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Monday, June 30, 2008
Monday, June 9, 2008
Thousands facing negative equity
Bit of ugly news from the BBC
By Richard Scott Personal finance correspondent, BBC News
Lenders are more reluctant to lend to borrowers
More than 23,200 people who took out 100% mortgages in the year to 31 March could face negative equity, according to figures obtained by the BBC.
Falling house prices mean the amount borrowed could be greater than the value of their properties.
The data from the Council of Mortgage Lenders comes as figures show the housing market is slowing down further.
Separate housing figures suggest the number of transactions per estate agent has hit a 30-year low.
These figures from the Royal Institution of Chartered Surveyors come as banks are imposing stricter requirements on borrowers, in the wake of the credit crisis.
Turned away
If a house loses its value it is not necessarily a problem unless the owner has to move, or cannot afford to pay the mortgage.
In a rising market banks are prepared to lend 100% mortgages as there is little risk of them not getting their money back.
But as prices have been falling, the risks have increased and lenders are turning borrowers away if they don't have a deposit.
There is a warning that the situation may deteriorate further.
"House prices are down 6% in just the last five months, and the worst of the credit crisis - all that still lies ahead," said Michael Saunders, head economist at Citigroup.
He had predicted that house prices would fall by 15% in 2008 and 2009 but now he says that drop could be even greater.
By Richard Scott Personal finance correspondent, BBC News
Lenders are more reluctant to lend to borrowers
More than 23,200 people who took out 100% mortgages in the year to 31 March could face negative equity, according to figures obtained by the BBC.
Falling house prices mean the amount borrowed could be greater than the value of their properties.
The data from the Council of Mortgage Lenders comes as figures show the housing market is slowing down further.
Separate housing figures suggest the number of transactions per estate agent has hit a 30-year low.
These figures from the Royal Institution of Chartered Surveyors come as banks are imposing stricter requirements on borrowers, in the wake of the credit crisis.
Turned away
If a house loses its value it is not necessarily a problem unless the owner has to move, or cannot afford to pay the mortgage.
In a rising market banks are prepared to lend 100% mortgages as there is little risk of them not getting their money back.
But as prices have been falling, the risks have increased and lenders are turning borrowers away if they don't have a deposit.
There is a warning that the situation may deteriorate further.
"House prices are down 6% in just the last five months, and the worst of the credit crisis - all that still lies ahead," said Michael Saunders, head economist at Citigroup.
He had predicted that house prices would fall by 15% in 2008 and 2009 but now he says that drop could be even greater.
Sunday, June 8, 2008
Exclusive or General?
June 6, 2008
If you are one of the long-suffering people trying to sell a property and you’re wondering how many more months you will have to wait for a sale, you are probably starting to wonder what’s going wrong.
You’ll be asking yourself “Is it my agent’s fault? or “Is our price too high?”
If it’s the latter, I’d suggest your agent isn’t doing his job. He should have told you that already. However I’d like to concentrate on another question you’re certain to ask: “Should we change to a general listing when our exclusive deal runs out?”
What’s the difference?
An exclusive listing is an agreement you have with a specific real estate company to market your property for sale – for a fee if successful.
What this means is that if the property changes hands inside the agreed period of the contract, then you agree to pay the fees stated in your contract – usually 3.5% to 4% of the sale price of your home.
It doesn’t matter who sells the property to whom or who trades or swaps what for the property. You still have to pay the agency.
A general listing, on the other hand, is an agreement between you and as many agencies as you want, for as long as you want, and you usually also have the right to sell the property yourself. The agent who finds a buyer gets paid by you at the rate you agreed to in the contract to sell. The fee is usually the same as for the exclusive listing.
Sounds like a fairer deal, eh? But is it an effective way to sell your property? Could it cost you more in the long run?
The short answer to the first question is probably not. And to the second it’s quite probably yes. Here’s why:
When you and an agent agree to an exclusive listing, you are saying you trust your agent to take control of the marketing of your home to attract buyers, to contact and organise the potential buyers he has on his database and keep you informed about interest in the property.
You also trust him to tell you if and when you need to adjust the price, to organise and control open homes, and negotiate on your behalf when a buyer makes an offer.
