Tag Archives: Tara-Nicholle Nelson

Three tips on listing low to get multiple offers

Three considerations before listing low to get multiple offers

Q: What happens when you start out listing your home at a low price to entice buyers and the first offer is full price but no other offers come in? Are you stuck selling at the lower price (at which you never actually intended to sell)?

A: With multiple offers on the comeback, many savvy sellers are pricing their homes on the low end with the intention to drive buyer interest and — fingers crossed — generate multiple offers. In markets where rising buyer activity and home values have already begun to decrease the inventory of available homes for sale, this strategy has been very effective. However, there is always the risk of precisely the problem you pose: What happens if you get only a single offer at the asking price?

Here are several pieces of advice for sellers who are worried about what happens when listing low doesn’t result in multiple offers:

1. Consider what the offer you get does and does not mean. You are never obligated to sell your home at a price you don’t want to, no matter how close the offer is to what you are asking for the property. I’ve actually seen a couple of situations in which sellers get a single full-price offer and reject it or issue a counteroffer, sometimes because they are in the situation you describe, and other times because it has come to their attention that they owe more on the home than they expected. (Don’t plan on doing this, though; it is a strategy with a high likelihood for disgusting a buyer and turning them all the way off.)

The reality is that, if you get only one offer at a given price, that may truly be the fair market value of your home even if you think you might have gotten a higher offer for the property had you asked for more. To live in that world of “what might have happened if” is to torture yourself with the impossibility of guessing at what a hypothetical situation would have turned out like. The real deal is that if you had asked for more, it’s possible you would have gotten more. It’s equally possible that the one buyer who did make an offer would never even have come to see the property.

2. Understand your listing agreement before you list it low. Under some listing agreements (your contract with the agent who lists your home for sale), a full-price, cash offer with no contingencies may obligate you to pay a commission even if “full price” is the discount price you set in an effort to get multiple offers. You can negotiate to change the default terms of your listing agreement, though, so that you are obligated to only pay a commission on a transaction that actually closes. You would need to do this before signing the agreement, and before the home goes on the market.

Get some legal advice from a local attorney if you don’t feel you completely understand the terms and implications of your listing agreement before you sign it and before you set the list price of your home.

3. Don’t list your home at a price you’d be upset to receive for it. The savvy sellers who list their homes on the low end to generate multiple offers are not listing their properties hundreds of thousands of dollars below their fair market value, or even making them the lowest-priced home in the neighborhood. Smart, aggressive pricing is listing a home at what seems like the low end of the range of comparable-supported prices or a slight discount from that — about a 2-5 percent discount, not 40 or 50, or 70 percent.

Many sellers are OK with taking the risk that their home might sell at 2 percent below the comparables as a trade-off for the opportunity to generate multiple offers and the possibility of receiving a premium sale price. And if you are a seller considering listing low, you should be aware of the potential trade-offs, and should make that decision only if you have market data to support the fact that this strategy makes sense in your local market.

To be crystal clear, as a seller, you should not list your home at a price you would be upset about receiving or unwilling to accept.

And remember that “listing it low” is a strategy that has proven to be successful for people specifically aiming to generate multiple offers in the many markets that currently support multiple offers. If your objective is simply to sell your home — period — in a down market, for example, then this may not be the route for you to take.

Every market is different, and every home and seller is different. If your market is still very soft or you don’t see any multiple offers happening in your town, you may not be able to generate loads of offers no matter what you price your home at. As always, work with your agent and take a long hard look at your local market dynamics before deciding on a pricing strategy.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.

Debunking the “instant equity” myth

Q: If I buy a home that previously sold for more than $400,000, but I pay only around $200,000, doesn’t that mean I have instant equity?

A: In a word? No.

Here’s the deal. In real estate, we think of equity as the difference between what your home is worth and what you owe on it. It’s the amount of your home’s value that you actually own, after any mortgage or other debts that are secured by the property.

Historically, the way homeowners hoped to build equity in their homes was primarily by paying off their mortgages. However, over the last decade or so, this evolved so that many homeowners expected their primary means of building equity would be by the stratospheric appreciation in home values. If homes simply kept growing in value, then equity would continue to build, as a matter of course.

