If You Really Want to Move Now, “Price It Right”

I’m looking at the March 2017 Austin Board of Realtors Market Report from the Real Estate Center at Texas A&M University this morning. Focusing on the zip code 78620, which is the Dripping Springs area. Because A&M is using the Austin Board of Realtors Multiple Listing Service data, I can look at any zip code I want to in the central Texas counties. If you want different area stats from the ones here, just ask me.

In the existing homes category, there are 2.8 months of inventory. Because a market considered ‘balanced’ in which there are about as many people wanting to sell homes as people wanting to buy homes is about 6 months of inventory, we are clearly still in a seller’s market overall. There are more people who want to buy homes than people who want to sell homes.

OK, class, what does this do to price? Yes, that’s right… the market forces keep the prices up. Existing homes are in demand.

Here’s something interesting: the new builds have an inventory of 9.3 months in this zip code. Also, the average selling price of existing homes is $482,145 vs. $430,550 for new homes.

In no category of home; single-family, townhouse, condominium, both new and existing, does the selling price average equal 100% of the listing price average. The ratio is hovering around 94%-95%. On average, sellers are not getting their full asking price for their houses.

However, if you are clever, you will find a REALTOR® who looks at the statistics for your particular neighborhood or area and finds out what the hyper-local market is doing. Amenities, features, well-considered upgrades, location, and landscaping are all factors! With this knowledge you’ll have a better idea of how to price your house.

Remember, the aggregate of buyers who are looking for your type of home, in your price range, in your market is what determines the likely selling price of your home. And, in turn, the aggregate of buyers is influenced by all kinds of forces, from financial, to emotions about the economy and government, to work opportunities, to weather patterns to local government policies and private sector opportunities. And so on.

To put it a different way, if you want to sell your home in this ‘buyer’s market’, it is best not to get too cocky and think that you can pick your own price. I have watched homes sit on the market for weeks and months without very many showings and zero offers. Why? Price per square foot that looks reasonable for the neighborhood and amenities that look good on paper, BUT the fixtures and finishes are dated, or the layout that was suitable for the wants and needs of a family in 1985 is no longer relevant or desirable, or the amenities are not as glam as a typical buyer in 2017 expects to see. In short, a home that was pretty wonderful 30+ years ago has lost its edge and must be priced to attract a smaller set of real buyers. (Real buyers are the set of people who would REALly buy your home.) This is not personal. This is business!

When you price your home too high for what price the market puts on it, you are selling the home down the street, or around the corner, that IS priced right for its market. Buyers see both homes and immediately realize which is the better bargain. And it’s not yours.

By the way, when you and I interview each other about selling your home, I will ask you what you know about any homes that have sold off market around you. That would be homes that have sold by the owner without ever being on the MLS, and homes that were going to go on the MLS, but the owner accepted an offer from a buyer before the MSL thing happened. Having this information helps me to help you price your home right for your hyper-local market.

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Stuff to Know About Buying a House

IMG_0097I love to insert into this blog photos I’ve made over the years!

You can get lots of information on the internet about buying a house, selling a house, maintaining a house, etc. Much of the information is even correct. In some state. Under some circumstances. At some point in time.

I start reading about ‘How to sell a house’, or ‘How to buy a house’ and I think, “Yes, but not in my state…. That’s not the way it’s done here.” We have personally bought and sold homes in three states, multiple times, over decades. Each state is very different, and things change within one state over time. Every two years, after the Texas Legislature meets, we have new laws to follow.

The first thing to know about buying a home in the Austin area in April 2017 is that, if you are going to need to borrow money to buy the house, you must tend to that first thing. REALTORS® keep lists of lenders they’ve worked with and whose clients have had a good experience. Interview some REALTORS®, pick one, and ask about lenders.

Lenders will pre-qualify you for a loan, which means that they ask in person, or online, for your numbers and information, crank it through an algorithm, and spit out a pre-qualification, if your numbers pass the test. Because it is based on self-reporting, and doesn’t go in-depth with your complete financial picture, a pre-qualification doesn’t carry much weight with the seller of a home, especially a nice home in a ‘hot’ neighborhood.  Your REALTOR® is not likely to show you very many homes until you have a more substantial loan work-up done than pre-qualification.

Special note: if you cannot get pre-qualified for a loan, there are companies that can guide you through your journey to financial stability; a good lender might very well partner with a company that can help you in this way; and some lenders offer this service. All is not lost if you don’t qualify right away.