Ideally your agent will create a situation where multiple buyers want the property and compete with each other, driving up the final sale price. He does all these things because there is a high likelihood that he’ll get paid his due commission and cement his reputation as an effective and professional agent to deal with.
A general listing means your agent has no direct control over the property. Because all comers – including yourself - may sell the property without him being paid a cent, he is unlikely to advertise the property and unlikely to organise open homes, because any other agent can make that a complete waste of time by bringing a buyer along any old time.
Most importantly, here’s what happens when the agent gets to work in the morning. He looks at his big white board of listings. The top half of his board has all the properties that he’s listed exclusively and which not only demand his loyalty but also give him the opportunity to earn the most. At the bottom of his list are the general listings – ones that probably won’t make him a cent.
So when you are considering listing your home for sale or simply re-listing it, give your agent another go at an exclusive listing.
If on the other hand you want to try someone else, try someone else on an exclusive basis. Don’t be tempted to sign all comers, because it’s highly likely you won’t get the result you want.
END
If you are one of the long-suffering people trying to sell a property and you’re wondering how many more months you will have to wait for a sale, you are probably starting to wonder what’s going wrong.
You’ll be asking yourself “Is it my agent’s fault? or “Is our price too high?”
If it’s the latter, I’d suggest your agent isn’t doing his job. He should have told you that already. However I’d like to concentrate on another question you’re certain to ask: “Should we change to a general listing when our exclusive deal runs out?”
What’s the difference?
An exclusive listing is an agreement you have with a specific real estate company to market your property for sale – for a fee if successful.
What this means is that if the property changes hands inside the agreed period of the contract, then you agree to pay the fees stated in your contract – usually 3.5% to 4% of the sale price of your home.
It doesn’t matter who sells the property to whom or who trades or swaps what for the property. You still have to pay the agency.
A general listing, on the other hand, is an agreement between you and as many agencies as you want, for as long as you want, and you usually also have the right to sell the property yourself. The agent who finds a buyer gets paid by you at the rate you agreed to in the contract to sell. The fee is usually the same as for the exclusive listing.
Sounds like a fairer deal, eh? But is it an effective way to sell your property? Could it cost you more in the long run?
The short answer to the first question is probably not. And to the second it’s quite probably yes. Here’s why:
When you and an agent agree to an exclusive listing, you are saying you trust your agent to take control of the marketing of your home to attract buyers, to contact and organise the potential buyers he has on his database and keep you informed about interest in the property.
You also trust him to tell you if and when you need to adjust the price, to organise and control open homes, and negotiate on your behalf when a buyer makes an offer.
Ideally your agent will create a situation where multiple buyers want the property and compete with each other, driving up the final sale price. He does all these things because there is a high likelihood that he’ll get paid his due commission and cement his reputation as an effective and professional agent to deal with.
A general listing means your agent has no direct control over the property. Because all comers – including yourself - may sell the property without him being paid a cent, he is unlikely to advertise the property and unlikely to organise open homes, because any other agent can make that a complete waste of time by bringing a buyer along any old time.
Most importantly, here’s what happens when the agent gets to work in the morning. He looks at his big white board of listings. The top half of his board has all the properties that he’s listed exclusively and which not only demand his loyalty but also give him the opportunity to earn the most. At the bottom of his list are the general listings – ones that probably won’t make him a cent.
So when you are considering listing your home for sale or simply re-listing it, give your agent another go at an exclusive listing.
If on the other hand you want to try someone else, try someone else on an exclusive basis. Don’t be tempted to sign all comers, because it’s highly likely you won’t get the result you want.
END
Tuesday, May 27, 2008
The difference is the difference
In the real estate business there are many hidden differences between companies that you should know about, as they could affect what price you get for your property and how easily you sell it.
One major difference is their policies when doing business with each other, specifically the showing of your home to other company’s clients
Some companies have a “stand down” policy which means that during the first two weeks your home is listed with them, they’ll keep the listing to themselves by discouraging salesmen from other companies bringing their buyers along.
They do this in two ways:
(1) By refusing to allow salespeople working for competing real estate firms to show buyers through properties that they have listed.
(2) By not paying the other company the 30 percent share of the commission that would be considered normal practice, but instead offering only a token buyer referral fee of say, 10 percent.
