Murfreesboro Real Estate Blogs

Two of the biggest things that will continue to have an ongoing affect of the market – at least during the first half of the year – are the first-time homebuyer tax credit and $6,500 homebuyer tax credit for current homeowners.  Both of these programs, which have been discussed extensively in this space, provide a great incentive for people who are thinking of buying a home to go ahead and take the plunge into homeownership.
 
Something else to keep an eye on is interest rates.  The Federal Reserve has been working very hard to keep a lid on inflation and mortgage interest rates have been hovering near record lows for so long that many people don’t even realize anymore that 7 or 8 percent has traditionally been considered a fantastic mortgage interest rate.  Is 2010 the year that rates return back to historical levels?  That’s the million-dollar question.  But pay attention to the Fed.  When they start raising the rates at which they lend money to banks, mortgage rates are likely to go up shortly thereafter.
 
Another item of interest is the department of Housing and Urban Development’s recent waiver of the FHA 90-Day Flip Rule.  This rule prevented an FHA loan from being approved on the purchase of any property the seller had owned for fewer than 90 days.  Since 80-90 percent of the mortgages in our marketplace are now FHA loans, this meant that investors often had to hold property longer than they desired before it could be sold to a homeowner.  The lifting of the 90-Day Flip Rule for one year beginning February 1 should help foreclosures and other distressed sales – which are often purchased by investors intent on quickly fixing and “flipping” the property to a homeowner – to be more quickly re-assimilated into the marketplace as owner-occupied properties.  This should, in turn, help to raise property values as distressed houses are moved off the market more quickly.

Allow me to preface my comments by saying that determining a list price for a house is a subjective task.  Different people can look at the same data and legitimately come up with different assessments of market value, especially if the property is unique. 

Having said that however, if the house is in a subdivision populated with other homes of similar size and floor plans, accurate pricing becomes a much easier exercise.  And aside from possibly the physical condition of your house, your asking price is the most important factor you control in determining whether or not your property will sell. 

The unfortunate truth is that some real estate professionals are willing to do what’s called “buying a listing” in order to get hired by the seller.  This means that the agent probably knows that the price he’s selling you on is too high to bring in any legitimate offers, but he’s willing to let your house sit for awhile if it means that he gets your listing.  Once he has the listing secured, he can work on convincing you to lower the price when the inflated price fails to produce showings. 

Why would a Realtor do something like this?  The answer is actually simple.  Among the best sources of buyer leads are existing listings the agent can advertise with yard signs, in publications and online.  The buyers call in on your house and become potential buyers for the agent.  If your house is overpriced, he can sell them another house priced to sell.

The bottom line is when a listing price sounds too good to be true, it likely is.  Just as you are justified in asking your listing agent to support what seems to you to be a low price with comparables and absorption rates, you should also require the same kind of proof when the agent says he can bring you more than anyone else.

We all want to get as much as we can when we sell our homes, but National Association of Realtor statistics clearly show that the average seller of an overpriced listing, actually nets much less for their home than those who price aggressively on the front end.  Use common sense and look at your house alongside the competition as if you were a buyer.  If there’s another house that offers more value for the money than yours, potential purchasers will choose that property before yours.

In Tennessee , the lender can obtain a “deficiency judgment” against a homeowner for any amount they are unable to recover through a foreclosure or short sale.  This means that if you have a mortgage for $200,000 and a short sale brings the bank $125,000, they could possibly obtain a deficiency judgment for $75,000.  In most cases this does require a separate action to be filed in court, causing the mortgage company to incur further expense.  The lender is also acutely aware of the borrower’s inability to pay so they often see further collection efforts as fruitless. 
 
Of course if the home goes to foreclosure, the bank retains the same deficiency judgment rights they have with a short sale.  The main difference is that the amount they seek following a foreclosure will almost always be much more than after a short sale because of the added expense and likely lower sales price of a foreclosure sale.
 
There are plenty of negatives (emotional and financial stress, credit damage, etc.) that come along with a short sale, but just about every single one of them turns much more damaging if you allow your home to be sold at foreclosure.

I don't see "starter" home prices changing much in the coming year. I expect the worst of the housing market is past us and the huge price drops are a thing of the past. Foreclosures will likely continue being a large part of our market until the job market recovers. The number of short sales will also continue to rise as more homeowners are clamoring to save their credit by avoiding foreclosure. The government may step in and force banks to improve the short sale process.

Mortgage rates will probably begin to rise again in March when the government puts an end to mortgage-backed securities. That should cause rates to go from the current 5% mark to around 6%. Refinancing will drastically slow down once that happens because the rates being offered will no longer be a substantial improvement over most homeowners’ existing rates. In addition, lenders will likely require much better credit scores to for potential homeowners to qualify for a home loan. The magic number for a FICO score will probably approach 700 in most cases.

The high-end home markets will probably see less activity as homeowners stay put waiting for the market to recover because mortgage rates will no longer be low enough to offset their loss. We'll finally begin to see new construction popping up due to the decreased "spec" inventory we've seen in the last two quarters of 2009, though most of those will be starter homes which were largely cleared out due to the $8000 tax credit.

Lastly, the market will again slightly downturn as the tax credits expire. We won't notice it at first because the summer months are typically the best in the real estate industry but fall and winter will again tail off and we'll likely see around 75% of the market activity we've seen in the closing months of 2009.

