Real Estate Investing

A few days ago I wrote about whether to give a closing gift or not and people who EXPECT compensation from you for doing business with them (and the legal issues that ensue).  Today I read an article about how some real estate agents are now giving FREE TRIPS when someone purchases a home through them.  From NewsGeni.us,

Ray Rickard, a real estate developer and a Realtor with RE/MAX 4000, said he wanted to garner more interest in six homes he developed in the Woodridge Subdivision off G 1/2 Road. So, he’s offering a free trip for two to the Caribbean for anyone that closes on the homes by the end of this year. Rickard will pay for the trips himself.

“Housing’s down as low as it can go, especially on new houses,” Rickard said. “We thought the prices are right, the interest rates are right, the tax credits are right. We’re just throwing in a little incentive.”

The article went on to say that there’s been some interest, but no takers yet.

Several years ago an agent in my office had a home listed that had a beautiful old car in the garage.  The car was in great shape, but did need a little bit of work.  We debated about advertising the listing like this:

1958 Studebaker for Sale
Comes with FREE HOUSE

Ultimately the agent marketed the house – that is after all what we we are paid to do as real estate consultants! Even then it took quite some time to sell and this was before the market really dropped out. I think that a big trip will not sell a home to be honest. If someone is in the market to buy, it’s because they’re ready to own a home – not because they get to go to the Caribbean.

Photo from Stanisgarage via Flickr Creative Commons.

There’s an agent in my area who shall remain nameless.  He’s a big, popular agent.  He guarantees his listings will sell in 60 days or else.  The else is the charming part… or else what?

Or else he’ll buy them personally?  No.

Or else he’ll sell them without charging a commission?  No.

Or else he’ll just re-list them again and again so it will appear it’s only been listed for 60 days?  Bingo!

A friend of mine – before I became an agent myself – once said that she called him and learned that to list with him you were required to sign at least six listing forms.  Each form was good for 30 to 60 days.  When one listing date expired, his staff would re-input everything into the MLS thus creating a new MLS number.  We’re not supposed to do this – it’s against the MLS rules… more specifically there’s supposed to be a 10-day rest period before a home listing shows back up as a new, active listing.  Here’s what I found the other day on one home:

August 6, 2007 – 49 days
September 24, 2007 – 49 days
November 12, 2007 – 46 days
December 28, 2007 – 61 days
February 28, 2008 – 46 days
April 14, 2008 – 46 days
May 30, 2008 – 63 days
August 1, 2008 – 45 days
September 15, 2008 – 45 days
October 30, 2008 – 48 days
December 17, 2008 – 170 days (wrong picture)
June 5, 2009 – 119 days

I definitely sense a pattern that the agent is tired of the 45 days listings and is expanding them to three and four months! So this may be a boost for sellers – to give them optimal exposure because we agents do keep an eye on the hot sheets – to see what’s new on the market, what prices have come down, who’s withdrawn and expired.  Yet it’s misleading to buyers UNLESS their agent performs due diligence and looks at the full history of the house.  If I was the buyer’s agent, my thoughts would be that since it’s been on the market for 787 DAYS, they may be willing to negotiate.  OR they probably are NOT willing to negotiate!

Maybe we should just call this Reason #29 to Interview and Hire a Professional Realtor to Represent Your Best Interests.

In the best case scenario when the housing market and home values are down, a seller may still have equity in his/her home.  Let’s say they owe $125,000 on a house that could’ve sold three years ago for $165,000 (a $40,000 gross profit).  Today, the same home is worth $145,000.  (And let’s just forget about fees, commissions, etc. for now).  To many sellers, this could feel like a $20,000 LOSS on the home – though they’ll still walk away with money.

The other very important consideration is what you would’ve paid in RENT on a comparable property… because rent or own you would’ve paid something either way.  Let’s say Mr. Seller has lived there for seven years (just a random number) and it would’ve cost $1000 p/month to rent.  That’s $84,000 that would be straight up gone without even $20,000 in capital gains to trumpet.

Finally, you’re selling in order to move up, down, or sideways.  The potential savings on the next home purchased is where the seller will make up the $20,000 difference he could’ve earned by selling three years ago.  Mr. & Mrs. Seller could possibly now get into a $210,000 home for $180,000, for example.

CNN Money.com illustrates what I’m saying with some tips for people looking to find a new crib.

Galdes, 43, may have to sell her condo — bought in 2003 for $287,000 — for less than she’d hoped. But the discount on a better place will more than offset the reduction on hers. And she’ll net $86,000 after closing even if she breaks even.

If you plan to sell but not to make another purchase, I’d advise to hold on for several more years until prices come back (if you can).  If you plan to change homes, however, the time could be right for you!