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5 Unwritten Etiquette Rules Home Buyers Might Not Even Realize Are a Big Deal

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FROM REALTOR.COM: If you’re looking to buy a house, you’re probably eager and excited. That’s fine, but just keep in mind that in this heightened emotional state, it’s easy to get swept up in the moment and behave, well, not perfectly.leslie-jones-1415633-unsplash

This can lead to trouble since, just like anything else, buying a home comes with its own set of rules. Some may be fairly obvious, since they’re outlined in all that real estate paperwork you’ll soon be signing. But some of these rules are the unwritten, etiquette-based kind. And if you break ‘em, it could still stop a real estate deal in its tracks.

Worried you might not be aware of all the things you might do that could inadvertently rub home sellers or real estate agents the wrong way? Then heed these five etiquette rules that many home buyers might all too easily overlook.

Rule 1: See a house online you love? Don’t call the listing agent

When you’re looking for a house and find a place that looks like it could be The One, it can be tempting to jump the gun and call the listing agent immediately. But stop right there.

The reason? The proper channels of communication dictate that you should ask your own buyer’s agent to reach out to the listing agent, who will, in turn, let the home sellers know of your interest. We know it sounds like a long game of telephone, but it’s necessary for a number of reasons. Namely, it means both buyer and seller have an agent looking out for their distinct interests, facilitating the deal. 

“You’re not going to get a better deal by going directly to the listing agent,” explains Matt Van Winkle, owner of Re/Max Northwest Realtors, in Seattle. “They represent the seller and are just trying to get the seller the best price.”

There is a caveat to this rule, says Kerron Stokes, a real estate agent with Re/Max Leaders, in Colorado: “If you are not represented and if you do not have an agent, then feel free to call the seller’s agent,” Stokes says. “But if you are a buyer, you should get an agent, as they can best represent your interests.

Rule 2: Don’t ask your agent to show you homes until you sign a buyer-broker agreement

We get it, signing legal documents is scary. But here’s the thing: If you’re not ready to commit to your real estate agent, you’re not ready to get serious about buying a home.

“Be prepared to sign a buyer’s agreement so that your buyer’s agent knows you are serious and ready to go,” Stokes says. “From a consumer protection standpoint, it’s a very good thing for all involved.”

A buyer-broker agreement is a legal contract that defines the relationship between the buyer (that’s you) and your real estate agent. The agreement is good for both parties, since it outlines exactly what services the broker is going to provide. A buyer-broker agreement is also a way to let your real estate agent know that you’re committed to working with this pro to find your home.

And, if the relationship doesn’t end up working out, you can always end the agreement and find another agent to work with. It’s poor etiquette to work with more than one real estate agent at a time, and the buyer-broker agreement shows your agent that you’re not doing that.

“Remember that buyer’s agents are only paid if they close a deal—they aren’t paid for their time,” Van Winkle says. As such, “it’s wrong to call another agent just because yours is unavailable or on vacation.”

Rule 3: Don’t make an offer without mortgage pre-approvalaustin-wehrwein-1142811-unsplash

A mortgage pre-approval letter is a letter from a lender saying it will provide you with financing to buy a home up to a certain loan amount. It makes everyone’s lives easier since it provides proof of how much home you can afford to buyers and agents—and that you can put your money where your mouth is with an offer. Without it, your offer is an empty promise.

“If you want to compete against other buyers for a home, you won’t be able to do that without that pre-approval letter,” says Bill Golden, a longtime real estate agent with Re/Max Metro Atlanta Cityside.

Rule 4: Don’t be late to home showings—or bail entirely

If you have an appointment with your agent to view a home, treat it like a priority. If you’re going to be late or can’t make it, call your agent and let him know.

“If you don’t respect my time, then we don’t have a good working relationship,” Golden says. “Usually, I will have set up appointments to see several homes, and if you’re late or don’t show, I have to try to rearrange all of the showings, which may not be possible on short notice.”

Rule 5: Don’t pretend you’re ready to buy if you know you’re really not

tumblr_inline_p8q8j1LPNz1spdp8g_500This one might sound like a no-brainer, but it’s such a big part of real estate etiquette it’s worth driving home: Don’t pretend that you’re ready to buy if you aren’t. Don’t enlist the services of a buyer’s agent if you know you’re still in the fact-finding and “just looking” phase of your home search.

