Home sales are slow which means that buyers will likely be able to negotiate on the price of the home they hope to purchase.  All of my clients that have ears know this, and thus I often find myself answering the question of "how much do you think we could negotiate on the price?"

I always have some thoughts on how much we may be able to negotiate, often influenced by:

• any incentives being offered by the seller, such as closing cost assistance
  
• how long the property has been on the market
• how recently, if at all, a price reduction has been made
• any context created by the seller's Realtor
• list / sale ratios in our market or in the neighborhood
• how the price compares to market value

But even after examining and discussing all of these factors, it's impossible to know the lowest price that a seller will accept for their home.  As I often tell my clients, the only way we're going to know is if we make the first offer.  The seller's response to that first offer is often very insightful, for example:

• If a house is listed at $235k and we offer $220k, we'll know a lot based on whether the seller responds with $233k or $228k.
• If a house is listed at $345k and we offer $300k, we'll know a lot based on whether the seller responds with $342k or $330k.

But again, the only way we're going to get to having that insight is if the (prospective) buyer takes that first step of making the offer.  If you have found a house that would work well for you, certainly there is a price at which you would definitely buy the home, so why not make the offer and see what happens!

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One issue that often seems to be on a buyer's mind these days is the question of how much they should be able to negotiate off of an asking price for a house.  Let's take a look at closings from the past 30 days to provide some insight into what buyers are actually accomplishing right now in the market.

Examining all residential sales in Harrisonburg and Rockingham County (10/17/2008 - 11/16/2008) we find...

• 51 residential properties have sold
• The average sale price to list price ratio is 97.39%.
• The median sale price to list price ratio is 97.87%.

Buyers are still coming relatively close to the asking price --- within 3%.  Taking a closer look, of the 51 properties that sold:

• Only 1 buyer managed to negotiate more than 10% off the asking price (sales price of $100k, sale/list ratio of 77%)
• Only 8 other buyers managed to negotiate more than 5% off the asking price (sales prices of $101k, $113k, $167k, $170k, $210k, $249k, $318k, $441k)
  

If you're considering buying in the near future, you should realize that this is certainly a buyer's market, but you won't necessarily have the ability to negotiate more than 10% off the asking price.

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I sometimes have buyer clients who after seeing many homes, feel the need to re-visit one or some to further lock-in their priorities and decision. 

Sometimes these buyers tentatively ask if it would be o.k. to revisit such a home.  My answer?  Absolutely!

If we need to return to a home a second time (or a third time) to take room measurements, get a feel for the layout and flow, become comfortable with the size of the yard, that's fine!

Buying a home is a huge investment of your money, and your new home will hopefully be where you live for many years to come.  Let's make sure we're finding you the right house!

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Some investors wonder whether there are any good opportunities anymore in buying investment properties. 

You will find good investment opportunities if...

1. you are willing to put down a 10% - 20% down payment
2. you are willing to break even instead of expecting to have a significant amount of positive cash flow
3. you plan to keep the property for three or more years
4. you are willing to patiently wait for and thoroughly research available properties
5. you are willing to make exploratory offers to conclusively determine the amount of flexibility in a given asking price

Here are two good examples of potentially sound investment purchases...

• 870 Merlins Way, Harrisonburg, VA
• 880 Merlins Way, Harrisonburg, VA

If you're interested in seeing either of these properties, or having an investment analysis for these or other properties, feel free to call (540-578-0102) or e-mail me (scott@cbfunkhouser.com).

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I always encourage my buyer clients to talk with at least two lenders.  Different lenders offer different loan programs, closing costs, incentives, and more.  Often, however, this leads to comparing what can be two very confusing documents --- the good faith estimates from each lender.

The Good Faith Estimate is a document intended to outline all of your purchasing costs, and thus is a good document to use when deciding between your two favorite lenders.  But it can often be quite difficult to make the comparison because costs can have so many different names on the GFE, and because there are non-lender fees included in these estimates.

If you are deciding which lender to use based on closing costs, remember to subtract out all of these costs before you make the comparison:

• appraisal fee
• title search/exam
• title insurance
  
• attorney fees
• recordation fees
• city/state transfer taxes
• survey
• homeowners insurance premiums
• insurance and tax escrows
  

All of these costs are independent of your lender or loan program.  For example, you will pay a title company or attorney to handle the closing, but the cost of such will not be determined by your lender.  If one lender estimated that fee on your GFE as $400, and the second lender estimated the fee to be $250, you would assume the second lender was offering you a superior loan program, when in fact you would ultimately pay the same cost for your title company regardless of which lender you choose.