Now this still sounds like good money – maybe $1600 on a sale of $400,000. But what you have to remember is that the salesman gets only a portion of that amount – maybe $800. So any salesperson will ask themselves, “Why would I take my buyer to a listing where I’ll only get $800, when I could take them to one where I’d get paid $2400?”
Of course a company with that sort of policy will give all sorts of reasons for it, but the reality is they simply want to keep as much of the commission “in-house” as they can. But unfortunately, it’s hardly a policy that is in your best interests.
The same problem occurs with the so-called discounter, “hold-your-hand” type real estate agencies. Even if the discounter does pay the competing company 30 percent, it’s a 30 percent slice of a much lower commission.
Moreover, it will also result in 15 percent of a much lower amount for the salesperson, which isn’t exactly going to fill them with enthusiasm for selling your property.
So here’s the thing to remember: When you’re choosing a real estate agency and salesperson, if you want more buyers (and who doesn’t?), make sure the company you choose encourages other agencies to want to do business with them
It’s in their best interests to do so – and it’s certainly in your best interests too.
One major difference is their policies when doing business with each other, specifically the showing of your home to other company’s clients
Some companies have a “stand down” policy which means that during the first two weeks your home is listed with them, they’ll keep the listing to themselves by discouraging salesmen from other companies bringing their buyers along.
They do this in two ways:
(1) By refusing to allow salespeople working for competing real estate firms to show buyers through properties that they have listed.
(2) By not paying the other company the 30 percent share of the commission that would be considered normal practice, but instead offering only a token buyer referral fee of say, 10 percent.
Now this still sounds like good money – maybe $1600 on a sale of $400,000. But what you have to remember is that the salesman gets only a portion of that amount – maybe $800. So any salesperson will ask themselves, “Why would I take my buyer to a listing where I’ll only get $800, when I could take them to one where I’d get paid $2400?”
Of course a company with that sort of policy will give all sorts of reasons for it, but the reality is they simply want to keep as much of the commission “in-house” as they can. But unfortunately, it’s hardly a policy that is in your best interests.
The same problem occurs with the so-called discounter, “hold-your-hand” type real estate agencies. Even if the discounter does pay the competing company 30 percent, it’s a 30 percent slice of a much lower commission.
Moreover, it will also result in 15 percent of a much lower amount for the salesperson, which isn’t exactly going to fill them with enthusiasm for selling your property.
So here’s the thing to remember: When you’re choosing a real estate agency and salesperson, if you want more buyers (and who doesn’t?), make sure the company you choose encourages other agencies to want to do business with them
It’s in their best interests to do so – and it’s certainly in your best interests too.
Thursday, May 22, 2008
Why Houston housing has avoided boom and bust
Pinched this off www.pc.blogspot.com the very best political blog in the world.
Here's a lesson that town planning advocates everywhere should note. While most of the American housing market has experienced boom and bust in the face of expansionary Federal Reserve policies, housing in Houston has remained relatively immune -- even though it's been at the epicenter of rapid economic growth due to the commodities boom.
The reason? While most of the western world is under the thumb of town planners, with the result that housing in much of the western world has become seriously unaffordable, the city of Houston remains unzoned, and its housing among the most affordable anywhere.
Even the Federal Reserve has noticed the phenomenon, and has begun to realise that zoning and regulating land is destructive. Says a new report by the Dallas Fed, the more unregulated US housing markets have weathered increased demand not with price appreciation, which is how it has played out in most western markets, but largely with new construction. This is essentially because it's very much easier to build new homes in Houston. If it had been set up as a laboratory experiment to prove the failure of zoning, it couldn't have been done better:
Given that Houstonians had access to the same new types of mortgages as the rest of the country and that Houston has had greater population growth than other large metros, we might expect price appreciation to be stronger in Houston than elsewhere. However, the opposite has been true. Houston’s large supply of land means that demand growth primarily results in more construction, not higher prices... At $155,800, Houston’s median house price is the third lowest among the 12 largest U.S. metropolitan areas and is less than half the average for these cities (Table 4). Houston’s median price is lower than even the national average, which includes inexpensive rural areas... By comparison, the median house price in metropolitan San Francisco, where zoning laws and building codes are very strict, is $825,400. This result—more zoning bringing higher prices—is a robust one. Economists Edward Glaeser and Joseph Gyourko find that house prices across the country are positively related to the degree of zoning and regulation... But with plenty of unzoned neighborhoods remaining [in Houston], Houston house prices, on the whole, are restrained near construction costs.
