OBX Real Estate Blog

Cash Flow Spreadsheet

2011-10-24T06:56:00.001-07:00

Here's a Google Docs version of my cash flow spreadsheet - useful for estimating costs and tax benefits.

Cash Flow Spread Sheet Google Docs Version

Quick Reverse and Regular Closing Cost Calculators

2011-10-24T06:22:00.000-07:00

Here's a basic spreadsheet we use for closing costs - using the reverse calculator, you can see what price is needed to end up with a desired net amount.

Closing Cost Sheet Excel Version

Here's another link to a Google Docs version in case you don't have Excel

Closing Cost Sheet Google Docs Version

I'll add my cash flow spreadsheet too soon!

-John

Are Short Sales Still for Suckers?

2010-09-30T12:40:00.000-07:00

I may have to change my view on short sales, now that one is about to produce income for the VanderMyde family...

... still, watching how hard Heather is working to make this sale happen makes me long for the days of just buying a house from the seller. Now, you are buying the house from the bank essentially, without the bank really wanting to sell. Oh sure, they know they'll most likely foreclose on it and have to sell it down the road, most likely in worse shape for less money... but they've done that before. Short sales are new, different... and no one at the bank wants to stick his or her neck out by doing ANYTHING that might make it easier for the Buyer or Seller... or Agent.

However, Heather was able to get through to the vice president of short sales yesterday at Bank of America...

... which means their IS a vice president for short sales, implying a short sales division... so this means they actually have realized the need to sell off some of these homes in lieu of foreclosure. Heather was able to get a two day extension after the deal had all but fallen apart due to the bank making arbitrary and infeasible demands on the buyers.

So, I'm guessing that most short sales will still be difficult, drawn out processes that strain buyer and agent... but in the end, the bank does need to get rid of the house, the Buyer can get something at what is likely a below market price; the Seller may be in a better credit situation than with a foreclosure; and the Agent who has held it all together with patience and experience earns enough on this transaction to want to tackle another one with hopes of helping more Buyers or Sellers accomplish their individual goals.

It's not a process for the inexperienced or timid though - tax and legal questions must be answered for the Seller, the Buyer must have the fortitude to wait through the process, and the Agent must be aggressive enough to keep pushing even when it looks like all hope is lost.

Integrated Marketing

2010-02-25T16:06:00.001-08:00

I'm in a seminar on integrated marketing, which is stressing all the ways marketing has to adapt to our wired world. There have been several good ideas presented; the first one that stood out to me was how Realtors advertise listings in magazines - is everyone familiar with tiny type under tiny pictures, with 50 listings to a page?

In the pre internet world, those tiny ads kind of made sense. Now, they are just a waste of advertising dollars - people would much rather see a larger picture with only the price, location, and size - no flowery language describing how great the house is please!

The next question is, should properties be advertised in magazines at all? The vast majority of home buyers use the internet to look for properties - instant information, compared to a magazine that is a month behind the market at best. Would you rather your agent spend their time and money on keeping their website up to date, or placing ads in magazines and newspapers?

Well, chances are, if you are reading this, then you want your agent to be following the latest marketing trends, which stress the instant availablitiy of information, and then integration of all advertising to get that information to prospects and clients.

In moving forward through the Outer Banks real estate market recovery, we will be looking for more ways to leverage all our efforts .

It ain't over till the Home Inspection

2010-01-20T08:11:00.000-08:00

I need to write something up to give to every one of our buyers & sellers about how to handle the home inspection negotiation and the emotions that hit both the buyer and seller when they first see the report.

For now though, a blog post will have to do as a start.

We are currently selling one of our investment homes, a summer rental in Salvo where we have another couple as partners. It's an older home, and with all older homes exposed to the beach environment, it is inevitable that there will be water intrusion around windows, HVAC equipment on it's last legs, and a laundry list of minor items that you just don't think about until a skilled inspector labels each one on a report in red ink.

For the buyer, it's a shock to realize that a home that looks so nice has one thing after another that will need repair. It's enough to knock away all the warm fuzzies they had when they made an offer, and seriously reconsider whether they want to buy a home that's less than perfect.

For the seller, after negotiating away a good portion of the equity you thought you had, it's a shock to see another big chunk of it disappear for repair allowances. Also, it's easy to think the buyers are being nitpicky when you've lived with the bi-fold door that falls off the track occasionally, a frosted window pane or two, and the termite damage that was there when you bought the place, the bugs themselves poisoned long ago.

To the buyers though, every little item in red is a huge red flag... and phrases like "maybe it wasn't meant to be" start making their way into the conversation.

I think a lot of this can be avoided if we stress over and over to the buyers to expect a long list of items, and how fortunate we are to have outstanding professional home inspectors who find all these hidden problems before closing, when they can be addressed as part of the sales negotiation.

Which leads me to my point - negotiations are not over until the home inspection report is done and repairs decided upon. Too often both parties breath a sigh of relief after the initial price negotiation is done, and are blindsided when a much tougher negotiation starts over the repair request. The contract price should be viewed as a starting point, but the real negotiation is after the home inspection. It is at this point that both parties are fully informed about the property, and can make rational decisions based on that information.

