Spooky Stuff!

Today is Halloween. Conversation has been trending toward things that go BOO! for weeks now, and there does seem to be a good bit of fear and loathing out there these days. 
 
But I am drawn to the iconic line from Franklin D. Roosevelt’s 1933 inaugural address: 

 … let me assert my firm belief that the only thing we have to fear is...fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. 

 
In general, I totally agree with FDR! There’s really nothing to be afraid of. It’s always a great time to buy or sell a house, so buck up and jump right in. 
 
However … there are always specific things to be wary of, lest they jump out of the shadows and knock you off your pins – or worse.

A few things that could turn your real estate deal into a nightmare these days:
 
Overpricing
I can’t say it often enough: price it right and it will sell. But, if sellers are stuck in last year’s mindset, assuming they can pull a price out of the air and expect multiple offers, the house will be overpriced. And it will be on the market a for while until reality sets in.
 
Underbidding
The obverse of this situation occurs when buyers assume the market is dead in the water, and make a low-ball offer. Not smart. It’s still a sellers’ market. Unless the asking price is a couple of weeks old, the seller is going to hold there, and the low-ball offer will be rejected, or at the very least, countered. 
 
Interest Rate Panic
Yes, rates are currently almost 8%, and yes, no one knows when they will float back down. But if you let that scare you away from buying, you are succumbing to exactly what FDR warned about in the teeth of the great depression. You’ll allow fear to paralyze you – and you’ll still be scared.  
 
Shady Terms
Low earnest money, slow earnest money, crazy-high offers with long due diligence periods, sight-unseen offers, unverified cash to close, bogus wiring instructions, weird stuff in Special Stipulations … the list goes on. There are plenty of shady operators out there who will be happy to slip a few – or a lot of – bucks right out of your pocket.
 
Freelancing
And here we get to the fundamental truth: real estate is not for amateurs. If you are tempted to try a DIY deal, run, do not walk, into the arms of your licensed realtor. That’s the best protection from all the scary stuff. 

Death and Taxes

That’s true, of course, but unlike death, taxes are rarely fatal.
 
In fact, taxes can be a sign of good fortune.
 
Many years ago, I had a conversation with an aunt who was furious about a tax bill. While settling my uncle’s estate, she found she owed an additional tax that in today’s dollars would be almost $200,000. She was irate, but my only thought at that point – I was in my 20s – was that I wished I had enough money to be taxed at that level. 
 
She went on to live in luxurious circumstances in a beachfront condo for the rest of her days, so I don’t think the tax bill cramped her style. But her anger certainly spoiled the mood that afternoon. And it offered a life lesson for her nephew.
 
So, what does this have to do with residential real estate?

Given the huge runup in real estate values over the past decade, a great many homeowners are sitting on a big pile of equity. I’ve heard lots of people gripe bitterly about paying tax on capital gains if they sell. And, I’ve actually heard people talk about not selling – simply because they didn’t want to pay the tax. 
 
Well, if you find yourself holding a huge amount of equity in a piece of property, there are a couple of ways to approach this “problem”.
 
First and foremost: celebrate your good fortune! You bought low and now can sell high! Isn’t that the point? Sell if you want to, pay the tax, and enjoy the remainder. You haven’t lost anything. You’ve made a bundle.
 
Kick the tax can down the road. If you can and want to, hold the property until you die (that is going to happen regardless of your tax status) and let your heirs handle it. If your will is in proper order, they likely won’t be taxed much, if at all, when they sell after your demise.
 
Take action with a 1031 exchange. If you cannot or don’t want to stay where you are, sell and buy something else using a 1031 exchange. A 1031 will postpone (not eliminate) the tax liability. There are very specific rules that must be followed, so you will need expert counsel. But if done correctly, a 1031 will allow you to buy something new and can kick the tax can down the road, as above.
 
In any case, always remember that you are being taxed on a gain – not a loss! You’ve come out ahead. Rejoice in your good fortune, and don’t be like my aunt. 
 
Your glass is more than half full!

Repaint or rehab? How much and when?

When I’m working with sellers, questions about how to get the house ready for showing always come up. What should we do to make the house sell faster, and sell for more?
 
Good question! But the answer is seldom straightforward. As we so often say, it all depends …
 
Budget, tolerance for hassle, timing, and desired proceeds all come into the picture. The combination of factors can look complex, and there can be moving parts. 
 
Over my years in this business, I’ve developed some basic ideas that seem to help sellers get clear and make the best decisions – decisions that can help get the deal done most effectively, but that also work with the rest of their lives.
 
So, what shall we do?

Clean, tidy, and fixed – always!
Deep clean. Hire a cleaning service. Don’t forget the windows, and don’t forget pet and cigarette smells. Nothing turns buyers off like dirt and odors. 
 
Declutter. All horizontal surfaces should at least be visible, if not empty. And de-content the closets, attic, and basement while you’re at it. People want to see the house, not piles of your stuff. This concept applies to the yard as well. Trim, mulch, get rid of junk, sweep the walk.
 
Fix anything that’s broken. Drippy faucet? Cracked windowpane? Non-functioning light fixture? Fix it! If you don’t, buyers will assume things they can’t see are also broken.

