We Tell it Like It Is

For those of you (like us) who still look forward to making a beeline from the bed to the front doorstep for the morning newspaper (Star Trib), you will know that Saturday's edition includes a "Homes" section. There was a great article in this past Saturday's paper written by a staff writer who shared her experiences as a home buyer in today's market. Selling your home right now is definitely not for the weak at heart. There are a few things you MUST accept before you put your home up for sale; if you can't accept these things, then you have no business listing it:

1) You will never get the amount of $ you want for the house. If you bought it 2-4 yrs ago, it is very likely you will not sell it for that same price; you will likely sell it for less.

2) Most buyers will not love your house as much as you do and they will definitely not think its worth every cent its listed for.

3) Buyers will come up with reasons why they don't like your house that you will find ridiculous. Their feedback can be brutal and irrational.

4) There is a strong potential that your home will be on the market for a long time (regardless of the location & condition) and you may have to do at least one price reduction in order to sell it.

5) Homes priced over $300,000 are the most difficult to sell right now because of the lack of qualified buyers in that price range.

6) Town homes and condos are also more difficult to sell right now because buyers can purchase single family homes for the same price.

Isn't this blog depressing?! Unfortunately, its so true though. I have been telling people this year, if you don't need to sell your home, then don't. Stay tuned for my next blog...signs that you are working with a good real estate agent. I'm sure you will be on the edge of your seat until then :)

I just found out that I will be included in the November issues of Mpls/St. Paul Magazine and Twin Cities Business Magazine Super Real Estate Agents again this year. 2 years in a row! Thanks so much to everyone who voted for me!! What an honor!

Karen

So, if you are ok with doing some cosmetic work on a house, don't be so quick to pass on foreclosed properties. There are SO MANY out there right now and many of them are not the absolute garbage houses that people think they might be. Homes that have been foreclosed on are a lot easier to purchase than short sale/pre-foreclosures because the bank now owns them and that simplifies the process. We showed a buyer 2 foreclosures today in a very nice area of Brooklyn Park where homes would normally sell for $250k+ and with a little bit of new paint and a scrub brush, you have yourself an 8 yr old home for $195k or less.

THIS PARAGRAPH IS IMPORTANT. When banks foreclose and take over a property, they have a market analysis done to figure out what a home like that would sell for in today's market. Then, they figure in the fact that the home is probably not in the greatest condition and they are expecting a buyer to purchase the home as-is without knowing the history of it. So, they price the home UNDER market value based on those considerations. When buyers see a foreclosed home priced at $195,000, they don't realize that the listing price is a deal in itself. Therefore, contrary to popular belief, most buyers will probably not be able to get a home for $150,000 when its listed at $195,000. The bank already knows they priced it right and they are not about to accept an offer of $150,000 when they have already reduced the price considerably from its original value.

I will be closing soon w/a buyer on a really neat home that is a bank-owned foreclosure. Its in a very cute, well-maintained neighborhood where homes sell anywhere from $230,000 and up. It was listed at $188,000 with a newer furnance, roof, electrical and plumbing. My buyer plans on repainting each room and doing some minor remodeling the kitchen...and possibly refinishing the hardwood floors and replacing carpet. Since we haven't closed on it yet, I can't disclose what price she got the home for, but it was under the asking price and we were both elated that she got a little unexpected better deal. But, we both knew even $188k was an awesome price. Every improvement she makes on the home will increase the value little by little.

The key is to find the worst house in the best neighborhood when it comes to foreclosures and you will be sitting well in a few yrs!

We are often asked by our buying clients if they should look at homes listed for more than the maximum amount they want to pay knowing they should be able to negotiate down in this market. This is a good question. I believe the answer lies in having realistic buying expectations.

According to the Minneapolis Area Association of Realtors Weekly Market Activity Report for June 23, 2008, the average percentage of original list price received at sale for residential sales in the 13 county metro area as of May 2008 is 92.6%. This means that a buyer should on average, after all negotiating, expect to buy a home for around a 7 – 8% discount off of the seller’s original asking price. Keep in mind that this is off the ORIGINAL asking price. On a home where a seller has already reduced their price by 5% from where they started, a buyer should expect only a 2 – 3% discount off of the CURRENT asking price. Also keep in mind that these are averages, so some buyers are getting more than a 7 – 8% discount and some are getting less. But using these stats as a benchmark, a buyer can reason that if they can negotiate more than an 8% discount off the original list price they have beat the market average, and if they negotiate less than an 8% discount they haven’t done as well.

Armed with unrealistic expectations driven by the media and water cooler talk at work, buyers come to us expecting a seller to give their home away for half of its market value. This leads many buyers to want to look at homes way out of their price range, expecting to negotiate the price down into their range. What often happens is that we are in fact successful negotiating the seller down, to maybe a 10 – 15 % discount which is better than the market average of 8%, but unfortunately it is still higher than the buyer can afford and they don’t get the home. By shopping out of their price range the buyer’s only chance of getting the home is praying that they will be able to beat the odds and negotiate the price down more than the market average. If the seller will only come down the 8% average, the buyer is out of the game. The buyer does not control the negotiations in this instance, the seller does.

