Tuesday, April 28, 2015

Buy Smart - Should you Pay More or Less?

Paying more for your house payment does not make your home more valuable. It does mean that the mortgage rate may be higher than it has to be.  There are options, so let's take a look.

  more or less.png
Even though fixed rates may never again be as low as they are currently, an adjustable rate mortgage may provide the lowest cost of ownership depending on how long a borrower plans to own a home. There are different types of ARMs but the one in this example is a 30 year mortgage with the rate fixed for five years and can adjust every one year after that based on independent indexes.

Another feature of a FHA ARM is the maximum rate change in one period is 1% and the maximum lifetime cap is 5% over the initial rate.

In the example below, the payment on the adjustable is $153.48 lower for the first five years or 60 payments. Another interesting thing is that lower interest rate loans amortize faster than higher interest rate loans. In this example, the ARM has a lower unpaid balance at the end of the first five years by $4,239.

The total savings on the ARM at the end of the first period is $13,477. If a borrower felt confident they would sell the home prior to the breakeven point of 8.5 years, the ARM would produce a lower cost of housing even if the mortgage rate escalated the maximum at each adjustment period.
To help determine whether you pay more or less, consult with a trusted mortgage professional and your real estate agent to learn the advantages and disadvantages of different programs. To try your own comparison, check today’s rates at the Freddie Mac Mortgage Rate Survey and plug your numbers into an Equity Accelerator
ARM comparison2.png.jpg
For more information about buying smart, call The Sam Team today at 832-200-5656.  For over 40 years, we've helped people just like you find their way in the current market.  We want to help you, too!

Tuesday, April 21, 2015

Do YOU have your Basic Legal Documents Ready? (just in case . . . )

iStock_000012034746_250.jpgEveryone needs to be prepared.  Many times, young adults feel “bullet-proof” and don’t consider the urgency to get involved or spend the money to take care of certain legal aspects of their lives because they think they’re going to live forever.  Since no one is guaranteed longevity of life, if you want to be in control of who gets what and who is in charge now based on an untimely incapacitation or death, it is important to investigate these basic legal documents.
Will – This is a legal instrument that specifies your desires to care for your minor children and to distribute your personal property after you die and who will manage the process.  Anyone who has property and minor children needs a will.
Living Will – This legal instrument specifies your intentions regarding end of life decisions or to designate an individual to make those decisions on your behalf.  Many times, a person who had been diagnosed with a terminal condition or who is facing a serious surgery or hospitalization might feel a sense of urgency to have this document.  This document is also known as a "Directive to Physicians."
Power of attorney – This document allows you to appoint someone you trust, not necessarily an attorney, to handle important legal and financial matters for you if you are unable to make decisions for yourself.  The time limit can be for a specified period of time or indefinitely.
Trust – This arrangement involves an entity called a Trustee who takes control and manages property for someone else’s benefit called a beneficiary.  When property is placed in a trust, the trust becomes the owner of the property.  There are different types of trusts and a qualified advisor can explain and recommend which type would be best suited for your situation.
HIPPA Release Form – The Health Insurance Portability and Accountability Act, known as HIPPA, was created by Congress to protect the privacy of a person’s health information.  Health care providers are prohibited from discussing any aspect of your medical information with anyone who is not directly involved in your care.  To allow friends or family who do not have legal responsibility for you to have access to this information, this release form is necessary.
Most of the issues affecting these types of documents are determined by state law.  Since they are legal documents, it is recommended that you seek sound financial and legal advice.

Friday, April 17, 2015

How to Buy the Home that you Want (in today's crazy market)

The key to that is in the parenthesis . . . (in today's crazy market)!  Now 40+ years into this business, I've realized that every market is a crazy market.  Just a couple of years ago, we couldn't sell most of the listings we took and ended up renting them.  Or sellers paid large amounts of cash to "dump" their homes at prices below what they owed on them.  In the early 1980's, interest rates climbed to 18.5% (so you might as well charge your home on your MasterCharge card).

This past weekend, one of our buyer agents helped a customer submit an offer on a new listing, only to find out that ours was one of sixteen offers received!

