Need to move and not sure what to do with your property?
The following provides a general perspective of your available options and is used in conjunction with the Initial Consultation to help you determine your best available direction regarding your home.
You have options…
Before we go over your options, it is important to understand the components surrounding every real estate decision you will be making. I like to compare the real estate decision-making process to the most famous product comparison test of all time:
THE PEPSI CHALLENGE
Back in the late ‘70’s, the good folks at Pepsi went all over America doing simple taste tests between Pepsi & Coca Cola at shopping malls, amusement parks and other public venues. After drinking from each cup labeled A or B, you’d know which beverage would be your ideal soft drink. From that point forward would drink it forever – at least until Red Bull & Iced Latte’s showed up.
This “comparison challenge” can effectively be employed to determine the purchasing direction of lots of different products – cars, clothes, food, but imagine the Pepsi “Real Estate” Challenge:
Buy or Rent? Sell or Lease?
Offer $500,000 or $510,000?
Chose me or another agent?
Price your property at $450,000 or $399,900?
Marry Mr. Big or wait for someone better?
To provide perspective on the dynamic of a given real estate choice, the Pepsi “Real Estate” Challenge would have to be adjusted as follows:
The Pepsi representative calls for you to spend a minute with him as you are heading into JC Penney, and asks you to sit down at his table. There are no labeled cups A or B. There only sits a can of Pepsi and a can of Coca Cola.
The representative asks, “Which one do you want to drink for the next 5 – 10 years?
“Hmm…” you say. “Can I sample them?”
“No.” the rep says cheerfully, “You must pick one to drink for the next several years, AND you will NEVER have a chance to drink the beverage you don’t pick. Good Luck!”
The most frustrating part of the “Real Estate Pepsi Challenge” is that you won’t be able to fully savor the flavor of the direction you choose until long after the choice has been made, nor can you try more than one option at the same time.
Instead, you can interview every person you can find, including those who share your values and interests, maybe even find a few “taste bud” experts. Your survey could be as extensive as your imagination could take you, but ultimately, you are required to pick the beverage you will be drinking for the next several years without ever tasting either one.
In the context of the Pepsi Challenge, this is absurd, but this is the relation of the choices that await you in any and every real estate pursuit!
Wouldn’t it be nice to be able to simultaneously rent and sell your house and see which one offers a better return? Or, market your house yourself while also hiring someone else at the same time and then see who gets a better price? Pick two sets of renters and see who will pay and maintain the house better?
Think of any decision you can make that will eliminate any other alternatives as soon as you make it. It’s a fork in the road.
Wouldn’t be nice if you could pick both and later determine which is better and just go with that one? Like below:
On to your first choice…
Rent or Sell
This decision should ultimately be the result of a sound investment analysis. The decision of renting or selling your home must exclusively be in line with YOUR long-term objectives. Your long-term objectives must take into account your three valuable resources:
Obviously, money is a huge factor to determine the direction of any investment. This resource is typically the most popular, heavily weighted, and understood. What is less commonly reported or analyzed is the impact an investment can have on your time and emotions, especially an investment in real estate.
The following chapters will help to highlight the relationship between time, money, and emotions. More importantly, it will help you to begin to understand your valuation process of each of these resources and how you can quantify them in relationship to each other.
How valuable is your time? Looking at how much money you make at work is a quick starting point and pretty easy. Determining the value of each hour Monday through Friday from 8-5 takes no more time than looking at your most recent pay stub. However, what would one hour after 5pm or on a weekend afternoon or Sunday morning be worth to YOU. For Orthodox Jews, an hour on the Sabbath is priceless and cannot be purchased. An hour on Christmas day? Any hour from 5 – 8pm is a high valued time for me, as I tend to be playing, feeding, bathing, and putting my kids to bed.
Another way to value your time is to determine the opportunity costs of a given activity and weigh the value of one activity against the value of another. Would you go to the beach on a Tuesday morning if you were able to make $50/hour at work? Would you leave your family and fly all over the world alone working for a million dollars a year?
