With the real estate market going through some painful changes, I have come across a few items that I thought were worth mentioning. Last week I met with an auctioneer from the Watertown area. He has been doing real estate and personal property auctions for years and has noticed a considerable increase in business in 2009. I suppose that makes sense with the downturn in the economy. I have also spoke with a number of attorneys that site 2009 as being an especially busy time for those that focus on bankruptcies.
The point of it all is to discuss the role of auctions within real estate. Historically, most Realtors have focused on trying to, "get the most money in the least amount of time." However, this may or may not always be the easiest thing to accomplish. One method of selling properties is to price it at or slightly above fair market value and then adjust the price downward or improve the condition, if it has not sold within a specified time frame. Auctions deal with this situation in reverse. They start with a price that is far below the estimated fair market value and attempt to entice multiple bidders to compete, thus raising the price.
Last month J.P. King completed an auction in Sun Prairie with some developer close-out properties. In fact, there is another auction coming up in Wisconsin Dells with a number of luxury condominium units on Lake Delton that will be sold on June 21st. My guess is that there could be some great values. In fact, I'm planning to attend the auction with a few registered buyers. Another property that I came across is a large fraternity house located on Lake Mendota. This property has a tax assessment at $1,286,000 and is taking bids up until June 26th, 2009. In this situation, it's a sealed bid auction and buyers are encouraged to submit their highest and best offers. Click Here if you're interested in more information about these upcoming auctions.
Similarly, I recently helped a friend purchase a home in the Oregon area, that was listed by a local real estate broker at an extremely low price. In fact, the home had 10 showings scheduled the first day that it hit the market, and received 4 offers by the end of the day.
The bottom line with real estate auctions, they are designed to put a deadline on the sale. A very low price tends to attract multiple buyers and if there are a lot of buyers, then the price can easily climb upward. For any home seller's out there having a difficult time, one possibility is to consider trying to sell your home "auction style". If there are concerns about selling too cheap, then you could build in a "reserve" price that is the minimum. This is different than an absolute auction, which are sold to the absolute highest bidder. Whether listing with an auctioneer or traditional real estate broker, this alternative method of selling might work for your situation. Especially if you have a deadline by which you must sell.
A word to the wise with auctions, they can move very quickly and I would suggest studying the local market very well before making any bids. Otherwise you risk paying too much for a property and it may take years to recoup your investment.
Thursday, June 11, 2009
Wednesday, June 3, 2009
Everyone Wants a Lower Price, But What About the Impact of Interest Rates?
The following is an email from Craig Igl, Mortgage Lender at South Central Mortgage, A Chase Affiliate. Re-printed with permission.
When shopping for a home, the natural tendency of any buyer is to want to pay the lowest price possible. It's important to keep in mind, however, that the sales price is not the only factor that determines what the monthly payment will be. In fact, the impact of higher interest rates can easily nullify any benefit of waiting for a lower price.
Why Should I Rush to Buy?
While you may have heard discussions in the media about the decline of property values in many markets, the rate of decline appears to be stabilizing.
That being said, it would not be unreasonable for buyers to want to hold out for an additional decline of 10%, hoping to capture the best possible price. However, as property values have declined in many areas to 2003 levels or lower, waiting longer to pull the trigger could be a mistake. Many markets are reporting that lower property values have been bringing out investors and the result has been multiple offers on many properties. Properties priced correctly are not declining and, in fact, are creating a lot of interest.
Interest Rate Complacency
The problem is that many home buyers have been lulled into a sense of complacency because of extremely low interest rates. Since the Federal Reserve initiated its program of buying mortgage-backed securities, which control the rates people pay for their home loans, rates had been range bound, bouncing between 4.50% to 5.00% for a 30-year fixed-rate loan.
But buyers shouldn't be confused by this. These rates are artificially low! Historically, interest rates have been above 6.00%. And any rate obtained below this number is a great deal, especially on homes with price tags from 2003!