Now, do those actual scenarios define "crazy market" for you?

The available inventory of homes (that people want) is extremely low.  Sure, you can purchase a new home or get one built easily.  The builders have plenty . . . at never-before-seen-prices!  I was at a builder "grand opening" party yesterday and toured some beautiful 2,500 square foot homes starting at $350,000 . . . in Pearland.  Considering that its resale counterpart would sell for about $250,000, I'd say that is significant.  But . . . that resale opportunity comes up about once per week, and gets multiple offers right off the bat.  So how do you actually buy one?

First and foremost, get a qualified Realtor to represent you by entering into a "Buyer Representation Agreement" with the agent.

Second, listen to that agent.  He or she will certainly give you the right advice to make the successful offer.

Third, eliminate as many "contingencies" as possible with the offer.

Fourth, increase your Earnest Money Deposit, shorten your "option period," and submit a "quality" pre-approval letter from a bonafide lender.  ("Bonafide" lender doesn't mean the one with the biggest name, but the one who is known by Realtors as the lender who gets the job done timely.)

Fifth, you may need to increase your offer over the list price, as many homes today sell above asking price due to the low supply and high demand.

Some other good tips exist like writing letters to the seller to be presented with your offer explaining how you've "bonded" with their home, etc.  Your quality agent should be able to help you with all the fine tuning details to help you best.

Last but not least, don't wait.  Get into the market and get your piece of The American Dream. Homeownership is alive and well and waiting for you!

Want quality representation?  The Buyers Agents of TheSamTeam work together 7-days-a-week to help each and every buyer with their unique needs and real estate aspirations.  And we'd love to help you, too.  Call us at 832-200-5656.  RE/MAX Top Realty.  

Wednesday, April 15, 2015

"How are home values determined?" . . . an appraiser's perspective

Every day, I'm challenged by home sale prices and determining a home's value.  As a Realtor for over 40 years, I was also one of the first certified appraisers in Texas, created after the failure of the "savings and loan industry" in the 1980's.  At that time, "appraisers" were only required to be licensed real estate agents with some extra training.  Since many S&L failures were attributed to faulty appraisals, laws were created to license/certify appraisers so that there would be some accountability for appraiser actions.

Most people -- including most Realtors -- don't really understand the appraisal process.  Realtors attempt to determine a home's value by a "price per square foot (ppf)" method; however, this is NOT an appraisal practice, per se.  Thus, the inaccuracies created by the "ppf" method are a source for controversy and argument among buyers, sellers, lenders, Realtors, and appraisers.

There is a theory that a home's value (or any parcel of real estate) is determined by "the highest price a willing buyer will pay and the lowest price a willing seller will take."  This is fine and dandy if the buyer is paying with cash.

However, if a lender is involved, the lender wants to ensure that they're not lending more than a "fair market value" for the home . . . enter "the appraiser."

The "Uniform Standards of Professional Appraisal Practice (USPAP)" -- a national set of "rules" for appraisers -- require an appraiser to consider three approaches to value in every appraisal assignment. However, a client can restrict or choose to limit the approaches to one or two of the approaches, or the appraiser can write in his/her report why an approach is not valid.  But at least it must be considered.  

The most common approach (especially in residential transactions) is called the "Sales Comparison Approach," wherein a subject property is "compared" to recent sales in the market area and adjusted for the differences in size, finishes, financing terms, garages, land, etc. etc. etc.

The "cost approach" is a method for determining the value of the land + its improvements, less any depreciation (which could be physical, functional or external).  These three areas of depreciation are not well-understood, except for maybe physical which consists of items needing repair or are simply worn.  The "functional" obsolescence refers to items that need updating or strange room configurations that don't fit today's lifestyles.  "External" (sometimes called "economic" obsolescence/depreciation) refer to items such as busy street locations, power lines in the back yard, and other annoyances from locational issues.

The third approach is called the "income" approach.  In this approach, the income that a property could produce (or does produce) is analyzed to determine a market value based on a particular expected "rate of return" sometimes called a "Capitalization Rate (or "Cap Rate")" or in more complex cases, an Internal Rate of Return or Discounted Cash Flow technique.