Exploring the value of your own time is a critical component to investment direction and I strongly recommend exploring your own time values both in relation to money and against other activities, as this will greatly improve the confidence you will have in the direction you take with your property.
How much emotional equity do you have? “Emotional what? Aren’t you a real estate agent? I already have a therapist!”
For many financial planners, this is sort of synonymous with “risk tolerance”. Could you stomach the stress of a risky stock or bond and losing all your money if the reward was substantial? Beyond “investment risk” worry, stress can include dealing with things you prefer not too, like getting calls to fix a leaky toilet, etc. There is also a lot of stress associated with the unknown as well as waiting. Does the unknown or uncertainty create more stress in your life?
Emotional equity can also be quantified positively. Emotions like joy, inspiration, happiness, excitement, and fun create emotional equity. Think of the price, you gladly or perhaps not, paid to be at Disneyland, the unanimous “Happiest Place On Earth”. For our family, the joy of Disneyland is worth the cost of an annual pass – when it’s not crowded! I have met skiers, who will hike through the backcountry all day just for a few minutes of extreme skiing!
In the context of selling, stress can come from the stress of preparing your home, both initially and only an ongoing basis through the marketing period.
Cleaning your house to the level of a properly marketed home can be exhausting, increasing exponentially with each additional child or pet. Having buyer agents call or even knocking on your door without any notice to see you home can be extremely frustrating. Dealing with a tenant who is habitually late on rental payments or calls weekly with little problems can cause stress as well. Of course there are specific ways to avoid and/or greatly reduce the probability of these events which are discussed further in this report.
Imagine the things or experiences that bring you joy, happiness, fun, etc?
How much money (or time) would you pay to experience the joy or happiness or fun you received from the things you just mentioned?
Now, imagine some of the stressful events that took place in your life recently.
How much would you expect to be paid to deal with for heavy stress?
Medium Stress? Some stress?
Similar to your time valuation, the more time you spend exploring the value you place on your emotional well being, the more confidence you will have in your direction.
Financial performance can be measured by its associated cash flows. When the cash is flowing (now or in the future), how much cash is flowing (positive or negative) and the overall combination of these are what comprise the performance of any given investment. Though your time and emotions may be quantified to a dollar amount, we will leave them out of the following examples.
Here are some common considerations in analyzing an investment:
1. Current Cash Value – What would the proceeds of the sale of your home be if you were to sell today? Price – Mortgage(s), Liens, & Transaction costs = Cash Value.
2. Appreciation – How do you expect that value of the price of your home increase or decrease? Plus or minus 5%?
3. Dividend / Cash flow – How much will you net at the end of each month or year after receiving rent and then paying mortgage, property tax, home owner association dues, and improvement costs.
Much of the information to determine your home’s cash value and cash flow can be determined within a relatively decent range. However, the emotional challenge that comes up in determining the factors above revolves around how you perceive the future to unfold.
Will the housing market go up or down? Will the tenant that you find pay as agreed or be a deadbeat? If your home is your primary residence and in order for you to purchase your next home you must sell, your decision may not require this type of analysis.
The most critical factor in getting a confident direction is determining and establishing your own constraints. This includes firming up your current financial situation, determining your own values and objectives and your ideal financial destination.
Once the decision to rent or sell is made, it is time to Maximize Your Profit!
The chart above shows the general relationship of how the three major components of a sale affect the success of a property sale. The chart also assigns who is responsible for each component.
Condition. Though potentially directed and assisted by the listing agent, the seller ultimately determines the condition of a property.
Marketing. The agent almost exclusively determines the quality and extent of the marketing efforts for a given property.
Price. The market and more specifically the buyer who has the ability and the most interest – the one who will part with the greatest amount of money – in buying a given property determines the price.
The following pages add more insight, context, and conviction for making every effort to enhance the condition and marketing of the property. By detailing the relationship and tendencies of different dynamics in the market, you will learn why and how to show greater value than competitive comparable properties to maximize the sales price of your property.
