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Rates…dun dun dun.

Posted by john ljungdahl on January 9, 2023
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Something that is on the mind of most people these days, so I wanted to take a quick look at some of the numbers over the past 40-ish years to get some perspective. From 1980 to present, here are some numbers that may (or may not) surprise you.

The highest mortgage interest rate seen during this time is 18.63% on October 9, 1981. 18.63%! Yikes! The average sales price for a home in the Kansas City area for 2022 was $336,102, if you were to take out a mortgage loan for that amount at the 1981 rates, your monthly payment would be $5,238. Ouch.

However, the lowest rates were on 1/7/2021 when rates dropped to 2.65%. Good for a $1,354 per month payment.

Right before the 2008 housing bubble burst, rates averaged 6.25% from 2006-2008. At this time, loans were considered cheap. Which was part of the problem, sure, but the bad loans being written at the time were the culprit in the crash. But it is food for thought that the rates at that time were not too far off from today’s numbers. Interesting to note what was considered “cheap” then, now feels much different.

For the entire 42 years from 1980 to the end of 2022, mortgage interest rates averaged 7.52%. With lots of swings up and down, it is of note that the overall average rate was 4.87 points higher than the lowest, but 11.11 points lower than the highest rate. So, we have trended more towards the lowest rate than highest. I think that is a clear sign that when rates do jump, they don’t tend to stay there very long. Some good news for those who are concerned about the current situation.

That 7.52% on that $336,102 mortgage is good for a $2,355 monthly payment.

Lastly, let’s look at the rate for today (1/9/23), the average for today right now is 6.47%. Or $2,118 per month on that $336,102 loan. So, 1.05 points lower and $237 per month savings compared to the average mortgage rates for the past 42 years.

Looking at these numbers side by side, it is obvious that the 2.65% in January of 2021 was great, and even the 3 and 4%’s of early 2022 were awesome as well, and I know 6.47% feels like a HUGE problem, but when you take it all into context with history, that 6.47% is still a deal compared to the average loan rate. So if you are looking to buy, you should feel good that you will still get lower than average rate.

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2/1 Buydowns become attractive to buyers…and sellers.

Posted by john ljungdahl on November 9, 2022
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As interest rates continue to rise, prospective homebuyers feel like the rate hikes have priced them out of a purchase, while leaving sellers out there watching the days on market numbers increasing for home sales, causing them to have to lower their prices in order to get their home sold.

While it might feel hopeless right now, there is a way for both sides to win in this market!

First, let’s talk about the buyer side. And the 2/1 buydown programs from lending institutions that are becoming more and more popular. In short, this is a way to buydown the rate for the first 2 years of the loan so that the payment is more comfortable, knowing that you can refinance later to what should be a better rate when things settle down.

*The 2/1 buydown isn’t the only program out there that can help, but I want to talk about it as it is very popular right now.

How it works in simple numbers on a $400,000 purchase (not including taxes, insurance, etc. just the loan cost).

First, let’s look at what a typical 30-year fixed rate would be at today’s rate of 7.91%:

Purchase price- $400,000              

Interest Rate- 7.91%

Monthly payment- $2,910

2 years of payments =$69,840

Year 1 of 2/1 buydown                                                  Year 2 of 2/1 buydown

Purchase price- $400,000                                               Purchase price -$400,000

Interest Rate- 5.91%                                                        Interest Rate- 6.91%

Monthly payment- $2,375                                            Monthly payment- $2,637

1 year of payments= $28,500                                      1 year of payments= $31,644

2 years of 2/1 buydown payments equals $60,144, a savings of $9,696 over the 2 years compared to a traditional 30-year fixed mortgage.

Now, you are probably asking, “what happens after the 2 years is up if you don’t refinance before?” Whatever the prevailing rate is at the time the loan was taken out, in this example, 7.91% would be the 30-year fixed rate from that point on. However, most of the lenders offering this program, give you a free refinance should the rates drop within this period so you can get a better rate. So, you either win big by saving the $9,696 upfront and get a lower rate later, or you still win by saving the money and then having the lower locked in rate should rates not get any lower during that period. In which case you just wait and refinance when they do fall again.  

Additionally for buyers, in Clay County, Missouri where I am located, the average sales price of houses is down $32,626 from June of 2022 to October of 2022, and that price trend is likely to continue downward in November and December. As rates go up, the house prices must come down as an offset. Even this rate buydown cannot erase that from being necessarily. And yet another win for buyers…the rates have driven many buyers from the market, so buyers that enter now will be running into less multiple offer situations and having to pay well above list price, waiving inspections, appraisals, etc. as they were having to do over the past few years to win the house. Basically, the market has become more buyer friendly of late. So now is the time to jump back in if you have been waiting on the sidelines.

But wait! You said there is a way for both sides to win. What about sellers? How are falling prices and less buyers in the market a win for them? Glad you asked. While there is nothing generally good about having the average sales price be $32,000 lower over the past few months, there is some good here. For one, if you sell your house and buy another, you get to enjoy all the benefits outlined above for buyers. So if that is you, there is that.

But if you are just selling, what about that? A couple of things. For one, I know there were lots of sellers over the past few years that while they loved the big numbers in offers, they hated having to vacate their house for the endless number of showings that take place while on the market. Having hundreds of people going through your house can be stressful. Many of which may not be serious buyers. However, in the current market, the buyers that are still out there are serious. It’s now a quality over quantity thing.

Having said that, supply vs demand is still in your favor. While houses are not selling as fast as they had been before, that doesn’t mean there isn’t a need for more listings, because there is. The buyer pool still out numbers listings, and it will continue to for some time. While buyer-friendlier now, it is still a seller’s market. You can still get a really good number for your house, given that the year over year value of your house is still going up. So, it is still a winning play to sell your house.

In the end, while the rate hikes seem like doom and gloom, you also have to remember that even 7.91% is a historically low rate in the grand scheme of things. I know that is hard to believe when we have been conditioned to see numbers in the 3’s and even 2’s for a bit. But it’s true. Sometimes you just have to dig into the numbers a bit more to see how making a move now can be a good thing.