So go to open houses. Window-shop. Just be upfront with everyone about where you are in the process. Don’t pretend you’re ready to buy just because you want to be taken seriously. Real estate agents work on commission, so don’t wantonly take their attention away from actual, paying clients and potentially costing them sales, which is a serious thing. Got it?

WRITTEN BY KAYLEIGH ROBERTS FOR REALTOR.COM
Photo by Austin Wehrwein on Unsplash
Photo by Leslie Jones on Unsplash

 

Are You a Homeowner? Here’s How Much More Equity You’ve Gained

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FROM CNBC.COM: Strong demand for housing last year kept home prices surging, and that means more homeowners are now sitting on more cash in the form of home equity.

Collectively, homeowners with mortgages saw their equity increase by just over 8 percent in 2018, according to CoreLogic. That is from a combination of home value gains and borrowers paying down their mortgages. It adds up to roughly $678 billion in additional wealth over the last year — or about $9,700 per homeowner.

Of course all real estate is local, and so were the gains. Homeowners in Western states saw the biggest annual increases in home equity, with Nevada homeowners now about $29,000 richer. Idaho homeowners gained close to $27,000 and Californians just short of $20,000. Washington state, New York and Florida homes also saw big equity gains. There were, however, some losses. Homeowners in North Dakota, Louisiana and Connecticut saw their equity drop. 

Rising equity usually fuels the remodeling market, as people tap that extra cash to do home remodels or upgrades. Home remodeling was very strong last year, not just because of rising equity, but because homebuilders are putting up fewer homes, meaning more people are staying in older homes longer and repairing or upgrading.rawpixel-1137301-unsplash

“The increase in home equity over the past several years provides homeowners with the means to finance home remodels and repairs,” said Frank Martell, president and CEO of CoreLogic. “With rates still ultra-low by historical standards, home-equity loans provide a low-cost method to finance home-improvement spending. These expenditures are expected to rise 5 percent in 2019.”

Increasing equity also helped more homeowners rise above water on their mortgages. The number of underwater properties fell 14 percent last year, as 351,000 borrowers no longer owe more on their loans than their homes are worth. There are still 2.2 million homes in a negative equity position.

“Our forecast for the CoreLogic Home Price Index predicts there will be a a 4.5 percent increase in our national index from December 2018 to the end of 2019,” said Frank Nothaft, chief economist at CoreLogic. “If all homes experience this gain, this would lift about 350,000 homeowners from being underwater and restore positive equity.”StockSnap_L9VZ6SOGBB

Negative equity peaked at 26 percent of mortgaged residential properties in the fourth quarter of 2009, according to CoreLogic. Just 4.2 percent of homes are currently still underwater.

WRITTEN BY DIANA OLICK FOR CNBC.COM

 

Why Real Estate Builds Wealth More Consistently Than Other Asset Classes

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FROM FORBES: If you lived through the recent real estate and economic recessions, the very headline of this article might cause you some emotional pain. Less than ten years ago, the country was swept with an economic crisis the likes of which our generation had never seen. I personally remember driving down the street in California’s Central Valley and seeing “for sale” signs on practically one of every four houses. It felt like the market would never recover. Fast forward a few short years and now massive wealth is being built through real estate—often by average Joes. ( By David Greene)

Cash Flow

Cash flow is the money you have left over from the rent you’ve collected after all expenses have been paid. Most real estate has expenses such as a mortgage, property taxes, insurance, maintenance, and property management fees. When you buy a property that pulls in more rent each month than the expenses you carry to own it, your cash flow is positive.

In the majority of investments (stocks, art, jewelry, bitcoin, etc.), you are hoping to buy something that will appreciate in value, then sell it later for a profit. In some forms of investing (buying a poorly run business, for example), you may be buying something that produces income and hoping to improve that asset’s performance in order to increase its value. For most, this involves too much work and is undesirable. What we are left with is the subconscious understanding that to “invest” is to buy something you believe will be worth more later. If this is based on sound principles, it can work. If it’s not, it’s really more like gambling.madison-kaminski-508378-unsplash

Those buying properties solely because prices were climbing and for no other reason have one exit strategy: sell later. They also only have one way to be successful: hope the property continues to appreciate. Any outcome other than these two is virtually guaranteed to lose money. During the crisis, when the music stopped and the market quit climbing, many of these so called “investors” lost their shirts. Real estate in general took a black eye, but was it real estate’s fault?

