Real Estate Done Right

FSBO - Why Not?

Barney Griggs — Sun, 11 May 2008 20:44:05 GMT

I guess everyone who has ever sold a piece of real estate has considered trying to sell it themselves, i.e. without hiring an agent. There are quite a few venues that cater to FSBO's (For Sale by Owner), most of which have a Rush Limbaugh like tone regarding how badly the innocent home seller is taken to the cleaners by the do-nothing, grasping, real estate agents and extolling the virtues and ease of selling property without an agent.

So the sellers who fall for this line of thinking pay hundreds of dollars for low circulation publications and do-nothing web-sites so that they can get calls from unqualified buyers, waste their time showing their homes to would-be buyers who either have no intention of buying or no ability to buy. Sometimes they get as far as a contract contingent on the moon and stars, which removes their property from the market until the agreement falls apart.

Of course, not every FSBO experience is like the above, but many of them are and the above is the tone that these FSBO ad rags use to get their customers. For the records here are points to consider before you launch into selling your home unassisted:

1. Many FSBO's who actually sell their homes are successful only because they sell it for less than market value.
2. Some FSBO's run afoul of the various disclosure, fair-housing, and other regulatory requirements because they don't know about them or don't they think they apply. Unfortunately, these laws apply to all sellers and have significant penalties for those who do not abide by them.
3. Only about 15% of FSBO's actually sell their property. The rest simply waste time and money before listing with an agent.
4. Agents make their livings by knowing their jobs, knowing the laws, being part of a large network of professionals, and being familiar with a large number of local properties, not just one.
5. The logic is really simple. Would you write your own insurance policy, your own will, defend yourself in court, perform you own root canal therapy, replace your own transmission, and on and on? Probably not. Why?? = Because you don't know how. Same thing with selling property.

Administering the purchase and sale of real estate is a big job with lots of steps, rules, conditions, and problems. In the end, it's worth every penny you pay to hire a knowledgeable agent to help out.

Market Update

Barney Griggs — Sun, 11 May 2008 20:43:15 GMT

We have now pretty much entered the spring selling season full tilt and the Upper Valley real estate market seems to be very active. The first quarter of 2008 was, in fact, so much better than the fourth quarter of 2007, that it seemed like a return to the old days. Lots of properties were on the market and there were also lots of well-informed buyers out there to buy them. Rates remained low then and are still low today. So a lot of positive results in the first quarter of what many feared would be a very slow year and the trend has continued into the second quarter.

On the other side of the coin, days on the market is up slightly, sale prices are down, but not dramatically so, and as we enter the warmer months, loads of properties are being offered for sale. The increased inventory is good for the buyers, giving them more choices and potentially driving prices down some, which is, of course, not so good for the sellers. The other problem area is getting mortgage financing. Lenders, the ones who are still in business, are a lot pickier than in the past and loan applications that require a little creativity or outside-the-box thinking are having a rough go of it. All the lenders want the borrower, in their parlance, to have "a little skin" in the game; meaning no more 100% loans, credit scores have to be higher than in the past, and the really good rates are reserved for the very most qualified borrowers.

So, what to do?

Buyers - get yourself some representation from an experienced agent, who will help you sort through all of the property choices and navigate the purchase and sale process. At the same time, be sure you have no credit problems and get pre-qualified by your lender with a letter to that effect accompanying your offer.

Sellers - Even though you may not want to hear it - listen to your broker, if you have one. If you don't have one, find an experienced agent who will help you put together a strategy to get your property sold for the very top dollar that can be gotten. The days of set the price high and prepare for a lot of negotiation are over. The buyers have too many choices now and will just move on if your price is way off the market. Set your price within 5% of what you are willing to accept and stick firmly to it. You will sell faster and, in the end, get a better price.

Good luck out there!

Foreclosures - What IF?

Barney Griggs — Sun, 11 May 2008 20:43:53 GMT

We're all hearing and reading about the "mortgage meltdown" and the "foreclosure crisis", that is occurring all over the country. Happily, here in the Upper Valley, the effects have been minimal. Certainly there have been more foreclosure actions than before, but comparatively speaking, not very many. However, if you or someone you know is in foreclosure or about to be, there are a few things to think about.

Once again, lest it be forgotten, I am not an attorney and do not want to pretend to be one, so any comments found here are strictly from my experience assisting people who are trying to sell their home with the lender breathing down their neck.

