Real Estate Questions and Answers APRIL 2009

Right now everyone seems to be asking the same questions. Some have answers, some will have answers, but everyone seems to be asking the same questions:

1. Are we at the bottom of the real estate market? The best answer is we really do not know. You can not know if you have passed through the bottom until you have. In other words it is a rear view mirror event. Only AFTER you have begun to climb out can you say with accuracy that we have passed through the bottom. There are strong signs; both locally and nationally, that we are on either side of the bottom. Many areas have seen improvements in the number of properties sold. More homes are being sold, albeit it at lower prices. Additionally, the number of pending sales is up. While the supply of homes remains fairly high, the absorption rate is going down. The adsorption rate is indicated by the number of months it will take to sell all of the house currently on the market at the current rate of sale. A normal market here would be about 6 months. We have been as high as 18 months. Right now we are closer to a year. Sum total we are witnessing some encouraging news, but we need to see if it is sustained.
2. Is it a good time to buy right now? The best be answer is qualified. One needs to look at his or her situation. Is the employment situation strong and reliable? Is credit in order? Have you been pre-qualified? Are you likely to be in the location for several years, that is longer term? Assuming the answers to these questions are all yes, and then it does make sense to buy now: First inventory will provide you with lots of choices, even if you are particular. Secondly, prices have come down, so there are in fact better values. Third interest rates are the lowest in 50 years. (Less than 5%, when I started in the industry it was over 18% for fixed rate mortgages). Fourth, there is a home mortgage interest deduction on your federal taxes. (Mortgages below $1,000,000 qualify). Finally, there is an $8000 first time home buyer’s credit against your Federal taxes. In short, there are good reasons to seriously consider buying now.
3. What are the details of the $8000 tax credit? While it is described as a first time home buyers credit, people who have not owned real estate for the past three years might also qualify. Income limits do exist with phase outs beginning at 75k for people filing individually and 150k for married couples. If you owe less than the $8000 the Federal government will issue you a check for the difference: You owe $5000. You will receive a credit for the full $5000 and then receive a check for $3000. There is a ‘recapture’ feature if you sell your home in less than three years at a profit. This is to discourage flipping. Finally, you must purchase, close and occupy the house by 30 November 2009 as the program ends 1 December 2009
4. What does a home seller need to do to sell in this market? Many sellers are still nostalgic for the prices of 2006. While this is understandable it makes the market worse and reduces the chances that the seller will sell. First, you should get expert advice from a Realtor who knows your town and neighborhood. He or she can educate you on the market and effective strategies to sell your home. Secondly, and more critically, you need to price the house to be compelling, not just competitive. In a market with an oversupply, you want to stand out, not just on condition and presentation, but on price. Is your price one of the best values on the market? Think of price like an SAT result. Certain schools will not look at you if you do not have the minimum test results. If your house is priced to high, no one will even look at it. This is the real estate equivalent of an invisible, but tangible REJECTION letter. Buyers are rejecting your house based on price. Also, the MLS tends to amply the importance of price per square foot. Your price needs to be compelling not just overall but also on a price per square foot. In a community like East Greenwich the range is very broad, but $200 a square foot is a fairly good ‘rule of thumb.” Obviously, you need to look at your own market area and situation. Waterfront will be higher…
5. Should I try to buy a foreclosure of a short-sale? The answer is maybe. This should be a long term investment. Buy what works for you and your family and pay attention to the most important rules of real estate, starting with location, location, location. Assuming you find the right property, it may make sense to buy a ‘distressed property.” Incidentally, this is a misnomer. Most often the property was not distressed, the owners were. You need to be very cautious and want professional advice, particularly from a Realtor and an Attorney. Make sure to investigate the condition, structure of the property. Distressed properties are sold in ‘as is ‘condition and most sellers will not make any repairs. Foreclosures tend to be easier than short sales. They can generally close much more quickly. Short sales are transactions in which the owner still owns the house but owes more than the house is worth. Say the house is listed for 150k, but the owner owes 200k. The owner will be short when paying the mortgage off. Therefore it is the lenders decision whether they will accept less than full value of the outstanding mortgage. Thus the term ‘Short sale.” These are challenging, because they can take months to get responses to offers and longer to close. As a potential buyer, you must be very patient.
6. Does homeownership still make sense? As with everything, it depends on your personal situation. It you are going to be moving out of state in the next year, and then it would be unlikely to make sense. If however, you are likely to be hear long term, then it may well, the average homeowner in the United States has a net worth that is 38 TIMES more than the average renter. The important observation is that the criteria must be long term. The demographics also suggest that values will come back over time. More households are being created than homes for them. Finally, shelter is a basic human need. We all NEED a place to live. In addition, if you pay your mortgage off over time, you will live in your home at a very modest cost in your later years. For most people, it does make sense to own your home.


So contact a Realtor, and get some expert advice on your situation.


Ron Phipps, ABR,CRS,GREEN,GRI,ePro