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Escalation Clauses- why they are not a good idea for either side of the offer.

Posted by john ljungdahl on November 18, 2019
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escalatorIn a hot market, some real estate companies are arming their agents with what is called an “escalation clause” to use when presenting an offer to a seller. In short, an escalation clause says that said buyer will pay, for instance $1,000 over the highest offer. Sometimes with a cap, sometimes not. A cap would be something like “$1,000 over the highest offer up to $200,000” for instance. And they are using these to try to win a bidding war. Sounds like a great way for a buyer to win the house they want and the seller to make more money, right? Well, on the surface that might be true, but a deeper examination of them makes them not sound so great. Let’s take a look.

From the very start, an offer with an escalation clause presents a challenge to both a buyer and seller because a contract offer with the clause attached, cannot be signed into a binding contract because the clause doesn’t set an actual price (especially one without a cap, because when does the escalation end?). Which is an important part of a purchase contract. So, you could make a decent argument that the escalation clause isn’t actually a legal document.

So why do it? The simple answer; it is viewed from the buyer’s perspective to give them a higher likelihood of getting the house they want. And from the agent’s view, it makes them look like they are innovative and helping their clients win the house. Both of which could be true. I will not argue that the escalation clauses cannot work, because they probably can. However, is it the best thing for either side? Let’s take a look.

First, from the buyer’s side of things, there are 3 pitfalls to using the escalation clause.

1. You are giving away your top price (if there is a cap).
Back to the example of “$1,000 over the highest offer up to $200,000”, that $200,000 represents to the seller what you are willing to go to. And now you have lost any negotiating power because the seller knows what number you will agree to.

Even the most inexperienced negotiator knows that you don’t give away your top price at the very start. So why are seasoned negotiators like Realtors are supposed to be, advising their clients to do this?

2. You will potentially (and maybe most likely) will pay more than you have to for the house.
Think about it, what if the next highest offer for the house in this example is $195,000? Do you think the seller is going to sell you the house for $196,000, or just say they will take the $200,000 you will go to? Yeah, I think you know the answer to that. So now by using the escalation clause, you have overpaid for the house by $4,000.

Some agents will tell you the way around that is to request that the seller show you the highest offer they have so you know what it is. Unfortunately, the seller is under no legal obligation to so, and secondly, they cannot disclose another buyer’s offer without consent from that buyer. And you do think a buyer in a negotiation is going to let another buyer see their offer? No way.
3. Doing this shows you will do anything to get the house.
First rule of negotiations is you don’t show the seller how much you love whatever it you are buying. Because that is taking away your “walk-away” power. If the seller knows you won’t walk away because you are too emotionally invested in the house, they have you where they want you. An escalation clause screams how much you love the house and have to have it. And that is music to a seller’s ears.

And that isn’t just about getting the price they want. It will also filter down into other negotiable items in the contract such as closing cost coverage, home warranty purchases, closing date, etc. After that, it still isn’t over. Showing your need for the house also harms your ability to negotiate any repairs you may want on the house before you close.

So, as you can see, the escalation clause probably isn’t a good idea for a buyer unless their singular focus is to get the house, no matter the cost.

It might seem from it not being a good thing for the buyer, that it must be a good thing for the seller. And while that is true from the standpoint of what is mentioned above, there are reasons why this isn’t a good idea for the seller either.
1. Dealing with “monopoly money”
When a buyer presents an escalation clause to a seller, it typically pushes the purchase price beyond the list price. Which on the surface sounds like a great deal for the seller. However, the house will still have to appraise for that higher amount to ensure the seller sees any of that extra money. Because the buyer is under no legal obligation to buy the house over the appraised price. So until the appraisal verifies that higher amount, that money isn’t “real.” And since most sellers are going to price their homes at the very top of the market, going over that amount could present appraisal issues. This could delay closing, not allow the seller to get as much money as they were counting on, or even have the buyer walk away and now they have to re-list their house.

2. Dealing with a “win at all cost buyer.”
A buyer presenting an escalation clause has said the seller that they are a win at all cost buyer. Which likely means if you choose their offer, you are going to be in for a fight on everything from above like closing cost coverage, home warranty purchases, closing date and inspection items. While the seller might have the upper hand knowing the buyer is all in on the house, that will not stop the buyer from making negotiations a fight. Which in many cases leads to a deal falling through.

3. Might not pick the “strongest buyer.”
The escalation clause, in many cases can cause a seller to focus only on it and the extra money, and miss things about each buyer which might show that there is a stronger offer on the table, even if it is for less money.

Things like the type of financing used, down payment amount, closing date, contingencies included, etc. are all major factors to a deal. For instance, the escalation clause buyer might be using FHA financing (due to a lower credit score) with a very small down payment. And another buyer might be using Conventional financing and is putting down 20% or more towards the house. Some things to consider for the seller is that the FHA buyer might barely be qualified for the loan. And if anything happens in the 45 days in which it takes to close, such as a change in their credit for any number of reasons, or if what they had for the small down payment isn’t available anymore, it likely will kill the deal entirely because the lender will no longer approve the loan. However, that Conventional buyer has a higher credit score (due to being eligible for a conventional loan) and is putting down more money. Which means they have more leeway should anything occur with their credit or expenses that take some of the down payment money away. They should be still ok to get the loan.

As you can see, the use of an escalation clause isn’t a very good idea on either end of the deal. There are far better ways to go about putting together an offer and contract on a house that allow each side to have a better chance of the deal going through and making it to closing.

As a real estate agent, I find that the best transactions are the ones where there is a some give and take between each party. And one side doesn’t feel like they are getting railroaded. When a deal gets overly one-sided, problems start to arise.
The goal of a buyer is to buy a house they love within the budget they have. A seller’s goal is to sell the house for what it is worth. Both want the same thing, and that is for the deal to close. One way to do that is to avoid things that could cause issues, and the escalation clause is one of those things.