Paying the wrong bills: One of the biggest mistakes that folks in financial difficulty make is paying the wrong bills. When there isn't enough money to go around, the tendency is to pay the creditors that make the most noise. That is almost invariably the credit card collection people. They will call the most often and use the most threatening language and the most intimidating tactics. There's a reason for that - THEIR DEBT IS UNSECURED! There is nothing they can do to collect except convince you to pay through harassment. They are smart enough to know that if you are in financial straits, there is no future in suing for the money. They also know that if it comes to bankruptcy, their interests are usually behind the secured debt and there will probably be nothing left for them. Soooo, they call and call and call to get what they can while the getting good. There is nothing for them to repossess, nothing to foreclose on. All they can do is stop letting you charge things.

Paying the right bills: The bills that should be paid first, even though they are usually the biggest are, first and foremost, your home mortgage. The mortgage folks don't usually call very much lulling you into thinking they are not taking action. WRONG!!! They don't bother to call so much because they are secured. They will take your house and sell it to get their money back. Your house is your biggest asset. It is where you live. Even if you are upside down, your home has the best prospect over time for appreciation. Your credit cards will not appreciate.

The next bill to pay is for your car. You can't get reliably to work without transportation. If you can't afford your present car, trade it in on something cheaper while your credit is still OK. If you just don't pay, they will call some, but ultimately they will come and take your car and you will not be able to buy another one. Protect your biggest asset and the way you get to your job. The rest can wait and they will.

Negotiate from strength: If you see yourself going under water, be proactive. Call your mortgage company. You should at least be able to negotiate paying only the interest on your loan. Some lenders will also work with you to defer payments and add them to the end of your loan. Whatever agreement you work out, get it in writing. Same thing with the car. If you have to trade down, do it before your credit is shot. Don't wait for a miracle until you are trapped with no credit and no cash. Same thing with the electric and the fuel bill. Call up and get on a payment plan and pay it. Cancel the cable and the cell phone and the gym membership. Skip the manicures, the hair appointments, the eating out.

If you have retirement funds, 401k's etc., don't pay bills with the money. In most instances, the funds are protected if it should come to bankruptcy. Why be both bankrupt and have no retirement fund? Check with your attorney for the details and make it work.

The biggest problem for hard working people who have never been in financial difficulty is that they have no experience with it and do the wrong things. Get some counseling from a trusted financial adviser or attorney. But mostly, do something! If you just throw up your hands and hide because you're embarrassed or afraid, nature will simply take its course and you will be the worse off for it. Work through it and learn from it. Good luck!

No Agency/Broker Agency/Sub-Agency

Barney Griggs — Tue, 29 Apr 2008 18:58:02 GMT

If Buyer Agency or Seller Agency doesn't fit the bill, there are some lesser used forms that exist in some states and not in others:

No Agency - In this case, a buyer or seller, lessee or lessor, can elect to not be represented in an agency capacity at all. In agency parlance, they would be a "customer" rather than a "client". There is nothing wrong with entering into a transaction without agency representation. All licensees and especially all REALTORS are bound by law and by the REALTOR code to treat all parties to a transaction honestly, competently, and to provide full disclosure of any material facts about the property that they are aware of. Agency representation raises the bar, adding loyalty, confidentiality, and a few other good things into the equation. No agency, in a nutshell, has some good and bad depending on your attitude toward the process. Not being bound to an agent allows a buyer or seller more flexibility to "play the field" and work with more than one agent at the same time. The down side is that it cuts both ways. Agents operating without a contract tend to spend more time and effort on clients that are loyal and working with them exclusively for the obvious reasons. Some states only have No Agency.

Broker Agency - A broker's agent is just what it seems it would be. The broker is representing only themselves and their brokerage in a transaction. It is similar to "No Agency" in that the buyer or seller is not represented, but is a little more forthright in outlining the fact that the broker is acting in their own best interests. Brokers must still treat all concerned fairly and honestly, but are spending their time and energy in a way that benefits them, not at the expense of the buyer or seller, but without extra effort being expended to act in the direct interest of the parties to the transaction. Broker Agency is not allowed in some states.

Sub-Agency - A sub-agent is usually a broker from a company other than the listing agency who brings the buyer, but is still representing the seller as a sub-agent of the listing agent. So, the sub-agent is usually a seller's agent, but it is not as obvious to the public as when a consumer contacts the actual listing agent. Consequently, sub-agency has been outlawed in some states (e.g. Vermont) to avoid consumer confusion.

Potentially the most important part of agency is not the form that is selected by the consumer, but the proper disclosure of who is representing whom by the agent dealing with the public. In the interest of fair play and open business practice, agents must disclose who, if anyone, they are representing before any substantive contact with the uninformed consumer takes place (usually before a showing or a listing presentation).

