Get creative with incentives

This week I saw an extremely creative incentive offered by a home seller in Libertyville.  The home seller, an interior decorator, offered the buyer of her home an interior design package worth up to $40,500 if her home sold before a certain date.  She offered a similar package for up to $25,250 if it closed a month later.  Now this is someone who didn’t need to drop her price and could offer a skill that would help a new buyer with new furniture and design ideas. 

I mentioned in my blog last week how buyers just want to score an amazing deal.  And seeing how many people don’t just want to give their house away, it’s important to be creative in coming up with other ideas to get the house sold, similar to what this interior designer did.

Typical incentives include free assessments paid for a period of time (for those in association communities), parking paid for.  I’ve seen cars and vacations offered.

I was so impressed with this idea to offer an incentive of a skill you possess … You could even offer to pay for the buyer’s attorney expenses in purchasing your home or cover their home inspection for them.  Another great idea is to have a home inspection done at your cost and made available to the buyers looking at your home.  That way there’ll be no surprises when you’re under contract and the buyer goes to do their own inspection (NO MATTER WHAT – DO YOUR OWN INSPECTION!  I’ve heard horror stories of people that skipped it and there’s no recourse against the seller unless they purposely falsified information).

Some other creative ideas could be an appliance package of up to a certain amount of money, a landscaping gift card, a gift card to a popular hardware store or Target, for example.  And while this might work for some, others would just prefer to knock the price down by that amount, which is fine, but you never know.

Another simple gesture for your new buyer is just to leave a bottle of champagne in the fridge when you move out welcoming them into your home.  I’ve had buyers call me so impressed that sellers have done that for them.  It really just puts a nice spin on a stressful situation of moving.

Do you have any other creative incentives you’ve seen or that have impressed you?  I’d love to hear them.  And if you’re selling your home and would like some ideas of what to offer, please contact me via my Web site.

Remodeling not worth as much as it used to be

In a not-surprising news story in the Chicago Tribune, it turns out that those homeowners who choose to do some remodeling in their homes will not make as much money in resale value as they would have in previous years.  Most people are under the impression that if you do an upgrade or remodel to certain aspects of your home, you’ll get most or all of that money back when you sell.  Well, not so much in this market.  Unfortunately, more money is going in the contractor’s pocket than will go back in yours at the closing table.  

Remodeling Magazine has just put out their annual cost vs. value report for 2010-2011.  While you’re able to look at statistics and numbers for all areas of the country, I want to focus in on Chicago.  Let’s use a midrange major kitchen remodel for this year.  With the average job cost of $58,367, the homeowner would have a resale value of $40,126.  The percent of it being recouped is 68.7%, one of the highest values of all the remodeling projects.  However, last year that percentage was 72.1%.  So not a significant decrease, but still noticeable.

What’s interesting is that every single category the magazine studied, the percentage in recouped value was a decrease from last year.  Some examples of those categories include a basement remodel, bathroom addition, bathroom remodel, master suite addition, deck addition, siding replacement, window replacement, and others.  They also break it down into midrange projects and upscale ones.

Kermit Baker, director of the Remodeling Futures program at Harvard University‘s Joint Center for Housing Studies said, “A lot of what drove the (remodeling) market in 2003, 2006, 2007 was the notion that you were playing with house money.  You could get 90, 95 percent of your investment back. It was really a no-risk proposition. The mentality has clearly shifted to, ‘What kinds of features do I want in my home?’ given how long you live there and your lifestyle.”

So what does this mean for sellers in today’s market?  Just be smart about what projects you take on.  You might not have to spend the money on a complete kitchen remodel.  Sometimes just painting the cabinets and changing the hardware can make a world of difference.  You might not need to replace them all.   And if you have linoleum, it’s worth the upgrade to ceramic tile or hardwood.  Not every home needs granite countertops, especially those with small kitchens already.  It’s not worth the extra expense.  But do know that kitchens are the best room in the home to remodel.  While you might think you need to spend the money to finish your basement, that’s not necessarily true.  A young couple could come in and have a completely different idea of what they want it to look like.  See what the feedback is from the potential buyers coming through your home before you make any drastic improvements.  Talk to your Realtor about what he recommends before spending all that money.