As a buyer of a FSBO, always remember that you do have the right to be represented by a real estate professional even though the seller has chosen not to.  Sometimes—especially in a buyer’s market—the seller will even be willing to pay a commission to your agent in order to get the deal done.  Whether you hire an agent or not, here are just a few things you should look at before making your offer: 

• Check comparable sales in the area to make sure your purchase price is reasonable and that the house will appraise if you are getting a loan.
• Have your attorney look over the contract to ensure that everything spelled out there is legal and enforceable – if a Realtor is representing you, you will have access to standard Tennessee Association of Realtor forms which are reviewed by lawyers annually.
• When you write your offer be sure to include contingencies that allow you to walk away from the deal if you are unhappy with the results of a home inspection, your financing falls through, etc. 
• Get a Tennessee Residential Property Condition Disclosure from the seller.  This disclosure spells out all known defects in the property and is required by Tennessee law to be provided by all sellers who within the past three years have lived in the home they are selling.

Currently, if you’re buying a home to live in, you will likely need cash of at least 3.5 percent of your purchase price in order to qualify for an FHA loan.  But lenders have been regularly tightening their financing requirements for the past year or two and there are rumblings that the FHA minimum down payment will soon be raised to five percent.

If you’re using conventional financing, count on the bank requiring upwards of 10 to 20 percent down.  On investment property, many lenders are now asking for 25 percent or more in cash in order to finance the deal.

If you don’t have a ton of cash, there are still a few programs available for borrowers who meet certain conditions.  The Tennessee Housing Development Agency (THDA) offers down payment assistance to first-time homebuyers and the US Department of Agriculture offers no-money-down rural development loans on homes that meet program criteria. 

One thing that is almost guaranteed, though, is that the amount cash required to buy a home is much more likely to rise than drop in the next 6-12 months.  If cash is an issue, get with a real estate professional now to see whether or not you have enough money available to buy a home.

If you have to sell, putting your home up for sale during the holidays really isn’t a bad idea.  There are some benefits that come with having your home on the holiday real estate market:

• Unlike up north where snow and cold severely limit wintertime home sales, our climate allows interested buyers to look at houses all year round.   
  
  
• Because many potential home sellers decide to wait until spring to list their homes, you will have less competition for available buyers.
  
  
• There is something inviting and homey about a house that is decorated for the holidays.  Most homes look great during this time of year.  Why not use that as a selling tool?
  
  
• Potential buyers who look at homes during the holidays are usually much more serious about putting in an offer on a house right away.  While there will likely be fewer showings in November and December, the prospects coming through your home will be more well-qualified and highly motivated than during any other time of the year.
  
• January is typically the biggest month for corporate transfers, which create motivated buyers who want to find homes quickly.  If you are going to capture those buyers, your house has to be on the market when they begin looking at the end of the year.

Ten to 12 percent is normally considered a strong the rate of return in the stock market. Believe it or not, owning rental property has the potential to more than triple that 10 percent return on your money?

Here’s a realistic scenario that demonstrates the power of putting your money in rental properties. Imagine you buy a single family home in Rutherford County for $120,000 with a 20 percent down-payment of $24,000 out of your pocket.  On the remaining $96,000, you get a 30-year amortized loan at seven percent interest, which has a monthly payment of $640.  Add $1,500 per year to cover insurance and property taxes and your total payment comes to about $765 per month.

It is possible today in Rutherford County to pay about $120K for a home that rents for $900 or more per month.  If your purchase is in this category, it will produce a monthly cash flow (rent minus expenses) of $135 per month.  In many cases, this cash flow completely covers other non-regular expenses that occur, such as repairs, property management, etc.

Now let’s say that your rental property appreciates in value an average of three percent per year, which is less than the average annual home appreciation in Rutherford County over the past 10 years.  With this conservative estimate, in 10 years your home will be worth $161,270, or $41,270 more than you paid for it.  Additionally, your principle balance on your loan will have dropped to $82,380 — that’s $13,620 of your loan that has been paid down by your tenants through their rent.

Overall, you will be sitting on $78,890 in equity.  Remember, your original cash investment was only $24,000.  This means the value of your investment has more than tripled in just 10 years with an average annual return of 32.9 percent.  There is no other investment that allows you to leverage your money like real estate. 

Of course, being a landlord is not for everyone.  This investment is a little more involved than sending a check to your stockbroker.  However, you can take much of the stress of owning rental property off your own shoulders by hiring a skillful property manager and giving him the space he needs to do his job properly.  And there is something comforting about being able to see and touch your investment. 

There are many aspects of the lot and surrounding property that can have a huge impact on the desirability and value of a home.  A few things to examine before writing that offer:

Boundaries and Encroachments – Find out where your lot ends as well as any building setbacks.  Are all fences, sheds, and structures located far enough away from the property lines?  Is there room to add onto the house or build a deck in the future?  If necessary, consider getting a professional survey.

Easements – Electric, gas, water, and other utilities may have been granted permission to run their lines on your property.  Make sure any of these easements won’t negatively affect your ability to use or improve your property in the future.

Septic System – If the waste disposal system for the house is a septic tank, find out where the field lines are located.  You won’t be able to plant any trees, build outbuildings, or place a swimming pool in the septic field.  If sewer becomes available in the neighborhood, you may be forced to hook up to it before the house will qualify for a VA or FHA loan when you eventually sell the house.

Police & Fire – Neighborhood crime statistics and the proximity of fire hydrants and police and fire stations can have an impact on the cost of homeowner’s insurance as well as resale value.

You’re likely getting fooled by the “good” feedback on your house. Here’s the truth about feedback: unless there is something truly objectionable about the home, most agents who provide feedback will find something nice to say about the house. 

You need to learn how to interpret feedback.  Whenever a prospective buyer chooses not to make an offer on your listing, it means that he believes he can get a better value for his money by purchasing another house.  Once you’ve gotten enough feedback saying buyers believe they can get better value elsewhere, it becomes clear that in order to get an offer on your home, you must provide more value.  And the easiest way to give the buyer more value is to lower the price.