Wise investors don’t bet on appreciation. They purchase properties on a sound judgement that the property will generate more income than it costs to own. For these folks, who “cash flow” positively, they don’t care what the market does. If prices drop, they are safe. If prices rise, they have more options.

Appreciation

That said, appreciation, or the rising of home prices over time, is how the majority of wealth is built in real estate. This is the “home run” you hear of when people make a large windfall of money. While prices fluctuate, over the long run real estate values have always gone up, always, and there is no reason to think that is going to change.

One thing to consider when it comes to real estate appreciation affecting your ROI is the fact that appreciation combined with leverage offers huge returns. If you buy a property for $200,000 and it appreciates to $220,000, your property had made you a 10% return. However, you likely didn’t pay cash for the property and instead used the bank’s money. If you consider that you may have put 10% down ($20,000), you actually have doubled your investment, a 100% return.

Depreciation

Even though the name can be deceiving, depreciation is not the value of real estate dropping. It is actually a tax term describing your ability to write off part of the value of the asset itself every year. This significantly reduces the tax burden on the money you do make, giving you one more reason real estate protects your wealth while growing it.

Each year, on the residential real estate you have invested in, you can write off 1/27.5 of the properties value against the income you’ve generated. So for a house you bought for $200,000, you would divide that number by 27.5 to get $7,017. This is the amount you could write off the cash flow you earned for the year from that property. Many times, this is more than the entire cash flow and you can avoid taxes completely.

jens-behrmann-1270571-unsplashYou should consult a CPA for the details of this tax benefit, but the basic idea is that the government considers property you buy to be slowly wearing down over time, and much like equipment for a business you own, you’re allowed to write off that wear and tear. Not a bad deal to own a property that makes you money, can increase in value, and also shelters you from taxes on the money you make.

One caveat is this tax exemption does not apply to primary residences. Rental property tax is sheltered because it’s considered a business where you’re able to write off your expenses. This isn’t the case if you use the property as your primary residence, so owning investment property gives you an advantage here.


Leverage

If cash flow and rental income is my favorite part of owning real estate, leverage is a close second. By nature, real estate is one of the easiest assets to leverage I have ever come across—maybe the easiest. Not only is it easy to leverage the financing of it, but the terms are incredible compared to any other kind of loan. Interest rates are currently below 5%, down payments can be 20% or less, and loans are routinely amortized over 30-year periods. What else can you invest in using financing with terms like that?

When done correctly, you can often buy real estate, improve it’s value, then refinance to recover 100% (or more) of your capital using what I call the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat). In the circumstances where I don’t recover 100% of my capital, I often find myself with an ROI in the 50-90% range—all while adding equity to the property as well.

Leverage is such a critical part of real estate ownership that we often take it for granted. Where else can I borrow money from A (the bank), pay that loan back with money from B (the tenant), and keep the difference for myself? The to safe leverage is cash flow. If you make sure your property produces more income than it costs to own, the leverage itself doesn’t matter as much. Those who “over leverage” property are those who borrow so much against it that they lose money every month.

Loan Pay Down

When you take out a loan to buy real estate, you typically pay it back with the rent money from the tenants. One of the best parts of investing in real estate is the fact that not only are you cash flowing, but you’re also slowly paying down your loan balance with each payment to the bank.rawpixel-1053187-unsplash

In the beginning of these loans, the majority of the payment is going towards the interest of the loan, not the principle. This means you aren’t making much of a dent in the loan balance until you’ve had the loan for a significant period of time. With each new payment, a larger portion goes towards the principle instead of the interest.

After enough time passes, a good chunk of every payment comes off the loan balance, and wealth is created in addition to the monthly cash flow. The best part is, it’s your tenant paying this off for you, not yourself. Paying off your loan is another way real estate investing works to grow your wealth passively, with each payment taking you one step closer towards financial freedom.

