Monday, July 29, 2013

It Can't Hurt to Wait, Can It?

Wait.pngIt’s been said that more money has been lost due to indecision than was ever lost because of a bad decision. Regardless of whether you agree with the statement, delaying the decision to buy in today’s market is going to cost the buyer more. 

Home prices have gone up considerably in almost every market in the country in the past year and while inventories are beginning to grow, prices are expected to continue to rise. Mortgage rates jumped 1% from the beginning of May to now. They could easily reach 5% by the end of the year and continue to rise in 2014.

Many of the financial experts in the country believe that the economy will not be strong until rates are in the 7% area.

The two components that move the cost of housing are price and mortgage rates. Escalation of either one will have an affect but when both are going up simultaneously, it is dramatic. It can literally eliminate buyers who could have purchased earlier.

The following example shows what would happen to the payments on a $200,000 home if the price were to go up 3% at the same time that the mortgage rates went up 1%. Not only would the payments go up by $150.81 per month, the price of the home would be $6,000 more. Even though the down payment may not change much, the new owner would have to borrow more money. By not acting, it is costing them more in price and payment. The loss of the appreciation would have been equity had they purchased prior to the rise in price.

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Check out the Cost of Waiting to Buy to see what the effect will be using your own projections.

Friday, July 26, 2013

Today's Realtor has it "made" . . .

What we did before MLS!

My mother became a licensed real estate agent in 1961 and I grew up in a real estate office environment . . . but that's an old story.  You've already read it.  But as I prepare myself for an arbitration hearing on Monday -- based on the foundation of what MLS is/was -- I began to "reminisce" about the way we "used to do it."

Really, today's consumer has it made.  With, and (not to mention, consumers can shop for homes on the internet 24/7.  This makes it much easier for them to "weed out" the homes they like and don't like.  But what did we do before the internet?

In the early days, an agent found out about another agent's listings by word-of-mouth or by telephone or flyer delivery.  However, there was no guarantee that the listing agent would share any fee with another subagent (there were no buyer agents back then).  The subagent would have to call the listing agent and ask permission to "co-op(erate)" in the sale of the listing for a fee.  The two would have to negotiate the fee split, and decide whether to work together or not.  Consequently, listing agents tended to sell most of their own listings.

Then along came the MLS with its "automatically assured" fee split.  Listing agents could submit their listings to a central MLS system who would make copies and disperse them on Fridays by delivery truck along with a copy of "pendings" and "solds" for the week.  It was out-of-date, but much better than nothing.  It still required a phone call to confirm.
This is what MLS Books looked like.  Often, the images got "mixed up" before printing!

Then, along came MLS books.  A listing agent would fill out a lengthy listing form, take a Polaroid black & white photo, and send all in to MLS with a check for $10 per listing.  Within two weeks, a giant-sized book of photos and listings would be distributed on Fridays.  In Houston, it was FOUR giant-sized books every Friday.  (Sold/comp books were distributed quarterly, for a small extra fee.)

Along came computers which revolutionized our business -- the first being little terminals with no screen that spit out wax paper listings -- miles and miles of wax paper!  Monochrome screens came in the 1990's and really changed things up again . . . gradually progressing to where we are today.

And to think that I had to file an arbitration claim to get a commission for one of our young agents because some mega-listing company (whose name I won't mention) decided that they don't have to play by the MLS rules.  I don't really think they understand where we came from, and what MLS really is.  But they're about to get a lesson.

If I list a home on MLS with a fee offer to a co-op agent, that fee cannot be modified.  Period.  Plain and simple.  No phone calls.  No negotiations.  The fee is unconditionally offered to any participating member of MLS.  They can't change it except with mutual agreement in writing before any offer is accepted.   They'll learn.

Ah well, when I think about the history of MLS and co-op(erating) with other agents, it brings back a lot of memories.  No answering machines, no cell phones, no pagers, carbon paper, no fax machines, no email.  When you left the office, you went home.  No business until the next day.  Is it better now?  Hmmm.........

Monday, July 22, 2013

If I'd Known...

