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| For Buyers
The Best Investment As a fairly general rule, houses appreciate about four or five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, and region to region. Five percent may not seem like that much at first. Stocks (at times) appreciate much more, and you could easily earn over the same return with a very safe investment in treasury bills or bonds. But take a second look… Presumably, if you bought a $200,000 house, you did not pay cash for the house. You got a mortgage, too. Suppose you put as much as twenty percent down – that would be an investment of $40,000. At an appreciation rate of 5% annually, a $200,000 house would increase in value $10,000 during the first year. That means you earned $10,000 with an investment of $40,000. Your annual "return on investment" would be a whopping twenty-five percent. Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax deductible, the government is essentially subsidizing your house purchase. Your rate of return when buying a house is higher than most any other investment you could make. Determining Your Offer Price When you prepare an offer to purchase a house, you already know the seller’s asking price. But what price are you going to offer and how do you come up with that figure? Determining your offer price is a three-step process. First, you look at recent sales of similar properties to come up with a price range. Then, you analyze additional data, such as the condition of the house, improvements made to the property, current market conditions, and the circumstances of the seller. This will help you settle on a price you think would be fair to pay for the house. Finally, depending on your negotiating style, you adjust your "fair" price and come up with what you want to put in your offer. Comparable Sales The first step in determining the price you are
willing to offer is to look at the recent sales of similar houses.
These are called "comparable sales." Comparable sales
are recent sales of houses that compare closely to the one you are
looking to purchase. Specifically, you want to compare prices of
houses that are similar in square footage, number of bedrooms and
bathrooms, garage space, lot size, and type of construction. There are three main sources of information on comparable sales, all of which are easily accessed by a real estate agent. It is somewhat more difficult for the general public to access this data, and in some cases impossible. Two of the most obvious information sources are the public record and the Multiple Listing Service. Writing an Offer to Purchase Real Estate Once you find the house you want to buy, the next step is to write an offer – which is not as easy as it sounds. Your offer is the first step toward negotiating a sales contract with the seller. Since this is just the beginning of negotiations, you should put yourself in the seller’s shoes and imagine his or her reaction to everything you include. Your goal is to get what you want, and imagining the seller’s reactions will help you attain that goal. The offer is much more complicated than simply coming up with a price and saying, "This is what I’ll pay." Because of the huge dollar amounts involved, especially in today’s litigious society, both you and the seller want to build in protections and contingencies to protect your investment and limit your risk. In an offer to purchase real estate, you include not only the price you are willing to pay, but other details of the purchase as well. This includes how you intend to finance the house, your down payment, who pays what closing costs, what inspections are performed, timetables, whether personal property is included in the purchase, terms of cancellation, any repairs you want performed, which professional services will be used, when you get physical possession of the property, and how to settle disputes should they occur. It is certainly more involved than buying a car. And more important. Buying a house is a major event for both the buyer and seller. It will affect your finances more than any other previous purchase or investment. The seller makes plans based on your offer that affect his finances, too. However, it is more important than just money. In the 1 to 2 hours it takes to write an offer you are making decisions that affect how you live for the next several years, if not the rest of your life. The seller is going to review your offer carefully, because it also affects how he or she lives the rest of their life. That sounds dramatic. It sounds like a cliché. Every real estate book or article you read says the same thing. They all say it because it is true. Choosing the Best Loan There are many types of mortgage programs available. The right type of loan for you depends upon several factors:
When considering loan programs, the first decision is usually if you prefer a fixed-rate mortgage or adjustable-rate mortgage. For example, a 15-year fixed-rate mortgage can save you thousands of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable-rate mortgage may get you started with a lower monthly payment than a fixed-rate mortgage, but your payments could increase when the interest rate changes. Use this comparison table to help you determine your preference. After you decide, visit the fixed-rate mortgage or adjustable-rate mortgage sections to learn more about the features and benefits of fixed-rate or adjustable-rate loan programs.