The next level is a pre-approval by the lender. This means that the lender has checked your background information, such as your credit scores from the three major reporters; Experian, TransUnion, and Equifax, has seen copies of your pay stubs, etc. A pre-approval is as far as most lenders will take you before you have a signed contract to buy a house. For the purposes of most home sellers, a buyer with a pre-approval is good enough to sign a contract with.

A few lenders will actually take you through the underwriting process before you even sign a contract to buy a house. Underwriting means a specialist has rooted through your work life, your banking and financial life, your credit history, and your related personal life enough to agree to loan you up to a certain amount of money to buy a house, providing the house you choose passes muster. Going into contract negotiations with a home seller after you have been underwritten for a loan is a strong position, provided your offer is one that makes the seller happy.

Okay, next subject is paperwork. There is a lot. I have been told, and have seen evidence,  that appropriate paperwork provides some legal protection for the following parties: 1) YOU, the buyer, 2) the seller, 3) your real estate brokerage, 4) the agent or REALTOR® looking after your interests on behalf of that brokerage, 5) the agent and brokerage on the seller’s side, 6) the title company insuring clear title on your purchase, 7) the lender, 8) the property owner’s association, if there is one, 9) the builder, if it is a new home purchase, 10) any lien holders on the property in question, 11) the government entities under whose jurisdiction the property falls, 12) any inspectors you employ to assess the property for you, and 13) anyone else who is breathing and walking, rolling, or slithering  nearby your real estate transaction. There is gonna be a lot of paperwork, and it’s my job to make sure it all gets negotiated where possible, filled out properly, and signed.

Because there is a lot of paperwork that gets looked at and signed at various points along the way from agreeing to hire a particular brokerage to work for you to completing the buyer transaction and taking possession of your new home, you must plan to be available during the time-intensive periods

Also, in this still-hot market, you must plan to be available to look at homes and make decisions in short-order. In most cases, you won’t have time to mull over a situation during the buying process; the home you want will be under contract with someone else that day. The time for big, mulling-over decisions is before you go looking at homes. Your REALTOR® can help you think through your situation and decide on your must-haves, your bottom line, and your contingencies before going into battle.

While we’re talking about going into battle, let me touch on the subject of negotiations. I have found that negotiating on behalf of a client works so much better when we all treat each other with utmost respect. I aim to be unfailingly polite and respectful, no matter how the seller approaches things- not only does it make work more satisfying, but I am able to be more successful in getting you what you need as a buyer.

Some of you have heard the opening salvo in a negotiation- the selling price on an item- and then offered a low bid, followed by going back-and-forth with the seller until you eventually meet in the middle.  In home-buying, there is an element of that strategy. However, it pays to understand the psychology of what happens with a house offer. Sellers are usually quite invested in their price and their home, and they don’t respect a low-ball offer on their prized possession. Not to mention, in this market, a lot of times the offers start at the list price and go upward from there. No, it would not be unusual for a low-ball offer to have the effect of cutting off any possible negotiation. You could end your chances before you even get started.

There are other considerations besides price. The standard one-to-four family residential resale contract has 9 pages, not counting additional disclosures, addendums, and ammendments, so you can imagine how many other points there are for a buyer and seller to agree on besides just the selling price. Your REALTOR® can help you put together an offer package that is appealing to the seller. Maybe even appealing enough for the seller to sign a contract with you!

Now you have signed a contract to buy a pre-owned home. Congratulations! Except in unusual circumstances, you will want to pay the seller an amount of money for the privilege of keeping the home off the open market long enough for you to hire professionals to inspect the various systems of your home and give you a report. You need to be reasonably certain that you know what you are getting into. The money you pay the seller for this purpose is called the “option money” and it will be a direct payment. If during your option period that is specified in the contract you decide not to buy the home, the seller has no obligation to return the option money. After all, you paid her the money to let you sign a contract, yet still spend time re-examining your future purchase, and possibly deciding against it. That keeps her home off the market for days, and could be a real liability for her.

You will also pay an amount of money called “earnest money” to show that you are indeed serious about following through with the home purchase, provided there are no nasty surprises that weren’t evident in the home after first inspection by you. This earnest money does not go to the seller; it goes to the escrow officer, usually at the title company you and the seller have agreed to use. Or, it may go to a lawyer’s office and be held in escrow there. This money is recoverable, as long as you follow all the agreements in the executed contract. If you buy the property, the escrow money may be used toward your transaction at closing. Earnest money is typically about 1% of the agreed-upon selling price of the house, but this is one of the many negotiable points between you and the seller.