If.jpgWe’ve probably all said or at least thought “if I knew then, what I know now, I would have done things differently.” We should have stayed in school longer. We should have listened to our parents. We should have bought Apple stock in 2002 for $8.50 that sells for $400 today. Or we could have bought gold in 2000 for under $300 for a four-fold profit today.

Years from now, if we look back at 2012, we may say that it was the best buyer’s market ever. Even now, in 2013, it’s apparent that both housing and mortgage prices are going up and they may never return to the record low levels.

The housing affordability index, which is considered to be good at 100, had increased to over 200 this past December, January and February. Shrinking inventories and rising prices in most markets have caused the index to fall to 172.7 for May 2013.

This market applies equally to acquiring a home to live in or a home to use as a rental. It is estimated that about 30% of the property purchased last year was done by investors. It is understandable because the positive cash flows far exceed most other investment alternatives. HAIndex.png

Homeowners moving up in a rising market may sell their home for more by waiting but it will also cost them more for a new house. Typically, a person buys a 50% larger home when they move up. If they wait for prices to go up 10% on the $150,000 home they're selling, they’ll realize $15,000 more but will pay $22,500 more for the new home purchase. They’ll actually net $7,500 less by waiting for prices to go up and may have to pay a higher mortgage rate too.

The question homebuyers and investors alike are faced with today is whether they will be saying years from now that they seized or missed an opportunity of a lifetime.

Friday, July 19, 2013

So . . . You want to be a real estate agent . . .

Can you Get Rich Quick?

I have been a real estate agent for over 38 years (so far)!  And you probably know by reading past blogs that I (literally) grew up in a real estate office.  So all of my life (that I can remember), I've worked with Realtors and as a Realtor.  I hardly know anything else, except for the short time I worked for Der Weinerschnitzel (on Bellfort), Pizza Hut (in Conroe), and A Jiffy Key and Lock (on Reveille).  (Mother wanted to make sure I appreciated the real estate business by encouraging me to work elsewhere very briefly, all totaled less than one year.)
This is what the (der) Wienerschnitzel (where I worked) looked like.  The A-frame with drive-thru in the middle!

Now you know my entire work history . . . and you see why I'm a Realtor.  (My job at Der Weinerschnitzel, however, was my favorite, which paid me $1.40 per hour.  Of course, hot dogs were 18 cents at the I sound like your grandfather now sonny-boy?)  Anyway, I digress.

Part of my job as a "broker/owner" is "recruiter."  So I had a guy email me a few days ago saying, "hey Sam, maybe you remember me.  You sold my house a few years ago, and I was thinking about getting into the real estate business.  Can you point me to a good real estate school?"

So, I looked him up in my database and remembered him (somewhat).  We sold his house with no issues, which makes him less memorable than the difficult sales where I take a cussing......but that's irrelevant.  (I do, however, remember every cussing I've ever taken!  "Taking a cussing" is part of a good Realtor's job, because buyers and sellers are over-stressed during that period and tend to take out their frustrations on their agent.  Then, when it's over, I get an apology and a gift.  I'm used to it.)

Nonetheless, his sale was uneventful and thus, less-than-memorable.  But I pointed him to my recruiting website, and to a path toward becoming a real estate agent.  Again, uneventful.

But yesterday, he called me.  He'd reviewed the information, and had this question:  "How much can I make with your firm in the next 60 days?"  Oh boy, I knew that I was about to "bust his bubble."  Unfortunately, most people think that real estate is a "job."  It's not!  It is starting your own business, true entrepreneurship.  Capitalism.  Free enterprise.  Very American.  And my favorites, "work your own hours," "be your own boss."  LOL!

Let me just say that the last 3 "brand new licensees" that I've met with didn't have the money to join the Board of Realtors and get MLS access!  But they wanted to make millions!  Where did this complete misconception come from?  Was it that they'd sold a house and saw the HUGE fee they'd paid and thought, "wow, this guy is getting rich?"  Maybe.