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4 Things Sellers Need to Know About Appraisals

Posted by john ljungdahl on October 14, 2019
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Appraisal concept.When it comes to selling your house, there are many boxes to check along the contract timeline as you work towards the closing date. Of them, a few of the most important to the seller are the inspections, appraisals, and closing date, as those have the greatest impact on the transaction. Today, I am going to go over a little bit about the appraisal, and the five things sellers need to know regarding them.

For this writing, I am talking specifically about appraisals done AFTER the house is already under contract for a specific price. So, this will not have anything to do with the actual pricing of your home to sell. However, these need to be kept in mind when you do go to price your home.

So, with that, here are things to know when it comes time for your appraisal.

1. It is not the same as market value.

Market value is, in short, a range in which you can reasonably assume your house will sell for. It is based on comparable market data of similar houses sold recently, features of the house and supply versus demand of the current market. It doesn’t assign a specific value, but gives an idea of about what a house should sell for.

However, an appraisal is different. It is attempting to set an actual value on the house. Not necessarily what it should sell for. It uses the same information as market value such as past sales and features of the house to determine that number, while mostly ignoring supply versus demand.

Why does it ignore supply versus demand? Here are a couple of guesses of mine:
It is hard to find what the competition was like at the time for a house sold in the past. It isn’t impossible to do, but it is much more time and effort consuming. Probably more so than the perceived gain of having it would be.

Not including it takes out some of the volatility of the market. The highs and lows are taken out and a more “middle ground” value is found.

This is where you can see the two values start to drift away from each other.
In some cases, the market value of a home might be less than appraised value. In heavily saturated markets, where there are tons of listings, but not many buyers, the competition for those buyers means that houses will have to sell for less than what they are actually worth. The house itself isn’t worth any less in value, it just may not be possible to sell for top dollar.

In the opposite market, where there are very few listings and tons of buyers, the market value of a house will be higher than the appraised value. The house isn’t worth more in value, but scarcity in that particular timeframe means buyers are willing to pay more.
So, understanding that when you agreed to a sales price of your house with a buyer, the market value you based that amount on might be different than the appraised value.

2. It WILL determine the value of your house. But not the purchase price.

One of the biggest misnomers in real estate is that people believe that whatever the appraisal says, the house must be sold for. This isn’t true. As we established above, a house can be sold for less, or more than the appraised value. At no time does the appraisal dictate what a contracted purchase price will be. But selling a house below, or above the appraisal price each come with their own set of realities.

Selling a house below appraised value is very common. As we discussed before, sometimes the market value of a home is less than what it is actually worth. Competition can be such that a seller will need to sell for less to move the house. There is nothing complicated about selling below appraised value, there are no “issues” that could come along with it, like selling above appraised value can. So, let’s dive into that.

Most sellers want to get the most money possible out of a deal. Even possibly selling for higher than appraised value if they can. And who can blame them? However, there are some precautions that come with this wishful thinking.

The first thing to know is that any contract brought to a seller by buyer being represented by a reputable real estate brokerage, is going to have an “Appraised Value Contingency” built into the contract. In short, this says that if the appraised value of the house comes in lower than the agreed to purchase price, the contract allows for four options to occur within a renegotiation period:

1. Buyer can agree to pay the contracted purchase price.
2. Seller can agree to lower the price to match appraised value.
3. Buyer and seller can agree to split the difference in any combination of ways.
4. Cancellation of the contract.

At no point is a buyer contractually obligated to pay higher than appraised value for the house. Something to consider when looking at offers on your home. Sometimes those really high offers don’t mean a whole lot. Because if the appraisal is lower, you are not necessarily guaranteed that extra money.

Another thing to know is that if there is a lender involved on the buyer’s side, the lender may essentially dictate what the purchase price will need to be. And that typically means the lower appraised value.

Here is why:

A lender will only give the buyer the amount equal to the appraised value of the house, or the purchase price, whichever is less. They are not in the business of loaning more money on something than it is worth. See the potential problem?

Let’s say a house has a contract for a purchase price of $200,000, yet the appraised value comes back at $195,000. This means the lender will only give the buyer a loan for $195,000. All of a sudden, there is a $5,000 difference between what the buyer agreed to, and the lender will be giving them. In order to pay the contracted amount of $200,000, the buyer will have to pay that difference in cash. Which they may or may not have. And even if they have it, the lender may not let them use it for any number of reasons. The buyer may not have much say in things at all.

Therefore, a lender sometimes may force the hand of those involved that for the deal to be done, the purchase would need to be equal to the appraised value. It is then up to the seller to decide whether they are willing to sell the house for that amount. If not, the contract will be cancelled.

3. It may value two very similar houses, very differently.

What this means is that your house may be worth more, or less than a very similar house in the same neighborhood. The market value of the two houses may be exactly the same, but remember, that value is a range. And sometimes that range can be large for certain neighborhoods. So just looking at what nearby houses sold for may not give you an accurate look at what an appraisal will come to.

This is the maddening thing about appraisals for those involved in selling a house. It is very common for someone to see that a similar house on a street close by sold for a certain amount, and assume that is what they should get as well. But it doesn’t always work out that way.

Here are a few reasons why;

The simplest reason is that the houses were all appraised by different people. And well, opinions differ from person to person. Those differing opinions could raise or lower a value by thousands of dollars respectively. This isn’t a computer algorithm that is very precise, instead it is people using the information at hand to make a determination. Think of an appraisal as more of an art than a science.

Another reason is that ALL houses are different, no matter how similar they may seem. For instance, two houses in a neighborhood might both have 3 bedrooms and 2 baths with an identical floorplan, but that is likely where the similarities end. Literally everything from the roof to the HVAC are likely different in some way. Some will have newer items, some older. Some will have upgraded items; some will be of a lesser grade. All factors that go into an appraisal.

The location and lot are also different. Sure, you may be in the same neighborhood or even on the same street. But the physical location of the properties is still different. A more desirable lot brings value as well. Things like having your lot back to greenspace or be on water will typically have a higher value than those without. Is the lot located in an area of the neighborhood with less traffic, or on a cul-de-sac? If so, that can bring some value as well. The examples of this can go on and on.

