How I Sold My Home in a Slow Real Estate Market

I did all the things everyone else suggests such as cleaning, decluttering, and deodorizing. These things were a no-brainer to me and were completed well before my home went on the market. Once these things were finished, I took the following steps and successfully sold my home in a slow real estate market in less than three months.

I hired a realtor. No one likes to pay a realtor 5% - 6% to sell their house. But if you want to sell your house, bite the bullet and hire a realtor. I am 99.9% confident that my house would not have sold for sale by owner (FSBO). I was very particular when I hired a realtor. I hired someone who had a successful track record with over 15 years of experience. The realtor I hired was a full-time realtor. I would never hire a part-time realtor. Finally, I hired someone I had good rapport with.
I studied the competition. Once I hired a realtor, we did a complete market analysis. On paper we reviewed the prices of all comparable homes sold in the past 6 months. We also reviewed all comparable homes currently listed on the market. We then walked through every comparable home listed in my neighborhood as well as surrounding neighborhoods.
I priced my house competitively. I decided to set my home’s price slightly lower than the comparable homes we researched. Overall, we felt my home provided the best overall value in my neighborhood as well as surrounding neighborhoods.
I re-evaluated. As my house sat on the market for over a month I continued to study the competition. Every weekend, I visited all open houses in the surrounding area. I also received feedback from other realtors and prospective buyers. I started to notice, a few other houses offered more value to potential buyers. I knew buyers were in short supply so I had a decision to make. I could either lower my price or I could make improvements to my home. The most negative feedback I received was the worn carpet in high traffic areas and a cracked sidewalk. I quickly decided to replace the carpet in the entire house as well as fix the cracked sidewalk. This was quickly completed within one week.
I wasn’t discouraged by a low offer. Shortly after I made these improvements, I received my first offer. Unfortunately, the offer came in $30k below my asking price. At first I was discouraged. However, I knew buyers were scarce and I didn’t want to lose this opportunity.
I was realistic. After receiving the low offer, I took a closer look at comparable homes sold in my area. It turns out that based on what has actually sold, my home was overpriced. Even though my home was one of the top values compared to other homes currently listed on the market, I quickly came to realize everyone was overpriced. Recognizing that my home was overpriced was not easy but it was necessary to get my house sold. After a week of intense negotiations, I finally came to an agreement to sell my home for $20k below my original asking price.

I learned a few things from my experience. If I had to do it all over again, I would have set my original asking price lower. I based my original price on comparable homes currently listed on the market. Basing my price on recently sold homes would have been more successful. I think this is the #1 reason why homes don’t sell in a down market. I also should have replaced the carpet and fixed the sidewalk before my home went on the market. The competition was fierce and the buyers were limited. My home should have been in top condition from day one.

Overall my strategy proved to be successful. A little luck probably didn’t hurt either.

Using Leverage to Buy Real Estate

Yesterday, I discussed using leverage to buy stocks and the risk associated with this practice. Perhaps the most common use of leverage is for the purchase of real estate. Like stocks, using leverage in real estate increases your purchasing power. Unless you pay cash for your property, you are using leverage and your property is used as collateral.

The use of leverage has made real estate investing very popular as a preferred method of building wealth. How else can you purchase an asset with a down payment of only 5 to 10 percent? For example, you can purchase a property valued at $500k for only $50k cash and a $450k mortgage. If your property appreciates, your return on investment is also magnified due to the high leverage.

Real estate has been widely considered a very safe investment due to the limited volatility compared to the stock market. However, the belief that real estate always appreciates has recently been challenged as home prices have plummeted in many cities across the United States.

The recent housing meltdown has left many investors wondering if real estate is still safe. My answer is yes, but common sense is still a prerequisite for making smart financial decisions. If you are going to buy a house, consider it a home, not an investment. Always make a minimum 20 percent down payment and don't depend on your property to appreciate in order to make future mortgage payments.

Lower Your Cost of Living by Relocating

Relocating to another city or state can lower your cost of living expenses substantially.

I know this to be true firsthand as we recently relocated from Minneapolis to Houston. The cost of living difference is significant. First of all, our comparable home in Houston cost 39% less than our home in Minneapolis. Plus, we have no state income tax in Texas. These two factors alone make our decision to move fiscally wise.

According to the online cost of living calculator found at CNNMoney.com, the cost of living in Houston is 8% less compared to Minneapolis. CNNMoney.com estimates that groceries cost 7.0% less, housing is 18.5% less, and healthcare is 2.6% less. On the flipside, utilities cost 2.5% more and transportation cost 2.2% more. Directionally I find all of these estimates to be true. But like many online calculators, taxes are not included in the comparison.

If your personal circumstances permit, you might also consider relocating to a city with a lower cost of living.

Don’t Try to Time the Mortgage Rate Market

Less than 30 days ago amid the frenzy of the housing crisis, the Federal Reserve’s unprecedented rate cuts and the talk of the government stimulus package, a great opportunity to refinance our mortgage arose.

I noticed mortgage rates were falling fast and I started to make some phone calls to a few banks. We were quickly approved and soon the rate on the 15 year fixed fell to 4.75% at Bank of Texas. I called the mortgage broker to confirm the rate on the website and he validated it. We briefly spoke about the future direction of mortgage rates and I was convinced rates would go lower. After all, we had another Fed meeting in a few days where Fed Chairman Ben Bernanke would surely cut rates further – and he did. Bespoke Investment Group did a great job of analyzing the recent mortgage rate trends.

Unfortunately, as I write this tip, rates on the 15 year fixed are sitting at 5.875%. Now I play back my conversation with the mortgage broker. I recall him refusing to predict the direction of mortgage rates but he did suggest I don’t try to time the bottom. Instead lock into a rate that works for me. One that meets my goals.

Now that was a great sales pitch I should have accepted. Lesson learned.

Your House is a Home, Not an Investment

I cringe every time I hear someone tell me they are buying their new home because it’s a good investment. Your home is not an investment – at least not a good one. If your home was a good investment it would be generating positive cash flow. I don’t know anyone who generates positive cash flow from his or her home.

I often hear a home is a good investment because property taxes and mortgage interest are tax deductible and paying rent is like throwing money away since you can’t deduct your rent payments. Trust me, paying property taxes and mortgage interest is not a good thing as it’s never wise to spend a dollar to save thirty cents on taxes. Also consider that purchasing a home has large upfront expenses in closing costs, annual insurance premiums, high utility costs and frequent maintenance expenses.

Consider your house a home. Live in it, enjoy it, and love it, but don’t consider it an investment. If you are fortunate enough to see your home appreciate substantially over the years, consider yourself lucky.