Again, whole books have been written about the various forms of agency and the rationale behind them, as well as the legal and political ramifications of the subject. Obviously, the above is one agent's perspective on the subject and is not meant to be a legal interpretation or exhaustive explanation. A good source of additional and more detailed information on agency can be found at each state's real estate commission.

Seller Agency - More Than You Think

Barney Griggs — Thu, 24 Apr 2008 19:12:19 GMT

The most common and well-known form of seller is seller agency. Seller agency occurs when a property owner "lists" their property with a broker for sale, lease or exchange. Entering into a listing agreement constitutes "agency representation" between the agent, his company, and the seller. This agreement, as a practical matter, opens the door for several things, among others:

It allows the broker to offer the property for sale, lease or exchange on behalf of the seller.
It allows the broker to accept a money deposit and hold it in escrow on behalf of the seller unless otherwise directed.
It allows the broker to show the property, advertise the property, and be privy to the seller's motivation, financial goal as it pertains to the sale, and a load of other privileged information.

The agreement also places lots of responsibilities on the broker, a few of which are:

The broker owes his allegiance to the seller that he represents and must deal honestly with the seller and any prospects or buyers that are involved.
The broker must maintain absolute confidentiality regarding any privileged information that the seller might share.
The broker is obliged to share with the seller any information that he may glean from a buyer or prospective buyer that would impact a negotiation or the process of the sale.

As we discussed before, these are many of the same responsibilities due a buyer in a buyer agency agreement. So the idea is that an agent, whether buyer or seller is being represented, can expect the same level of loyalty, competence, confidentiality, and honesty from their agent.

Needless to say, the concept of agency can vary widely from the actual performance of agency duties because every agent and every buyer or seller has a different personality, a different perception of the seriousness of the agreement, different motivations, and different ethical standards among many other differences.

Consequently, hiring an agent is serious business. When you interview an agent as a seller, the above should be at least among the criteria that you use to make your decision. Of course a seller wants the highest price available in the shortest amount of time. That's what all seller's want. But achieving that goal is not just about the size of the company, how big the ad is or how many times the property will be advertised.

In the end, its really all about competency, honesty, loyalty, ethical standards and confidentiality. Without these things, the rest of it is all just window dressing and the result will be less success and more chance for problems of all kinds.

Buyer Agency - Why Not?

Barney Griggs — Thu, 24 Apr 2008 19:12:46 GMT

The newest form of agency relationship is Buyer Agency. Though it has been around for many years in the residential area and for even longer in the commercial world, it is still probably the least known and understood of the various forms. Of course, the simple definition is that Buyer Agency occurs when a buyer of real estate hires, in writing, a licensee to represent their interests in a real estate transaction.

Though it seems simple, many would-be buyers don't seem to trust the process enough to really use it or even enter into it. I suspect the reason for this reticence is at least partly not knowing enough about it. So, here are a few facts to consider:

A Buyer Agent does not necessarily have to be paid by the buyer. In fact, on the residential side, Buyer Agents are almost invariably paid in the traditional manner, i.e. they receive a portion of the sales commission at the closing.
A Buyer Agent's job is to represent only the buyer's interests. The agent must be loyal, competent and put the client/buyer's interest before all others including his own. A big part of the job is not to sell their client anything, but to help them to buy. They do this in large measure by unearthing facts about the property and the market place that their buyer/clients may not have the time or the resources to get on their own.
Many would-be buyers don't understand that when they respond to an ad in the newspaper or on-line about a specific property listing, they are usually talking to the seller's agent, whose job actually is to sell them that listing. This is why most states now require so many acknowledgments and disclosures to help buyers understand that they should not share all of their financial and other personal data with this agent because he is bound to share that info with the seller in a negotiation.

Obviously, whole books have been written about agency, buyer and otherwise, and the laws and rules vary from state to state, so the above is only an intro into the concept. But, on the face of it, if you are going to buy property, there is practically no reason not to interview some agents, find one that you like and trust, and hire them to represent you. It probably won't cost you any money and you can glean a lot of positive results.

Agency - All Kinds

Barney Griggs — Wed, 16 Apr 2008 07:27:31 GMT

One of the concepts that has become prevalent in the real estate industry over the last couple of decades is "agency". It's always been around either through its presence or its absence, but as state law has developed over the years, agency has become more complicated. There are more kinds of agency, and the laws pertaining to it are more specific.

The basic premise is, as always in regulated professions, to protect the consumer. Consequently, disclosures regarding agency are now required before a buyer looks at a property for sale, before a seller lists their property, and the same applies for rentals in some states. The idea is to help the consumer, especially the first timers, understand their rights under the law and the protections and benefits being afforded them by agency representation.