I hope I haven't complicated things further --- just remember that you should not just look at the bottom line of the Good Faith Estimate when you are comparing lenders. 

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Hope Community Builders is a non-profit organization in Harrisonburg who builds and sells high quality, affordable housing for those who otherwise may not be able to afford to buy a home.



As an example, someone who can only qualify for a $140,000 mortgage, may still be able to purchase one of these brand new duplexes or townhomes in Covenant Heights that are selling between $168,000 and $175,000.

Here are some same financing scenarios from recent purchasers...



As you can see, there is a potential for $150 to $175 a month savings on mortgage costs.

For more information about Covenant Heights, either...

• View properties for sale at Covenant Heights
• Learn more about Hope Community Builders
• Call me, Scott Rogers, at 540-578-0102, or e-mail me.
• Call Duane Bontrager (Hope Community Builders) at 540-820-3915.
  

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That's not to imply that any settlement agents in Harrisonburg have wood-destroying insects in their conference rooms, but rather...

The standard Virginia purchase contract places some minimum termite treatment and repair requirements on the Seller, but does not mandate disclosing the infestation or damage at the time of discovery.

Here's what you need to know:

1. Sellers are required by state law to perform a termite inspection (at their expense) within 30 days of the settlement on the sale of their house.
2. If the inspection reveals the presence of or damage from termites or other wood-destroying insects or organisms, the seller is required to treat the infestation or repair the damages up to a cost of $1,000.
3. If the cost is greater than $1,000, and if the buyer and seller cannot agree as to how the excess will be paid, the buyer may select to accept the $1,000 of seller-paid treatment/repairs, receive a $1,000 seller-credit at closing, or terminate the contract and receive a refund of their deposit.
4. But......if the treatment or repairs cost less than $1,000 --- the seller may very well treat/repair the home and the buyer wouldn't know until closing when they saw the inspection report indicating infestation/damage and invoices showing the treatment/repair.

So...as a buyer, be aware that there is a (slight) chance that you could get to closing and find out that there were termites, or was damage in the home.  It can be disconcerting (termites in our new home!?!?!?) but rest assured that the treatment or repairs have already been taken care of by the seller.

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If you're buying a home as well as selling a home, many people select the Realtor that they will work with based on how each Realtor will market their home for sale.

If you're a first-time buyer, and you don't already have a relationship with a Realtor, this leaves you with the following main options:

1. Visit open houses, call the listing agent on houses you wish to view, and eventually work with the listing agent on the house you purchase.  This is not a great idea, but I'll touch on that in another post.
2. Select a Realtor based on the recommendations of friends, colleagues or family members.
3. Meet with several Realtors (who may or may not have been recommended to you) to determine the Realtor you are most comfortable with and confident in.

My suggestion?  Option Three!

Set up a brief meeting with a few Realtors and talk to them generally about what is important to you in a house, and in a Realtor.  Select the Realtor you will work with through the buying process based on having had real, in-person conversations with several Realtors so that you understand the service that they will provide to you, and so that you can sense whether your personality and communication styles will work well together.

I would certainly love to be one of those Realtors you talk to as you decide who to work with through the buying process.  Call (540-578-0102) or e-mail (scott@cbfunkhouser.com) if you'd like to set up a time to get together, perhaps for some coffee.

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Yes --- sometimes we are still seeing multiple offers!

A house that shows well, is priced well, and is marketed well can still generate strong buyer interest --- even in a market where we are seeing 22% fewer sales than last year.

We received three offers in the first week on this delightful home on the northern end of Harrisonburg.


1143 Waterman Drive, Harrisonburg, VA

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In some real estate markets, home owners are turning to a raffle to try to sell their home.  (Thanks to Josh for the tip!)

For example, Angela Schaab in Grand Rapids, Michigan is attempting to sell her boardwalk condo by selling 2,500 $100 raffle tickets.  As of today (9/27/2008) she has sold 235 tickets. 

Or, read the story of several owners attempting raffles in the Wall Street Journal's Raffles: Real Estate's Latest Game of Chance.

So --- what do you think?  If there were a house on the market in Harrisonburg, and you could buy a raffle ticket for $100 --- would you buy one?

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The "Settlement" section of a standard Virginia real estate contract reads....