Forced Equity

Forced equity is a term used to refer to the wealth that is created when an investor does work to a property to make it worth more. Unlike appreciation, where you are at the mercy of the market and factors you cannot control, forced equity allows investors an option where they can have a hand in increasing their properties value.

The most common form of forced equity is to buy a fixer-upper type property and improve its condition. Paying below market value for a property that needs upgrades, then adding appliances, new flooring, paint, etc. can be a great way to create wealth through real estate without much risk. While this is the most common method, it’s not the only one.

Many investors force equity by adding features like extra bedrooms, bathrooms or square footage. The key is to look for properties with less than the ideal number of amenities, and then add what they are lacking to create the most value.

Example of this would be adding a third or fourth bedroom to a property with only two, adding a second bathroom to a property with only one, or adding more square footage to a property with less than the surrounding houses. Opportunities like this can be found with a little bit of hard work diligence, and the resulting forced equity can make a big impact on your bottom line.

Inflation

It may not be talked about often enough, but inflation is a huge reason why real estate creates wealth so powerfully over time. When you consider all the benefits of investing in real estate, then include inflation, it’s amazing why more people aren’t taking the steps necessary to own as much real estate as they can.

Let’s take a moment to consider how inflation affects real estate prices. In general, overall, our money supply is worth less and less with each passing year. As the value of money decreases,  the price of goods and services increases. Many of us take this for granted and don’t think about it much. It’s not uncommon to hear about how five cents used to buy a bottle of coke, or a hamburger could be purchased for a dime. While it’s easy to take for granted, it’s actually an incredibly powerful wealth-building tool when harnessed 233LorraineBlvd.0003appropriately.

The key to using inflation to build wealth in real estate lies in the fact the majority of your big expenses (mortgage, property taxes) stay fixed for the majority of the time you own the property. When you combine this with rising rents and home values (due to inflation), you start to see big results. If we know it’s reasonable to expect inflation to continue, why not invest in an asset where this will benefit you?

Many people understand that real estate can create wealth, but not everyone understands why. I hope this shines a little light on the reasons investing in real estate can grow your wealth so effectively.

There are many ways to build wealth in America, but real estate might be the safest, steadiest and simplest way to do so.

Written By David Greene for FORBES/ Forbes.com
Photo by Jens Behrmann on
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Photo by 
Madison Kaminski on Unsplash


MARKET WATCH: Mortgage Rates Fall to One-Year Low, Setting the Stage for a Spring Selling Season

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Rates for home loans fell to the lowest in over a year as investors remained concerned about economic headwinds, setting up the housing market for a strong spring season. (From REALTOR.COM).

The 30-year fixed-rate mortgage averaged 4.35% in the February 21 week, mortgage guarantor Freddie Mac said Thursday. That was down from 4.37% in the prior week and the lowest since early February 2018. The popular product has eked out a weekly increase only once in 2019.rawpixel-423663-unsplash

The 15-year adjustable-rate mortgage averaged 3.78%, down three basis points. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.88%, down from 3.84%. Those rates don’t include fees associated with obtaining mortgage loans.

Mortgage rates move in near lockstep with the 10-year U.S. Treasury note although sometimes it takes the mortgage market a few days to catch up to the bond market.

Bond yields, which decline as prices rise, have been caught in “cross-currents,” in the words of Federal Reserve Chairman Jerome Powell. The dragged-out U.S.-China trade talks have helped boost the attractiveness of assets considered safe havens. And more recently, yields have declined as Federal Reserve officials increasingly speak out in favor of moderating the pace of reducing the bonds they hold on their balance sheet.

Still, investors are keeping a watchful eye on the supply of new Treasury bonds hitting the market. The massive deficits created by the 2017 tax cuts and spending increases are being financed by more bond issuance, and excess supply could erode demand—and pricing power.

For now, though, there’s more buying than selling of Treasuries—good news for borrowers. (Here’s a look at how mortgage applications increase as rates decline, from last month.)

Even if mortgage rates behave, there are plenty of headwinds arrayed against would-be home buyers. Debt consolidator Freedom Financial’s Freedom Debt Relief subsidiary recently conducted a survey of consumer attitudes toward debt and the economy.2400GramercyPlace.0003

Survey respondents said that their combined debts—student loans, credit card balances, medical debt, and more—were among the big factors keeping them from buying a house. That was true for 26% of members of Generation X, 36% of Millennials, and 35% of Gen Y-ers, those born from 1995 on.