For more information or to have me give you a market analysis on your home, please visit me online.

Tips to make showings go smoother

The idea for this blog post came from a friend of mine who lives out of state.  He currently has his house listed for sale, and he had a showing over the weekend.  He was complaining because of the way the buyers left the home after a showing.  Not only did they leave all the lights on (not a huge deal) but they didn’t lock up behind themselves.  So when my friend returned home, the house was completely unlocked.  So here is some guidance for both buyers looking at a home and sellers on how to make showings smoother for everyone.

1. Leave the house the way you found it.  If the lights were on, leave them on.  If they were off, turn them off.  If you opened drawers and closets in the process of going through, just remember to close them.  Lock the doors behind you.  If you had to unlock it to open it, make sure to lock it when you’re done.  For sellers, make it easier on the buyers by leaving lights on for them.  It can be really hard to navigate a home you’ve never been to in the dark feeling along the walls and grasping for light switches, especially now that it’s getting darker early.  It’s only common courtesy.

2. Commit to a time.  One of the most frustrating things for sellers is when someone calls to make an appointment and is either an hour late or an hour early, or anything in between.  If you’re going to be late, make sure to call the office so they can let the client know.  If you decide you won’t make it at all, be sure to call.  I’ve known tons of people who decide they can’t show the home for whatever reason not let anyone know.  Just do the courteous thing and call.  And please don’t show up way early.  Some families have kids that they have to wake up and aren’t prepared.  Go stop and grab a cup of coffee if you have time or take a walk around the neighborhood.

3. Keep pets out of the way.  I’ve tried to show homes where a protective dog or cat won’t even let me in the front door.  Make sure to let your Realtor know ahead of time to let prospective buyers know there’s pets in the home.  But keep them locked up.  The friendliest dog can scare a child.  Just keep them in their kennel for the duration of the showing.

4. Make the home accessible.  With temperatures dropping in Chicago, snow should be arriving at any time.  Keep paths shoveled so people aren’t trekking through a foot of snow to get to your front door.  Leave the heat on.  If you’re out of town, make sure you have a neighbor or someone who can shovel and turn the heat on before  a showing.  Your buyers won’t want to stay for very long to see the potential in a home if they’re freezing.

What other recommendations do you have for buyers looking at homes?  Or as a buyer, what other suggestions can you make to sellers?  Please leave me a comment or visit me online.

The next problem with the housing market

I read another fascinating article in the Chicago Tribune again this weekend.  Fascinating.  I was telling family, neighbors, and friends about it.  Fascinating.  As if the housing market isn’t in enough trouble as it is.

So the article discusses the ethics of being a homeowner in this time, during the recession, in this housing market.  Foreclosures are all over.  Short sales are overwhelming the banks.  So what’s the problem now?  Homeowners who have no trouble paying their mortgage, those who can afford to, are walking away from their homes.  They call it “strategic default.”  This is what it’s come down to.  With home values at an all-time low and days on the market going up with increasing numbers, people are sadly walking away from their homes.  They can’t sell.  They can’t rent.  What they’d get for their home if they sell is half, or a quarter, or three-quarters of what their home is actually worth and what they still owe on their mortgage.  So what do they do?

The article talks about a man who lives in Florida who has two properties, both with Bank of America.  He told them he’s going to stop making payments because he can’t sell or rent at a price that would cover his payments and he wants to move out of state.  Since the bank refuses to work with him on a modification or a refinance or adjust the terms of his loan, he’s walking away.  Again, what’s a guy to do?  He said he felt guilty at the beginning.  He’s quoted as saying, “It [the guilt] all stopped when I saw them take $90 million in executive bonuses.  They take bailout money and do nothing for the little guy. They wouldn’t do anything for me.”

I can’t agree more with this homeowner.  I’ve talked about clients who couldn’t refinance or those whose modification wouldn’t go through.  And here the banks are accepting bailout money left and right, upping their salaries, and they won’t work with clients to help them stay in their homes?

So this is going to be a huge disaster.  We already have lenders taking months to respond to buyers interested in a short sale.  They’re just going to have a whopping increase in their inventory now.  Response time will be on the rise, inventory will too, and people who do this won’t get back into the market to buy something new because their credit will be ruined from walking away.  So it’s going to be harder for people to sell or for values to get back to where they should be.