So, this should start to give you an idea as to the complexity of the appraisal and how it can end up being very different than what a seller thinks their house should be worth.

4. It may come with “conditions.”

In most cases, this only applies to Government backed loans such as FHA and VA loans. “Conditions” are things that an appraiser (not the inspector) will require be done to the house before the loan can be closed. These are going to be health and safety type items that have been deemed important items by HUD, the governing body for these loans.

These are not things a buyer or seller can pick and choose from. If any are a condition by the appraiser, they must be done.

I went into greater detail in an earlier blog post (https://keepingrealestatesimple.com/2018/08/16/is-your-house-va-fha-or-usda-loan-ready/) but here are a few that are the most common conditions we see:

-Water heater must be in working order and up to local code.
-No chipping, peeling or flaking paint on homes built on or before 1978.
-No rotten or exposed wood.
-Electrical outlets must be in working condition with cover plates. No frayed or exposed wires.
-Active termite infestations must be addressed.
-Windows must open and close with no broken panes.
-All rooms must have flooring.

This is good to keep in mind when considering offers on your house. A good real estate agent will alert you of any of these possible red flags as they discuss with you selling your house. You need to determine up front whether you should be open to accepting offers with these types of financing. And if you are going to be, it is best to get these repairs done now, before the appraiser gets there so you do not delay the transaction.

If your house has a bunch of these possible conditions present, and you do not want to fix them, then you will have to only agree to sell to cash or conventional financing buyers.

Knowing how things work goes a long ways towards navigating the real estate market and having a successful sale. With an appraisal, it may seem like they are something a seller should dread. But it doesn’t have to be that way. If you understand the essential function of the appraisal, and how they are derived, then you can set proper expectations for yourself at the beginning of the house selling process so that you can avoid many of the surprises. This will help make the home selling process as simple and pain free as possible.

 

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Did You Know? -Why you need a buyer’s agent.

Posted by john ljungdahl on November 6, 2018
Posted in: Uncategorized. Leave a comment

ready-to-buy-a-houseBuying a home is likely the single biggest purchase anyone will make in their lifetime. So when it comes time to purchase a house for yourself, you need to find a good real estate agent to help you navigate the purchase. Here are a few “did you know’s” that answer some questions you may not have even known you had. But they are good to know as you start in your process.

1. A real estate agent is FREE for you to use?
It’s true! Compensation for the agent assisting the buyer is typically paid by the seller of the property. So a buyer doesn’t need to budget in those costs when looking for a house. And if an agent is free, why would anyone choose to NOT use one?

MYTH BREAK! You can get a “better deal” on a house if you don’t use a buyer’s agent and buy the house through the listing agent. We hear this all of the time. There are some listing agents who will try to convince you that they will, “get you a better deal” if you don’t have a buyer’s agent involved. Don’t be fooled, those agents work for the seller, not you. The only people getting the better deal is the agent and their clients at your expense.

2. You need to have representation in the home buying process.
No matter what anyone says or does, you as a buyer need to have representation when buying a house. You need to have someone on your side to help guide you through the buying process. To make sure you don’t breach the contract in some way and lose the house. Or miss out on a key timeline step that could cause you to give up a right you might have had if you didn’t miss it, etc. There are many things with the purchase of house you need to be aware of and you need a good agent to help you along the way.

3. You only need to work with one agent to see any house you want.
Yes, your buyer’s agent has the ability to show you any house, listed by any company. No need for you to call on several agents just to see some houses. Find one you like and build a rapport with them, it will make the search so much easier and enjoyable.

TIP: Pick an agent BEFORE you even start looking at house. Have a consultation with them and lay out a good game plan for your search. You will be glad you did!

4. While visiting open houses is a great and convenient way to see what is out there, in some cases doing so without representation can preclude you from being able to have representation should you want to buy that house.
While rare, this can happen. It shouldn’t be this way, but in some instances the representation of the seller has made a decision to operate in this way. The best thing to do is seek your own real estate agent to assist you in the search and they can help you navigate viewing open houses. Back to the above tip-find your agent before any house hunting!

5. A Realtor can also assist you in buying a For Sale By Owner listing.
Just because the seller has chosen to go at things on their own, doesn’t mean you have to! In most cases, a For Sale By Owner seller has already offered compensation for a Realtor should they bring a buyer to their property. So utilize your agent for those listings as well and have all of the benefits of representation on your side.

6. A Realtor can even assist you in finding properties that are not currently on the market, but could be available to you.
Having trouble finding the right house? There are hundreds of houses out there at any point in time that may not be listed for sale, but could be coming soon! The right real estate agent can help you find them.

7. Picking the right real estate agent is important.
Not all agents are equal. The market is flooded with numerous agents with varying degrees of ability to help their clients. Make sure you pick the one that can work with your schedule and be available when you need them. Having a good agent that knows what you are looking for, and is easy to work with will make your home search easy and enjoyable!

As you probably gathered, having a real estate agent on your side as a buyer is extremely important. This is a huge purchase you are making and it shouldn’t be taken lightly. Agents have the experience and expertise to help you navigate the process and make sure that you do things right and don’t leave yourself open to any problems. So before you buy, talk to an expert and let them guide you to your purchase!

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Is Your House VA, FHA or USDA Loan Ready?

Posted by john ljungdahl on August 16, 2018
Posted in: Uncategorized. 1 Comment

multi_logoDid you know, selling your house to a buyer using a government loan program, such as the popular VA and FHA loans, as well as the lesser known USDA loan is different than selling to a cash or convention loan buyer? Those loans have certain appraisal requirements the property MUST meet before the loan can close. Unlike cash or convention loans which do not have such requirements.

If you didn’t know that, you are not alone. Most sellers don’t, and unfortunately a lot of real estate agents don’t do a good job in letting their sellers know, either.