We will cover the various types of agency and their benefits in the upcoming installments, not in the legal sense, because I'm not an attorney; but from the point of view of a licensee and REALTOR. Stay tuned and see what it means to have an agent represent you in a real estate transaction.

Your Home and Your Taxes

Barney Griggs — Mon, 14 Apr 2008 20:27:23 GMT

I was working on my income tax return today and it occurred to me, like it does every year at tax time, that I'm sure glad that I own my home. As tax relief for the middle class continues to dwindle, about the only remaining deductions of any substance are only available to owners of real estate. In most cases, property owners can deduct mortgage interest, discount points, and real estate taxes for starters and with mortgage amounts soaring right along with home prices coupled with taxes that go nowhere but up, some significant numbers can be used as personal deductions.

If you own rental property, there are even more opportunities to defray the taxes on your rental income. Depreciation, repairs, management fees and a plethora of other miscellaneous deductions come into play, which along with the rents help an investor-owner to enjoy the benefits of being a landlord.

Of course, with reward comes responsibility. When you are a tenant and the furnace breaks down or has to be replaced, you call your landlord and they have to make it right at their expense, not yours. In many cases, you don't have to mow the lawn or plow the snow or even pay for heating costs. But when you buy a home, repairs, replacements, services and utilities all are expenses that you have to bear, so in a sense, you are taking on additional risk for the potential tax savings. But let's face it, if you are making a salary, you're going to have to pay the income tax, so buying a home or rental property can offer huge rewards, not just financial, but some intangibles like "pride of ownership", a sense of stability from knowing that you won't have to move out at the end of a lease and being able to decorate your home anyway you choose come into play.

Soooooooo - check it out. Talk to your tax advisor about how the tax benefits of home or rental property ownership might apply to you. If it makes sense and you can afford it - jump in. Interest rates are at historic lows, there's plenty of properties to choose from and yes - there are some bargains out there.

Rental Season Is Upon Us!

Barney Griggs — Mon, 14 Apr 2008 20:26:48 GMT

Well, if spring is here, then it must also be the beginning of the Upper Valley rental season. Most landlords try very hard to have their leases end in the warmer months between April and October. It seems to work for the tenants as well, because who wants to move when it's ten below zero? So, as surely as the buds begin to show up on the trees, "For Rent" ads start to sprout up and calls start to come in for rental possibilities.

A large portion of the rental activity in the Upper Valley is centered around Dartmouth-Hitchcock Medical Center. Aside from the fact that DHMC is a super large employer, early spring is the time when medical school students are thinking about finding a place to live prior to beginning their journey into medicine. Medical school graduates who have matched DHMC for their residency are on the move and their opposite numbers who are finishing up either a residency or medical school are moving on to their next challenge.

Later in the year, the Tuck School entrants will be coming in and seeking accommodations, visiting nurses are on the move, renters who have become homeowners are leaving their apartments to start their new adventure, family sizes have increased over the last lease term and larger quarters are necessary. Marriages, divorces, new employment, loss of employment, job transfers and on and on contribute to the active Upper Valley rental scene. In most years, about 30-40% of rental units "turn over" in property management parlance and that keeps managers, carpet cleaners and maintenance staff plenty busy. All of this makes for an active and competitive rental marketplace.

If you're looking to rent a place to live, here are a few tips on getting the perfect rental:

Start early, but not too early. Most leases give the current tenants 60 days from expiration to decide whether they are staying. So landlords do not know what will be available until a minimum of 60 days before leases expire.
If you find a place you want, get your application back right away. Landlords are looking for the first qualified tenant they can find.
Be prepared to deliver a deposit check as soon as your application is approved. Few landlords will "hold" a rental without a deposit.
Be diligent. Work the newspapers, the rental websites, the bulletin boards, and follow up "word of mouth" leads.

Probably the most important thing to do in finding a new rental is to have been a good tenant for past landlords! Many leases are 4-8 pages long, but most property managers will tell you that all of that writing usually boils down to just three things:

Pay the rent on time! If it's due on the first of the month, have it arrive on or before the first. Landlords love this and it will help to get you a good reference for next time.
Don't disturb the neighbors! If your loud and annoying parties, pets, car, stereo, television, slamming doors, fighting with your room-mate etc. etc. generate a complaint, it hurts - a lot. Landlords hate these calls and will warn future landlords looking for a rental reference.
Don't tear the place up! This includes keeping and then leaving the unit like a pig-sty. Just pretend your mom is watching. Wipe your feet, clean the oven, range and refrigerator, vacuum the carpets, and please, clean your own bathroom. Landlords just hate cleaning up after slobs and will tell the world how you treated their property.