Settlement shall be made at the office of the Purchaser's settlement agent on or about October 1, 2008.

Did you catch the three small words so innocently wedged between the location and date of the closing?  The meaning of those three words (on or about) is often overlooked!

Some sellers think, or assume that the date filled into the contract will be the actual closing date.  It very well might be --- but oftentimes a buyer or seller's circumstances will shift it a few days in either direction.  So, the first thing to remember is that it is usually just a close estimate of when the closing will occur.

But what happens if (in the above example) a buyer informs the seller that they won't actually close until October 22nd --- three weeks later.  May the seller indignantly demand that the buyer close on October 1st, OR ELSE?  Contractually, no!  "On or about" is typically understood to mean plus/minus 30-60 days, depending on the attorney.  That certainly allows for some flexibility, and this is the second thing to remember --- the standard contract language will not allow you to precisely plan the day or week of closing.

So, what is a seller to do?

BAD:  If you need to close on a precise date, or no later than a particular date, you'll want to add "time is of the essence" to the standard contract language.  With such language, if the settlement does not take place by the date in the contract, the contract automatically becomes null and void.  Of note -- I rarely suggest using "time is of the essence".  Having the contract "die" after a certain date usually doesn't help either the buyer or the seller.  If the buyer wants to buy, and the seller wants to sell, and the final closing documents are one date late, should the deal really automatically die??

BETTER:  A better option is to introduce a (positive or negative) financial incentive for the buyer to close in a timely fashion. Perhaps a positive financial incentive for closing on (or before) the scheduled closing date.  Or, an increased purchase price or other penalty if the closing is more than X days later than scheduled.

BEST:  Leave well enough alone --- don't change the standard contract language.  Understand the above, but be flexible and willing to adjust, within reason to make the closing process smooth and successful. 

I hope this is clear --- feel free to leave a comment below, or call/e-mail me for further clarification.

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I received a call the other day from a Realtor who was representing the seller of a house that I had showed to some of my buyer clients.  I was informed that "the owner just had the house appraised, and the appraisal came in $20,000 above the asking price."  I believe the conclusion that I was supposed to come to was that the house was a great deal, even at the asking price. 

This all started me thinking about the many ways that a value of a house can be defined.  I would argue that the value of a home is NOT (necessarily):

• how much the owner paid for the house
• how much the owner paid, plus the value of the owner's improvements to the house
• the tax assessed value of the house
• the appraised value of the house
• how much the neighbor's house sold for a year ago
• how much the neighbor's house sold for yesterday
• how much the owner needs to sell the house for in order to pay off a mortgage
• how much the owner needs to sell the house for in order to buy their next home

A house is worth what a buyer can and will pay for it, in the current market.

Certainly, this is a bit ambiguous, but my main point is that we can't make any assumptions about what the market value is of a house. 

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I often have conversations with people considering their first home purchase who want to first get an idea of how much they would have to pay for housing on a monthly basis.  I have devised an Excel mortgage calculator that I can use to give them a rough idea, or I recommend that they call a lender to get pre-approved. 

But --- for those of you looking to get just a rough idea, at a few price points, here are some examples of monthly housing costs...

The condo or least-expensive townhomes in Harrisonburg ($125K)
There are not very many options for housing below $110K in Harrisonburg, but there are some between $120K and $130K.  We'll assume a price in between of $125K.
   100% financing = $856/month ($0 down payment)
   97% financing = $833/month ($4K down payment)
   92% financing = $795/month ($10K down payment)
All of these estimates include taxes and insurance, and are based on a 30-year mortgage with a 6.25% interest rate.

The new-ish, starter Harrisonburg townhome ($158K)
There are quite a few two-story townhomes on the market right now built in the last five years, priced between $152K and $165K, located in the City of Harrisonburg.  We'll assume a price somewhere in between, of $158K.
   100% financing = $1,084/month ($0 down payment)
   95% financing = $1,035/month ($8K down payment)
   90% financing = $986/month ($16K down payment)
All of these estimates include taxes and insurance, and are based on a 30-year mortgage with a 6.25% interest rate.

The entry-level Harrisonburg single-family home ($190K)
While there are some single family homes priced below $190K, there are quite a few more options between $180K and $200K, again located in the City of Harrisonburg.
   100% financing = $1,302/month ($0 down payment)
   90% financing = $1,185/month ($19K down payment)
   80% financing = $1,069/month ($38K down payment)
All of these estimates include taxes and insurance, and are based on a 30-year mortgage with a 6.25% interest rate.