Most of the items of interest to these loan programs are similar to what you will find on a whole house inspection report a buyer may do to determine the condition of the home. Only difference is, these are noted by the appraiser (not the inspector) and neither the buyer or seller has any say on whether the items will be fixed or not. Because these will be mandatory fixes that need to be done before the property can change hands.

So instead of finding out about these sorts of possible issues just days before closing, I am going to give you a list of items the appraiser will be looking for so you are prepared up front.

According to HUD (which oversees the government loan programs) and the HUD Handbook 4000.1, appraisers must ensure that the home, “must be free of all known hazards and adverse conditions that may affect the health and safety of the occupants.” With this, the appraiser must note any health, safety or structural issues the home might have. No matter how miniscule the problem may be.

So let’s jump in here and see what types of things you will want to take care of before putting your house on the market.

1. House must have proper drainage around the perimeter.
Drainage around a house, and more significantly the foundation, should be of the utmost importance for ANY homeowner. Water is a big enemy of houses, especially water that sits and puts pressure on a foundation. That can cause bowing, cracking and water penetration. All can be very expensive fixes.

2. Adequate water pressure and testing of both hot and cold water.
Too little water pressure and the function of faucets, hoses, etc is lost. Too much pressure causes pipes and faucets to fail prematurely and could cause leaks. Not having the accessibility to hot and /or cold water can be troublesome as well.

3. Water heater must be in working order and up to local code.
A working water heater is important to the function of the house. Many of our appliances use hot water as well as our sinks and showers. Not having a properly functioning water heater could mean no hot water, or too high of a temperature of hot water. Neither are safe.

4. No chipping, peeling or flaking paint on homes built on or before 1978.
Before 1978, much of the paint used on homes was lead-based. Which we have obviously learned in recent years is not good for your health. Chipped, peeling or flakes of paint around the house could easily wind up being accidentally ingested. So anytime the paint on older homes is showing signs of serious wear, the appraiser will mandate that it be scraped off and repainted.

5. Attic must have vents, no damage, exposed/frayed wires or signs of water penetration or leaks and there needs to be adequate insulation.
Most of this is about the integrity of the home. Issues up in the attic tend to work their way down into the living area of the home by way of water penetration, excess heat or cold, or potential fires caused by exposed wires.

6. No rotten or exposed wood.
Rotted out wood no longer is the water barrier it once was, meaning the interior of the house could become exposed to water.

7. Crawlspaces must have no signs of standing water or foundation issues.
Much like the attic before, issues underneath the house tend to cause problems in the living areas as well.

8. Electrical outlets must be in working condition with cover plates.
Obviously when you are dealing with electricity, safety is key. Bad wiring or open plated electric outlets can lead to injury or death.

9. Active termites infestations must be addressed.
Termites in this part of the country are not an “if” but a “when” for houses. Left untreated, termites can inflict great damage to any portion of the house made of wood.

10. Windows must open and close with no broken panes.
For safety reasons, being able to open a window (to exit the house in an emergency) and close the window (and lock it) to keep unwanted people out of the house, are important.

11. If there are safety bars, they must have a quick release.
If you live in an area where safety bars are prudent to your homes security, just make sure there is a quick release for emergencies.

12. No dangling wires from missing fixtures.
Have you taken down an old fan, or removed a broken light fixture, etc. Make sure you tuck the exposed wiring up into the housing or replace that fixture before trying to sell the house. Exposed wires are dangerous.

13. Smoke and carbon monoxide detectors must be present and up to local code.
For obvious reasons, being aware of smoke/fire or a poisonous gas is important for safety.

14. Roof should not be leaking and must have at least two years of economic life left. FHA will additionally not allow any roof with over three layers of existing roofing.
The roof is one of the most important parts to a house, it protects everything under it. Having a serviceable roof is a must for a government loan.

15. All rooms must have flooring. No bare plywood floors. Concrete may be ok.
Government loans mandate that a house must be in basic livable condition. This includes having flooring for all of the living areas. As it notes, a concrete floor may suffice depending on the situation.

16. All flooring must be free from holes, as they would be tripping hazards.
Just as all the rooms must have some form of flooring, the flooring must also be in decent shape. No holes allowed and they can be tripping hazards.

Take a look around your home, do you see any of these items? If so, even if you are not looking to put your house on the market anytime soon, these are some good maintenance type items to put on your list to keep your house safe and in good repair.

If you are going to be on the market soon, make sure you get to work on them right away. Not only will it lessen your load and stress of having to complete them in a short period of time before closing, these won’t be “issues” with the house the buyer sees and counts against the house when making their offer.

If you need help with or have questions regarding these items, you should contact your real estate agent and they can help you with this, and other things you should do to have your house ready for the market!

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The Stale Donut –or how pricing your house too high in the beginning can cost you big money in the end.

Posted by john ljungdahl on December 14, 2017
Posted in: Uncategorized. Leave a comment

donutWhat does a donut have to do with selling your house? Honestly, nothing. But everyone loves donuts, and can relate to having had a stale one, so I am using it.

I can appreciate that when people go to sell their house, they want top dollar in return. We all do whenever we sell anything. We want to feel like we got the full potential value out of it. So I certainly come from the stance that sellers should get the most possible for their houses. I am not an agent who wants his clients to feel like they “gave away” their house. And obviously, the higher I sell a house for, the more money I make.

However, what a stale donut can teach us is that when you go to sell your home, sometimes listing it for less, can get you more. Sounds ridiculous doesn’t? It does because it is counter-intuitive. It feels like that shouldn’t be the case. But it can be very true. And when you find yourself on the wrong end of it, it can be a painful (and costly) lesson.

The analogy with the donuts goes like this:

At a donut shop, the owner has two frosted donuts in his case, chocolate and strawberry.

He prices the chocolate donut at .79 each, he prices the strawberry donut at 1.29.

Both donuts are roughly the same size, same ingredients, etc. Just differ in the frosting flavor. The owner just thinks the strawberry donut is better, so he wants more money for it.

Day 1: the chocolate donut sells out, while the strawberry donuts do not.