Sooooooooo - Good luck and happy moving!

Upper Valley Spring Market Report

Barney Griggs — Sun, 06 Apr 2008 08:29:39 GMT

It's now one day away from April 1rst and, contrary to the predictions of many pundits and "experts", the real estate market and the rental market in the Upper Valley area, at least, is humming along as if there had been no downturn. Buyers are buying and sellers are selling. The only important difference between this spring market and spring markets past is that the properties that are selling are the ones that are priced correctly. Of course, this has always been true, only now more than ever. Multiple offer sales are quite common this spring, which you would not necessarily expect in a "down" market. Here's why.

What is happening is that there is still a load of inventory out there that is growing every day. The sellers who have gotten good advice from their agents and are heeding that advice are pricing their homes at or very near whatever price it is that they will accept and not dickering very much. Buyers are jumping on those properties that are priced in accordance with the value of the marketplace and, many times, multiple buyers are jumping on the same property. Obviously, "days on the market" figures for these properties are low. Some properties are selling within a week or less and taking back-up offers to boot.

Does this mean that these lucky sellers are "giving their property away"? I'm afraid not. It means that they are actually selling their property at the top of the current market, rather than having their listing sit around for a year or more while they either look for a miracle or try to time the market. The current market is all about value, and for now, buyers and lenders are going to settle for nothing less. Rates are low and there's certainly no better time to buy than right now. If you need to sell, here's my motto that you can sew right onto a sampler: "Price it right and it will sell tonight!"

Real Estate Boom, Stock Market Bust?

Barney Griggs — Mon, 31 Mar 2008 07:41:54 GMT

I don't know how many remember the glory days of the dot.com boom, but in those days (about 1995 - 1998) the real estate market was pretty slow. Probably not in recession, but activity was down, median prices dropped in most areas of the country and a lot of developers and builders lost a fair amount of money. What might have caused such a phenomenon? The country was pretty stable politically. There was no war. Oil prices were stable. Why would real estate suddenly start going south after a fairly good run?

My theory is that everybody had their money tied up in stocks. Everybody I knew was trading stocks on the internet. People that didn't know a thing about the stock market had brokerage accounts, margin accounts, mutual funds and you name it. And - the funny thing was that everybody I knew was making money. I was making money. With hardly any exceptions, I at least doubled my money on just about every stock I traded. But then - all good things must come to an end. People got greedy. Traders got greedy. Risk tolerance got all out of whack. Then people and traders got both greedy and arrogant, as if the boom times would never end. Guess what! They ended. The dot.com boom turned into the dot.com bust. A lot of folks lost all the money they made and more. Brokerage houses went under or were gobbled up by other more prudent companies. All of a sudden everybody was getting out of the stock market. Prices dropped like a stone. The Dow Jones average took a dive. Retirement funds and 401k's went way south. Corporations started reneging on retirement plans and health insurance benefits for retired workers. Some people went to jail. Does any of this sound similar to the CNN reports on today's housing market?

Well, where did all of that money that was taken out of the market go? Not gold, not platinum, not fine art or wine. It went back into real estate from whence it had come and kicked off one of the most astounding real estate booms in modern history. Prices of houses in the Upper Valley were appreciating at 20%-30% per year for some of those years. Developers couldn't develop new properties fast enough. Farmers sold their herds and their farms and retired. People were flipping houses in thirty days and making killer profits. TV shows were created, books were written, and fortunes were made telling ordinary folks how to get rich in real estate. Banks were making loans to anybody who filled out an application and some didn't even have to apply. A familiar scenario, just a different venue.

Now - the real estate boom has become the real estate bust and guess what - the stock market is booming again. Interest rate cuts are the order of the day to protect housing, but it's the stock market that's reaping the benefit, because the money, both real and imaginary, that was holding up the real estate boom is now back in the stock market from whence it came.

What does it mean? It means that people are human; they're greedy and want to make an easy buck. There's nothing wrong with that for as long as it lasts, but look out stock traders. Real estate will come back and when the tide turns back, it'll be time to sell, sell sell your stocks and buy back into real estate.

I'd Love To Hear From You

Barney Griggs — Wed, 26 Mar 2008 20:26:48 GMT

If anybody has the time, I'd love to hear your opinion on the various subjects covered here or requests for other information or your reaction to the blog and its contents. It would help me to try to make each post more interesting and useful. Thanks in advance for any participation.