Sound complicated?  It is.  This is why -- when selling or buying -- a consumer should get the most competent advice available.  Many Realtors are highly qualified to help buyers and sellers, but some still don't understand these processes.  (Notice that the three approaches to value are NOT "price-per-square-foot.")

All Realtors and Appraisers are charged with a "competency provision" in their ethics and/or regulatory requirements.  This just means that they are required to disclose whether or not they have experience or "competency" in the type of property being asked to help with.  As a consumer, you should check the qualifications of a potential agent, broker, or appraiser before you hire them.

Questions?  Feel free to email SamF@Remax.net . . . ask the Realtor/Appraiser.

Tuesday, April 14, 2015

Are You Ready?

are you ready2.pngFor whatever reason you’ve delayed buying a home, it may be time to reconsider that decision based on today’s conditions and what is expected to happen in the future.

Rents are continuing to increase to the point that in most markets, it is significantly less expensive to own than to rent.  Even after you factor repairs into the equation, the low interest rates, principal accumulation due to amortization, appreciation and tax savings lower the monthly cost of housing.

Low inventories coupled with strong demand cause a rising effect on prices.  Another reason for higher values is that builders, especially in certain price ranges, have not ramped up new home starts to keep up with the demand.

Recently, the Federal Reserve announced that they intend to start raising rates. Most experts agree that higher interest rates are a foregone conclusion; it is just a matter of when it will happen.

A $300,000 home today could cost considerably more one year from now.  With a 20% down payment, if prices go up by 3% and the interest rates increase by .5%, the principal and interest payment at 3.625% would be $1,094.52 for 30 years compared to $1,198.05 at 4.125%.

The question is not necessarily “can you afford the additional $103.53 more per month that you’d have to pay for the home during the 30 year term?”  More importantly, “How would you feel about having to pay more because you weren’t ready to make a decision and what would you have spent it on if you didn’t have to pay a higher payment?”

Wednesday, April 8, 2015

Never trust anyone whose profession begins with a "P" . . .

That's what mother always taught me . . . painters, preachers, physicians, politicians, pimps, plumbers, prostitutes, paper-hangers, and most recently policemen.  (What about Realtors?  Lawyers?)

Interestingly, she also taught me that if I was in a dangerous "spot" or "lost," find a policeman and approach him/her.  Even Cadet Don and Seymour, my favorite morning tv show when I was a boy, taught us that.  She forgot one important caveat . . . this only applies because I'm white.

I am appalled by all the recent killings of black men by white policemen.  I guess in my own naive little world that I still trusted policemen.  Though racial jokes sometimes seem funny to me, as stereotypes come from somewhere, I'm beginning to find less and less humor in them.  Frankly, (and you may hate me for this), I rarely saw harm in jokes.  I can take 'em as well as dish 'em.  But my opinion on that has changed.  I'm learning that jokes are sometimes used for oppression by the wrong people.  Not funny.

Time for this to end.  In my life, I've lived through the end of segregation, integration, and now "forget-about-it."  But I guess that's not the case in all areas.  These recent discrimination and profiling cases give me painful reminders that the struggle is real.

I'm reminded of my favorite song from The Muppets "Avenue Q" from Broadway, "Everyone's a Little Bit Racist."  Then I'm reminded of Jack Nicholson's line from "Mars Attacks:"  . . . "Why can't everyone just . . . get along?"  (Then they stab him with a fake hand that turns into a knife and flag.)

Thank goodness for video!  Those who intend to harm others should be aware that someone, somewhere is not only watching, but video-taping you.  So best if we all just . . . get along!  (And watch your P's and Ave Q's.)

Tuesday, April 7, 2015

Rent Again?

Rent again.pngAfter you take the training wheels off your bike and learn to ride it, you’d never consider putting them back on again.  Similarly, once you’ve owned a home, you might think you’ll own a home from now on but there may be some situations where it might make sense to rent again. 