BUT....DON'T FORGET ABOUT THE TAX SAVINGS!

If you're renting now, you should also consider the tax savings of buying a home.  All of the interest you pay on your mortgage can be deducted from your income for tax purposes.  
   $125K @ 97% financing = $158 tax savings per month
   $158K @ 95% financing = $195 tax savings per month
   $190K @ 90% financing = $223 tax savings per month
These tax savings aren't realized until the end of the year, but if you factor in these monthly savings, the effective monthly housing costs (including property taxes, home owners insurance and the tax savings) would be...
   $125K @ 97% financing = $675/month
   $158K @ 95% financing = $840/month
   $190K @ 90% financing = $962/month

And...one final disclaimer...I am not a lender, nor do I offer any type of financing.  E-mail or call me and I'd be happy to recommend a few lenders to you.

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As I regularly mention, even though home sales are down in this area (the number of properties being sold) -- median and average prices are staying steady or increasing slightly.  And yet, there is an interesting phenomenon going on that I have observed several times lately in different neighborhoods in Harrisonburg...

Two-story (1300 SF +/-) townhomes in the City of Harrisonburg have appreciated drastically over the past five years.  They were selling for around $99k five years ago (Jan-Jun 2003), and they have been selling for around $160k this year (Jan-Jun 2008).  If the appreciation were leveled out over the entire time frame, that's about 10% each and every year.

But also over the past six months, I have seen some of these townhouses (a very small amount) selling for around $149k -- $11k under what most would consider to be market value. 

Why is it happening?
There are some home sellers who are able to adjust their selling price quite a bit because they bought in several years ago, and have lots of equity in their home.  If they bought at $99k, and sell at $149k instead of $160k, they still sell at a profit of $50,000 (before selling costs).  They could have (possibly) made a profit of $61,000 (before selling costs), but they were motivated, and had the equity, so they settled for less in order to sell their property.

Isn't this a good thing?  It makes townhouses more affordable!
It is indeed good for townhome buyers, but not so good for townhome sellers who bought in the last two years.  These sellers would be in a bit of a pickle, because they don't have as much equity to play with, and thus have difficulty competing on price with sellers that bought 5 years ago.

Will this mean a change to the overall townhouse market?
That's the big question -- and so far, I haven't seen an effect of these isolated sales on the market as a whole.  Though, appraisals could get a bit interesting if a townhome goes under contract tomorrow for $160k and the first comparable properties the appraiser finds are the few that sold in the high $140's.

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Over the past few weeks I have been explaining to many first time home buyers that if they buy a home before July 1, 2009 they can take advantage of a $7,500 tax credit.

Some, though, have been less than enthused because the full $7,500 tax credit has to be repaid over 15 years.  Yes, that's right --- even though you will pay $7,500 less in taxes for the tax year in which you make your first home purchase, you do have to repay these tax savings in years three through seventeen.

I thought I'd take a look at the value of what is essentially an interest free $7,500 loan.  For this analysis, I am examining the aggregate savings from not paying interest on the $7,500, using a current interest rate of 6%.


As you can see --- over the course of the 17 years, you save a total of $4,050.  Thus --- even though you are paying back the $7,500 tax credit, it is still at a significant ($4,050) savings.

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Are all buyers created equal?  Certainly not --- especially from a seller's perspective in our current market. 


Here's how I would rank buyers, from the most exciting to sellers (#1) to the least (#9)...

1. Cash buyer, without a home sale contingency
   
2. Pre-approved buyer, without a home sale contingency
3. Pre-approved buyer, with a home sale contingency (with the house under contract)
4. Buyer without pre-approval, without a home sale contingency
5. Buyer without pre-approval, with a home sale contingency (with the house under contract)
6. Pre-approved buyer, with a home sale contingency (with the house on the market)
7. Pre-approved buyer with a home sale contingency (with the house not yet listed for sale)
8. Buyer without pre-approval, with a home sale contingency (with the house on the market)
9. Buyer without pre-approval, with a home sale contingency (with the house not yet listed for sale)
   

It is important to note where you are on the list above since the factors represented above often affect a seller's willingness (or lack thereof) to negotiate.