The Market and Interest Rates

Barney Griggs — Wed, 26 Mar 2008 20:28:24 GMT

When you talk about the real estate market, especially in the Upper Valley, it's important to remember that local market performance is inextricably linked to mortgage interest rates. Sure, in Hanover and Norwich, maybe Lyme, there are plenty of million dollar plus properties and the buyers of those most times pay cash, but the vast majority of real estate transactions here and all over the country involve a mortgage loan and key to that process is interest rates.

We'll save a more in depth look at the mechanics of mortgage process, discount points, closing costs and so on for a later post. For the purposes of this discussion, we'll talk about the ways that market performance and interest rates work in concert. Probably the most important market segment is "first time buyers" who can have a double impact on sales. Generally speaking, first time buyers have the most difficult time acquiring a mortgage loan because:

Many first-timers do not have much cash to use for a down-payment and closing costs, so they have a higher "loan to value ratio". That means they must many times borrow 95% of the property's value rather than the more standard 80%.

They sometimes have lower credit scores and less time on the job, which causes problems. They can also have a high "debt to income" ratio which lenders do not like to see.
In markets like the Upper Valley where median prices are over $200K and over $300K in some communities, there are only a few properties that are in an affordable price range.

What this all means is that one point of interest increase can sometimes take these buyers out of the market, because it raises their monthly payment enough to mess up their "housing cost to income" ratio, which should be about 30%. When the first-timers get priced out of the market, it also ripples up. Former first-timers who, in many cases are the sellers of more affordable properties, suddenly lack the pool of buyers that enable them to sell and move up and the cycle moves up the chain until you get to the buyers who are paying cash, who of course, benefit, because the effect of higher interest rates is to drive housing prices down. That's why, when prices are already down from other economic catastrophes, like war, $4.00/gallon fuel, ever-increasing taxes, etc. , the FED invariably lowers rates to keep the market from total collapse.

Next time we'll look at the tie-in when housing prices and interest rates meet the stock market. It may feel like conspiracy theory, but history doesn't lie. Stay tuned!

Condos - The Ugly

Barney Griggs — Sun, 23 Mar 2008 19:28:04 GMT

Here in the Upper Valley, there are some problems with condos aside from the personal difficulties described in my last post. It's these problems that are the most profound and hardest to cure and these are also the problems that, in the end, have the biggest impact on buyers and sellers.

Ugly Problem # 1 - As a function of total housing units in this area, condos are a smaller than average percentage of the housing market. In larger metropolitan areas, condos, co-ops, and other common ownership arrangements are, in some areas, the norm and in some areas, at least equal in market size to single family residences. Bottom line - there just aren't very many condos in the Upper Valley. The reasons for this are both complex and simple. The simple reason is that the Upper Valley's municipal mentality toward large housing projects is not very favorable. The more complicated reason is that there is a kind of cultural bias against condos because, by their very nature, they are viewed as the antithesis of what makes this area a special and desirable place to live.

Ugly Problem # 2 - Partially because of Ugly Problem # 1 and partially because of a lack of economies of scale associated with building larger common interest projects, brand new condos are expensive for what you get and offer few, if any, of the happy side benefits of community life, i.e. golf courses, swimming pools, etc. The result is that many buyers pay too much.

Ugly Problem # 3 - Mostly because of Ugly Problem # 1 combined with Ugly Problem #2, condos, particularly attached units, do not hold their value. People who buy brand new units from the developer, unless they buy and hold for the long term (20 years or so), most times have trouble even recouping their original investment. Further, when "hard times" arrive in the real estate market, I usually say that "condos are the last in and the first out." What I mean is that condos are the last housing units to appreciate in value and the first ones to depreciate when the market turns.

Ugly Problem # 4 - The "last in, first out" syndrome usually winds up as a big bonus for residential investors and a bad situation for condo owners. When the market turns and owners can't sell their units for what they have into them, many think, "I'll just rent my unit until the market rebounds." The fly in the ointment is that when a large number of would-be sellers decide to rent, the glut of new rentals drives rents down and makes the problem worse. If the "hard times" persist, it can lead to foreclosures and auctions where block investors come in and buy up units at a deep discount and because they bought them on the cheap, are able to hold them for rental at whatever they can get, further aggravating the situation. Block ownership also changes the owner occupancy ratio making units harder to finance and things get even worse. And so on until the next boom, if it comes.

Of course, the above doesn't apply to every condo project, all of the time, but represents a disturbing trend that I have observed over the last 25 years in the Upper Valley real estate market. What does one do? I don't know, but "forewarned is forearmed".

