The Perils of Pricing

Pricing homes in 2003 and 2004 was easy – just add 5% to the price the last home sold for in your subdivision and you had it. That is not the current situation; it was a seller’s market then, it is a buyer’s market now. In this issue, I will discuss the problems of setting the price too low, too high and my recommendation on how to get the most for your home in the shortest time.

Under-Pricing
The common belief is that if you want to sell your home fast, set the price well below market value. This is generally true but depending on how low and the situation, it can cause problems. For example, if the price is too low, people will question “what’s wrong with it” and approach your home with caution. This can result in fewer buyers. Under-pricing can also attract “bargain hunters.” These are people who are looking for a “steal”, not a home.

Overpricing
The common belief is that if the home is listed well above market value, you will net more because you have more negotiating room. While it may seem counterintuitive, overpricing a home usually results in a lower net than pricing the home near market value. There are three primary reasons this occurs.

No Buyer Traffic = No Offers
Sale’s is a number game; the more people that see your home, the more likely someone will fall in love and make an offer. However, buyers and agents know what a home in a given subdivision should sell for and if they perceive that a home is overpriced, they won’t waste their time looking. They don’t need to. For example, there are currently over 4,800 homes on the market priced between $300,000 and $400,000. Overpriced homes generally get much lower buyer traffic and thus are much less likely to sell in a reasonable period of time. Also, having your home sit on the market for a long period of time can result in other problems.

Time on Market & Price Erosion
If a home sits on the market too long, buyers perceive that there must be something wrong with the home and therefore expect to pay less. As illogical as this perception may be, it’s real. The chart at right is from a national study and shows months on market vs. the final sales price. While the specific percentages differ for individual markets and subdivisions, the message is clear: the longer a home sits on the market, the lower the final sales price due to buyer perception.

Doesn’t Appraise = No Deal
Even if a buyer comes along and offers to purchase an overpriced home it is unlikely that the deal will go through. Why? Because it will fail appraisal and the buyer will not be able to get a loan. Here is the verbiage from the standard Nevada real estate purchase agreement concerning the apprised value vs. the purchase price:

“If the appraisal is less than the purchase price (1) Buyer, at Buyer’s option, may pay the difference and purchase the Property for the Purchase Price, or (2) Seller, at Seller’s option, may adjust the purchase price accordingly, such that the purchase price is equal to the appraisal, or (3) if the Parties cannot agree on option (1) or (2), either Party may cancel thus Agreement upon written notice, in which event the EMD [earnest money deposit] shall be returned to Buyer.”

Imagine, your home sat on the market for months, you finally get and accept an offer and 10 to 20 days later learn that home won’t appraise. At this point, even if you are willing to reduce the price to the appraised price, the buyer may be so disenchanted that they will find a way to terminate the deal and you are back at square one plus you will have lost a month’s sales time. Also, at this point, the home has probably been on the market so long that price erosion will force you to lower the price below market value in order to get buyer traffic again.

My Recommendation on Pricing
Set your home’s price just a little over the market value of your home. Remember, the market value of your home is not what you think it’s worth, it’s what buyer’s are willing to pay. If your home is priced near market value then potential buyers will perceive your home as a good value and you will have buyer traffic. Also, agents who see your home will remember it as a good value and will bring more clients. The question I am usually asked is something like: “But if I set the price of my home this low, how do I handle offers that are still lower?” Easy! Counter back with the price increased to just a little below the listing price or even at the listing price. Chances are they will accept it because your home was priced right. In my opinion, setting the price near market value is the best way to get the most for your home in the shortest time and overpricing usually results in a lower final price and much longer sales times.

If you would like to know the market value of your home, call me for a free, no-obligation, analysis.

Best regards,
Eric Fernwood
702-358-8884
Eric@ISellLVHomes.com
www.EricFernwood.com

Why Rent When You Can Own?

You can probably own your own home in Las vegas for what you are paying in rent. What are some of the advantages of home ownership?

• Have pets
• Turn up the stereo
• Have a garden
• More space
• A garage

What can you afford? It depends on what you are comfortable paying per month. This is important, buy what you can afford; do not become a slave to house payments. Also, you do not need a lot of cash to get into a home; 100% loans are available so all you would need are the closing costs. What can you afford? The following three steps will give you a good idea but first, a word from Albert Einstein. Einstein once said: “Everything should be made as simple as possible, but not simpler.” Einstein wouldn't be too happy with the following because what you actually pay depends on more factors than I can include in this message including credit score, interest rates, the specific loan program and other such factors. However, the following three steps are accurate enough to give you a general idea of what is possible.