Customers likely don’t feel paying 50 cents more for the strawberry is worth it since the donuts are basically the same thing.

Day 2: the owner restocks the sold out chocolate donuts, but still has strawberry left from day 1. So he discounts those to .99 each to try to get rid of them.

Again, the chocolate donuts sell out, and the strawberry does not because people are not interested in paying 20 cents more for a day old donut when they can have a fresh one for less.

Day 3: the owner again restocks the sold out chocolate donuts, but then gets wise to the strawberry not being worth more, and prices them equal to the chocolate donuts at .79.

The chocolate donuts again sell out, and strawberry does not even though they are priced the same. Because now he is trying to sell a 3 day old donut for the same price as a fresh one, and who is going to choose the old one when the new one is the same price?

Day 4: once again the owner restocks the sold out chocolate donuts, however now he really needs to get rid of the strawberry donuts because they will go bad and need to be thrown out. So he slashes the price to .29 each to give the customer a reason to choose it.

Now, the owner sees both donuts sell out as the correctly priced, fresh chocolate donuts will always sell well, and the heavily discounted strawberry will sell too because a bargain shopper will come in and take him up on the deal.

The lesson here, I hope is obvious. That unless you want to take a loss on your donut sales, you better price it right from the beginning.

How does that apply to selling your home? Well, the principle is the same. If you decide that your house is worth more money than the house down the street, that is essentially the same house, you run the risk of becoming the “stale donut” of the neighborhood. But instead of it costing you 50 cents, it could cost you THOUSANDS!

The fact of the matter in real estate is, in most cases, the longer the house is on the market, the less money it will eventually be sold for. Time on the market is a huge detriment to the sales price.

While all of the appropriately priced houses are being sold around it, the overpriced house sits. And by the time the seller realizes it and gets the price competitive to the market, it’s usually too late. Buyers have already identified it as a “stale” house that has something wrong with it. Otherwise it would have sold already like all of the others. There may not be anything wrong with it, but sometimes perception is reality. And now the seller must drop the price well below market value to get it sold.

Sadly, this is all too familiar to real estate agents. Despite our best efforts to educate our sellers, this mistake happens all the time.

The reason for this is simple. Every seller thinks their house is by far the best in the neighborhood. Why is that? Because they like their house better than the others; and it makes sense. They bought that house for a reason. Then they picked out the paint colors, they decorated the walls, placed furniture and set up the flow and function of every room. And most importantly, have memories attached to every square foot of that house. It is hard to look at a house that is not yours, and see it as worth the same. It is a battle every seller will go through. And that is where listening to your Realtor helps.

Your Realtor will come into your home with the eye of a buyer. Who frankly doesn’t care that the paint in the kitchen is your all-time favorite color. Or the downstairs rec room was the family hang out area filled with many wonderful memories. Those things do not hold value to a buyer like they do in the seller’s mind. What they see is a house that is basically the same thing as the one down the street, and outside of a few features that might make one or the other worth a bit more than the other, they likely don’t see a 10, 20 or even 30 thousand dollar difference between them.

The market (i.e. buyers) will tell you what your house is worth. As they say, something is only worth what another person is willing to pay for it. So keep that in mind as you go to price your house. It will be tempting to price it high “because you can always come down.” But remember how that can be a huge mistake.

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Buying a home in this FAST market

Posted by john ljungdahl on May 12, 2017
Posted in: Uncategorized. Leave a comment

sold fastAs I wrote in April of last year, the days of getting a “deal” in buying a home are over. At least for right then it was. Well, guess what? IT. STILL. IS. Nothing has changed in the Kansas City market. It is still very much a seller’s market. Houses are selling fast and for top dollar.

So, how does a buyer navigate this crazy market? Here are 8 ways you can prepare yourself to win the house you want!

  1. Do the math before you get too hung up on small price differences.

Right now, it might be necessary to offer over list price, maybe as much as $5,000 (or more) over to win the house. Calculate beforehand, based on your interest rate, what the price increase will mean to you on a monthly basis, and decide where you will draw the line.

For instance, at 4.3% interest, bumping the purchase price of a house from $195,000 to $199,000 is $19.00 per month. Is that amount worth losing a house you love over?

  1. Base your offer on the home value, not the list price.

The list price of the house can sometimes be based more on the motivation of the seller than it might the actual market value. For instance, the seller might have priced the home to sell quickly due to a job change, or another situation where they need to be in their next home faster than normal.  If the house is priced in the lower to middle range of market value, you could pay above list price, and still not pay too much for the house!

  1. If you see a home you like, be prepared to act fast.

It goes without saying right now that the days of “sleeping on it” is nearly non-existent in this market. You snooze, you lose is the truth. This goes for scheduling a time to go see the house in person, as well as making a decision on making an offer.

Houses right now are seeing multiple offers in a matter of hours, so you cannot be shy about making a decision quickly.

But, if you have your pre-approval from the lender already and know your budget, know the prices and types of homes you want and research those neighborhoods ahead of time, you will be confident and ready to make an offer as soon as you find the house you want.

  1. Don’t assume that the inspection period will allow you to reopen negotiations.

Many buyers think that the inspection period is a “get out of jail free” card. And in some ways they are correct. If there are major concerns with the house (like plumbing, electrical, foundation or other issues) in which the buyer is not comfortable purchasing the house with, there are ways to get out of the purchase.

And while the inspection period is a good time to ask for repairs to be done on the house before a purchase, it doesn’t necessarily mean a buyer can get everything repaired they want to be done. This is not meant to scare you, but in this market, some sellers are emboldened by multiple offers and feel as if they do not have to negotiate any repairs with the buyer. They can simply find a buyer willing to take the house as is. And legally, that is all a seller has to do; sell the house in its current condition.

So know going in that you may not get the seller to make everything perfect before you purchase it.

  1. Expect to compromise.

This goes with any house purchase, any time. But especially now, buyers have to be willing to give a little bit more than they are used to. The compromise is; if you want the house you love, you are going to have to give a lot. Doesn’t mean you have to lose every part of the deal, but know your probably are not going to win much, either. Your win is getting the house you want to live in for years to come!