Markets are Unforgiving
The last two weeks of May showed just how unforgiving the markets can be for people who choose to procrastinate. In just five days, interest rates from many lenders increased anywhere from .50% to 1.00% as fixed-income investors demanded more for their money.
For anyone who was waiting for prices to drop even more, a 1.00% increase in interest rate would bring a higher monthly principal and interest payment on a home, even if the price of that same home had fallen an additional 10% in value.
If your clients are waiting for prices to fall even lower, be aware that while holding out for a lower price may help them win the battle, they could lose the war in terms of monthly payments and overall affordability. With the Federal Reserve scheduled to end its buying of mortgage-backed securities this year, rates only stand to go higher for those that wait. In fact, interest rates are already on the rise and could go higher from here.
Clock is Ticking on Free Money
If you have clients who are planning on purchasing their first home this year, be sure to let them know that they need to take possession before 12/01/2009 to be eligible for a tax credit of up to $8,000. In a survey conducted in March by Move.com, nearly 50% of home buyers are currently unaware that this free money exists in the marketplace. And since over 50% of all buyers are first-timers in today's market, this could impact a lot of your clients.
If you have questions about this update, give us a call. I can show you how waiting for the lowest price could really cost your clients more in the long run.
Sincerely,
Craig Igl
South Central Mortgage, A CHASE Affiliate
608-662-7778
craig.j.igl@chase.com
When shopping for a home, the natural tendency of any buyer is to want to pay the lowest price possible. It's important to keep in mind, however, that the sales price is not the only factor that determines what the monthly payment will be. In fact, the impact of higher interest rates can easily nullify any benefit of waiting for a lower price.
Why Should I Rush to Buy?
While you may have heard discussions in the media about the decline of property values in many markets, the rate of decline appears to be stabilizing.
That being said, it would not be unreasonable for buyers to want to hold out for an additional decline of 10%, hoping to capture the best possible price. However, as property values have declined in many areas to 2003 levels or lower, waiting longer to pull the trigger could be a mistake. Many markets are reporting that lower property values have been bringing out investors and the result has been multiple offers on many properties. Properties priced correctly are not declining and, in fact, are creating a lot of interest.
Interest Rate Complacency
The problem is that many home buyers have been lulled into a sense of complacency because of extremely low interest rates. Since the Federal Reserve initiated its program of buying mortgage-backed securities, which control the rates people pay for their home loans, rates had been range bound, bouncing between 4.50% to 5.00% for a 30-year fixed-rate loan.
But buyers shouldn't be confused by this. These rates are artificially low! Historically, interest rates have been above 6.00%. And any rate obtained below this number is a great deal, especially on homes with price tags from 2003!
Markets are Unforgiving
The last two weeks of May showed just how unforgiving the markets can be for people who choose to procrastinate. In just five days, interest rates from many lenders increased anywhere from .50% to 1.00% as fixed-income investors demanded more for their money.
For anyone who was waiting for prices to drop even more, a 1.00% increase in interest rate would bring a higher monthly principal and interest payment on a home, even if the price of that same home had fallen an additional 10% in value.
If your clients are waiting for prices to fall even lower, be aware that while holding out for a lower price may help them win the battle, they could lose the war in terms of monthly payments and overall affordability. With the Federal Reserve scheduled to end its buying of mortgage-backed securities this year, rates only stand to go higher for those that wait. In fact, interest rates are already on the rise and could go higher from here.
Clock is Ticking on Free Money
If you have clients who are planning on purchasing their first home this year, be sure to let them know that they need to take possession before 12/01/2009 to be eligible for a tax credit of up to $8,000. In a survey conducted in March by Move.com, nearly 50% of home buyers are currently unaware that this free money exists in the marketplace. And since over 50% of all buyers are first-timers in today's market, this could impact a lot of your clients.
If you have questions about this update, give us a call. I can show you how waiting for the lowest price could really cost your clients more in the long run.
Sincerely,
Craig Igl
South Central Mortgage, A CHASE Affiliate
608-662-7778
craig.j.igl@chase.com
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