As I said, I feel for these people.  They’re in a tight spot.  But at the same time, it’s going to make the housing crisis an even bigger crisis.  How do we get out of it?  The only remedy I see is more lenders willing to work with their clients and modify existing loans.  It will keep more people in their homes and help the entire market.  Readers, what do you think?  I’d love to hear your thoughts.  Please leave me a comment or visit me online.

Congress considers possible real estate tax burdens

Congress is considering two new tax burdens, both of which will have a significant effect on real estate and real estate owners. 

The first will mainly affect those who are landlords or those who own rental properties.  Anyone owning real estate that collects rental income will be affected.  If you have had any work done by anyone on your rental property, you would be required to fill out the proper 1099 forms for all service providers who performed work on the property.  This can include regular handymen, roofers, electricians, painters, etc.  You must have paid them at least $600 in the last calendar year.  Landlords would be charged a penalty for failing to fill out these forms.  Most people haven’t used these forms before and could require them to have to hire a tax professional for assistance.  This creates a financial burden on many.

The second proposal is to tax carried interest rates at a higher rate than the current capital gains rate.  This is when you go to sell an investment property and are taxed on any money you have gained.  For example, if you bought a property for $100,000 and later sold it for $200,000, you have gained $100,000, which is what you’d be taxed on.  This money is considered a capital gains, and taxed at a lower amount.  Congress is proposing to get rid of the capital gains rate.

The National Association of Realtors strongly opposes these two proposals.  Aside from not wanting to see clients negatively affected by this, the market is still in flux.  We’re still dealing with many foreclosures and home values decreasing across the country.  These proposals will only delay getting the market back to a stable position. 

We’re asking for you to write to your senators and Congress representatives to let them know how strongly you oppose this.  I’ve included a sample letter below, thanks to Creative Real Estate Investing Guide.  Please let them know your thoughts on this issue.  You can find the contact information for your State representatives here. I’d also love to hear any comments.  You can leave a comment or visit me online.

Sample letter:

Dear [decision maker name inserted here],

I am a property owner and your constituent. Reports indicate that Congress may vote this week on a spending and tax measure that could include two harmful tax provisions directly affecting real estate. I urge you to oppose these changes.

The first would require that ALL landlords provide an IRS Form 1099 to all contractors they do business with if they pay that contractor $600 or more in any given year. The proposal would apply even to those who own just one property. This is a trap for the unwary. Since many of my clients are “little guys” looking to supplement their income with real estate investments, any proposal requiring them to file Forms 1099 would impose new expenses and subject them to penalties they are ill-equipped to pay. Often these small landlords don’t use tax professionals; if adopted, this proposal could force them to incur the expense of hiring tax professionals. This proposal is burdensome and overreaching. Oppose it.

I also oppose a proposed change to tax carried interest at ordinary income rates. A real estate investment however, is fundamentally different from a hedge fund or financial instrument investment. An investment in real estate is nothing like playing with other people’s money. Real estate is a fixed asset held for a long period of time. The worst thing about this proposal is that, for the first time, a particular type of real estate investment gain would no longer qualify for capital gains treatment. This is a terrible precedent. Oppose it.

The real estate industry, in all its commercial, multi-family and individual investment categories, is still very fragile and likely to remain so. These proposals are ill-advised, inopportune and potentially destructive. Keep our real estate market recovery on track by opposing these measures.

Sincerely,

[Your name here]

Billionaire makes bold prediction

Last week I wrote about how the low mortgage rates were helping to increase the number of homes sold across the country and that the number of foreclosures was slowly decreasing for the first quarter of 2010.  I also mentioned that while homes are selling, values are not increasing, nor are they expected to any time soon.

Also, last week, John Paulson, a billionaire hedge fund manager and president of Paulson & Co., said he expects housing prices to rise 3 to 5% this year and another 8 to 12% next year. 

Let me give you a little background about Mr. Paulson before I comment on that.  His company one involved in the Securities and Exchange Commission’s civil fraud case against Goldman Sachs.  From Law.com, “The Securities and Exchange Commission on Friday charged Goldman Sachs Group Inc. and one of its vice presidents for defrauding investors. The complaint alleges that the company misstated and omitted key facts about a financial product tied to subprime mortgages as the U.S. housing bubble was beginning to burst in 2007.