  1. Remember that terms can be as important as price.

Can you be flexible with the closing date? Can you offer more earnest money? Maybe you are willing to shorten the inspection period to move the contract along faster? Are you willing to do more repairs than another buyer might? All of these things are tools you and your agent can use to make your offer stand out among the crowd.

Remember, the seller and their agent may know they are priced at the top of the market, so adding money to the deal may not actually matter if the appraisal comes in lower than that amount. Find what the seller wants and work to make your deal meet that if possible.

  1. Consider writing a personal letter (with a picture) or video with your offer.

Including a letter, photos or a video with your offer can be a huge advantage. It puts a face and story with the name. It’s not just another contract with names the seller doesn’t know. It’s now a person. A family. People want someone like them to enjoy the property as much as they did. Don’t underestimate how powerful this can be.

  1. Make your offer as simple as possible.

When sellers are staring at a table full of offers and trying to determine which one is best, your offer will be looked upon more favorably if you just keep it simple. There are many ways in which to write an offer that affect each party in a different way.

Buyers sometimes will ask for their closing costs to be paid for by the seller. Or ask that the seller provide a home warranty to cover appliances, or that certain items in the house to stay, etc. None of it is necessarily wrong to ask for, but when you are trying to win a multiple offer contest, all of those things muddy up the offer and can make it hard for the seller to determine the real value of it.

There are 2 main things a seller wants to know:

  1. How much they will net on the sale (how much money total out of the deal).
  2. When will the deal close (when will they get this money)

That’s it.

The entire deal and all of those pages of an offer boil down to just those two things.  And a seller doesn’t want to do extensive math or be looking up values of things, etc. to find out the answer to question number one. So it would be advantages to you to make your deal super simple.

This market might seem really daunting to some buyers, and maybe you have avoided jumping in because you were afraid that you would get stuck in a bad deal, not be able to buy the house you want because of competition, or don’t have the right assistance to guide you through it all. But, if you hire the right real estate agent (who by the way is free to buyers) they will help make the process easier on you. There is certainly more work, time and sometimes a little more luck involved right now, but the right agent can help you get the right house for you and not feel like you were beaten up during the process.

Good Luck!

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Selling Your House? Do These First!

Posted by john ljungdahl on February 2, 2017
Posted in: Uncategorized. Leave a comment

clean-houseSelling your house is a big step in your life, physically, emotionally, and financially. While all of these are important aspects to selling, the one most people focus the most on is the money. Which certainly makes sense as it is likely your biggest asset. But, to realize the greatest return on this asset, does require some effort on the seller’s part. Even in a seller’s market.

First and foremost, your house has to make a good impression on potential buyers. You will want to prepare your house so that buyers will see the best it has to offer. Now, this doesn’t mean you have to spend large amounts of money upgrading things and making everything new. Most of the things below require a small amount of money and a little bit of effort from you.

With that, here is a list of ways to improve the curb appeal of home, and also making it feel like a place buyers will want to call home.

Curb appeal is the first impression a buyer has of your home, make it count!

Give your entry a facelift.  A new coat of paint on the front door, or a new front door is one of the first things a buyers sees as they pull up to the house.

Don’t forget to landscape your lawn your yard! A nice looking yard tells the buyer that the property has been maintained while you have been there.

Make sure all exterior lights are in working order. Replace bulbs or repair any lights that do not work. Showings happen in the evenings too, having a well-lit house makes a statement.

Wash all windows (inside & out). Your property might have a great view of the downtown skyline, a lake, mountain, etc. and you want the buyers to see that…not the dirt on the windows!

Clean out your garage! Having an organized garage shows the buyer its size and usefulness for storage.

Add a pop of color by planting flowers.  Obviously seasonally dependent, but even a flower pot on the porch with some colorful flowers can go a long way. Or go big, and plant them around the house.

Remove any lawn ornaments. Whether the ornaments draw attention in a good or bad way, they are taking it away from the house. You want the buyer to focus on the house.

Replace worn out welcome mat. You are welcoming the buyers to your house. A dingy old mat is not a good way to do that.

Paint or replace the street numbers. When a buyer is trying to find your house, having a visible house number is important.

Power wash any outdoor surfaces. Make the driveway, porch, patio, siding, etc. look like new again by cleaning them up.

 

Once the buyer is inside, make them feel at home!

Clean everything! A clean home will allow buyers to picture themselves in the space and not distract them like a dirty space will.

Give every room a purpose. For instance, a bonus room. That might be a great use for that extra bedroom for you, but buyers will connect more with a bedroom, office, playroom, etc.

Let the light in! Bright rooms feel warm and inviting. Dark rooms feel small and gloomy. Open those shades!

 Fix anything that is broken. Buyers will notice and may offer less for your house if repairs are required.

Unclutter your house! Thinning out your closets and pantries will show how much room is actually available.

Fresh paint and new carpet. The two things you can do that help your house sell faster and for more money. Can’t do new carpet? A good cleaning can go a long way as well…

Organize the kitchen! Store any non-essential, small appliances and clean all surfaces. Show off that counter space!

Empty all trash bins and hide dirty laundry. This will help eliminate any odors they might cause.

Make sure all doors open and close smoothly. Fix any doors that squeak or are hard to open or close.

Replace light bulbs with new ones and make sure switches work. Burnt out lightbulbs are not a good look, and flipping a switch to have nothing happen is baffling to a buyer. All of which takes away from the house.

While this certainly isn’t an exhaustive list of things that can be done to a house to help it sell faster and for more money, doing these alone will do wonders towards the possibility of both. Even in a seller’s market it pays to have your house stand out above the rest!

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Pricing Your Home to Sell

Posted by john ljungdahl on September 20, 2016
Posted in: Uncategorized. Leave a comment

magnifying-glass“How much should we list the house for?” If I had a nickel for every time I have been asked that question…

If you read my “The only 4 things that matter when selling your home” blog post from a few months ago, one of the 4 things was price. Admittedly, price is everything when selling your home. The location, condition and marketing plan mean very little if the house isn’t priced appropriately. But wait, don’t confuse “appropriately” with less than other houses around or anything. Because appropriately can mean different things depending on the market.

