Real Estate Investing

Compared to home prices in May of 2007, the only May flowers seen in 2008 were likely on top of a casket.  Home prices plunged in 20 major cities by 15.8 percent from a year ago, according AP News through Comcast. 

Nine metropolitan cities _ Las Vegas, Miami, Phoenix, Los Angeles, San Diego, San Francisco, Seattle, Wash., Portland, Ore., and Washington, D.C. _ posted record lows in May. And the value of housing in Detroit is now lower than it was in 2000.

But a possible bright spot in an otherwise dismal report, seven metros _ Tampa, Fla., Boston, Detroit, Minneapolis, New York, Dallas and Atlanta _ showed smaller annual declines.

I wonder how this decline is going to affect the Extreme Makeover home that was built for a family in Georgia.  I know the show typically features deserving families, but my thoughts are they might be following in an already established pattern of bad financial decision-making.  After the show left, the homeowners apparently refinanced for the value (perhaps a home equity loan that gave them a boat-load of cash), but they were unable to pay the money back.  Now the home is to be auctioned on the courthouse steps. 

The Atlanta Journal Constitution reports,

The Harpers, who declined interview requests when reporters knocked on their door Friday, told WSB-TV they got the loan for a construction business that failed. Failure seemed an impossibility in February 2005, when ABC-TV viewers got a look at the stunning home constructed in a subdivision three miles east of I-75.

This makes me sad.

Graph from MSNBC (here!).

Harper House photo taken here.

An always fabulous agent I work with told me recently about one of her closings.  She found a home for her buyer that had first been on the market for $145,000.  Following the market downward, it was reduced after several months to $130,000 in order to remain competitive.

Her buyer wanted this home, so they wrote a contract.  In the contract, they asked for 3% ($3900) in down payment assistance and 3% ($3900) in closing costs.  They also asked for a home warranty, a $1000 repair limit, termite inspection (we’ll say $75, but could be up to $800 depending on whether termites were found), and for the seller to pay for title expenses (another $1200).

This once $145,000 home was being purchased for

… drumroll …

$119,925 after the seller paid all of the concessions on behalf of the buyer.

That was $25,075 less than the original list price.  BUT because the market sets the price - and in fairness - the number would be $10,075 off the list price.  So the buyer made a full price offer on paper, and yet it was not a full price offer.

It got back to my friend the agent that the buyer’s father fussed at everyone he met because the agent didn’t get her son a “good enough” deal in a buyers market.  I beg to differ.  That she saved his son over $10,000 dollars from the list price was a pretty fabulous deal.

Yet there are always people who argue that it wasn’t enough.

Another friend of mine wrote a comment to me about full price offers saying, “No one should ever pay full asking price for anything that lends itself for negotiation possibilities…..there is always someone willing to wiggle….keep looking.”  I respectfully disagreed with her given the scenario outlined above.

I believe people need to always remember that just because you see something on paper, it doesn’t tell the whole story.  A full price offer may appear to be full price, but when a seller walks away with over $10,000 less than expected, they are not receiving full price.

Of course, you can also ask yourself how badly you want a house.  Even in a strong buyers’ market, homes in your price range in safe neighborhoods may not be available, so you do what you have to do.

I urge buyers and agents to never let the naysayers convince you that you made a mistake because only you know and have the complete picture of what your needs are.

Photo by Kathy T. and her blackjackii phone. Special guest: the calculator.

For the longest time, two words summed up a good home improvement strategy — “kitchen” and “bath.” However, with kitchen remodels in particular spiraling ever further out of control, it may be time to rethink conventional thinking. According to an article by Kathy McCleary on HGTV.com, money may be better spent on necessary improvements like furnaces, air conditioning units and gutters. While it may not be pretty and trendy with “designer colors,” wise home shoppers will understand the immense value in the words “new HVAC system.”

According to Remodeling magazine’s 2007 Cost vs. Value Report, new siding is the most rewarding home improvement, with a 79.7% to 88.1% return on investment. Their list cites fiber-cement siding as being a better investment than foam-backed vinyl siding, and a comprehensive list of all siding options can be found on About.com.

The highly-touted kitchen remodel, at a minor level of around $21,000, only recoups about 83% of cost at resell time. Cost recovery on both a minor kitchen remodel and replacement siding project has dropped significantly from three years ago, when McCleary wrote her article. Then, the projects would net a 92.9% and 92.8% cost recovery, respectively, according to the Cost vs. Value Report.

By 2007 numbers, a major kitchen remodel drops cost recovery down to only 78.1%. And bathrooms fared about the same or even worse, depending on the type of project. A bathroom addition of around $37,000 would net only 66% cost recovery and a remodel around $16,000 would net only 78%. Some other projects that yield big results on the market include the addition of about a $10,000 wood deck at 85.4% cost recovery and replacement windows in wood or upscale vinyl at 81% cost recovery.

It’s something to think about as spring kicks into gear and your inner handyman starts surfacing. Don’t be dismayed if the necessary home improvements are eating up the savings you had set aside for the more desirable home improvements. The financial reward may be more than you expected, regardless!