To Improve, or Not to Improve?

To improve, or not to improve? That is the question many home sellers ask themselves when they’re getting their home ready for the market, and rightfully so: The right improvements can pay off big-time, while many others are a total waste. How do you know which is which?

Of course there’s no easy answer, otherwise people wouldn’t have been puzzling over this question since cave men contemplated slapping a new coat of whale oil on the walls. However, I can propose a rule of thumb (with plenty of exceptions, as all good rules of thumb have) that should help guide your decisions.

Repairs pay off; upgrades don’t; updates might.

Making a repair is correcting part of the home that is deficient, defective, nonoperational, or hazardous. A broken window, missing flooring, a dented garage door, a dishwasher that doesn’t turn on, from something as small as burned out light bulbs to something a large as structural problems or a 3-layer roof. Repairs pay off for two reasons. First, these are items that virtually every buyer who sees the home will see the need to correct as soon as they buy the property. This means the demand for the repair is pretty much universal, and any time you can please your entire target market it’s going to pay off. Second, these are items that are likely to come up as repair requests resulting from the buyer’s home inspection. You might as well make these repairs before you list the home so you can maximize the sale price, rather than settle for a lower price because the property needs repairs and then risk having to fix them anyway.

Making an upgrade is replacing anything in the home that serves its intended purpose and doesn’t noticeably detract from the home’s appeal, simply because you think buyers will enjoy a higher level of finish. Upgrades generally do NOT pay off because of two primary reasons.

First, there is a pretty low likelihood that the new thing you put in happens to be the exact new thing the future buyer would have chosen – let’s call this “taste mismatching.” The buyer had no choice in the matter, so the upgrade is unlikely to be worth to them what it would be worth had they chosen it.

The second reason most improvements don’t pay off is that they generally cost more than they’re worth. Just like a car, the moment you take a home improvement item out of the store it converts to garage sale value. Think about it: Take home a $5,000 kitchen appliance package, leave all the pieces in the original packaging, even keep the receipt, then sell them on Craigslist. Are you getting $5,000 for them? Not a chance, not even close. The same goes for windows, flooring, and many other upgrades assuming the existing components were not in disrepair.

Updates are the middle ground where the money is made or lost. Making an update is refinishing or replacing something that serves its intended function but noticeably and negatively detracts from the home’s appeal, either visibly or functionally, generally due to its age. Updates might include replacing Formica counter tops or the early-90’s baby blue bath fixtures, swapping out brass for brushed nickel light fixtures and door hardware, painting old cabinets and replacing the hinges and pulls, and so on. Updates may or may not give you a positive return. Increase your chances of reaping a positive return by selecting projects which meet the following guidelines:

-         -  Low in cost. In general, the higher the cost, the lower likelihood it will pay back. That’s why cleaning and painting are so effective.

-          - Likely to be desired by most buyers in your area. Go neutral in taste, and aim to match the level of finish you see in competing properties. 

      - Improve curb appeal. Curb appeal projects rank consistently at the top of return on investment.

-          - Have a dramatic visual impact – the uglier the “before,” the better the “after” looks. A perfectly functioning furnace shouldn’t be replaced just because it’s old, unless it’s a converted oil furnace circa 1962 that takes up half of your basement. Then, it just might be worth it to chunk in $2,000 for a new one. Same goes for covering up outlandish paint colors or undoing taste-specific improvements.

-          - Able to be completed using labor and/or materials you can get for below-market prices. For instance, your brother is a carpenter, or you scored a bunch of nice light fixtures from a builder’s surplus and can install them yourself.

In fact, here's an easy-to-use flow chart that will resolve all your home improvement quandaries:

In the end, the best way to answer the question of whether to make improvements will depend greatly on your specific home, your resources, and what’s typical and in-demand for your market area. Your best bet, and an investment that is sure to pay off, is to engage your favorite real estate professional and a home stager for their professional opinion.

The Hairy, Scary, Winter Market (A Myth)

Every winter I do my best to combat the stale advice we’ve been hearing for decades – “wait until spring to sell your home.” This year, the evidence to the contrary is as compelling as ever.

Take a look at the chart below as an example, then read on...

It is undeniably true that the number of buyers in the winter market is only fraction of the number of buyers during the summer. However, that’s only half the story. What matters most is not simply how many buyers there are but how many buyers there are compared to the number of sellers. Judgments shouldn’t be based solely on demand but on the relationship between demand and supply.