When you go to set a price on your house, there are three options you can consider. Your Realtor should have lots of information that will help you determine which option makes the most sense for you and your situation.

Option 1: Price above fair market value

“Yep, let’s do that” I can hear you all saying. But let’s hold on a minute and see what that really means and what the pros and cons could be.

First, was does it mean. Simply put, it means that if the market is telling you the house will likely sell for instance, in the $195,000-205,000 range, that you would then set a price of say, $210,000 (or more). However, you have to determine if this is even an option for you by identifying a reason (or many) why your house holds more value. If you cannot reasonably explain why your house is definitively better than all of those other comparable houses, then this option isn’t the way to go. Additionally, let’s be clear that when we say it is an option to go above market value, we mean to do so realistically. If in the scenario above you want to do $225,000 that could be a problem.

The pros (or pro in this case), because I know that is what you want to see first…

1. You might just set a new value for your house and the neighborhood by finding that perfect buyer.

Taking the risk and getting more money for you is obviously nice. And sometimes worth the risk.

However, that is the only pro in this option.

The cons, which in this scenario are more abundant than the pros because this is a high risk, high reward option.

1. You might get a lot of showings from curious buyers wondering why yours costs more than the others in the neighborhood. But get no offers from those showings.

So, you will spend lots of time and effort getting ready for showings and getting nothing from it. Higher prices tend to bring out the “looky-loo” crowd who just want to see the most expensive house in the neighborhood.

The worst bi-product of this option is that you could watch the houses around you sell. Because you have made those the better value for the buyer.

2. Your house could take substantially longer to sell.

When the other houses in the neighborhood are selling, and yours isn’t, that is tough to stomach. And as your house sits, buyers see all of the other sales in the area and wonder what is wrong with your house? It may be nothing, but they don’t know that. So you must be able to be in for the long haul.

3. You might have to deal with low-ball offers.

If there is one thing you learn in real estate, it is that when a buyer thinks your house is overpriced, their reaction is to submit an even lower price than market value. It’s almost like they think the seller shouldn’t make a huge profit, but instead they should get a huge deal. It’s a strange concept, but it happens. So unless you are willing to sift through what could be some insulting offers and not take it personally (or blame your agent) then this probably isn’t for you.

4. The house still has to appraise for the purchase price for the buyer’s lender to approve the deal.

So, you found the perfect buyer willing to pay more for your house than the market indicates, that’s great. Problem could be that the appraiser for the lender doesn’t see the same value as everyone else does. And in most cases, what they say goes. Something to keep in mind.

Option 2: Price at fair market value

In the example from above, the market is telling you that your house needs to be priced between $195,000-$205,000 and you do exactly that. You find where in that range makes the most sense for your house, and price it accordingly.

Pros…

1. You will get showings mostly from those serious buyers who know the market and are ready to buy now and more likely to make an offer.
Serious buyers are going to know about what houses in your neighborhood should go for. So their searches are set up appropriately to find those houses. Pricing your house right in that range tells the buyers that your house is going to be like the others they have maybe seen in the neighborhood, and maybe missed out on. They are not coming to see why the price is so high (or low, more on that later) but coming to see it as a potential purchase.

2. Less negotiation needed as the house is priced appropriately for the neighborhood.

When you price your house right the first time, negotiations become much easier, because when the price is in line with the rest of the neighborhood, there doesn’t need to be the back and forth of trying to prove why the price should be this or that. Both sides should see the value and negotiate based on that.

3. Your house will sell typically in the average amount of time for the neighborhood.

Serious buyers, plus easier negotiations typically means your house will sell at the same pace as the average for the neighborhood. Which could be significantly quicker than if the house is overpriced as above.

There is really on one con for this strategy (if you can call it a con):

1. You may not get any more money than list price.

Again, not necessarily a con as getting what you are asking is hard to spin as bad. But the allure of getting more than list price is something all sellers want, but is not usually expected going with this option.

Option 3: Price below fair market value

Following the examples from above, this would be were you see the $195,000-$205,000 valuation but decide that you want to price the house at $190,000 (or less). But why would anyone do that, you ask? Fair question.

Pros…

1. Your house will likely sell much faster than the average for your neighborhood.

Remember those serious buyers who know the market value for your neighborhood and will go see the houses in that range? Well, think of your house as like being “on sale” to them. They will see it and want to immediately see it and if it measures up, they will buy. Making your time on the market very short.

2. A buyer frenzy could lead to a multiple offer situation driving up the price.

When lots of serious buyers see your house and the value it presents compared to the rest of the neighborhood, they are likely to want to buy it. When more than buyer thinks this, you as the seller win. Because there is a good chance the purchase will be above what you were asking. So, not only could you sell the house very fast due to high interest, but also get a price more in line with the market value of the neighborhood. If only all sales were that easy!

3. You will be in a better negotiating position when it comes to inspection repair items.

Don’t like the idea of having to go through a repair list from the buyer before they purchase it? Or simply don’t have the cash to make it all happen in time? Having the lower price is a good way to avoid having to do much (if anything) to your house before it sells. Your position is that the lower purchase price is in lieu of any repairs. Plus it lets the buyers do what they want to the house.

Con…

1. You could end up selling it at the list price, which is less than the market says you could get for the house.

Using this option needs to be done so with the understanding that this is possible and that if it does happen, it will be ok with you. Because sometimes, even in a multiple offer situation, that doesn’t guarantee those offers will be over list price. Perhaps your best offer is at list price.

So there you have it, the three options to consider when you want to sell your house. Again, the option you choose should be based on the information your Realtor provides showing how each looks for your specific situation and how much risk you are willing to take.

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    John Ljungdahl
    Berkshire Hathaway HomeServices Stein & Summers
    6423 N Cosby Ave Kansas City, MO 64151
    816-665-1266
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