Given these definitions, technically, the phrase “instant equity” should refer to the difference between what your home is worth at the time of closing and your mortgage balances — i.e., what you owe on it. For most buyers, that would mean their instant equity was the amount they had put down on the home.

However, people typically use the phrase “instant equity” to mean that you’ve bought a home that is worth more than you paid for it (not what you owe on it). It is this use of the phrase that you’re likely getting at.

The fact that the home sold for more than $400,000 at some time in the past (a time near the top of the market six years or so ago, most likely) is entirely irrelevant to your equity position on it now. You might indeed be closing this transaction with instant equity, but if so, that would be because the property is currently worth more than the $200,000 purchase price, not because of what it was worth in a time that is long gone — a mystical fairyland in which banks lent mortgage money without checking on borrowers’ ability to repay it, which ultimately led to a dramatic climb in home prices.

Some would say that whether or not you have instant equity, the fact that the property once sold for $400,000 shows that (a) a buyer was once willing to pay that, and (b) that the property could climb to that price again. These facts are both true, strictly speaking, but do not in any way help you determine whether this particular property is the windfall opportunity that you seem to think it might be.

Here’s why: A home’s value at any given time is what a willing and qualified buyer would be willing and able to pay for it at that time. Today’s market dynamics are simply not comparable to those of yesteryear, so you cannot assume that a buyer on today’s market would pay a top-of-market price for the place.

A buyer could not and would not pay $400,000 on today’s market for that home; if he needed a mortgage to fund the purchase, the bank and appraiser would simply not allow him to do so. And if he were a cash buyer, it just wouldn’t make sense for him to pay such a price, presuming that he could buy another, similar home in the area for closer to $200,000 than $400,000.

The only way for you to know whether you have instant equity in this home, and how much, is to figure out what you believe the property is worth on today’s market, and calculate the difference between whichever of the following you find to be the most relevant for your purposes: (a) the amount of loan indebtedness you have on the property or (b) the amount you paid for the property.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.

Four steps to buying a house in 2012

Q: I am on a mission to buy a home. I’ve wanted to own a home my entire life, and thought I would miss the opportunity to buy while the market was down, because I had no real savings when the market crashed. I think I’m ready, though, and prices still seem low. What should I be doing now to make this happen in 2012?

A: The recession has done lots of favors for buyers-to-be, including dropping prices and interest rates to bargain levels. But it has also created a lending and housing market climate in which loans are tough to get, tensions about buying into a down market run high, and transactions are harder and longer to close than they have ever been.

Here are the things to do now, to buy a home this year:

1. Fix credit problems. More deals than ever are dying on the vine, and credit problems are a top reason home-sale transactions fall out of escrow. Detect and correct errors on your credit report now by reviewing the federally mandated free reports you can get at AnnualCreditReport.com.

2. Study up. Do some research, both online and offline, into things like:

Areas: Start your online research into decision points like tax rates, school districts, neighborhood character and even prices in various areas. Check out NabeWise.com for some local insight into neighborhood flavor and personality.

When you start connecting with local agents, ask them to brief you on neighborhood market dynamics. They can give you a deeper view into need-to-knows like how long homes typically stay on the market and whether they generally go for more or less than the asking price, so you can be smart about how you search vis-à-vis what you have to spend.

Agents: This is the perfect time to ask your family and friends for a referral to an agent they know, have used and love. Then, follow up by doing an online search for the agent’s name and seeing what sort of online reviews and activities you find. When you’ve narrowed the field down to a few, call them up and set up a meeting to find out if you’re a good fit.

Distressed properties: In some areas, more than 40 percent of the homes on the market are short sales and foreclosures, and they involve a very different timeline and set of facts than traditional home sales. Read up and talk with the agent candidates you interview about what you should expect from these types of listings, to minimize surprise and manage your expectations way in advance.

3. Save even more. Sounds like you’ve worked hard for a number of years to save enough cash that you think you’re in the clear when it comes to funding your down payment and closing costs. Studies show that after months of saving, people often let up and relax into a spending season. Even at your early stage in the process, it’s easy to start noticing and buying the furnishings and touches you want to install in your new home.