So, my advice to sellers is to keep some good will and money in reserve during the price negotiations to get through the repair requests, and to buyers, don't be scared by the items in red, but expect problems to be uncovered, and be happy that you are fully informed about the property before closing, in time to negotiate a fair settlement with the seller.

More on Strategic Default

2010-01-07T13:20:00.000-08:00

A friend just emailed me this article, which is basically more reading on the basic theme of foreclosure vs. short sale or loan modification. It includes some good quotes from Wall Street figures, who disparage the idea of a homeowner walking away from an underwater property, while those same Wall Street boys had a field day betting against the loans they were making to us.

Hypocrisy from Wall Street is nothing new, but the fact that as a nation we are spending billions of dollars trying to prop up a market that should be allowed to adjust naturally is something to concern us all. These billions of dollars are not going to homeowners, but back to the banks... and only to keep people in homes paying far more on a mortgage than the same home would cost to rent.

It's an easy sell to the public to help a homeowner avoid the stigma of foreclosure... but wouldn't it be a lot cheaper for the public to just not stigmatize those who were caught by the bubble? Let those overvalued homes go... to be bought by an aspiring homeowner at a far lower price after forclosure. We should thank those with the courage to walk away from bad debt - debt the banks that never should have issued in the first place.

Tire Kickers?

2010-01-06T08:13:00.000-08:00

One of the most important skills an agent must have is the ability to discern who will eventually buy, and who never will.

When I first started selling, we always used the term "tire kickers" to describe someone who loves to look at property with no intention of buying. Well, perhaps that is a bit unfair - they may intend to buy, but do not have the financial resources to do so. Why then, do they look at property?

Buyers love to look. If they can find an agent that will show them around unqualified, then they will look, look, and look. Getting their money in order and qualifying for a loan may mean finding out that they don't actually have the resources to buy - poof, fun time over. So, they'll avoid reality to enjoy a free tour on an agents time. No reason to bemoan it, it's just natural behavior for the buying animal.

Good agents have a duty to find out who is able to buy, and who is just looking, not only for the agent's own benefit, but also to benefit the qualified buyers working with that agent.

How do all these probing financial questions benefit you as a buyer you say? Well, agents come with reputations, and an agent who has a good reputation of only working with qualified buyers will put you at an advantage in any negotiation - sellers and selling agents do not want to waste time with unqualified buyers, and if you are perceived as being a sure bet to follow through on a sales contract, then you start off in a much stronger negotiating position than someone who has not been qualified.

So, make sure your agent qualifies you before you head out to tour homes... unless you don't really want to buy.

Strategic Default

2009-12-23T06:10:00.000-08:00

Foreclosure carries a stigma in our society, as well it should - normally, if you let your property go into foreclosure, it's a sign of serious financial mismanagement. But these are not normal times...

However, some would go further to argue that you have a moral obligation to repay any loan, no matter the circumstances.

On the other hand, well respected businesses, including large corporations, default on debt all the time without the character of their boards being called into question. Often, these defaults happen even though the corporation has the cash to pay - they have simply calculated the fall out, and decided that it makes more business sense to let a property go back to the bank, rather than throw good money after bad.

Here's an article on the practice, known as "strategic default".

Personally, I'm trying to decide who's right - I know first hand how it feels to not be paid back, as my wife and I made several personal loans totaling tens of thousands of dollars to employees and friends when times were good... and we're likely never to see the majority of that money again.

On the other hand, when a bank charges you interest on a loan, part of that interest is paid because of the risk of default - if there were no risk, the rate would be the same as a treasury bill. So, the bank is taking the risk that you might default to make more money. If they make the mistake of loaning money at the wrong time and property values plummet... is that the borrower's or the bank's fault? Or is it just a risk of doing business? Should borrowers feel morally bound to repay the debt, or should they act like a business and make the choice that protects their own interests without regard to the bank?

I'd love to hear what other people think about what to do when "strategic default" is an option for individuals and businesses.

Good faith? Lenders have forgotten the meaning...

2009-12-18T05:45:00.000-08:00

Lenders continue to act in arbitrary fashion, making up the rules as they go along, mostly because there aren't any. Here's a recent article on what happens when struggling homeowners try to work through the system: Banks selling homes out from under homeowners who attempt loan modifications.

My advice to homeowners in these situations would be to stop throwing good money after bad... hand the keys to the bank, make sure you have the rest of your assets protected in case the bank pursues you for a deficiency, and find a nice rental for a few years.

Of course, this only applies to homes worth much less than the mortgage amount. Still, foreclosures have a much clearer legal course than other avenues... and you won't have to pay taxes on forgiven debt like you would with a short sale or loan modification.

Your credit will suffer more with a foreclosure - but it will also recover with time. Credit got us into this mess, and there's no reason to think it will help get anyone out.

Selling a Distressed Property in a Distressed Market can be... Distressing.

2009-12-07T10:32:00.000-08:00

Yes, I know the title of my post seems somewhat obvious, but it doesn't hurt to think about how to be a successful seller in a market where buyers have short sale and foreclosure fever. If you've owned your house long enough, you can still expect to make a reasonable profit, but it's more important than ever to have your house in tip top shape before it hits the market.