Judgement Calls
From here, it’s about pitting one factor against another for the best result. Hassle vs. speed. Money vs. hassle. Speed vs. money. The key is deciding how to balance these factors for your best result. Does unloading the property asap top your agenda? Or is maximum dollar more important? Can you afford to repaint or replace a fogged window? Can you tolerate the disruption?
 
An example: Houses generally show best with neutral paint (we call it relocation gray) in all rooms. People may or may not like your color choices, but if everything is neutral, buyers can mentally repaint it as they see fit. However, if your ready-to-show budget is exhausted, or you can’t stand the smell of paint, or your pack-and-move process is already chaotic, maybe repainting isn’t worth doing. 
 
Paint or no paint, in this market your house will sell. It may sell slower because of fewer showings, or for less money because buyers factor the cost of new paint into their offer. So, balance the factors and make your choice. 
 
Forget about major renovations!
Do not wait until you are ready to sell to undertake projects like a totally new kitchen, or refinishing all the hardwoods. You won’t get all your money back in the sale, and you’ll miss the pleasure of having a nice new kitchen or floors the color you want them. So, do that now and enjoy it for a while.
 
If you’ve lived with major projects un-done, accept less money and let the new owners make their own choices. They may not like your taste in counter tops or floor finishes anyway. 

Real Estate for the Right Reasons

I know a guy who lived in a small apartment in Manhattan for years. He had a great job, and could afford a much nicer place, but just couldn’t bring himself to give up a rent-stabilized apartment. Eventually, his job took him to Europe for a few years, and he had to give it up. When he returned to New York, he bought a fabulous condo.
 
Recently, I talked with clients who are living in a house that really doesn’t work for them anymore, but because they have a mortgage with a very low interest rate, they resist buying another house.
 
I also know some folks who are hanging on to a house that is empty. No one has lived in it for years! Because it belonged to their parents, they don’t want to give it up. They pay the taxes and for yard maintenance, but derive little benefit for the expense.
 
Do you see a common thread here … ? 
 
Money and lifestyle choices both factor majorly in real estate decisions, but in all three of these examples, one factor is out of balance with the others. 

So, how do we do real estate for the right reasons? We get needs, wants, and ability into proper  balance. And other decisions get surprisingly easy.
 
Ability first. What can you afford? For most people that’s based on monthly expenses, because most people need a mortgage to buy a house. When shopping with cash, the decision becomes how much of your liquid assets are you comfortable living without – at least for the time being. 

Next look at needs. What do you need in a house to make life comfortable and good? I work with a lot of downsizers and one-level living is a big need among this group. For others it might be a given number of bedrooms, or a detached garage, or maximum commute time. Anything that makes your life reasonable, comfortable, and do-able needs to go on the list.

Finally, look at wants – the extras that bring you joy. What would make your life not only livable, but fun every day? What would bring you joy?
 
When these factors are in balance, the ups and downs of interest rates become less important. The type of house and the choice of location snap into focus. Finding and landing a deal in today’s market can still be a tough process, but clarity on your desires and abilities makes it easier. And it gives you permission to make a move. 
 
Last week I was out showing with a client, and as I dropped her off at her house, she asked the question I get so often, “Is this really a good time to buy a house?” My answer, “Of course it is! Look for what you need, want, and can afford, and the other considerations will take care of themselves.”

What, exactly, is going on out there … ?

I get asked about the market all the time – more-or-less every day. “How’s real estate?” “What’s going on in the market?” There’s never a simple answer, but over the past eight months or so, the answers have been less simple than usual and “exactly” has left my vocabulary.
 
With the spike in interest rates last year, the market was thrown into a tizzy. No one knew what to do. Sellers didn’t know where to price their property or whether to hold off selling. Buyers were unsure of what to offer, or whether to offer at all. And – while I hate to admit it – realtors were sometimes as confused as anyone. 
 
Well, things seem to be settling down a little, so a few – somewhat hedged – declarations and predictions. Be sure to tune in over the next few months to see if I was right.

The frenzied sellers’ market is over – for now
For sellers this means careful pricing is key. In our market, prices aren’t actually going down, but you can’t expect to simply pull a number out of the air and expect multiple buyers to compete with each other and bid above that. Buyers get a little breathing room to make a decision, but no one can drag their feet. It’s still a seller’s market and houses will sell promptly if they are reasonably priced.
 
Interest rates are likely stable
It’s very hard to make predictions about this – especially in light of the recent bank-failure turmoil – but rates aren’t going down to where they were a year ago any time soon. So, it’s time to suck it up and accept rates in the 6% range. And it helps to remember two things. One: 6% is, historically, mid-range, not all that high. Two: You can always refinance if the rates drop.

Inventory up slightly, buyers coming back
Available inventory is inching back upward from the lows of recent years, but mortgage applications are up significantly. With more buyers coming into the market, things may tighten up this spring. Which could lead to the market heating back up – not like a year ago, but warmer than it is right this minute. But, as with all forecasting, only time will tell …
 
Is this a good time to buy? Or sell?
Of course it is! I’ve said it before, and I’ll say it again: If you need or want to do a real estate deal, there is no time like the present – especially now that the market is more balanced that it has been for several years. Price it right, and it will sell. Buy now, enjoy the house, and refinance if rates go down. Or rejoice at your smarts and good fortune if they go up.