Sellers – The Competition
Unlike the early 00’s, there many different types of sellers in the market, all with common tendencies towards condition and marketing that affect their ultimate sales price. These are the three most common:
1. Equity Sellers are those with proceeds left over from the sale of the property. The purchase price will be higher than the total of the seller’s loan amount and other transaction costs.
2. REO (Real Estate Owned or Bank Owned) Sales are those that have gone through foreclosure and owned by the bank.
3. Short Sellers are those where the proceeds from the sale of a home will not be greater than the loan amount and transaction costs. Because the owner will not have enough to cover the difference, the sales require that the lender allow for the loan or lien to be paid short or part of the debt forgiven. Receiving this approval requires an unknown amount of time.
The following chart shows the general tendencies of these three types of sales in relation to an expected sales price as they related to marketing, property condition, and also the certainty of the sale.
As discussed previously in the Emotional Equity part of the report, the uncertain nature of if or when a bank will approve a borrower’s short pay creates a major emotional strain on the buyer. The amount of time required to approve a short pay weighs heavily on the type of the loan (purchase money, refi, etc), how many loans, and the bank’s impression of the borrower’s financial hardship.
With an understanding of the competitive nature of our selling competition, it is critical to understand the nature and various differences between the buyers currently in the market.
It is important to understand the different types of buyers in the market as not all buyers are equal. It is important to understand how each type provides opportunities and challenges.
Buyers can be categorized in two different ways.
1. Occupancy Type
2. Financing Method.
1. Occupying Buyers plan to live in the home and typically require an emotional connection to buy. I know clients are ready to buy when I hear the word “love”.
2. Investor (Absentee-Owner) plans to rent or “flip” the property in order to increase their wealth.
The main difference between the two buyers is the occupying buyer’s unique capacity to fall in love with a property in addition to their similar ambition to grow their wealth.
The main reason I see so many investors buying distress properties is because the occupying buyer cannot overcome the psychological barrier of past filth in their home, which creates a quantifiable cost, that the investor is not affected by. Investors will not be able to compete with impeccably maintained and appointed homes that draw out much more emotion.
I would even go as far to say that if you are either in escrow or getting offers from investors, you should be re-examining both the condition of your property and the marketing strategy.
The following chart demonstrates the valuation process of both investors & occupying buyers. Where investors are primarily fueled by the promise of financial return, occupying buyers are looking for love, aspects of a home that are highlighted on the chart in pink.
Where the different occupancy types made inferences of how a given buyer will probably value property, the financing method of categorizing a buyer focuses more on how a seller will value a given offer.
1. Cash. The buyer intends to pay cash for the property.
2. Conventional loan. The buyer intends to get a loan for up to possibly 97% of the price of the property. The buyer must qualify for the loan.
3. FHA or VA Financing. The owner has qualified for a government insured loan with a minimal down payment of 3.5 – 5% of the price. The buyer AND the property AND the Home Owners’ Association (HOA) must qualify for the loan.
The chart on the following page details the components of a given offer that makes one more valued than another in the eyes of the seller.
If the price of each offer is the same, a cash buyer is the most valuable. However, it is important to note that buyers with cash and those who need financing typically have different motivations in the use of the property they are looking to buy. Many buyers who will finance a purchase will be looking for homes they will live in, while many cash buyers are investors.
One inference you could make from the chart is to consider how much higher an FHA or VA financed offer would have to be in order for it to be more attractive than a cash buyer. Another consideration to be made is how your own specific situation is different than the other sellers in the marketplace. While some sellers would see a 30 – 60 day escrow as a negative, another seller might find the option of living in their home another few weeks as a great luxury depending on their objectives. There is a stress toll that is taken in longer escrows in the form of stress from uncertainty. No matter who you are about to open escrow with the potential benefits and consequences should be fairly clear to you.
The Buyer Timeline
Another element to understand about buyers is the process they take in purchasing a home:
Understanding this timeline allows for much more efficient and effective marketing efforts. Though an online presence and open houses help drive a property’s exposure, the most likely buyers will be intensely engaged with realtors and lenders just prior to making an offer.