Step 1: Comfortable Payment
What are you comfortable paying per month? $1,000, $1,200, $1,500, $2,000? You decide. Remember not to “stretch”: a home should be a joy; not a financial millstone about your neck. Once you have that amount in mind, on to step 2.Step 2: Equivalent Mortgage

The following formula computes an Equivalent Mortgage payment from the Comfortable Payment you choose in Step 1. First, look up your tax rate based on your income in one of the two tables below depending on whether you file taxes as single person or jointly as a married couple.

Single			Married Filing Jointly
Taxable Income Ranges	Federal Tax Rate		Taxable Income Ranges	Federal Tax Rate
$0 – $7,5,50	10%		$0 – $15,100	10%
$7,551 – $30,650	15%		$15,101 – $61,300	15%
$30,651 – $74,200	25%		$61,301 – $123,700	28%
$74,201 – $154,800	28%		$123,701 – $188,450	33%
$154,801 – $336,550	33%		$188,451 – $336,550	33%
$336,551+	35%		$336,551+	35%

Second, compute the approximate Equivalent Mortgage payment using the following formula.
Equivalent Mortgage = Comfortable Payment X (Tax Rate+1)
For example, if your Comfortable Payment was $1,200 and you are single with an annual income of $55,000, the calculation would be as follows.
Equivalent Mortgage = $1,200X(25% +1) or $1,200X(1.25) or $1,500
If you did not understand the calculation, don't worry about it. Just understand that you can afford to pay more each month due to the tax benefits of home ownership without changing your current cash flow. Also, please understand that the above calculation is only approximate. Now that we have the Equivalent Mortgage, lets look up the price of home you can afford.

Step 3: What Can You Afford?
Slide down the left column in the table below until you find the range containing your Equivalent Mortgage. Immediately to the right is the approximate price of the home you can afford. For example, if your Equivalent Mortgage is $1,500, you could afford a home priced around $190,000. Look at sample Las Vegas Homes for an idea of what you can afford.

Mortgage Payment*	Home Price
$1,120	$150,000
$1,367	$175,000
$1,607	$200,000
$1,979	$250,000
$2,343	$300,000
$2,765	$350,000
$3,170	$400,000
* Includes estimated taxes, principal, interest and insurance. Association fees (if applicable) are not included.

For many years, Las Vegas has been one of the hottest markets in the US making it very hard for first time home buyers. However, the recent slowdown in home sales has temporarily reduced prices in many areas but this won’t last long. Act now and you could be in your own home in 30 to 45 days. Call me today to get started.

Eric Fernwood
RE/MAX CENTRAL
Cell: 702-358-8884
Eric@ISellLVHomes.com
www.EricFernwood.com

Why Buy Your New Home Through Me?

Because I can save you thousands of dollars on your purchase and I usually contribute part of my commission to your closing costs depending on the situation! Also, buying a new home through me costs you nothing; my fees are paid by the builder. You might ask, “Couldn’t I get a better deal going direct to the builder since the builder wouldn’t be paying your commission?” No. The reason you can’t get a better deal is that mortgages typically have a builder contribution limit. Typically, the limit is 3% of the purchase price of the home. This is set by the mortgage company, not by the builder, so there is no way around this limit for the builder. I have always been able to get the full mortgage permissible contribution from the builder PLUS a lot more. Thus the advantage of buying through me as opposed to going direct might include:Full mortgage program builder contributionReduced home price

• Reduced earnest deposit
• Free or discounted upgrades
• Free appliances
• Lower loan interest rates (negotiated with the mortgage company for you)
• Better contract terms

The reason I can get a better deal for you than you can get yourself is that builders know if they keep me happy, I will bring them more buyers. You are buying a single home. Plus, I know what to ask for because I have likely done deals with the builder before (or I know other agents who have) and know what they have given away in the past. It’s very hard for a builder not to give something to me that they gave to someone one else.

Bottom line – Buying your new home through me saves you money. Contact me today for more information.

Eric Fernwood
702-358-8884
Eric@ISellLVHomes.com
www.ISellLVHomes.com

Zero Down and No Payments for the First Year

Essentially, this builder (for two of their subdivisions) enables you to buy a home with nothing down and no payments for one year. Note that this program, like all offers,is subject to changeor cancelation without notice.