Condos - The Bad

Barney Griggs — Wed, 19 Mar 2008 20:33:00 GMT

As in everything, with a condo purchase, there is also some downside. Many, especially first time condo buyers, don't have a frame of reference for what the condo lifestyle will actually be like and tend to focus on the benefits, like no lawn care, no snow shoveling etc. But, as in life, you have to take the bitter with the sweet.

Neighbors in Close Proximity - Many condos are physically attached to each other, either on each side in the case of townhouses, or worse still, stacked on top of one another. Either way, and no matter what sort of insulation is installed, you can hear your neighbors. You can hear them open and close their doors, you can hear their dishwasher running, you can hear their tv or stereo, and in the worst cases, you can hear a lot of things you would just rather not hear. And guess what? - They can hear you too!

Shared Amenities - The sales pitch for a lot of developments is the fact that the community offers amenities, like a swimming pool, tennis courts, workout areas, clubhouses, and in some cases, golf courses, ski slopes, restaurants and more. The problem is, if you don't use these amenities, you still get to pay for them because the cost of their operation is included in your monthly dues. If you do use them, you have to share them with your neighbors, whom you may or may not like to be around. Some of them, like golf courses, you must pay an extra fee to use, to boot.

Maintenance Problems - If you have moved into a condo from a single family home where you maintained or caused to be maintained your lawn, plantings, snow removal, and other jobs, you have, no doubt, set a standard of performance that you expect including the schedule, the frequency, right down to exactly how much sand is applied to the walkway; salt or no salt; mulch or no mulch; how long or how short the lawn is cut; fertilizer or no fertilizer and on and on. In a condo, you don't get to choose - the Board of Directors sets the budget and the budget dictates what level of service you will receive. If you don't like it, the answer will be, "We can do that, but the dues will go way up."

I could go on for a long time listing the personal choices and freedoms you give up when you move into a managed community, but you get the idea. You trade the benefit of not having to do the work for the dissatisfaction of not having the work done the way you want it, privacy for no privacy, your choice of amenities for amenities that you may never use, but still have to pay for - and there's nothing you can do about it.

Next time we'll cover the ugly side of condo life.

Condos - The Good, The Bad and The Ugly

Barney Griggs — Wed, 19 Mar 2008 20:22:45 GMT

Retirees, first-timers, and some in-between make up a large percentage of condominium buyers . The reasons are pretty intuitive and help to illustrate why condominiums are perfect for some folks and others just hate them.

Retirees are tired of mowing lawns, plowing and shoveling snow, and worrying about major repairs. This doesn't mean that they don't care about how the lawn and gardens look or whether the walks and drives are plowed, because they do - many of them passionately. It just means that they would rather pay dues rather than pay individual contractors or do the work themselves. I think retirees also like the more intimate neighborhood arrangement that condominium life offers. A chance to more easily meet neighbors who might share common interests and, in some cases, an active community based lifestyle are appealing when one has left behind a home of long-standing and downsized.

For first time buyers, the answer is also pretty easy to understand. Generally speaking, a buyer with a limited budget or credit history can get more "bang for their buck" buying into a common interest community. So, these buyers, just starting out, can get into home ownership instead of paying rent and get more amenities than they could afford in the single family home market. Plus, like the retirees, there is the added benefit of no yard work etc. so that these, usually singles or couples, have more time to do the things that younger people do.

The in-between crowd is made up of people of all ages who are starting over, for some reason. Divorce, death of a spouse, just moving into town and so on. These folks like the lower prices, the lack of maintenance work and buy in, planning top move on in the short term.

Then, of course, there are the investors, who don't really fit into any one category above. There are some good reasons to invest in condo properties and some pitfalls as well. But generally, condo investors are buying to hold their unit(s) for rental. For them, questions of management, maintenance, collections and appreciation are important.

The above represents the good or at least potential good side of buying into a condo community. Next we'll explore the bad, and then later, the ugly.