By shopping in a price range that is no more than maybe 3 – 4% above the buyer’s maximum price, the buyer is in control of the negotiations. We can still negotiate down more than the average 8%, but if for some reason we are unsuccessful and only get them down to the average or even a little less, the buyer can still afford the home. The buyer can still choose not to purchase the home at the negotiated price, but at least it will be their choice to walk away as opposed to losing the home because they can’t afford it.

As a general rule of thumb, if a buyer can’t afford a home after a 7% discount off the asking price, they are shopping in the wrong price range. After all, the point of making an offer on a home is to actually buy the home, not to waste time negotiating with a seller on a home the buyer can’t afford in the first place.

So, there are 3 types of ways homes can be sold: 1) Normal, standard sale 2) Pre-Foreclosure/Short Sale and 3) Foreclosed Bank-Owned property.

I have a super nice newlywed couple that would like to purchase their first home. We found a home listed at $215,000 in a nice suburban neighborhood where other homes are selling for $30,000+ more. It needs a lot of cosmetic work, but its on a great lot. Any improvements they make on the home will bring up the value right away. Its being sold as a pre-foreclosure/short sale--apparently, someone bought it a few yrs ago and got behind on their mortgage payments. They had 2 mortgages on it from 2 different banks and both banks told them they need to pay up asap, otherwise they'll foreclose. So, the only way the homeowners can cough up the $ is by selling the house. However, today's market is so horrible that they can't sell the house for the same amt. of $ that they owe the banks. So, they had to list it short of what they owe, hoping the banks will take what they can get and forgive them for the rest. So, we put an offer in and the seller's agent immediately submitted the offer to the banks because they have to be the ones to approve an offer since its a short sale. That was on March 25th. Today, June 22nd, we are STILL waiting to hear back from the banks on whether or not they will accept the offer or even counteroffer. We have been waiting nearly 3 mos. The banks around the country are SO overwhelmed with homes going into foreclosure that they can't keep up and offers on properties are stacked a mile high with one person going through them. It has been 3 mos. and they still haven't gotten to our offer yet. For those of you who thought pre-foreclosures are easy & cheap properties to buy, THINK AGAIN. I tried to submit an offer for another couple who are hoping to buy their first home to an agent who is listing a pre-foreclosure/short sale property.  This agent is so overwhelmed that I couldn't get him to return any of my calls or emails to just submit an offer. Pre-Foreclosures suck!!

On Sunday, April 6, 2008, I was driving my Jeep watching my windshield wipers push away thick drops of rain. As I turned off of Hemlock Lane and slowed down, my muscles tightened. It was 10 minutes before my open house and I took a deep breath in anticipation of making a quick move in the downpour. I jumped out of the Jeep and hurriedly ran to the rear of my car to grab my open house signs. I pulled on the handle of the gate, and it wouldn’t budge. It was locked. I impatiently sighed, ran over to the passenger door, opened it, hit the unlock button, and swiftly closed the door. At that very instant, the most incredible feeling of terror came over me. I dreadfully realized that I did not unlock the door. I locked it. I locked them all. I stood frozen in the bucketing rain by myself; the car running (headlights on, wipers going) with my cell phone, purse, everything locked in it. No gas station or business in sight and my listing was about ½ mile down the road ahead. I stood stunned for a good 30 seconds until I suddenly realized 2 lucky things: 1) I dug into my coat pocket and realized I had inevitably put my keypad to open the lock box in there. So, at least I could still get into my listing and 2) I took up running a couple of years ago. Without further thought, I abruptly broke out into a run. I sprinted as fast as I could down the road in my trench coat, dress pants and dress shoes. I know I must have looked incredibly psychotic to the drivers that passed me and, I must admit, I felt incredibly psychotic. Rain struck my face in great quantities washing off my carefully applied make-up and flattening my perfectly styled hair. This was not my idea of great training for the race I was running in a few weeks (however, I think I was making record time). Soon, I was in the house, looking like I had jumped into a lake. I glanced at my sorry self in the mirror, heard the front door open, and greeted my first open house visitors of the day with a smile.

My name is Karen Collins and I am a Realtor.

P.S. My car ran unmanned for 45 mins. until Pete could arrive (and watch me deal w/the cop that was waiting at my car when I got back) and I never did get my signs out.

Welcome!  We're Pete and Karen Collins, a husband-wife real estate team who have been practicing residential real estate in the Twin Cities area for the past three and a half years.  This is our new blog.  We hope to post every few days and share with you a variety of information focused on the subject of residential real estate, particularly in the Minneapolis - St. Paul area.  We will both be posting individually and plan to provide our own opinions, insight, and commentary on the current state of the real estate market, as well as provide stories about our day to day encounters as professional Realtors and about life in general. 

We welcome your comments on any of our posts.  We hope you enjoy our new blog!