A “motivated” buyer that is about to make an offer will have automatic email alerts coming to them whenever a new listing comes on the market that matches their “ideal range”. They will have intense dialogue with their lender to firm up their best financing option and all the intricate documentation they will need to get a loan. By understanding this dynamic, we can fine tune a marketing plan aiming directly at these “highly motivated” buyers.
The Rocket Science of Property Condition
People are more excited and will part with more of their money for a property in better condition than another. A property that is cleaner, more updated, better smelling, fully functional, that provides them a clear idea of how they can live in a home will achieve a higher price than one that is dirtier, original, foul smelling, and in a state of disrepair, even though it is completely fix/upgrade/update “able”. Rocket science!
Obviously, some repairs tend to provide a greater return that others so it is important to understand your best available “property improvement” investments. This varies from property to property, from the financial position from one owner to the next, and the most likely buyer. Regardless of the property, its owner, or intended buyer, there are some definite improvements that can be recommended. Below is the list of recommendations numbered by importance:
1. Remove everything: Pack, box, and get as much out of the house as possible. Including you, if possible! Less is more. Just about nothing is Most! If you can put it all in the garage, do so.
2. Clean: Literally, every surface of the property – floors, walls, and ceilings. Inside & outside. There is no excuse for a dirty property. Remember no one actually can live in a house that is presented at its best marketed.
3. Landscape: Cutting grass, adding sod, trimming trees, and picking up debris are cheap & easy. New plants, flowers & other vegetation will cost a bit, but still typically offer great return.
4. Paint & Carpet: There’s nothing quite like the fresh smell of paint, except for the smell of new carpet. This is a more significant cost, which can strain a seller’s cash flow, but offers a good return.
5. Fix: Remedying any easily noticeable damage is strongly recommended especially if the repair is easy. This type of damage can be a significant distraction for buyers. If cash is tight, unnoticeable damage should be disclosed to buyers and maybe fixed after escrow opens, and sometimes paid for at the close of escrow.
6. Light: Make for a dramatic presentation. Canned & directional lights can highlight specific areas of the home to create emotional elements to a buyer’s visit. This is improvement will bring return, but less than the improvements described above.
7. Staging: Rented furniture is a marketing enhancement designed to improve the emotional appeal of a property. Depending on the property type & market, the return of this improvement can vary and the cost of renting furniture is great.
Depending on the repair and the contractor who performs them, there is a range of potential payment options. Obviously cash is king, and every contractor will prefer to be paid in full at the completion of her work. However, in our present economy, when cash is tight for both owners & contractors, exploring the possibility of payment plans, and even paying for work with the proceeds of the sale at the close of escrow is encouraged.
Ultimately, any inexpensive repair that has gone unfixed not only will detract from the buyer’s showing experience, but will also detract from how the buyer views the seller’s diligence in property upkeep. A dirty kitchen floor can quickly blossom into an anxiety filled buyer who is worried about the roof, so spend the sweat and make your home look as good as possible. One other note to keep in mind is that no one lives in a home that is properly marketed for sale. Be prepared for the idea that work will be needed in your house. Also, feel comfortable with the idea that all the work you put in, will result in a profitable financial return for your effort.
Lastly, with the confidence of a spotless immaculate house that would make Martha Stewart proud, you can boldly expect and request a top notch marketing plan to make all your cleaning & fixing investment return an even greater price for you home.
A thoroughly planned & executed strategy that highlights the greatest value of your property in relation to those who are most likely to pay the highest price is the purpose of marketing.
Excellent Marketing will deliver the full experience of living in your home to the greatest amount of people in the quickest time possible. It will produce the most qualified & interested buyer.
The marketing plan will elevate the value of your property’s enhanced condition exponentially.
Marketing can be broken down into two segments:
Message & Method of Delivery
Your Message should be an enthusiastic and accurate story about the lifestyle that is awaiting the buyer of your property. It should include the following:
– Statistics –sq footage, beds, baths, address, maps.