In most cases, one of your expenses as a buyer will be the appraiser’s work. In a loan situation, the lender will order an appraisal by a licensed individual to give that appraiser’s best assessment of what the value of the house is. In this market, sometimes the agreed-upon sales price is higher than what the appraiser says it is worth. One of the decisions you, as a buyer, will be making ahead of the home-search process, is whether or not you can afford to make up the difference between what you contract to pay for a house (higher amount) and what an appraiser says the home’s value is (lower amount). There are also acceptable ways to provide the appraiser with information about the neighborhood and local sales that she might not have access to through standard channels when she is doing her work.

There are many expenses that a buyer will have in closing a purchase transaction. Some of them the seller might agree to pay, but many more will be your responsibility. Someone will pay for title insurance. Someone will pay title company and county recording fees. Someone will pay loan origination fees. Someone might even pay for a new survey to be made of the property. These costs are something your REALTOR® will help you grasp before you start your transaction and, if you will be getting a loan, your lender will take them all into consideration when they are looking at whether or not you are a good credit risk for them. They will help you understand the costs of closing a transaction.

Part of the transaction cost that is ultimately shared within the selling price by both parties will be paying your real estate broker and the seller’s real estate broker their commissions to cover the work done on behalf of both you and the seller. This is another reason for you to hire carefully when you hire a REALTOR® to work for you- the commission cost is not insignificant, and you want to make sure that the brokerage you hire will serve your needs to the fullest, and then some.

I know I have given you just a bare outline of what goes on from the buying side. In other posts, especially those tagged ‘buyers’, you can see more specifics that might answer some more of your questions. I keep writing these posts as a service to the community, because I know the feeling from my own pre-licensing days of being completely confused and in the dark about what was happening during my own real estate transactions. I want to shed as much light as possible on a complex and important topic.  I always welcome suggestions left in the comment section of this post, or other posts on this blog.

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Live in Austin? You’ll Need to Do An Energy Audit

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Newsflash for you who have lived in your Austin home since the Year One: before you put that home on the market, you must get an energy audit done by an energy professional.

Yes, it’s true, the City of Austin has an Energy Conservation and Disclosure ordinance. If you are an Austin Energy customer, you live in the Austin city limits, and your house is more than 10 years old, you must get an audit done. They check heating/cooling efficiency, amount of air escaping your home, the insulation level, and the window efficiency, all of which require specialized equipment.

This will cost you several hundred dollars, based on the size of your home. Be sure to get quotes from several energy professionals, and get a recommendation from someone who has used an auditor, if possible, before hiring one.

Just like any other aspect of home improvement, you can wait until you decide to put your house on the market before you take action. OR, you can choose to take action early and enjoy the fruits while you are still living in the home. You might go ahead and get an energy audit and get yourself some beautiful new windows. Or, you might decide to upgrade to a more efficient HVAC system and enjoy the savings on your utility bills.

In any case, the city does not require you to make upgrades based on the energy audit. It just requires you to pay for the audit so that potential buyers will understand what might be involved in owning the home in the condition it’s in.

New City-planning Maps for Austin

If you’ve been keeping up with CodeNext, Austin’s evolving zoning ordinances, you know that January’s release of new ordinances without an accompanying release of maps caused angst in the neighborhoods whose inhabitants have spent years trying to keep the  feel of those neighborhoods the same as it has been for decades.

Fitting more people and their activities into the same-sized space requires denser building. Closer together and higher. That is the geometry of the situation.  Totally different feel from vistas and trees, right?

Today, the city released the initial zoning maps. Here is a link to the article in the Statesman: CodeNext zoning maps. You’ll find more links within this article, so study to your heart’s content.

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Cost-savings for Borrowers

I love sending my home buyers who are planning to borrow to an in-person local lender. I love the personal touch. However, in the world of online everything, I do have a great online option for my homebuyers: Keller Mortgage. Keller Mortgage is new, and our Southwest Market Center has been the testing ground. It is licensed only in Texas right now, but will soon expand. The first loans have been closed speedily, with rates equal to, or better than, competitors’ rates.

Keller Mortgage is partnered with Keller Williams agents as a way of producing a product for our clients that is more than competitive. The business model is based on the best of the traditional lender model (talking with actual people) and the best of the internet model (very low brick-and-mortar costs because the loan center is all in one place), plus an advantage of no advertising and marketing costs. This means that Keller Mortgage is able to charge the borrower no fees AND the borrower gets a credit of $1000, which can save the borrower several thousand dollars on a closing. Other lenders may do something similar, but then raise the interest rate on the loan to make up the difference. The Keller Mortgage business model is based on a large volume of loans from the clients of its many agents, as well as the re-sale of the loans after they are closed.