The good news is that you can (sometimes) take steps to move up this list:

1. Get pre-approved
2. Get a contract on your current home
3. At least put your current home on the market
   

To note, here are some other buyer characteristics that are desirable amongst sellers:

1. Minimal inspections
   
2. In a hurry
3. Large down payment

As a buyer in today's market, it's important to understand a seller's perspective before or during the process of making an offer.

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If you haven't owned a home in the last three years, you have a unique opportunity if you buy a home in the next 11 months (before July 1, 2009).

The new Housing Bill signed into law by the President this week provides a $7,500 tax credit to first time home buyers (anyone who hasn't owned a home in the past three years) with income up to $75,000 for single people and up to $150,000 for married couples.

When do I get the money?
A $7,500 credit will be applied to your income taxes for the year in which you close on your new home.  This doesn't reduce your taxable income by $7,500 (a tax deduction) --- it reduces the taxes that you pay by $7,500 (a tax credit).

I've heard I have to give the money back?
Yes --- the $7,500 must be paid back over 15 years, starting two years after you take the tax credit.  This is an additional tax liability of $500 per year for those 15 years.

So if I have to pay it back, why is this tax credit so exciting?
In essence, you are being provided with a $7,500 interest-free loan.  This can be the needed advantage for first time buyers to know that they can make a home purchase work for them.  The $7,500 will certainly make up for what you paid for closings costs (in most loan programs) and even part of your down payment.

If you have more questions, check out this list of frequently asked questions.

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The president is expected to sign a new housing bill today (July 29, 2008) that may have significant implications for current and hopeful homeowners.  Here are a few highlights:

• A $7500 "first-time" home buyer tax credit will provide (in a sense) an interest-free $7500 loan to home buyers.  You would qualify if you haven't owned a home in three years, and if you have bought, or do buy between April 8, 2008 and July 1, 2009.  The tax credit is applied the year that you buy the house, and is paid back (without interest) over 15 years, starting two years after you buy the house.
• Those threatened by foreclosure may have new options under an FHA foreclosure rescue plan. Home buyers with subprime loans may be able to refinance via the FHA financing program at 90% of the current appraised value of their home.  
• Many markets will see increased FHA limits to allow for more homes to be financed through the increasingly popular FHA loan program.

There are many other aspects of the housing bill, many of which are intended to help stabilize the economy and the housing market.  For further reading, check for the latest articles on Google News.

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Here's an interesting phenomenon --- in most real estate transactions, the buyer makes the first move, by submitting an offer to purchase a house.

In stark contrast to this (time-proven?) norm, I have recently had several Sellers make an offer to sell.  More specifically, when it became known that a buyer was seriously considering the purchase of the seller's home, the seller proactively either:

• made a general offer of being willing to negotiate on price or pay the buyer's closing costs, or
• made a specific offer of a price below the asking price, or the inclusion of a certain amount of a closing cost credit

So far, it has had mixed results --- in some cases it has worked (and a transaction has come together), and in some cases it has not worked.

If you are a seller, considering such a strategy, I would advise you to consider that:

• Proactively making an offer to sell that is more compelling than that suggested by your list price can sometimes motivate a buyer to engage in the negotiation process.  This is valuable, as many current homeowners who are attempting to sell their home would love to even have an offer to try to negotiate.
• You should expect that (most) buyers will try to negotiate further below your offer to sell.  Thus, if you have a hard and fast bottom line, don't reveal that number in your offer to sell, as the transaction may not come together.
• In addition to offering something specific to a buyer, it often will serve you well to (attempt to) explore what would be most helpful for a prospective buyer --- a price reduction vs. closing cost credit vs. repair/upgrade.

I'll certainly be among the first to let you know when the tables are turning again -- but for now, buyers definitely have unique opportunities to negotiate -- and sellers can sometimes spur that on by a proactive offer.

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I have had several people ask me this lately --- people who are planning to move to the Shenandoah Valley, and have been reading my blog to better understand the local real estate market.  These two blog readers asked whether they could search for properties for sale on my blog.

Can you?  You bet!

From my blog, you can click on the "Searching" tab on the top menu bar.  (Or, since you're reading this post, you can click on the search image to the right).  My hope is that you'll find that searching for homes in Harrisonburg and Rockingham County has never been easier.  We give you quite a few search options:
sdfs

• New Listings
• Open Houses
• Quick Search (Address, MLS#, Subdivision, Listing Agent)
• Power Search (lots of options!)
  
• Community Search (School District, City/Town, Zip Code)
  

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