You would think that news like this would attract the attention of everyone struggling to come to terms with the crisis in affordable housing. You would think that even the most enthusiastic advocate of giving power to town planners might at least pause to reconsider their zeal. That is, if evidence and affordability actually mattered to them more than political power.
Here's a lesson that town planning advocates everywhere should note. While most of the American housing market has experienced boom and bust in the face of expansionary Federal Reserve policies, housing in Houston has remained relatively immune -- even though it's been at the epicenter of rapid economic growth due to the commodities boom.
The reason? While most of the western world is under the thumb of town planners, with the result that housing in much of the western world has become seriously unaffordable, the city of Houston remains unzoned, and its housing among the most affordable anywhere.
Even the Federal Reserve has noticed the phenomenon, and has begun to realise that zoning and regulating land is destructive. Says a new report by the Dallas Fed, the more unregulated US housing markets have weathered increased demand not with price appreciation, which is how it has played out in most western markets, but largely with new construction. This is essentially because it's very much easier to build new homes in Houston. If it had been set up as a laboratory experiment to prove the failure of zoning, it couldn't have been done better:
Given that Houstonians had access to the same new types of mortgages as the rest of the country and that Houston has had greater population growth than other large metros, we might expect price appreciation to be stronger in Houston than elsewhere. However, the opposite has been true. Houston’s large supply of land means that demand growth primarily results in more construction, not higher prices... At $155,800, Houston’s median house price is the third lowest among the 12 largest U.S. metropolitan areas and is less than half the average for these cities (Table 4). Houston’s median price is lower than even the national average, which includes inexpensive rural areas... By comparison, the median house price in metropolitan San Francisco, where zoning laws and building codes are very strict, is $825,400. This result—more zoning bringing higher prices—is a robust one. Economists Edward Glaeser and Joseph Gyourko find that house prices across the country are positively related to the degree of zoning and regulation... But with plenty of unzoned neighborhoods remaining [in Houston], Houston house prices, on the whole, are restrained near construction costs.
You would think that news like this would attract the attention of everyone struggling to come to terms with the crisis in affordable housing. You would think that even the most enthusiastic advocate of giving power to town planners might at least pause to reconsider their zeal. That is, if evidence and affordability actually mattered to them more than political power.
PERFECT HUSBAND!
Several men are in the changing room of a golf club. A mobile phone on a bench rings and a man engages the hands free speaker-function and began to talk. Everyone else in the room stops to listen. MAN: 'Hello'
WOMAN: 'Darling, it's me. Are you at the club?'
MAN: 'Yes'
WOMAN: 'I am at the shopping centre and found this beautiful leather coat. It's only £1,000. Is it OK if I buy it?'
MAN: 'Sure, Go ahead if you like it that much.'
WOMAN: 'I also stopped by the Mercedes dealership and saw the new 2006 models. I saw one I really liked.'
MAN: 'How much?' WOMAN: '£70,000'
MAN: 'OK, but for that price it should come with all the options.'
WOMAN: 'Great! Oh, and one more thing ... The house I wanted last year is back on the market. They're asking £950,000' MAN: 'Well, then go ahead and give them an offer of 900,000.
They will probably take it. If not, you can go the extra 50 thousand.
It really is a pretty good price.'
WOMAN: 'OK. I'll see you later! I love you so much!!'
MAN: 'Bye! I love you, too.'
The man hangs up. The other men in the changing room are staring at him in astonishment, mouths agape... He smiles and asks: 'Anyone know who this phone belongs to???'
WOMAN: 'Darling, it's me. Are you at the club?'
MAN: 'Yes'
WOMAN: 'I am at the shopping centre and found this beautiful leather coat. It's only £1,000. Is it OK if I buy it?'
MAN: 'Sure, Go ahead if you like it that much.'
WOMAN: 'I also stopped by the Mercedes dealership and saw the new 2006 models. I saw one I really liked.'
MAN: 'How much?' WOMAN: '£70,000'
MAN: 'OK, but for that price it should come with all the options.'
WOMAN: 'Great! Oh, and one more thing ... The house I wanted last year is back on the market. They're asking £950,000' MAN: 'Well, then go ahead and give them an offer of 900,000.