Keller Mortgage is offering other advantages, too, including starting the appraisal process as soon as the home-buying contract is signed. If you decide not to buy the house during your option period, you do not pay the $450 or so for the appraisal; Keller Mortgage does. Also, you can be underwritten for the loan even before a home buying contract is signed, saving you time in the trip through the closing process. (In multiple offers, this can look good to a seller whose home you are hoping to buy!) You can be underwritten in 24 hours from the time you get all the requested documents to the lender.

I have installed the Keller Mortgage app on my phone and I can use it to help you compare rates to make a decision about which lender you are most comfortable using. If I list your home to sell it, a potential buyer using Keller Mortgage for a home loan could financially make the difference for that buyer between being able to buy at your price point or not. It is certainly something to think about.

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AJ Berzsenyi of KW Mortgage explaining the company’s value for clients

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Went on a property tour this morning in the Dripping Springs area. Lenders and title companies often arrange these affairs on a regular basis for real estate agents and brokers who want to see a sample of what’s available ‘this week’.

It was rainy today. Really rainy. Not too many of us on the property tour. But, you know what? I love to tour properties in the rain, whether with clients, or just for my own education. That’s how you know what the drainage issues are. It’s fun to see how drainage problems have been solved, or forestalled, by French drains, dry streams, foundation grading, walls, etc. It’s also illuminating to see what hasn’t been solved: creeks over sidewalks, water running close to the top of a foundation.

Rainy weather when house-hunting also makes you super-aware of which roads are likely to be impassable in a storm. A phone app I like to use is ATXfloods.com. Shows me a map of all the low-water crossings in the area and which have been closed. Especially important in the hills!

It’s helpful to go house-shopping in the rain so that you can see if there are drainage issues.

By the way, I saw some properties on the market in Dripping Springs this morning that ranged from perfectly charming to gorgeous.

Ideas For Getting Into the Home-buying Market

Hello, First-time Home-shoppers, Parents of First-Time Home-shoppers, and Friends of People Who Don’t Have a Lot of Money to Spend!

On Friday, I met with a lender for Guild Mortgage, Joani Wilson, and she gave me the run-down of Austin-specific programs and area loan types that benefit people who are figuring out how to buy a home in the hot Central Texas market.

Joani Wilson and her borrower booklet

A USDA loan (United States Department of Agriculture) has income requirements on the borrower, as well as property location requirements. This is a loan oriented toward middle-income borrowers. USDA loans are meant to keep rural areas developed and thriving, so that is why there is a property location requirement. The maps on the USDA website linked above will be your first stop to see if a property qualifies for this type of loan. 100% financing is available and the seller is allowed to contribute up to 6% of the amount of the loan toward closing costs, so a buyer could make the purchase with virtually no money up front.

There are also various down-payment assistance programs in the area, so it is possible to get into a home using various FHA (Federal Housing Administration), VA (Veteran’s Administration) , and even conventional loans coupled with the DPA program.

Down payment assistance in Austin

Hill Country Home Down Payment Assistance Program for any area in Travis County

From the website:

  • Per FHA guidelines, all homebuyers qualifying for down payment assistance with credit score of 660 or higher will receive 4% of the original loan amount to be used for down payment and closing costs, which includes lender compensation of a 1.5% origination fee.
  • Per FHA guidelines, all homebuyers qualifying for down payment assistance with credit score ranging between 640 and 659 will receive 5% of the original loan amount to be used for down payment and closing costs, which includes lender compensation of a 1.5% origination fee.
  • The origination fee can be paid by the borrower or the seller.
  • This assistance is a gift/grant and does not require repayment at any time.

Southeast Texas Housing Finance Corporation (known as “SETH”)

Right now, from the website:

  • Current Rate / Offerings Lock Rate FICO     DPA     Effective Date 
    GOVERNMENT
    Option 1– FHA 5.50% 660 w/6% 3/9
    Option 2a– FHA 5.00% 660 w/5% 12/15
    Option 2b– FHA 640 or 660 w/Manual UnderWriting 640 or 660 w/4%
    Option 2c– FHA w/Manual UW 640-659 w/3%
    Option 3– FHA 4.875% 660 w/4% 4/10
    Option 4a– FHA 4.50% 660 w/3% 4/10
    Option 4b– USDA-RD, VA  640
     CONVENTIONAL-FREDDIE MAC
    Option 5– HFA Advantage 5.125% 640 w/4% 3/22

Texas Department of Housing and Community Affairs 

I enjoyed visiting with Joani because she is so enthusiastic about her job, and she obviously enjoys figuring out how to get people into homes.