t the lines on the streets and curbs clearly marked for safe driving and to avoid parking tickets? How far from the corner in Providence do you need to park to avoid a ticket?
9. Upon the thirtieth anniversary of the Great Blizzard of 1978 do we still get bread and milk when snow is forecast?
10. Why do Rhode Islanders always include references to landmarks that are no longer there? “Turn left in front of where Jolly Johns used to be? It just past where the Warwick Tent used to be?
11. What happened to talking to your neighbor about a disagreement rather than calling an attorney?
12. How many former Rhode Island Governors are currently legal residents of Rhode Island?
13. Why does Rhode Island have 17000 state employees to serve 1000000 people, when Tennessee has the same number of employees to serve 5000000?
14. Why do we have 30 school districts rather than five?
15. With 1 in 150 elementary school kids being diagnosed with Autism, why aren’t we outraged and coming up with a Statewide response to providing and funding this ‘special need?
16. Why does it take so long to get approvals to build in Rhode Island?
17. Why are so many street signs missing?
18. Why can’t URI come up with a no water, slow growing green grass?
19. Why don’t we have more individual home wind mills to generate power?
20. Why do the delivery truck double park on Main Street East Greenwich across from Each other to create traffic? Where are the police then?

www.phippsrealty.com