They will probably take it. If not, you can go the extra 50 thousand.
It really is a pretty good price.'
WOMAN: 'OK. I'll see you later! I love you so much!!'
MAN: 'Bye! I love you, too.'
The man hangs up. The other men in the changing room are staring at him in astonishment, mouths agape... He smiles and asks: 'Anyone know who this phone belongs to???'
Sunday, May 11, 2008
Saving Money or Making Money??
When business starts to slow – as real estate has recently, the real estate business people start to find ways to cut costs.
Finding ways to cut costs is always good practice, but the fact is, real estate businesses have to be careful not to cut off their nose to spite their face.
What I’m talking about is the practice of cutting costs in areas critical to the business. For example reducing paper and energy wastage is a good cost-saving idea, but cutting back on advertising the brand is a bad idea.
The same goes for property vendors. As the market begins to slow, vendors inevitably have to reduce their asking price. To compensate they often make the mistake of chopping other costs such as high-impact advertising and professional photography. Some opt to use real estate companies that don’t charge commissions.
While on the surface these all sound like good ways to save money, the so-called savings may well end up costing you big time when you fail to achieve a good price for your property.
As an example, let’s say you’re trying to save money, so you do without the $3000 marketing campaign. You save a further $300 by not bothering with professional photos, and even more by going with a discount real estate company.
Say you save $6000 on commission – that’s a total of around $10,000.
“That’s good,” you say.
But does it really work out that way? Not often.
I’ll assume that you have been realistic about your price. You go to market with a small advertisement featuring the usual fantastic photo of the garage door – the one that looks like everyone else’s photo.
Firstly, ask yourself this: Which home is likely to been seen amongst ads for the other 2000 houses on the market in Tauranga at the moment? Will it be the advertisement using a photo of your garage door taken by your real estate agent and squashed into a 6cm x 5cm space with a dribbly script about how many rooms it has? Or will it be the 14 x 18cm high-angle, professionally shot, full-colour photo, with a well crafted script?
The difference between the two is enormous and all going well, the latter marketing method will attract multiple buyers who will make offers on your property while competing with others wanting to do the same, thereby driving up the ultimate price.
As for the discounting brands, they usually have their sales team on retainers plus bonuses. Or they may even pool their listings and sales and divide the dosh amongst them. Now ask yourself this question: “If discounting commissions was an effective way to do business, why aren’t they more successful than so-called “high commission” companies?” Remember The Jones?
Two more questions: “If the company gives away their own money as a means of getting my home listed, how are they going to treat my money when they supposed to be negotiating on my behalf?
And, “If I want an agent to be hungry for a sale, would someone on straight commission be more effective at achieving that sale, or an agent who gets paid a salary regardless?
In a nutshell, the most important question to ask yourself when selling your house is this: “Do I want to save money or make money?”
Price it right, market it well, and get a good negotiator. Remember, good things cost money!
Finding ways to cut costs is always good practice, but the fact is, real estate businesses have to be careful not to cut off their nose to spite their face.
What I’m talking about is the practice of cutting costs in areas critical to the business. For example reducing paper and energy wastage is a good cost-saving idea, but cutting back on advertising the brand is a bad idea.
The same goes for property vendors. As the market begins to slow, vendors inevitably have to reduce their asking price. To compensate they often make the mistake of chopping other costs such as high-impact advertising and professional photography. Some opt to use real estate companies that don’t charge commissions.
While on the surface these all sound like good ways to save money, the so-called savings may well end up costing you big time when you fail to achieve a good price for your property.
As an example, let’s say you’re trying to save money, so you do without the $3000 marketing campaign. You save a further $300 by not bothering with professional photos, and even more by going with a discount real estate company.
Say you save $6000 on commission – that’s a total of around $10,000.
“That’s good,” you say.
But does it really work out that way? Not often.
I’ll assume that you have been realistic about your price. You go to market with a small advertisement featuring the usual fantastic photo of the garage door – the one that looks like everyone else’s photo.
Firstly, ask yourself this: Which home is likely to been seen amongst ads for the other 2000 houses on the market in Tauranga at the moment? Will it be the advertisement using a photo of your garage door taken by your real estate agent and squashed into a 6cm x 5cm space with a dribbly script about how many rooms it has? Or will it be the 14 x 18cm high-angle, professionally shot, full-colour photo, with a well crafted script?