In a reminder of the economic forces stacked against consumers, survey respondents of all ages said affordable health care was their biggest priority, followed by wage growth. Respondents listed affordable housing third, after those two considerations.

By Andrea Riquier For Realtor.com & Market Watch
Photo by rawpixel on Unsplash.

What Is My Home Worth? The Number Every Homeowner and Seller Should Know

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233LorraineBlvd.0005 (2)FROM REALTOR.COM: Have you ever wondered “How much is my house worth?”? If you’re hoping to sell your home, knowing your property’s value is essential for pricing it right to make buyers bite. Or, maybe you don’t want to sell your home right now, but are just curious whether your real estate investment has risen in value (which would merit some much-deserved back-patting). 

In either case, having an accurate grasp of your home’s estimated market value can come in handy. And there are a variety of ways to do that, many of which are free and easily within reach online. Here’s how to find that magic number, and why having an accurate estimate matters whether you want to sell your home or own it for the long haul.

How real estate experts determine their own home value estimates

Real estate agents specialize in answering the question “what is my home worth?” for their clients, which they do by running a comparative market analysis. This process involves finding similar properties (“comps”) that sold within the past 90 days.

The most accurate comp is a home that’s nearby, similar to yours in square footage, and has the same number of bedrooms and bathrooms. (Ideally, the lot size is also equivalent, but that’s more important in rural areas, where homes are set on multiple acres.) Once your agent finds a few comps, then she averages those figures to come up with a baseline of your own home value.

“You should always look at the sale prices of other listings in your community,” says Chris Dossman, a real estate agent with Century 21 Scheetz in Indianapolis.

For instance, “if your neighbor’s home is listed for $400,000 and you 

want to list yours at $500,000, you’d better be able to clearly explain the difference to prospective buyers.” Or else adjust your number accordingly.

What is my home value to a buyer?

Sellers need to consider how home buyers search for properties online. Let’s assume your home’s fair market value is $503,000. Yet Dossman points out that many people search for homes on the web using $20,000 or $25,000 increments. The upshot? Listing your home for $503,000 could prevent your listing from being seen by buyers who are searching for homes in the $475,000 to $500,000 bracket, so asking for $500,000 might generate more traffic—and maybe even a bidding war to push that final number well above your expectations.

Also, avoid listing your home at an odd dollar figure (e.g., $999,000 instead of $1 million). While retailers and as-seen-on-TV purveyors of the Miracle Mop effectively present product prices ending in $0.95 or $0.99, Dossman says the same approach doesn’t apply to real estate.

“It’s hard to justify awkward pricing,” Dossman adds. “It’s just confusing to buyers.”

Try to remain objective

“Sellers always think that their home is worth more than it is, because of their personal attachment,” says Dossman.

Indeed, it’s hard to boil down years or decades of memories in a home to a number. It’s also hard to accept that your home is worth less than what you paid for it, or that you can’t just tack on the full dollar amount of the renovations you’ve made. On average, renovations will reap you only a 64% return on investment, although that varies based on the type of upgrades you’ve made.

Why it’s important to know how much your house is worth

OPEN dennyEstimate your home’s value as too high, and it could wind up sitting on the market. That’s a big problem, because a property that goes unsold for an extended period of time (e.g., more than 30 days) often becomes stigmatized.

“Buyers get suspicious when they see a house that’s been on the market for a while,” says Dossman. “They think that something is wrong with the home.”

If that’s the case, the seller may have to make a significant number reduction—sometimes dropping the number below market value—in order to nab a buyer.

Pricing your home below market value in an attempt to stir up interest and generate multiple bids can also backfire. Granted, that strategy could work in a hot seller’s market, but underpricing your home frequently leads buyers to assume that your home is worth only its list price, says Dossman.

Your best bet: Know what your home is worth, and list your home close to that figure—aka its market value. When in doubt, turn to your real estate agent to help you cut through the haze and help you pinpoint the right price.

WRITTEN BY DANIEL BORTZ FOR REALTOR.COM
Photo by Sharon McCutcheon on Unsplash


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