Big shifts in a person’s life like a divorce, death of spouse, empty nesting or a temporary transfer to a new city are certainly things that may warrant renting, at least temporarily, until those circumstances develop the particulars.

A good example might be that you think you’d like to move downtown.  Before selling your home and purchasing a condo, it might be enlightening to rent an apartment to see how you’ll adapt to the changes in that style of living.

The sales and purchase expenses incurred with real estate are absorbed over the period ownership which is usually between ten and twelve years.  When the holding period involves only a few years, it can negatively impact a homeowner’s equity.

Like any move, especially coordinating the sale and purchase of two homes, there are a lot of issues involved.  Your real estate professional can provide information that will help you to make better decisions on whether to buy, sell or rent again.

Friday, April 3, 2015

How to Start a Real Estate Brokerage Company

Well here's something I know a little about!  After all, I started my first real estate company on September 1, 1978, called "Sam Ferreri Co., Realtors."  In fact, I was still a sophomore at Houston Baptist University at that time, but became a Junior by the end of that quarter.  Oh well, who cares? That was a long time ago, it seems.

The first step in creating that company was having some clients and a direction to where I wanted to go.  As a business student, I eventually wrote my senior thesis on building and developing a multi-office real estate brokerage, something I own to this day.

Hmmm . . . did you get point one?  As Walt Disney said, "if you can dream it, you can do it."  Taking that one step further with Richard Robbins, "what gets written down gets done."  (The corollary to that is "what gets measured gets improved.")  And yes, I, too, have seen variations of these points, but how many can you point to and say, "hey, he actually got what he wrote down and dreamed about?"

Though I had a plan from my senior thesis, I eventually went in a different direction, hoping to "fast-start" my progress.  So, in 1981, I bought an ERA franchise, which, at the time, was the second-largest real estate franchise in the Houston market (the first being Century 21).  Somewhere along the line, "Red Carpet" (remember them?) and "International Real Estate Network" (the "Lookie Loo" company) went by the wayside.

There are a couple of good "take-aways" here, as I always thought (and still think) that the name "Red Carpet Real Estate" was the bomb-dot-com.  But their thread-bare rug deteriorated.  Yet, a Google search revealed that they still exist in some format!  www.RedCarpetRealEstate.com  (I couldn't find the Lookie Loo company, but I did find a lot of "Urban Dictionary" definitions!  lol)

Oh well . . . I digress.  The ERA thing went away in 1986 for me, and I was an independent again, swearing "off" of owning a brokerage company.  It was (and still is) far more profitable to be a real estate agent and build a team than it is to be a broker/owner.  There.  I said it.  And I guarantee you it's true.  But top producing agents -- who are also entrepreneurs -- get motivated to "go to the next level" which, in the eyes of a top producing agent, is to be a broker/owner.  (I can say this with certainty because it has been my 40-year-real-estate-life.)

But I can also say -- with absolute certainty -- that this "progression" is a mistake.  Running a successful real estate brokerage business and running a successful real estate production team are NOT the same thing.  I know, I have both.  And keeping them both successful and productive requires far more than most people can imagine.

It comes down to understanding your customer -- who it is, how you serve them -- then finding a way to attract and serve more of them.  Most people believe that a real estate company's customers are buyers and sellers of real estate.

Before you start a brokerage, get the mission of who you'll serve and how clearly in your mind. Then get lots of money and assets to invest.  Real estate brokerage is a high volume, low margin business.

That's how you do it.  And, oh yeah, someone must have a broker license.  Interestingly, some of the most successful broker/owners do not have such a license, but rather use "rent-a-brokers."  (lol) (dig) There's a second point in this . . . do you know what it is?

I own one of the largest RE/MAX franchises in the world now . . . but so what?  Who cares?  Is that my identity?  Nay, verily, I think not . . . yet I've heard it said (very recently) that many broker/owners become broker/owners (or stay as owners) because that's their "identity."  That troubles me.  I'm reminded of a line from Stephen King's Dolores Claiborne, "sometimes being a bitch is all a woman's got to hold on to."  Hopefully, there's more!  -Sam Ferreri