January 2012 Blogs

4 Real Estate Resolutions for 2012

If you’re anything like the average New Year’s Resolution-setter, you’ve probably already declared that 2012 will be your year. And that means different things to different people. It might be the year you pay off your credit cards, fit back into your “skinny” clothes, or finally take that dream vacation you’ve been eyeing.

Given the volatility of the real estate market over the last few years, my guess is that more than a few of you are also considering including real estate resolutions on the short list of things you want to take care of over the next 12 months.

Whether your stage of life renders you more interested in buying, selling, getting right side up - consider adding one of these real estate resolutions to your list:

1.  Buyer Resolution: fix up your financials and buy a home.  It’s no secret that the mortgage lending world is tough out there. But don’t let that stop you from buying a home in 2012. The name of the game is to prepare, prepare, prepare.

In particular:

  •  Pull your papers together: Spend January gathering up: your past two years’ federal tax returns and W-2s; your last two months’ pay stubs; and statements from bank and other asset accounts, like retirement accounts and investment accounts. You might also find it handy to have marriage and divorce certificates on hand, as well as the statements from any credit, auto or student loan accounts you hold.

  •  Also, start keeping a running file to collect and keep handy new stubs and statements throughout the year; when you find your dream home, your lender will ask you to refresh your application with the latest versions.

  •  Compile your cash to close: If you’re serious about buying a home this year, you’ve probably already started saving up - or at least know where and how you plan to access your down payment funds. Early this year, meet up with your real estate and mortgage brokers and do a double-check on how much cash you’ll need for your down payment and closing costs to buy the sort of home you’re looking for in a location you’d like.

  •  Also, touch base with your team on timing matters around any gift money or money from your own retirement accounts that you plan to use toward your purchase. You might need some lead time in order to draw your own funds, specific documentation of where the monies came from, or a couple of months for the money to sit and ‘season’ in your own accounts before the lender will greenlight the deal; the best practice is to make yourself aware of any such requirements as soon as possible.

  •  Have your mortgage pro run your credit report. Again, if you’re planning to buy this year, chances are good you’ve already pulled your own reports from the three bureaus. But as you move down the home buying timeline, it’s imperative to get your mortgage broker or banker to pull their versions of your reports, as that what the lender will go by.

This is another task you should check off your to-do list sooner rather than later. If by chance an error or issue does arise, you’ll need some time to remediate your report, whether by paying off that mystery collection, disputing an erroneous ding on your own or paying for your broker to obtain a Rapid Rescore.

2.  Seller Resolution: Price it, spruce it and sell it.  A too-high price is a sure-fire way to ensure  your home lags on the market, causing you more anxiety and costing you more money as the days turn into weeks, months or even longer. Rather than testing the market, the end result of overpricing is usually that you end up receive no or lowball offers, or even resigning yourself to lowering the price below what you could have originally gotten, to offset the stigma of desperation buyers sense when a home has been on the market a long time.

Resolve to price your home right before it goes on the Multiple Listing Service. Study your local market, visit Open Houses similar to yours, look at as many recent comparable sales as possible, and talk to your agent in detail – talk to several agents, if that makes you more comfortable -- before landing on your home’s list price. 2012 is going to be another competitive year for sellers, so manage your own urge to overprice in order to position your home to best the competition.

One more thing – given the intense level of competition among homes, curb appeal can go a long way to entice buyers to come and see your house. Of course, it behooves you to stage the inside too, but don’t overlook outside upgrades like shrubbery, flowers and painting the exterior.

And before you worry about breaking the bank, use your agent as a resource to get insight into what local buyers want, aesthetically, these days. Chances are there are a few critical, inexpensive projects you can undertake to boost buyers’ desire to come in and have a look around. Keep costs down by painting trims, doors, eaves and focusing on landscaping, and using your repair budget on small fixes like driveway cracks and fallen shutters.

3.  Owner Resolution: Get right-side up.  Over 25 percent of Americans who have a mortgage owe more than their home is currently worth. While getting right-side up, so to speak, is certainly easier said than done, it’s not impossible (especially if you include getting your payments lowered in your definition of right-side up).

2012 might be your year to:

  •  take advantage of newly expanded federal underwater refinance programs like the Home Affordable Refinance Program (HARP 2) and Hardest Hit Funds (if you live in one of the states on this list);

  •  get assertive about getting a loan modification – even if you’ve been rejected before, and even if you have to get help from a non-profit credit counseling organization or a program like NACA’s Home Save program;

  •  get a second job or rent out a room to catch up on payments or pay down your balance or, if all else fails;

  •  put your home on the market, listing it as a short sale.