Let’s say you’re a potential home seller in Anyville, IL, deciding when to sell. And let’s say that during any time of year, like clockwork, every month three people purchase homes in Anyville. In the summer, usually 10 homes are on the market at any given time. And in the winter, only four homes are on the market at a time. Yet month in and month out, regardless of how many homes are available, exactly three of them sell. So in summer, the three buyers choose from 10 homes; three homes sell, and seven don’t. In winter, three buyers choose from four homes; three homes sell, and only one doesn’t.

During which of those markets would YOU rather sell?

In reality, demand for real estate isn’t fixed throughout the year - it does decrease during winter. However, the SUPPLY of real estate decreases even more, which skews the market in favor of sellers. In fact, according to a National Association of Realtors survey done last winter, the single most common complaint from winter home buyers is that there is not enough inventory to choose from. What about the weather, wasn’t THAT a popular complaint? It barely made the list. Why? The NAR also found that 89% of home buyers use the Internet in their search, so when it’s 20 below and sleeting, you’d better believe buyers are looking at homes. They’re just doing it while curled up in front of the fireplace, rather than trudging through the snow.

And as for waiting until spring? Well, that might not be such a good idea. Demand increases gradually and steadily from around December through May or June. Supply, however, increases suddenly and drastically in March, FAR outpacing the increase in demand. The result is that March is actually the single worst month of the year to sell a home. In no other month is the supply-and-demand relationship skewed more in favor of buyers. 

So if you’re still thinking of “waiting until spring,” it would seem that what your momma told you about not “jumping off a bridge just because everyone else is doing it” might be the best advice you could hear.

Anyone, Anywhere

You know by now that we are your local real estate resource. What you might not know is that we can help just about anyone, anywhere with their real estate needs. Buyers of vacation homes in other states, those relocating into or out of our state, anyone buying or selling real estate across the country even if their move has nothing to do with our local area – we can help them all.

How? In addition to our proven Regional Partnership model which has empowered us to create satisfied clients from Vernon Hills to Manteno, we have also facilitated successful relationships in Indiana, Wisconsin, Arizona, Florida, Wyoming, and more. As a member of the largest real estate company in the country with over 100,000 agents nationwide, we will do the legwork to identify a top-quality agent wherever you or your loved ones need service.

So next time ANYONE you care about has real estate needs, whether near or far, please don’t allow them to fall into the hands of a weak or average professional. Contact us and we’ll make sure they get superior service. Remember our motto: Friends Don’t Let Friends Hire Bad Agents^SM. 

How to WIN in Multiple Offers

When more than one buyer submits an offer on the same listing at the same time, that is a multiple offer situation. Today's market is full of them - most buyers I work with encounter at least one, and many of my listings end up going that route as well. So how do you WIN in a multiple offer situation?

Well, if you're the seller and you've received multiple offers, congratulations: You've pretty much already won. It's still important to take care in negotiating the offers appropriately to get the best outcome, but the odds are in your favor.

As a buyer, multiple offer situations can be incredibly frustrating. Sometimes you know how many other offers are on the property. Sometimes you know whether they are cash or financed. In rare instances you might even know the price of one or more of the other offers. Usually, you know none of the above. All you know is that there are "multiple offers" and you need to submit your "highest and best" offer by a certain date and time. If you haven't been in that situation before, just imagine the house you want to live in is now hanging in the balance of what is essentially a blind auction in which the spectrum of truths runs from "you don't have a chance" to "the other offer(s) are junk and you're bidding the price up against yourself." Thoughts and emotions swirl, and making a decision can be difficult, especially when more than one person is involved.

Here's how to win. It has nothing directly to do with percentages, asking prices, comparable sales, or other objective concepts - at some point, all of that becomes too much noise, too many considerations, too many variables and assumptions. This may seem simple, and yet from being involved in countless transactions of this nature I can promise you it's the only way to come out of the situation feeling good about it: You have to choose a Magic Number. That's right, a Magic Number. That's the price (and terms, but mostly the price) at which...

- If you do get the property, you're happy and you don't feel you overpaid, AND
- If you don't get the property, you're ok letting the other offeror(s) have it.

If you do get it, you'll never know what the other offers were, and you never need to. If you don't get it, you'll eventually find out (when it closes) what the winning offer was, and if you were honest with yourself when you chose your Magic Number, you'll look at the closed price and feel satisfied because you know you wouldn't have paid that much.

The best way to make sure you've arrived at the real Magic Number? Fast forward a year, or five or 10 years, and look back on the decision to imagine how you'll feel about it in the future. Things that seem to matter a lot right now (for instance, $1,000) seem to pale in comparison to more important things in the long term, and those more important things are what buying a home is all about.