The SEC said Goldman Sachs marketed a financial product, called collateralized debt obligation or CDO, to investors without telling them that a major hedge fund that was betting against the mortgage market had played a key role in selecting the portfolio.

The hedge fund, Paulson & Co., paid Goldman Sachs about $15 million to structure a transaction in which Paulson could take short positions against mortgage securities which it helped choose. While investors lost about $1 billion on the CDO, Paulson earned about $1 billion by betting against it, the complaint states.

The SEC alleges that Goldman Sachs Vice President Fabrice Tourre was principally responsible by structuring the transaction, preparing the marketing materials and communicating directly with investors. Tourre knew that Paulson’s interest in the CDO directly conflicted with the interest of investors, the complaint says.”

Paulson says that his company tracks housing prices in California and believes that California is the best indicator of what’s going on with the rest of the country and what will happen within the next six months.  How is this true?  Every state and even every area and neighborhood is different.  Some states are experiencing tons of foreclosures, like California and Florida, while other states are barely registering any.  You can’t take the example of an entire state and base numbers on that.

While I would be thrilled if prices started climbing (more so to help owners start seeing value in their homes), this is such a great time for buyers to take advantage of the situation we’re in now.  They can get homes at incredible values.  This might not be a time we’ll ever see again.  If you have the credit and money to purchase a house now, imagine what it could be worth 20 or 30 years from now.

I haven’t seen values climb in the markets I’m working in.  If you bought a home a couple of years ago and are trying to sell now, most likely you’re not even selling for more than you paid for it.  It’s unfortunate that sellers don’t have the equity they need.  But, again, while now may be considered a buyer’s market, we should hopefully turn around to a seller’s market down the road.  However, I don’t see that happening this year or next.  Maybe 2012.

I’d love to hear what your thoughts are.  When do you see prices turning around?  Do you think Paulson’s prediction will be true?  More on this can be found here. Please leave me a comment or visit me online.

Appealing to the younger generation

So who’s leading the pack now in purchasing their first home?  It’s Generation Y.  Born to baby boomers, this generation is about 75 million people born between 1982 and 1995.  A lot are graduating college and looking for their first place.  Many are getting married and buying their first home with their spouse.  Either way, they’re the next generation sellers are going to want to appeal to.

First of all, you need to know that so many of these people are using technology to find their home.  They’re not the ones who are going to take out the Sunday paper and search for Open Houses.  They’ll be on Facebook, MySpace, Twitter and dozens of other online sites doing their searches.  They can even use Zillow from their mobile phones or use their phones to take pictures of a building they might be interested in to send to their Realtor.  They grew up using technology and there’s no reason to change that now.  So if you are selling your home, make sure your agent shows you the Internet marketing he’s capable of.  Your home should appear on Web sites and social networking sites to appeal to these buyers.

And don’t just assume because they’re young they automatically look in the urban areas.  While that’s true for some, many want to have a close commute to work in the suburbs.  In the Chicago area, many suburbs have a “downtown” area modeled like the city itself.  Suburbs such as Palatine, Arlington Heights, Schaumburg, Highland Park, and Grayslake are a few examples. 

A lot of the Generation Yers go for low-maintenance living, like a condo or a townhome, where they don’t have to worry about shoveling snow or mowing the lawn.  However, some would like a single family home with a garage to park their cars and space to start a family.  They’re looking for newer materials in homes, nothing dated.  Forget the Formica counters – they want Corian and granite.  Helen Velas, a Naperville interior designer also adds, “They want the most bang for their buck because they can afford only a small space. They like flex floor plans. Maybe a home office can double as a dining room, exercise room or guest room. Gen Y is not into museum rooms that are never used, like living rooms.”

Of course, I’m not telling you that you should model your home to sell to someone in this generation.  These are just a few tips to keep in mind based on your location.  If you’re selling a condo in a downtown area and you have a formal living room, maybe you would want to stage it to act as a fitness room or office.  Think outside the box. 

More information on what this generation is looking for can be found here. I’m ready to help you buy or sell your home. Please visit me online.