Keep in mind that the federal income tax exemption on mortgage debt that is forgiven through a foreclosure or short sale is currently set to expire on December 31st of this year, but banks are taking around 2 years after the first missed payment, on average, to foreclose on homes. If you list your home as a short sale with an experienced short sale agent, stat, you have a better chance of avoiding the potentially massive income tax implications of offloading your upside down home than you do if you just stop making the payments and walk away from it!

Talk with a local agent with a their track record of closing short sales, and with a local attorney and CPA before you make this move.

4.   Renter Resolution: Make the rent vs. buy decision and start saving, if you decide to buy.  Depending on where you live, it might actually be cheaper to own a home than to rent it! Mortgage rates hit record lows last month (below 4% for a 30-year-fixed!), and there are tons of homes on the market, tilting the supply-demand imbalance in buyers’ favor. If you live in an area with a strong buyer’s market and think you might be ready to commit to homeownership, this is exactly the right time to start getting serious about making the decision whether to proceed down the path to home ownership.

It can take months – even years – to save enough cash to buy a home, not to mention the many moons it takes today’s buyers to find and buy a home. So, if you do decide to buy, you’d be wise to start your saving up for a down payment now to maximize your chances of getting into the market while home prices are still relatively low (even if that is a year or more down the road).

In that vein, look for spending cuts you can make that will enable you to save as much as possible each month until you reach your goal. Take on extra work, if you can, to stash more cash in your savings account. And consider setting up a separate savings account called “Home” where you can watch it grow and stay inspired to keep moving toward your goal.

8 Remedies for Real Estate Remorse

With a transaction as large in dollar amount and life-changing impact as the purchase or sale of a home, experiencing some level of remorse - second-guessing your decision, or even wishing you hadn’t made it - is par for the course.

Contrary to popular belief, real estate remorse is not strictly the province of buyers. Experience has taught me that on bed the night the contract is signed, the buyer lies awake thinking they could have gotten the place for less - while the seller does the same exact thing across town, thinking they could have gotten more. (Both tend to ring up their agents; that’s how I know this is true!)

But there’s a deeper flavor of real estate remorse that doesn’t go away. It can even haunt a buyer or seller years down the road as they wake up every single day for years on end, regretting their choice of home or mortgage - or the choice to sell or walk away. Whether you’re already suffering from it, or you’re still in active buying or selling mode and want to avoid falling victim, here are my eight cures for real estate remorse.

1.  Before you get started, write out your vision of the life you want to live after you close the deal.  It’s easy to get distracted once you’re in the weeds of the actual transaction, losing sight of what’s really important to you - what motivated you to start the process in the first place.  So, before you get started, put pen to paper and write out exactly what sort of lifestyle you are trying to create - financially and otherwise - by taking this path.

Make sure you include your wants, needs, deal-makers and deal-breakers.

Then, take that notebook or printout with you into meetings with agents and mortgage pros, and even return to it throughout the process to course-correct your decisions, if necessary.  For example, buyers should revisit their vision document and compare it against the home they are in contract to buy before removing contingencies. This is the easiest way to avoid buying a home you could have predicted would not fulfill your needs.

2.  Ask yourself: how does this decision make you feel?  We tend to approach real estate decisions from a place of reason and logic, but sometimes that means we can reason our way right into agreeing to something because it’s easier than sorting out our differences with our mate, or because we’ve been underwater for so long that walking away seems like the only option we still have. The neuroscientists say that the cells in our bodies - and especially our gut - might actually be ‘smarter’ than those in our brains when it comes to making good decisions, as they haven’t been reading the paper or influenced by that guy that shouts all the time on the cable business channels.

So, before you make a decision, weigh your alternatives and see how they make you feel.  Does the idea of living in this home, even though it’s a fixer beyond anything you expected to buy, make you feel peaceful, expansive or secure?  Does the idea of living in the gated community of your wife’s dreams make you feel constricted, anxious or burdened? Does the prospect of short selling vs. staying put and getting a second job make you feel excited and free or on edge?  Often, your intuition and physical senses provide the best clues to the right decision - the decision that will not result in remorse after the fact.

3.  Manage your own mindset.  Don’t fall into the trap of constant discontent. You might have absolutely hated everything about renting, from your landlord to your neighbors, and used that as motivation to save up to buy your own home.  But if you did, and now every single thing about owning (lenders, lawnmowers and such) makes you crazy, you might just be falling into that too-common fallacy of always thinking the grass is greener on the other side.

So cut it out. If you truly want to change the way you feel, stop bonding with others over your collective, perceived miseries and, instead, practice feeling gratitude for 10 things a day. I’m trying to list 10 things I’m grateful for every day for a full month without repeating a single thing!  When you practice gratitude intensively, it is much more difficult to dwell in regret and discontent.