– Pictures – color, clear & revealing.
– Video – Live walking tour of the property.
– Screening process – What documents you will require from a buyer to be submitted with their offer.
Creating an informative and enthusiastic marketing message will not only achieve a higher price, but will greatly reduce the time needed for a property to successfully sell.
The value of the delivery of your message will be a result of the speed, the size, and the people who receive your message. You have a number of options that fall into one of the following categories:
Newspapers and weekly advertisement books like Pennysaver used to be the advertising destination where sellers & buyers connected. Though necessary, this was and still is an expensive meeting place for the seller and terribly uninformative for the buyer, especially compared to the cost and information delivered via the Internet. You will still find advertisements of real estate through this media, but the “highly motivated” buyers typically do not use this media as a critical component for the home search.
The Internet offers immediate, comprehensive, and exceptionally economical information. Almost every website has a property search function. These are MLS fed websites like gregwakeham.com or Realtor.com that take listings from local realtor multiple listing boards and posts properties. The Internet also allows for highly motivated buyers to receive automatic property listing alerts via email from their agent when new listings come on the market.
The Internet has achieved an incredible combination that allows for huge opportunities – use & speed. Almost all of the population has embraced it as a key part of daily life, and definitely 100% of buyers benefit from it. Imagine not having access to the Internet for a day or even an hour. As more people rely on the Internet, technology has soared. Using video as an example – What use to be impossible, gradually required several minutes, then seconds, and now nanoseconds!
Motivate Buyer’s Agents
The 3rd method used to effectively deliver your message is with the buyer’s agent, a live & professional real estate agent who is out helping their clients buy a property.
These agents are motivated by profit, short and/or long term. An attractive compensation or commission as well as great supporting marketing material allows an agent to be more productive or profitable – making more money in less time. By contrast, lower commissions with a limited or no supportive marketing materials not only means less money, but also more work for the agents, as they must fully shoulder the burden of effectively presenting the property. As a buyer’s agent, I love poorly marketed property as it allows for greater opportunities to negotiate both in time & money.
Support for buyer’s agents includes:
- Clear professional fliers
- Detailed & accurate information on the mls listing
- Easy & quick access to the property
- Easy & quick access to the listing agent for more specific questions & negotiations as they relate to their clients.
- Enthusiasm & cooperation.
- Confidence in listing agent’s ability to close the transaction.
The following diagram shows the exponential benefits of excellent marketing compared to mediocre. More simply put, excellent marketing creates more demand for your property. By creating this demand, the value and price of your property will increase.
Once your home is properly prepared for showing, and the marketing plan has been executed, you can sit back and enjoy the feeling of haven done your best AND being able to look at offers!
One additional component of the market plan that has been left off this report is tailoring a marketing program specifically to your lifestyle so that it can actually be joyful. If you are like most sellers, and need to live in your home during the marketing process, we will work together during your Initial Consultation to craft a showing schedule to maximize your home’s exposure to ensure this experience is as joyful for you and your family as possible.
Our initial meeting is the foundation upon which we will build a strong and productive relationship. This initial meeting serves multiple purposes:
1. Helps us to understand and clarify your objectives.
2. Enables me to provide you a deeper understanding of the market.
3. Allows us both to make the determination if we should work together.
4. Serves a basis for our strategic direction.
This initial meeting is a gift of market education and perspective for you to benefit from regardless of our relationship afterwards. The agenda is standardized to establish a foundation that makes our experience together as productive as possible. Not only is this time meant to be highly productive, but I also want you to experience what one of your friend’s would experience when you achieve the confidence of my ability needed to introduce them to me.
I want to encourage you to see me as an information source you can provide to your friends and family without any obligation or pressure.
As mentioned earlier, my goal is to become a destination of education and perspective from which you and those closest to you can greatly benefit.
I look forward to our meeting!
Broker Associate, Re/Max Premier Realty