But make no mistake . . . hear ye, hear ye!  It will cost a new agent (after real estate school) $5,000-10,000 over the next 6 months with very little income.  Perhaps they'll get this money back in a year with a return, but expect a very rocky beginning.  It (seriously) takes 2-3 years to get well established so that your income becomes "regular" and static.  Though most agents in year two start to "roll," I wouldn't advise any new debt until year 3 or more.

Now . . . my competitors are going to look at this and say, "yes, but at our firm, you'll do much better much quicker."  HAHA!  Our primary competitor spends more money on recruiting gimmicks than they do on marketing.  And their agents make far less money than our agents do, even their top-producing agents with the most longevity.  So, if you're looking at becoming an agent, be sure to look at ALL the data!  And consider who's going to train you . . . who better than someone who's "made it" in this business?

I never lead someone down a path that looks rosier than it is.  The path to successful real estate agency is laden with thorns.........but my job is to trim those thorns and make the path as smooth as I can.  It's now part of what I do every day.

The plan?  I have one for you.  Invest in yourself -- both financially and educationally -- apply the basic principles of success -- join the best company you can find -- and you're on your way.  The reward at the end?  Yes, you can make a good living in time.

But my earliest mentor -- Tom Hopkins -- always said, "you don't get rich in real estate by listing and selling it . . . you get rich by owning it."  So as you make money, phase 2 of your plan is to invest in yourself again by buying real estate.

Questions?  Ready to jump right in?  Call me.  832-200-5656.

Monday, July 15, 2013

Retirement Without a Mortgage

iStock_000014489150XSmall.jpgPlanning for retirement is obviously important and many times, an activity plagued by procrastination. Some people plan to have their home paid for by that magical date so they won’t have payments after they retire. It makes sense to eliminate a large recurring expense before they quit working.

One strategy would be to be make regular principal contributions in addition to the payments so that it will eliminate the debt by the target retirement date.

Let’s say that a homeowner refinanced their $200,000 mortgage at 4% last year with the first payment due on May 1, 2012. Under normal amortization, the home would be paid for at the end of the term; 30 years in this example.

By making additional principal contributions with each payment, it would accelerate the payoff on the home. An extra $250.00 a month would pay off the mortgage in 10 years. $524.55 extra with each payment would pay off the loan in 15 years; and $796.23 would pay off the loan in 12 years.

Having a home paid for at retirement has the obvious benefit of no house payment. It is also a substantial asset that could be borrowed against or sold if unanticipated events should occur.

Another strategy might involve purchasing a smaller home now to use as a rental that you intend to live when you retire; see Retirement Home Now.

To make some projections to pay off your own mortgage, use this Equity Accelerator.

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Friday, July 12, 2013

Things everyone should learn from my mother . . .

. . . when working in an office

I literally grew up in a real estate office.  In 1961, my mother dropped my sister and I off at The Livingston Sands Motel, owned and run by Aunt Joni and Uncle Claud, while she drove to Austin to take her real estate exam (which she passed).  Interestingly, there was no availability to take the exam in Texas anywhere but Austin . . . and of course, no computers or calculators.

After she was licensed, she changed brokers a few times until she finally paired up with a lady named Mae Peden and in 1968, the opened "Peden Real Estate" at 6477 South Park Blvd. (now known as Martin Luther King Blvd.).  The office was a converted house, and the garage was enclosed to make more offices.  For air conditioning, they had window units and gas space heaters for the winter.  All was well.  In fact, mother actually lived in one of the bedrooms where my sister and I stayed from time-to-time, though we lived full time with my father.  (Those two took their bitterness with each other to the grave!)

Nonetheless, my sister didn't really have much interest in the inner-workings of the office, but I sure did!  I loved nothing more than the office machines (especially electric typewriters), answering telephones, taking messages, greeting customers, and everything there was about working in an office.

No surprise that at age 17, I obtained my real estate license, though by then, modernization had taken hold and I was able to take my real estate exam in Houston (by pencil and scantron).  It took two weeks to find out that I had passed!  Another interesting side-note is that no courses were required.  All I had to do was get certified as an adult with a simple legal procedure wherein I had my "disability of minority removed."  And since my father was living in a rooming house in Houston and my mother was living in the office, I was living with my step-mother in Conroe.....easy enough.

