Madolyn Greve, Broker Associate, Callaway Henderson Real Estate

Even in the current, low inventory housing market, sellers are resisting the urge to sell it themselves and still seeking the help of a real estate professional. It may be more important than ever and there is too much at stake to risk going it alone.

The number of people attempting to sell on their own has been in steady decline since 2003 from 14% to 8% in the latest Profile of Home Buyers and Sellers produced by the National Association of REALTORS®.

The most frequently mentioned difficulties that owners who decided to sell it without the benefit of an agent included preparing the home for sale, understanding, and performing the paperwork, getting the price right and selling it within the length of time planned. Another commonly cited challenge was having enough time to devote to all aspects of the sale.

The other nine out of ten homeowners who are selling are many times faced with the question: “How do I determine which agent to use?” In some situations, owners know more than one agent and the dilemma becomes picking the right person for the job.

To get the answers that will lead to selecting the right agent, an owner needs to ask the right questions. Open-ended questions will give you a more descriptive answer that can bring clarity to your decision. Questions that begin with who, what, when, where, why and how will elicit a much more robust answer.

The following suggestions should be helpful for homeowners considering selling:

• How long have you been selling homes and is this your full-time job?
• What designations or other credentials do you have?
• How many homes did you and your company sell last year?
• What is your average market time compared to MLS and your top competitors?
• What is your sales price to list price ratio?
• When will you report to me on the progress of my transaction?
• Who can you recommend for service providers like mortgage, inspections, repairs, and maintenance?
• Why do you want to work with me?
• Where are the opportunities to expose my home to the largest market?
• What is your marketing plan for my home?

In today’s market, homes, on average, are selling in 17 days and sellers are seeing an average of five offers. It is not uncommon for homes to sell for more than the list price, assuming they are not priced dramatically over the market in the first place.

Specific to today’s market, additional questions to help you identify the best agent for the job could include:

• With the shortage of homes on the market, is it necessary to update in advance?
• In this competitive market, is staging the home important?
• What are your thoughts on professional photography and video?
• Is there a way to stimulate competition among to buyers?
• Explain to me range of pricing and how it applies to home search on the Internet.
• Can you profile the most likely buyer for my property?

Don’t think of these things as being an interrogation but more like an interview. That is exactly what it is; you are trying to find out how this prospective agent is going to handle some of the intricacies in the selling process that can affect the successful sale of your home.

After evaluating the answers you receive, you will either move forward to have this agent represent you or you move in a different direction. A third option, from our perspective, that occasionally develops is that we determine that we may not be able to manage the outcome that you are expecting.

Selecting the right agent to represent you, even in a Seller’s market, is an important decision and you need to have all the help you can get making the right one. We’re happy to provide the answers you want and need and will disqualify ourselves if we believe that it is not in your best interest. Our reputation depends on satisfactory results from every transaction we handle.

Download our Sellers Guide.

Ask any real estate agent and they will tell you a similar sad story. The seller, whose home just hit the market, received an offer which was less than the list price, but felt secure their home would sell quickly and countered for more. For whatever reason, the buyer did not continue to negotiate and moved on.

After a week or two and no other offers, the seller instructed the listing agent to contact the buyer’s agent and say that the seller had reconsidered and would now accept their original offer. However, the initial enthusiasm the buyer had was gone and they were looking elsewhere.

This is a story that frequently happens across America, in all price ranges. The lesson to be learned is that sometimes, the first offer is the best. Consider the rationale, a home is fresh on the market and buyers, especially the ones who have lost bids on other homes, act quickly to hopefully avoid some of the competition.

When an offer is not accepted, it voids the original offer and, in this case, the seller makes the buyer a counteroffer; the buyer can accept it, make a counteroffer, or walk away. Even if afterwards, the seller reconsiders and says that he will accept the terms of the original offer, the buyer is under no obligation to accept it.

Alternatively, if the seller accepts the buyer’s original offer, a contract has been agreed upon based on the terms within. The house is sold and closed once any contingencies such as financing and/or inspections have been satisfied.

Think of an example where a seller countered for an additional $5,000. If he had accepted the original offer, the home would have been sold. In essence, he bought the home back from himself in hopes of making an extra $5,000.

To put it in perspective, on a $350,000 home, the additional $5,000 would have been 1.4% of the value. As an investor, the risk involved in having to continue to own the property may not be justified by such a low rate of return. Having the property sold may actually provide peace of mind and convenience that far exceeds the $5,000.

When a seller receives an offer, they are faced with three options.

1. They can accept the offer and the house is sold considering the contingencies can be met.
2. The seller can reject the buyer’s offer outright and wait for an acceptable offer.
3. The seller can counteroffer the buyer with terms that are agreeable to the seller.

Many agents feel that if the offer is not acceptable, the counteroffer alternative presents a greater likelihood of negotiating to an acceptable agreement between the parties. Every situation is unique, but compromise has brought buyers and sellers to agreement in many situations.

One of the valuable advantages sellers have is their agent’s experience and lack of emotional connection to the property. Your agent can provide objectivity and alternatives for you to consider in making you decisions.

For many people, their home is their largest asset and their best performing investment. The equity in a home is the difference in what it is worth and what is owed. Two dynamics, appreciation and unpaid balance, work in concert to make homeowner’s equity grow.

It can be said that you appreciate the fact that your home is your best financial investment. It is also ironic that the appreciation, the increase in value, is what causes it to be your best financial investment.

In a one-year period, the increase in value divided by the beginning value will determine the rate of appreciation for the year. News stories and articles, frequently, report statistics on appreciation for the month, the year or longer. In many cases, a national appreciation is mentioned but the local appreciation is more reflective of an individual property.