Although you shouldn’t feel deprived or forgo amazing and affordable deals on things you know you’re going to need, rest assured that no matter what amount of cash you have on hand, when you start house hunting, making offers, closing your transaction or moving in, the time will definitely come when you’ll wish you had more.

You might want to ratchet up your offer a bit to best another buyer, or you might just end up with a place that needs a little sprucing up. It might be months before you know exactly what you’ll need extra cash for, but now is not the time to press the gas pedal when it comes to your monthly spending.

4. Purge. Now’s the time to sell, donate or give away as much of your personal possessions as you can. Use the proceeds to pad your cash cushion, or tuck the donation receipts away for your tax records next year.

Start here, and chances are good that your house hunt — and purchase — will be in full swing by spring, if not sooner.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.

Top six reasons mortgage applications are rejected

Half of refinance applications are abandoned or rejected, as are 30 percent of purchase mortgage applications, according to the Mortgage Bankers Association. All told, the Federal Financial Institutions Examination Council (FFIEC) says that well over 2 million mortgage applications were rejected last year.

Want to avoid falling into that number? It’s tough — especially in light of the fact that mortgage lenders have become increasingly restrictive in terms of their lending guidelines since the housing market crash.

Here, as a cautionary tale and primer on what to expect, are the top six reasons mortgage lenders reject applications.FFIEC

1. Income issues. Most failed applications falling into this category have income too low for the mortgage amount they are seeking; often, a spouse’s credit issues can create this problem, too, as the income the spouse plans to actually chip in toward the mortgage cannot be considered by a lender.

But increasingly, the recent vagaries of the job market are also causing this issue, as people who have changed their line of work or have changed from salaried employee to freelancer over the last couple of years can also have their home loan applications rejected based on income.

2. Muddled money matters. If the mortgage for which you’re applying plus your monthly payments on credit card, car and student loan debts will comprise more than 45 percent of your total income, you could have problems qualifying for a home loan. You might also run into problems if you rely too heavily on bonuses, overtime, cash wages or rental income — all of these can be difficult or impossible to get a mortgage bank to consider, and if they do, they might not take all of it into account.

3. Credit issues. Today, the mortgage-qualifying FICO score cutoff falls somewhere between 620 and 660, depending on which lender and which loan type you seek. More than one-third of Americans, by some numbers, have credit scores too low to qualify for a home loan. Even if your credit score is high enough to qualify, if you have any late mortgage payments, a short sale, a foreclosure or a bankruptcy in the last two years, loan qualifying could be difficult to impossible.

4. Property didn’t appraise. Since the whole industry had its hand smacked for allowing home values to skyrocket in a very short time, appraisal guidelines have tightened up — some would say, even more than overall mortgage guidelines. So, it is increasingly common to have the property appraise for a price lower than the sale price negotiated between the buyer and seller.

This is especially common in the refinance realm, as well over a quarter of U.S. homes are now upside-down, meaning the mortgage balance owed is greater than the value of the home.

5. Condition problems. With all the distressed properties on the market, and with most non-distressed sellers barely breaking even, more home-sale transactions than ever are falling apart due to condition problems with the property. Many lenders will not extend financing on homes where the appraiser points out problems like cracked or broken windows, missing kitchen appliances, electrical problems, or wood rot.

And in the world of condos and other units that belong to a homeowners association, if more than 25 percent of units are rented (rather than owner-occupied) or more than 15 percent are delinquent on their HOA dues, new applications for refinance or purchase mortgages on units in the development are likely to be rejected.

6. Technical difficulties with application. The days when lenders just took your word for it are long, long gone. Applications with incomplete or unverifiable information are doomed.

If any of these mortgage loan application glitches arise in your homebuying or refinancing process, it’s critical that you connect with your mortgage professional, be it your banker or mortgage broker, to determine what course of action to take.

In some cases, it might be as simple as buying a stove you find at Craigslist and installing it before escrow closes; but with income issues your mortgage pro will need to help you determine whether it makes sense to pay some bills down, get a co-signer, or even wait six months so your income documentation will qualify.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.