Tips for Selling Your Home Yourself

You might be a little surprised to see a real estate broker post a blog with that headline. It's not a trick, though: There is an article that ran in the Chicago Tribune on Sunday bearing that title, so of course I read it to see what the author had to say, and I can't say I really disagree with any of it.

In fact, by spelling out many of the costs (in time and money) of selling a home yourself, I think the author has inadvertently made a great case for why sellers SHOULD hire a real estate broker. As a FSBO (For Sale By Owner), the author explains that you'll need to:

- Price the home accurately by "visiting comparable homes, pulling public records on recent sales and doing research on the Internet."
- Hire a professional photographer.
- Design and print brochures that "look professional. Make sure all of your copy is clear, accurate, and lists all features of the house." She also references hiring a graphic artist to do some of this work.
- Post information about the house to Pinterest, Instagram, Facebook, and Twitter, including paid advertising on Facebook.
- List the house on major websites such as Zillow, Trulia, and Realtor.com.
- Set up "a simple website for about $500."
- Create and upload a video to YouTube, and/or hire a company to create a professional video tour, then link the video to social media and any other websites where you're advertising.

Take a second to go back over that list and add up the cost in time and the cost in money of researching, selecting, planning, designing, and advertising. Also consider whether you've done a professional-quality job at each of these tasks, and how quickly you've executed each of them. Let's assume that you did all of this quickly, accurately, and with ease, quality, and affordability. I know, it's a bold assumption, but just play along.

So all of the above is done, and now you're home free, right?? Wait, just a few more things:
- Since you've done a great job so far, your phone is now ringing for showings. In fact, it's a little obnoxious that you're a busy enough person and are now trying to manage, accommodate, and keep track of showings during weekdays, evenings, and weekends. A little piece of you wonders who all these people are that you're going to let into your home, whether any of them are thieves, creeps, psychopaths, or bonafide qualified buyers.
- Unless you want to eliminate 88% of potential buyers (that's the percentage of buyers who bought a home in 2013 who were represented by a real estate broker), you'll probably want to offer a commission to a buyer's agent, typically 2.5% of the sale price.
- Once you've received an offer, assuming it came from a buyer who is represented by an agent, you get to negotiate the terms of a 12-page contract against a professional negotiator who knows that contract inside and out. If the buyer DOESN'T have an agent, then you'll be deciding with the buyer on such terms as tax prorations, financing timelines, inspection contingencies, post-closing possession terms, closing cost credits, two pages of sale-of-home contingency terms, and maybe whether the FHA UMIP will be financed or not. All common knowledge, right?

Assuming the contract goes smoothly (don't you just love my assumptions!) - meaning the inspection goes fine, the buyer has no problem obtaining a mortgage in the specified time frame and no problem selling their home, and everybody's happy - you get to the closing table. You take a look at your net proceeds and start to add up the costs - what you paid the buyer's agent, all the advertising, marketing, photos, brochures, websites, etc. - and the time you put into researching every decision every step of the way, showing people the house, and learning about legal concepts you'll probably never use again. And you realize that for little to no extra money, you could have done absolutely ZERO of all of that, and instead just dumped all of it onto a competent pro with a single swipe of a pen.

If you're aware of all this and still believe you're best served by going it alone, then by all means, have at it. Otherwise, just uncap your pen and we'll take care of the rest.

Conventional Wisdom: Overturned

As conventional real estate wisdom has it, sellers should “wait until spring to list your house because there are no buyers during the winter.” Perhaps that was true at one time. If it was, it is no longer. Realtor.com just released a survey of winter buyers that was conducted last month and which shows some very different information. Here’s what they said…

-          When asked about the biggest challenges when searching for a home during winter, the most common answers were that there is not enough inventory within their price range (45 percent of respondents), and that there is not enough inventory on the market (34 percent). The biggest complaint was that there are not enough homes for sale.

·          

-          Among the top reasons consumers are looking to buy a home in winter? 24 percent revealed that they were unable to buy a house during spring or summer. The truth is, there weren’t enough homes for sale this spring and summer to satisfy demand. These buyers wanted to be in their next home by now and are way behind schedule. How would you rate their motivation?

-          If that’s not enough to make you reconsider waiting until spring, consider that 19 percent of those surveyed are planning to purchase this winter using all cash.