The National Association of REALTORS® reports “The median existing-home price2 for all housing types in June was $363,300, up 23.4% from June 2020 ($294,400), as every region recorded price jumps. This marks 112 straight months of year-over-year gains.”

The low inventory being experienced nationwide has caused some significant appreciation that has increased homeowners’ equity. According to Black Knight, a mortgage technology and research firm, at the end of 2020, roughly 46 million homeowners held a total of $7.3 trillion in equity.

If a homeowner has a mortgage on their home, while the home is appreciating, the unpaid balance is declining. An increasing portion of each payment is applied, when the payment is made, to the principal balance to retire the debt based on the term of the loan.

Each month the equity in the home becomes larger because the home is worth more due to appreciation and the unpaid balance is less due to amortization.

Once a homeowner has sufficient equity in their home, they can borrow against it and take cash out of their home. Most lenders require that the homeowner maintain at least 20% equity position. This means that owners can borrow up to 80% of the appraised value less the amount that is currently owed on the property.

The options include a cash-out refinance mortgage or a home equity line of credit, HELOC. While some institutions have stopped offering HELOCs, they are still available.

The HELOC is a line of credit that is established for usually ten years. The owner is approved, and the money is available to draw out as needed. The interest is calculated daily. Like a credit card, when the balance is paid down, the unused portion of the available credit is available again.

Your real estate agent may be able to offer some lender suggestions.

It has been said that more money has been lost due to indecisions than ever was due to making the wrong decisions. Many times, the larger the decision, the more likely procrastination comes into play and doing nothing will cost something.

Buying a home is certainly one of the biggest decisions people make. Careful consideration and planning are necessary steps leading to a prudent decision. Considering today’s market that includes a global pandemic, financial volatility, and rapidly rising home prices, it is understandable that many people thinking about a home purchase are in a wait and see posture.

However, there is a cost connected to waiting and it may be a lot more than you think. The recent Home Price Expectation Survey 2021 Quarter two estimated appreciation rates will average just under 5% annual for the next five years. It expects prices to increase by 8% in the next one year.

Being a renter or even putting off moving to a larger home, could keep you from enjoying the benefit of that appreciation. If your down payment is in the bank, your expected earning will be less than 2%. In a home, the owner has the benefit of leverage when a mortgage is used to finance the home.

Buyers are borrowing a large portion of the purchase price at around 3% interest but the entire value of the home is appreciating at a higher rate and the profit builds equity for the homeowner.

Another major component for the owner is that the amortizing mortgage is being reduced with each payment that is made. As the home goes up in value due to appreciation, the unpaid balance goes down with principal reduction creating equity from two directions.

If you waited one year to buy a $350,000 home today, the price could easily be $378,000. A 5% down payment on this home at today’s price is $17,500. If you could earn 2% on a certificate of deposit, it would be worth $17,850 in one year. If it used as a down payment on a $350,000 home that appreciates at 8%, the equity in one year would be $52,442. Use the Your Best Investment calculator to make your own projection.

Mortgage experts anticipate rates to rise by 0.75% in the next year which means that you’ll pay more interest on a larger mortgage by waiting. The monthly payment could easily be $200 more by waiting a year. Based on how long you intend to be in the home, it could make the overall housing cost much more.

To run some examples of projections based on your own expectations and at the price you are considering, go to Cost of Waiting to Buy and Rent vs. Own.

If you have some specific concerns that is keeping you from deciding today, let’s get together on the phone, an online meeting or somewhere face-to-face so that you can get the facts about what it takes to buy a home now.

The question is “financially speaking, are you better off owning than renting in the long term?”

Renting a home has advantages. It is usually a short-term commitment from year to year and the landlord is responsible for the repairs.

Owning a home with today’s low mortgage rates, the total house payment could easily be less than what the rent would be on a comparable home. Once you assume ownership, you will have the responsibility of the repairs and possibly, a homeowner’s association fee.

Many times, an initial benefit of owing a home includes the ability to deduct property taxes and qualified interest on the mortgage. With the increase of the standard deduction and a limit of $10,000 on state and local taxes, it is estimated that 90% of homeowners do not itemize their deductions to consider property tax and mortgage interest. This comparison will not consider them.

There are two very significant benefits that contribute to a home being an excellent investment and they are principal reduction due to normal amortization of the mortgage and appreciation of the property. While the property goes up in value and the unpaid balance decreases, the owner’s equity grows, increasing their net worth.

Renters do not benefit from either of these, but their landlords do. That is the reason for the saying “whether you rent or buy, you pay for the house you occupy.” Tenants pay for the home for their landlord.

Rent		Own
$2,500	Rent/Payment	$2,232
-0-	Principal Reduction	$504
-0-	Appreciation	$875
-0-	Estimated Monthly Maintenance	$300
-0-	Estimated Homeowners Association Fee	$25
$2,500	Net Monthly Cost of Housing	$1,178

*Projections based on 3% appreciation; $350,000 sales price with 10% down payment and a 3.5%, 30-year mortgage.

With each payment made on a fully amortized loan, the principal balance is reduced. While appreciation is generally expressed in an annual rate, homes go up in value incrementally throughout the year so considering the monthly appreciation is appropriate in this comparison.

In this example, the payment is less than the rent proving the initial idea that it costs less to own a home. After factoring in the effect of the principal reduction and the appreciation, even when you consider the maintenance and HOA fees, the net monthly cost of housing is considerably less than renting.

The largest part of the savings inures to the equity of the home which directly impacts a homeowner’s net worth. While the money may not be easily accessed, it has real value and available in a cash-out refinance or when the home is sold.

If you curious about how your numbers would be reflected in a similar comparison, go to the Rent vs. Own. Please let me know if you have any questions.