For Sellers The Multiple Listing Service MLS stands for Multiple Listing Service. Basically, the MLS is a big property warehouse - sort of like a "home depot." When property is available for sale, it goes in the warehouse. When it is sold, it gets taken out of the warehouse. Since real estate cannot actually be stored in a warehouse, the MLS only contains information. So the MLS is actually a database - an extremely convenient way to know what is available for sale at a given moment. That is why real estate agents developed the MLS. Quick knowledge of house inventory made agents more productive. The Evolving MLS: Since developing and maintaining the MLS system wasn't free, agents created local "MLS Associations," required membership, and charged each other annual dues (plus additional fees) so that they could pay for the necessary staff and materials to make it work. In the really olden days, an agent submitted listings to their local association and the MLS staff compiled the data on what was available for sale and what had been sold. Once a week (or so) MLS members received a book that showed all the current listings. Then (in the "merely" olden days) computers
came along and made it easier to create the listing books. When
modems came along the books were no longer necessary, though it
took agents awhile to adjust. MLS members could now "dial in"
directly to the computer. Beginning in 1996, some property information from the MLS was placed on the web. It isn't as current as dialing directly into the computer, and information on the web does not contain all the properties available in the MLS. Plus, there is no national MLS or database. Information you find on the web is compiled from local and regional MLS systems, not all of which participate on the web to the same extent. Why the MLS works for home sellers: The whole MLS idea is a boon to sellers because of "supply and demand." How can you, as a seller, get access to the largest number of buyers? Placing an ad in a newspaper? Or putting your house information into a computer accessible by every MLS member who will show your property to their qualified buyers in your price range? Being placed in the MLS expands a home seller's sales force, exposes the property to a larger pool of prospective home buyers, and creates more demand for the property. The higher the demand, the more pricing power enjoyed by the homeowner - and the quicker a house will sell. Why the MLS works for home buyers: It is extremely convenient, does not cost a penny to buyers, plus you get a qualified and experienced guide to help you through the complicated process of becoming a homeowner. Showing the House Your house should always be available for show, even though it may occasionally be inconvenient for you. Let your listing agent put a lock box in a convenient place to make it easy for other agents to show your house to homebuyers. Otherwise, agents will have to schedule appointments, which is an inconvenience. Most will just skip your house to show the house of someone else who is more cooperative. Most agents will call and give you at least a couple of hours notice before showing your property. If you refuse to let them show it at that time, they will just skip your house. Even if they come back another time, it will probably be with different buyers and you may have just lost a chance to sell your house. Try Not to be Home Homebuyers will feel like intruders if you are home when they visit, and they might not be as receptive toward viewing your house. Visit the local coffee house, yogurt shop, or take the kids to the local park. If you absolutely cannot leave, try to remain in an out of they way area of the house and do not move from room to room. Do not volunteer any information, but answer any questions the agent may ask. Lighting When you know someone is coming by to tour your house, turn on all the indoor and outdoor lights – even during the day. At night, a lit house gives a "homey" impression when viewed from the street. During the daytime, turning on the lights prevents harsh shadows from sunlight and it brightens up any dim areas. Your house looks more homey and cheerful with the lights on. Fragrances Do not use scented sprays to prepare for visitors. It is too obvious and many people find the smells of those sprays offensive, not to mention that some may be allergic. If you want to have a pleasant aroma in your house, have a potpourri pot or something natural. Or turn on a stove burner (or the oven) for a moment and put a drop of vanilla extract on it. It will smell like you have been cooking. Pet Control If you have pets, make sure your listing agent puts a notice with your listing in the multiple listing service. The last thing you want is to have your pet running out the front door and getting lost. If you know someone is coming, it would be best to try to take the pets with you while the homebuyers tour your house. If you cannot do that, It is best to keep dogs in a penned area in the back yard. Try to keep indoor cats in a specific room when you expect visitors, and put a sign on the door. Most of the time, an indoor cat will hide when buyers come to view your property, but they may panic and try to escape. The Kitchen Trash Especially if your kitchen trash can does not have a lid, make sure you empty it every time someone comes to look at your house – even if your trash can is kept under the kitchen sink. Remember that you want to send a positive image about every aspect of your house. Kitchen trash does not send a positive message. You may go through more plastic bags than usual, but it will be worth it. Keep the House Tidy Not everyone makes his or her bed every day, but when selling a house it is recommended that you develop the habit. Pick up papers, do not leave empty glasses in the family room, keep everything freshly dusted and vacuumed. Try your best to have it look like a model house – a house with furniture but nobody really lives there. |