And Now the Good News

Barney Griggs — Mon, 10 Mar 2008 19:35:21 GMT

In all of the negative news coverage, there has been little attention paid either locally or nationally to the the positive aspects of the current market conditions. It seems to me that, particularly in a time of political turmoil, terrorism fears, historically high fuel, food and medical costs, not to mention thousands of innocents abroad and in harm's way, that a little positive outlook is both necessary and desirable. Let's think about it -

Interest rates are at an all time low. If you are a qualified buyer that has a reasonable chance of repaying the debt, you can get a real estate mortgage loan that is very advantageous. Sure, you've got to work at it a little; shop around, be mindful of your credit report and have some cash available to purchase. But, let's face it, that is really the way it has always been and should have been. That's not negative - it's normal.
There is a large selection of available properties to purchase. But, it's the same as Number 1: you've got to work at it a little; shop around, be mindful of the marketplace and have some cash available for the purchase. Not every property is priced the way you would like it to be. (What's different about that?) Not every seller is receptive to a low-ball offer. (What's different about that?) But right now there are some bargains out there.
If you're a seller, there are a load of buyers out there looking. Sure, you've got to work a little: shop around for a knowledgeable broker or be prepared to do the work yourself, have enough equity in the property or available cash to pay off the mortgage and selling expenses. (What's different about that?) Not every buyer will pay a price that is above market value just because you decide that the price is "what you need" or "what you want". (What's different about that?) Buyers, their agents, and appraisers are tough on market value. (What's different about that?) But properties of all types are selling every day out there.

So, as always, buyers are buying, sellers are selling, lenders are lending. The main difference? In this market, everybody has to work a little harder at it.

In my view, that's a good thing.

Local Market Update

Barney Griggs — Mon, 10 Mar 2008 19:34:54 GMT

All of the news about real estate these days from CNN, Bloomberg, our local news outlets, and even our friends, neighbors, and local real estate professionals is pretty much bad. Apparently there is a mortgage crisis, new housing sales are down by scary margins, existing home sales are fewer than in several years, a larger percentage of homeowners are late on their mortgage payments, and foreclosures are up. The spin-off bad news is that people are losing their jobs; mortgage companies are laying off, manufactured housing plants are laying off and closing, car and retail sales are down, lumber and building materials sales are down, furniture and appliance sales are down and the economy in general is in a slump.

When asked "What do you think it means?", I have come to the following conclusions:

Real estate and housing are a gigantic factor in the success or failure of our national, state and local economy and when things go bad in housing, every single other industry is affected. A home is most people's largest single investment and when its value begins to decrease, even though a home's market value can be abstract in concept, the real dollar implications of that decrease manifest themselves everywhere.
This is not the first time in my memory (which is admittedly a long one) that we have seen these exact symptoms in the housing market. Those of us old enough to remember the housing slumps/recessions of 1974, 1982, 1989, 1997 and now 2007/8 know in our hearts that all markets, including the housing market, are cyclical.
Generally speaking, all but the most sophisticated investors think with their hearts and not with their heads when it comes to their home, where their children have been raised or are being raised, or will ultimately be raised. Everyone wants the very best for their children, their family and themselves and are willing to accept risk to get it. Unfortunately, not every home owner clearly understands what the risks are, what's at stake, and how best to mitigate the risks.
While there are always plenty of scapegoats when things go bad, in the end it is the property owners themselves that are at fault for making bad choices when it comes to real estate investment. Having said that, of course, the lenders, the government, the regulators and lots of others have a piece of the blame, but you have to admit that nobody put a gun to the head of any individual and forced them to borrow more than they could pay back in order to purchase property and nobody forced property owners to continue to refinance all of the equity out of their holdings beyond their ability to repay either. Put simply, many folks were gambling and they lost. The "Last Sucker Theory of Real Estate Investment" has played itself out again with the exact same result as it has always had.

But - enough with the bad news!! Let's get to the good news. We'll touch on the favorable aspects of our current market conditions in the next installment.

Welcome to the Real Estate Done Right Blog

Barney Griggs — Mon, 10 Mar 2008 19:33:45 GMT

After so many years in the real estate business, I've gone through a bunch of methods of staying in contact with former clients, prospects, associates, and the whole phone book full of contacts of all sorts. I've knocked on doors, used cold calling, direct mail pieces, postcards, newsletters, door hangers, fridge magnets, and a lot of things that I now don't even remember. But it appears that now, in the age of the internet, that I'm going to try the latest communication method (of course, it's really not that new) - a web log or blog, for short. This way I only invite people to read what I have to say, not send them something that they don't care about and throw away; not to mention, in the "going green" department, saving a few trees worth of paper as well as ink, postage, and delivery costs. So I hope that, if you are reading this, you'll check back often to read my take on real estate matters of all kinds.

Of course, much of what I write will be centered on the Upper Valley where I do my business, but some of the subjects will have, if not universal, at least a broad, general appeal. I hope to speak to first time, buyers, sellers, experienced investors, managers, renters, landlords, and anyone who has an interest in real estate and all that goes with it.

So, join me often, feel free to comment, agree, disagree, expand, question, and put me on the spot. One of us or even both, may just learn something of value. Sooooo - Let's get started!