But here are some gems from working for an alpha-female (ie, my mother) that everyone should learn who works in an office:

1.  "On time" means 15 minutes early.  If your appointment is for 2pm, you show up at 1:45pm and wait.  If you show up at 1:55pm, you're late.

2.  "Telephone Messages" are crucial to your business.  Take the name, phone number, time that they called, any subject, write it all down including your name, date, and time, and IMMEDIATELY tape the message to the person's telephone.  Inaccuracies and tardy delivery are not tolerated.

3.  "Return your messages promptly."  If someone leaves you a message, you call them back immediately upon return.  No matter how badly you do not wish to speak to that person, you call them back promptly.

4.  "Put the trash out."  Do not let your trash can fill up . . . empty it promptly.  Wash your coffee cup.

5.  "Make sure your shoes are shined."

Were there more?  Ah yes, you bet, but these seem to jump out in my mind daily.  I still tend to these office duties with the same vigor as though Mother were still here . . . and she died in 1988.

So yes, I've really been working full time in real estate for 38 years (with license), but many more years in a real estate office.  And I can type like no one else I've ever known. . . . I still do it all today.  I'm going to go shine my shoes before work today . . . ahhhhhhhhh......

Monday, July 8, 2013

When Rates Go Up

FreddieMac PMMS 2013.pngRising interest rates are great if you are renewing a certificate of deposit but not so much when you’re borrowing money. With interest rates on the rise as well as home prices, housing affordability is a concern for would-be homeowners.

A rough rule of thumb is that a person’s or family’s housing should not exceed 28% of their monthly gross income. While rental rates and home prices have been consistently increasing, mortgage rates have been soaring in the past month. In one week, according to the Freddie Mac Primary Mortgage Market Survey, they jumped by .5%.

This means that people have to pay a larger percentage of their income for housing unless their incomes have been increasing at an equal pace.  A $200,000 mortgage would be over $100 more per month if closed in July compared to closing at the interest rates available in January of 2013.

If rates increase by .5% by the time you close on the same size mortgage, payments would increase by almost $60 per month. In order to keep the payments the same, a borrower would have to put an additional $11,000 down to lower the mortgage amount. 

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Check out how your payment would be affected if interest rates continue to rise.

The National Association of REALTORS® suggests that housing is more affordable now than one year ago. However, with all of the variables in play including inflation that was not addressed in this piece, it is unclear how long conditions will remain “affordable”. 

Wednesday, July 3, 2013

Hot Dog! It's the 4th of July!

So Here's How to Make the Best Hot Dog Experience

By Sam Ferreri  What could be more "American" than Hot Dogs?  Well, a lot of things, actually, because hot dogs were created in Frankfurt, Germany around the 13th century, and the terms "wiener" comes from Vienna, Austria . . . but who cares?  They're now as American as Apple Pie!

The Traeger Smoker
So when is a better time to eat them than the 4th of July?  This is it . . . this is your chance!  Las year, I purchased a Traeger Electric Smoker . . . and yum yum yum.  I discovered that there's absolutely no better way to prepare the tube steak (a/k/a the wiener) than to smoke it on the Traeger until it "busts" down one side!  I buy the "base model" Oscar Meyer hot dogs for this event.  

Of course, there are many options in hot dogs . . . fat dogs, skinny dogs, bun-length dogs, all-beef dogs, turkey dogs, chicken dogs . . . I really don't want to know what goes into any of them!  But they come out soooooo tasty!  I've recently had Lucky Dogs on Bourbon Street in N'awlins and Middle-Eastern Dogs? . . . on the streets of New York City.  (I call them Middle-Eastern Dogs because it seems that these hot dogs stands are run mostly by middle eastern guys who also offer shish-kabobs and a variety of other ethnic treats.)  

But NONE are better than my smoked dogs at home!  And now, a new discovery, thanks to Jose's Mom and Michelle:  Smoked Hot Dogs with Honduran Curtido.  OMGosh!  This is a little treat from heaven.
Empty jar + Full Jar of Jose's Mom's Delicious Honduran Curtido

One day, I had been invited to Jose's mom's house for a Honduran dinner where I noticed this huge jar of "stuff" in purple juice.  I asked Jose what it was, and he turned up his nose and said, "oh that's my mom's curtido."  To which I asked, "what is it?  Can I try some?"  "Sure, he said, have at it."