What we have then is a lot of buyers who couldn’t find a home during spring or summer, who are complaining there are not enough homes for sale during the winter, and a fifth of them are cash buyers. So if you’re considering selling soon, when would be a good time to do it? Probably right about… now.

Getting Your Offer Accepted

As Bob Dylan, said, “The times, they are changin’.” Not too long ago, advice on this topic wouldn’t have been necessary. Since the beginning of this year, however, one of the biggest challenges buyers have faced is wrapping their heads around the fact that they don’t call the shots anymore. Inventory is way down across the board, and for the first time in a long time there are more buyers than sellers. So landing a great deal takes a bit more effort than it has in recent years.

As a buyer, there are certain things you seek in a home. Your needs are unique, but the general characteristics that make a home appealing within a particular area or price range are almost universal amongst buyers. That means you’ve got competition. More and more, well-priced listings are attracting multiple offers within days after hitting the market, and they’re selling for sometimes far in excess of the seller’s asking price. Even without multiple offers on the table, sellers of well-priced listings know if any given offer isn’t all that attractive, they can simply wait for the next one which should be arriving shortly. The seller has their pick of buyers, and it’s up to you to convince them you’re the one!

What sellers are looking for is NOT just the highest possible price, though – they’re looking for the best possible price with the highest likelihood of closing. So what can you do to make your offer more attractive than others?

 Price. Although price isn’t the only concern, it’s still the primary one. Offer high enough, and the other considerations fade out as dollar signs enter the sellers’ eyes.

Financing. Plain and simple, cash is king. Sellers frequently accept lower cash offers because their likelihood of closing is much higher than that of a financed offer. If you don’t have enough cash available, consider such creative methods as 401(k) loans, private mortgages (i.e. to a family member), or for investors, hard money. If you must finance, then use the strongest financing you can qualify for. In order, that would be:

a.       Conventional with 20% or more down

b.      Conventional with less than 20% down

c.       FHA with 10% or more down

d.      FHA with less than 10% down

e.       Rehab loan, such as FHA 203(k)

           Time. Typically, sellers list their homes when they’re ready to sell them. (Duh, right?) So the faster you can close, the faster they can move on with their lives. If you’re buying cash, you can probably close within two weeks. With conventional financing you can shoot for 30 days, and with FHA you’re looking at 30-45. Rehab loans take a minimum of 60 days and can easily drag on for much longer.

      Contingencies. The fewer contingencies, the better. Attorney review and inspection contingencies are built into the contract, but that doesn’t mean they can’t be waived/eliminated. If you must finance the purchase, then you must include a financing contingency – there’s no way around that. A sale of home contingency (you have to sell your house in order to buy the next one) significantly weakens your offer by extending the time frame and introducing a large amount of uncertainty. If you’re competing with other offers and you are contingent-on-sale, you’re very unlikely to win.

       Incentives. Additional personal property, closing cost credits, seller-paid points, home warranties, high tax prorations, pre-closing possession… These are just some of the “perks” buyers can, and frequently have, requested when making offers over the last few years. On top of nickel-and-diming the sellers with these items, they complicate the presentation of the offer. Author Les Brown said, “Shoot for moon. Even if you miss, you’ll land among the stars.” Sorry Les, but in this market if you shoot for the moon as a buyer you’ll likely just end up by yourself in outer space. Keep the perks to a minimum if you want the best price, or to get the house at all.

      Heart strings. Most sellers are human beings, and most human beings have emotions. In some instances, it can work in your favor to submit a “personal letter” to the seller to demonstrate why you love their home and how you’ll take great care of it for many years. When to include a personal letter is a topic for another day!

Here’s the rule of negotiations, of which I’m sure Yogi Berra would approve: Everything other than price costs money. Handing a briefcase full of cash to the seller on the spot is the surest, fastest way to complete the sale, and if you could do that, you would get the house for the absolute lowest price possible (although it’s probably not a great idea for other reasons). Anything beyond that – each extra step, each contingency, each week that must pass before closing, each nugget of uncertainty – must be accompanied by a higher price to compensate the seller for the additional risk. On the opposite end of the spectrum from the briefcase-full-of-cash buyer is the buyer who makes an offer contingent-on-sale, financed with a 203(k) rehab loan, a 90-day closing, and throw in the 1976 Eldorado that’s in the garage. This buyer would have to pay dearly in order for their offer to even be considered.

Keep these considerations in mind when you’re thinking about how to structure an offer. Better yet, hire an agent who can advise you as to how much you can ask for on any given listing while still getting a house you’ll love for the best possible price.