4.  Recognize hypotheticals as hallucinations.  Hypotheticals, by definition, are the opposite of what is real. So living in a hypothetical world of how much you probably could have gotten the place for, or how much more you might have been able to squeeze out of the buyer if you’d bargained harder after the deal has been done is nothing but fantasy and crazy-making, all wrapped up in an efficient little depressing package.

Even more crazy-making: wondering what you could have offered for that house that would have beaten the other 20 offers. If you are a buyer who has repeatedly been outbid, the wiser practice is to ask your agent to go back and pull the actual sale prices of the homes you lost after they close escrow, to give yourself a good reality check and leverage the experience to help you have a smarter, more successful house hunt going forward.

5.  Be open and willing to have difficult conversations during the deal.  Real estate transactions make some milquetoast types morph into wheeler-dealers, but more often they turn gregarious people pleasers into anxiety-ridden, fear-driven eggshell steppers. Some people who are happy to overshare about virtually anything on Facebook will do everything possible to avoid confrontation - especially when it comes to money matters.

If you’re the type that finds negotiating excruciating and will do anything to avoid having a conversation about money, do yourself and your household finances a huge favor and just suspend that during this deal. If something doesn’t look right on your contract or you don’t understand something in the loan paperwork, ask and keep asking until it is fixed or you do understand. If you agree to buy a place as-is and as-disclosed (with contingencies, of course), but the inspections and repair bids are overwhelming and you’re afraid you might be getting in over your head, don’t let the fear of losing the place stop you from discussing potential compromises with the seller or even talk with your agent or co-buyer about the possibility of backing out of the deal.

6.  Sit still before you start the demolition.  One of the most common forms of remorse I’ve seen is the remorse homeowners have when they start remodeling a place too soon.  The best practice is to live in a place for a few months first, observing patterns in the natural light, traffic, noise and even how your family uses the various areas of space in the home before you start tearing walls down and turning windows into french doors.

7.  Do your own numbers first.  Homeowners who have remorse about getting in over their heads, financially, often end up in that spot because they took someone else’s word about what they could afford, rather than running their own household financials first, then telling their professionals what their maximum spend would be, monthly and otherwise.  Make sure you go into the home buying process clear on what is a sustainable range of monthly housing costs for you and your family based on the total picture of your income and expenses (including your future plans and expenses banks don’t consider, like private school tuition, travel, etc.), rather than expecting someone else to figure this out for you.

8.  Get systematic about your options for resolving the remorse.  If you find yourself in a position where you’re experiencing deep remorse for having bought a particular home, it’s time to stop wallowing and start acting to improve your experience in the home. Systematically list the things that make you crazy about the place. I’ve seen the most long-term buyer’s remorse result from (a) unexpected neighborhood nuisances like noise levels and being located on a street that is busier than the buyer originally thought, and (b) a home with features and condition problems that are worse or more costly to repair than the buyer expected, like the flights of stairs are too numerous or the windows too drafty.

So, make a list of the things that are causing you remorse, then get clear on all your options - and don’t limit your thinking about what those options might be. Maybe you need to plan out the fixes you need, and budget for them, for the next few years out, and start tackling one every month.  I love my home and my neighborhood, but was driven to distraction for months by the fact that I could hear the subway at night. I’d already installed dual paned windows!  My sanity and sleep have been saved by the investment of $10 every couple of months in - you guessed it - earplugs from the drug store.

On the other end of the spectrum, I knew a woman who insisted she could afford to neither sell nor fix her home, she was so upside down, and so stayed remorsefully put in her leaky, fixer-upper home for years before she finally talked with an agent, who was able to get the bank to green light a short sale lickety split.

5 Links Between Your Career and Your Real Estate Decisions

Freud was famously (and incorrectly) quoted as having said “sometimes a cigar is just a cigar.” But with real estate, the exact opposite is true.  Buying, selling, even staying in or moving from your home is rarely just about picking a place to hang your hat. Rather, real estate decisions are whole-life decisions, because they impact and are impacted by nearly every other area of your life.

Most people are highly aware of the fact that their real estate decisions are related to their family matters and their money matters, but many don’t give nearly as much thought to the interconnectedness of whether, how and where you buy your home with your career: past, present and future.

Here are five ways your career and real estate decisions are linked, and some new ways to think about these topics together, to make decisions that better serve both these areas of your life.

Link #1: Location, location, location.  At the top of the market, many areas saw an outflow of professionals from urban areas to the rows of McMansions that lined the gated cul-de-sacs and subdivisions of the suburbs. But as the prices of closer-in homes have declined, home values have melted down in many of these suburban areas and gas prices skyrocketed, many buyers have begun to prioritize urban areas to be closer to their jobs, some even ditching their cars and taking public transportation or walking to work.