First up - smells. Even though some people think musty smells go with Beach Houses, they really are a sign that you have a leak or humidity problem. Don't hide it with Frebreeze, find it and fix it before a buyer gets anywhere near your home. Smell is a powerful emotional trigger, and emotions are what will motivate a buyer to pay the premium a good house deserves... clean and fresh scents are essential to keeping a buyer in a positive state of mind with regard to your property. If a buyer wants to buy a problem... well, there might just be a foreclosure sale down the street.

I'll cover more in coming posts... and please feel free to comment with what YOU think is the most important factor to distinguish a good home from one that hasn't been maintained.

Short Sales are for Suckers!

2009-12-01T09:06:00.000-08:00

A "short sale" is a real estate term for when a seller accepts an offer on their property for less than they owe on the mortgage. The bank must then agree to accept that amount to release their claim on the title in order for the property to be transfered to the buyer.

What could be wrong with this? The seller gets out from an "underwater" property, the buyer gets a house for less than the seller owed, and the agent gets a commission.

Let's consider it from each viewpoint, and dig a little deeper:

As a buyer - It's often better to wait and let the bank foreclose - then the bank is a motivated seller, rather than a third party who's only interest is to extract as much as they can from the seller. Mortgage departments do not like to lose money, and they will play hardball to get every dime they can from the seller, while you wait, at the mercy of what the bank decides. On the other hand, once the bank owns the property, the real estate department of that bank wants to get rid of property as quickly as possible, and will make significant price reductions on a continuing basis until the property sells.

As a seller - with an "underwater" property, you have a bad hand no matter how you play it. To qualify for a short sale, the bank will only be interested if you are behind on your mortgage (why would they take less than they are owed otherwise?), and once you are behind on your mortgage, your credit will be nearly as bad as from a foreclosure. To make matters worse, the bank will require full disclosure of whatever assets you have, and if they decide to sue you for a deficiency later, you have no way to protect what assets you have left. If they do in fact forgive the debt, then you risk having a gain reported to the IRS on the amount they forgave.

Sellers and homeowners - if you are significantly under water, find an attorney, and go from there. Don't wait, whether you are selling or not. If you own any other property, a visit with a good attorney may be the only way to save what assets you have left.

As an agent - you stand a good chance of losing a perfectly good buyer if the bank decides to play hard ball. They will be stuck in a waiting game, and you will suffer if they end up frustrated, waiting for a property that may or may not be approved for a short sale by the bank. What are the chances that buyer will continue with you if the sale falls through and they've wasted months of effort?

If you are listing a property where the mortgage exceeds your recommended price... counting on a bank to approve a short sale in the future puts you at risk of wasting marketing resources, and puts your seller at risk for the aforementioned reasons. If your seller is unable to convey clear title at the current market price... they should be talking to an attorney, not you.

When I first started in real estate, 15 years ago after the last boom and bust, some of my first listings were bank owned properties. They were not in good shape, and it took buyers that could literally hold their noses... but they sold at significant discounts to the already depressed market. I still think about that double lot on Va. Dare Trail with a huge house that sold for $110,000 back in '95...

I'm sure there are many agents out there who will disagree with me considering the short sale hype and training programs I've heard about... so please, share your thoughts in case I'm missing something.

Dog Park!

2009-11-30T06:15:00.000-08:00

I was pleased to read in the Sunday Pilot that Kitty Hawk will include a fenced Dog Park as part of it's coming 1800 acre multi-use park off Woods Road.

A well socialized dog is a better and happier pet - I hope more towns will follow Kitty Hawk's example. Considering that the Dog Park was the number one request from the town's use survey, I would imagine we should be seeing more fenced parks where our dogs can run free and play with their furry friends.

Now, if we could just get started on a bike path for Colington Road...

Rental Property Scam

2009-11-27T11:03:00.000-08:00

Heather and I booked our rental house in Duck recently for a renter who contacted us from our ad in Craigslist... and turns out they were just trying to run the old "I sent you a check for too much by mistake" scam.

Of course we immediately canceled the reservation when they tried it, and sure enough a check arrived today; $3500 for an $800 off season week! The return address was in Montana, the check was drawn on a bank in Texas... for a renter from the UK. I reported it on Scam.com, and I can't really think of much else to do besides sharing it here. I hope we might save someone else the trouble of taking their rental property off the market over the holidays for a rental that will never happen.

At least the crooks are out of their UPS 2nd day air fees!

Hey Y'all!

2009-11-24T07:23:00.000-08:00

I'm back!

After enjoying the last eight years of building and designing homes, it's time to explore real estate again.

Why? Well, even though I did well with construction, I only really enjoyed it when I was building spec homes for myself... and building a spec home in today's market is not the best idea.

Plus, helping Heather with real estate gives me more time to spend with Ike, and like any new Dad, that is a blessing too good to pass up.

So, I'll be posting my thoughts and ideas about the Outer Banks real estate market, as often as I have something worth saying.

I hope anyone who has a question or thought about the OBX will post it here! I'd love to start a discussion about anything to do with the Outer Banks or real estate in general.