Jose and his sister clearly do not like it, but it was very intriguing to me.  So . . . one bite, and I was HOOKED!  This "stuff" is delicious!  From what I can discern, it consists of red cabbage, red onions, jalapeƱos, vinegar, and south-of-the-border spices.  And it goes on EVERYTHING!

Michelle came over, tasted it, and remarked how good it would be on hot dogs . . . so we smoked some . . . and she was right!  There's no better hot dog combination that we've found yet!  So . . . 4th of July . . . . . we've got fireworks ready!  Dogs and curtido ready!  Let Freedom Ring!

Hot dog and wine party anyone???  How do you like YOUR dogs?

Tuesday, July 2, 2013

Is Home Staging a Viable Business On its own?

Or will you go broke trying?

On this rare occurrence, I was invited to dinner by someone who only knows "of" me, but whom I'd never met.  She's a very smart neighbor of a client of mine, and for the sake of this blog and her anonymity, I'll call her "Betty."

Betty wrote to me and said that although a practicing CPA, she'd found her true love in life -- decorating.  And although she's nearing becoming a partner in a large firm, she really wants to find a way to make a living doing what she loves.  So she thought of "home staging" for home sellers/Realtors to help get homes sold.  So she offered to buy my dinner to "pick my brain" for what I know about the business.

So last night, we went to BJ's -- the place with homemade beers?  Over a nice stuffed baked potato, salad, and a Nit-Wit -- the beer du jour -- I got chatty.

Home staging in Pearland real estate has been around for about 10 years.  During that time, one local interior decorator has commanded many of the top producers' business and charges a very reasonable fee to spend about an hour helping home sellers stage their home.

I "used to use" her on The Sam Team, too, until my bill approached the multi-thousand-dollar-per-month level, and I realized I could hire someone full time and get more out of them.  So I discovered one of my newer teammates had a skilled eye for decorating and de-cluttering -- skills that are totally required for most home stagings.  So, I put him and my photographer together to form my "Stage 'n Shoot" crew, and it is one of the best  combinations in the marketplace today.

So this lady wanted my advice about a career change . . . but I only gave her the information she needs to make a good decision . . . would I do it?  To give up a near-partnership CPA practice to take a certain giant pay reduction to "follow my bliss?"  Hmmm.......

Would YOU?

Monday, July 1, 2013

FHA & VA Assumptions

fha-va assumptions.pngNot many buyers have assumed a mortgage in the past 25 years. Most people think it was because FHA and VA in the late 80’s began to require that buyers qualify for the assumptions. Not having to qualify for a mortgage would certainly benefit certain buyers. 

If a homeowner must qualify for an assumption like a new loan, they'll generally choose the mortgage with the lower interest rate.  Over the past 25 years, rates have been trending down but it appears that rates have bottomed out and will gradually increase.   As they continue to rise, the lower rates on the FHA and VA loans created in the last few years will appeal to buyers even if they do have to qualify for the assumption.

There are significant advantages to assuming one of these government insured mortgages if the current interest rate on a new loan is higher:

1. Mortgage is further into amortization schedule
2. Lower interest rate loans amortize faster than higher interest rate loans
3. Lower closing costs than a new mortgage
4. Easier to qualify than on a new mortgage
5. No appraisal required

FHA assumptions are only allowed as owner-occupied residents. The borrower must meet current FHA guidelines for borrowers. The total debt ratio including house payment to be assumed cannot exceed 41% of borrowers’ monthly gross income.
VA loans are also assumable with buyer qualification. However, in order for the veteran Seller to have their eligibility reinstated, the buyer must also be a veteran with eligibility.

A 1% difference in the current rates and a lower assumable mortgage rate begins to make it very attractive to assume a mortgage. When the differential becomes even greater, assumptions will become more prevalent than they’ve been in over twenty years. FreddieMac PMMS.png