Buying a home near work has obvious efficiencies and conveniences, including giving you back the hours you might otherwise have devoted to your commute. However, if your job is located far away from other companies, buying a home to be very nearby can cause issues – especially if your employer ever hits hard times or closes that location.

Link #2:  Job choices and income can limit or enlarge your home options.  As you’ve probably heard by now, mortgage guidelines have gotten very tight lately, with lenders forcing borrowers to stay well within their means, shrinking the amount of documented current monthly income that can be consumed by the new mortgage, property tax and home/mortgage insurance payments.  Lenders also view your job history as relevant; large gaps of unemployed time and even major career moves from one industry to another can trigger a lender to require that you be in a stable work situation for at least two years before they agree to finance your home purchase.

While it might seem obvious that your income would have a direct effect of limiting how much you can afford to spend on a home, what is somewhat less obvious is that the way you make it can also have an impact.  Borrowers who work on commission, earn cash tips and even are self-employed or small business owners may find themselves subjected to stricter guidelines than those who earn a salary, because of the greater burden of documentation lenders may impose. For example, if you’re self-employed, your “income” will likely be determined by your Adjusted Gross Income on your last two years’ federal tax returns, which many entrepreneurs work hard to bring down by making aggressive deductions.

Link #3:  Home and mortgage obligations can limit your career decisions.  While most home buyers are very aware of the extent to which their past job decisions and income impact their real estate moves, there are many ways our real estate commitments can impact our future career decisions.  Smart agents advise their clients not to make any major job moves or go from, say, a salaried position to starting that business you’ve always wanted to in the weeks and months just prior to buying your home. But even after you’ve committed to make a mortgage payment in a market like today’s, where selling can take many months or longer, these obligations can actually limit your ability to work fewer hours, move to a lower-paying job in a field you want to break into, or quit your day job and become an entrepreneur without much more intensive planning and saving than you would have had to do otherwise.

Buying a home on today’s market is a long term commitment; most insiders recommend you not buy unless you are okay staying put at least 5 to 7 years (longer if you’re buying in a locale that has been hard hit by the foreclosure crisis; shorter if your market was relatively immune to the recession).  At the same time, the length of time Americans work for one employer is getting shorter and shorter. Gone are the days when your 30-year mortgage matched right up with the 30 years you could expect to stay on a single job. Over the past few years, I’ve heard more than a few reports of unemployed homeowners who felt stuck in their homes, unable to accept job offers across the country because they were deeply underwater or other market forces made it impossible for them to sell their homes.

The upshot? It’s important to feel comfortable making a long-term geographic commitment to an area before you buy; if you expect you may need to move in the near-term for work, it might be best to rent unless you are able to negotiate for your compensation package to include relocation assistance from your employer.

Link #4:  Health of your local job market impacts your home’s value.  Many news stories have reported how the Silicon Valley real estate market has thrived of late, despite the home value doldrums still being experienced across the rest of the nation. In San Francisco and the South Bay Area, the tech boom means the local job market is booming and employees are being made millionaires by cashing in their stock options when tech companies go public. One of the first purchases many of these new millionaires make is a home.

On the other end of the spectrum, we’ve seen entire regional real estate markets fall into incurable recessions when the only major employer or two in town moves away or shuts down.  Then, not only are you stuck with a home and no job prospects nearby, it becomes very difficult for you to find anyone else to buy it. When an area has a high unemployment rate or no new jobs are being created, not only does it increase the rate of foreclosures and make it difficult to find buyers, it also makes locals who do have jobs very nervous about their job security and hesitant to make the long-term financial and geographic commitment to buying a home.

My advice is to prioritize homes located near bustling job centers and areas with multiple industries that are thriving (and projected to continue doing so), areas in which the job market is not dependent on a single employer or even a single industry.

Link #5:  Your home’s infrastructure can impact your ability to work there.  Things like local internet speeds and networks available, lighting, room configuration - even the age of your home’s electrical system can have a major impact on how comfortably or effectively you are able to work at home – or whether you can work at home at all. And if you are looking to create an area in your home exclusively devoted to working or running a business, that may impact your ability to take extra tax deductions for a home office (a topic you should discuss with your tax professional).

This also highlights the holistic view you should take on how your choice of home impacts the entirety of your life. If you are able to work at home, your choice of home location vis-à-vis work location might be different than if you are not, which might impact what sort of work you do and which employers you prioritize, if you’re looking for a job.

It's like Freud didn't say, but could have - in real estate, nothing is just a cigar.

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