The difference between the two is enormous and all going well, the latter marketing method will attract multiple buyers who will make offers on your property while competing with others wanting to do the same, thereby driving up the ultimate price.
As for the discounting brands, they usually have their sales team on retainers plus bonuses. Or they may even pool their listings and sales and divide the dosh amongst them. Now ask yourself this question: “If discounting commissions was an effective way to do business, why aren’t they more successful than so-called “high commission” companies?” Remember The Jones?
Two more questions: “If the company gives away their own money as a means of getting my home listed, how are they going to treat my money when they supposed to be negotiating on my behalf?
And, “If I want an agent to be hungry for a sale, would someone on straight commission be more effective at achieving that sale, or an agent who gets paid a salary regardless?
In a nutshell, the most important question to ask yourself when selling your house is this: “Do I want to save money or make money?”
Price it right, market it well, and get a good negotiator. Remember, good things cost money!
Get Your Price Right
All the “end is nigh” commentary about decreasing house prices should no longer be considered doomsday fear mongering that can simply be ignored.
On the contrary, if you fail to accept this truism it could cost you a lot more when you do eventually sell your home.
In a falling market, if you don’t price your property correctly right from the start, you could eventually find yourself dropping the price much lower than what you may have accepted had you got it right in the beginning.
What you need to do to avoid this harrowing experience is to ask yourself, “What’s the lowest price I will take now?”
Then ask yourself what you won’t accept, price your house just above that level and get the house sold.
Cheery stuff eh? Well all is not lost. Well, not yet, anyway. If you start to look a little more objectively at what is going on you can still make some money. If you’ve been in your home for a few years, keep thinking positively by contemplating your aggregate financial gain over that time rather than dwelling on the peaks and troughs that appear by looking at last year’s sales figures as opposed to this year’s.
If, on the other hand you are one of those unfortunate people who are staring down the barrel of a mortgagee auction, limit the damage by pricing your property at the lowest figure you’re prepared to accept, right from the start. Just as importantly, find yourself an agent who isn’t afraid of telling you the truth.
Remember, he (or she) isn’t your friend. He is the expert you are paying a lot of money to tell you what needs to be done. Tell him everything he needs to know from the start and then let him get on with his job. That means being prepared for him to give you what may sound like bad news. Remember this: it isn’t bad news, it’s the facts.
Finally, think about this for a moment. There are nearly 2000 houses on the market in this area. Less than 150 of them sold last month, and the owners of the ones that did sell, got their prices right.
They implicitly followed the economic axiom that says when supply is high, demand is low. For your home to be in demand and ultimately sold, it must priced at the low end of the supply.
END
On the contrary, if you fail to accept this truism it could cost you a lot more when you do eventually sell your home.
In a falling market, if you don’t price your property correctly right from the start, you could eventually find yourself dropping the price much lower than what you may have accepted had you got it right in the beginning.
What you need to do to avoid this harrowing experience is to ask yourself, “What’s the lowest price I will take now?”
Then ask yourself what you won’t accept, price your house just above that level and get the house sold.
Cheery stuff eh? Well all is not lost. Well, not yet, anyway. If you start to look a little more objectively at what is going on you can still make some money. If you’ve been in your home for a few years, keep thinking positively by contemplating your aggregate financial gain over that time rather than dwelling on the peaks and troughs that appear by looking at last year’s sales figures as opposed to this year’s.
If, on the other hand you are one of those unfortunate people who are staring down the barrel of a mortgagee auction, limit the damage by pricing your property at the lowest figure you’re prepared to accept, right from the start. Just as importantly, find yourself an agent who isn’t afraid of telling you the truth.
Remember, he (or she) isn’t your friend. He is the expert you are paying a lot of money to tell you what needs to be done. Tell him everything he needs to know from the start and then let him get on with his job. That means being prepared for him to give you what may sound like bad news. Remember this: it isn’t bad news, it’s the facts.
Finally, think about this for a moment. There are nearly 2000 houses on the market in this area. Less than 150 of them sold last month, and the owners of the ones that did sell, got their prices right.
They implicitly followed the economic axiom that says when supply is high, demand is low. For your home to be in demand and ultimately sold, it must priced at the low end of the supply.
END
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