Key Bullets

• To buy a home under this program, you deposit earnest deposit with the builder, typically $5,000.  (I negotiated for my client a lower earnest deposit.) If you are financing 100% of the purchase price of the home, your earnest deposit is returned at closing. If not, the earnest deposit is applied towards the down payment of the home.
• The monthly payments are handled as follows: (I will use dates and amounts to simplify the example; your payment date and payment amount will be different.): 
  • You pay the monthly payment of (for example) $2,500 on the first of each month.  Before the next payment is due, you will receive a check from a third party for the full payment amount; in this example $2,500.  So, your cash out is only the “float” time between paying the first payment and receiving the reimbursement.  IT IS CRITICAL THAT YOU MAKE THE PAYMENTS ON TIME OR THE PROGRAM CAN BE TERMINATED.
  • At the end of six months, you then receive six months worth of in a lump sum and you use this to pay the next six payments.  At the end of one year, you continue to make your monthly payments. 

That's the basic program. The following summarizes the questions and answers I received from the builder’s representative and the mortgage company’s representative when I was digging into the details for my client:

Question: “This program seems too good to be true and generally, when things look too good, they aren’t real.”
Answer: “This is a real program, financed by the builder to sell homes.”

Question: “So essentially the builder is paying one year's house payments to this third party in advance as part of a home marketing program?”
Answer: “Yes.”

Question: “What are the tax implications from the payment reimbursement?  Will the buyer receive 1099’s and have the payment reimbursement money show up as income?”
Answer: “No. The money comes from a third party non-profit organization. There are no tax implications for the buyer. The buyer will not receive a 1099.”

Question: “What portion of the payment is covered: taxes, principal, interest, insurance, HOA fees?
Answer: “Taxes, principal and interest are covered. The one condition where the entire payment might not be covered [under this program] is if the client had a very low FICO score and their interest rate is exceptionally high. In that situation, not all of the payment might be covered. It is not a common situation.”
Question: “But a majority of the payment will still be covered even under this condition?” Answer: “Yes.”

Question: “What are the limitations of this program? Primary residence, secondary residence?”
Answer: “No limitations.”

Question: "Is there some special requirement for people to purchase a new home under this program?"
Answer: "A FICO score of 610 or above, the deposit money which will likely be refunded at closing if the buyer is financing 100% of the purchase price of the home and a reasonable ability to pay the mortgage after the first free year is past."
Question: "So this is not some sort of government program?"
Answer: "This is a promotional program paid for the builder; it has nothing to do with the government."

Want to find out more? call me for details.

Eric Fernwood
RE/MAX CENTRAL
8400 W. Sahara Ave
Las Vegas NV 89117
Cell: 702-358-8884
Eric@ISellLVHomes.com
www.EricFernwood.com

 

New Homes – The Sweet-Spot of Las Vegas Real Estate

The sweet-spot of the real estate market in Las Vegas has traditionally been resale’s of existing homes. This was because Las Vegas has been in a seller’s market state for years and builders had waiting lines of buyers. This market condition was partially due to the number of people who move to Las Vegas each month (still about 3,000) but primarily due to the number of homes purchased by investors. Las Vegas has been one of the hottest housing markets in the US for years.

However, the situation has changed. Today there are over 38% more homes on the market and 17% less buyers compared to a year ago. This has led to a situation where buyers are in control and builders went from being arrogant to hurting.

Builders are now in a position where they are struggling just to hang on. They have to weather this storm and keep their crews and infrastructure intact until the market turns around. In order to do this, they are offering incredible incentives to just get homes out of their inventory.

However, not all the builders are offering great deals. The advantage that I bring to a buyer is that not only do I know where the great deals are I know what and how to negotiate for in addition to what the builder is offering.

For example, I represented a buyer on the purchase of a new home last week (6/15/2006). In addition to the incentives the builder was offering, I also got the builder to include:

• Cash back at closing and all closing costs paid
• Side-by-side refrigerator
• Window treatments
• Back yard landscaping (the front was already included)
• Washer and dryer
• A lower interest rate
• Reduced the price of the home by $10,000

The negotiations required several days but at the end, by client is thousands of dollars ahead than if they bought the home on their own. Can I negotiate the same deal for everyone? No. it depends on the individual home. But, I can assure you that you will get more with me representing you than you would on your own. Also, its not just having a realtor represent you; its having one that knows how to negociate and understands builder finances.

 

Eric Fernwood
RE/MAX CENTRAL
Cell: 702-358-8884
Eric@ISellLVHomes.com
www.EricFernwood.com

First Message

I am starting this blog as a way to attract buyers (I am in the business of selling homes). However, unless I bring a lot more value than just being a typical real estate agent (there are approximately 20,000 in Las Vegas alone), there would be no reason for you to consider using my services.  So, my goal is to provide valuable information that will both benefit you and encourage you to contact me for more information.  If I am successful with this, then we both win.
Eric Fernwood
RE/MAX CENTRAL
8400 W. Sahara Ave
Las Vegas NV 89117
Cell: 702-358-8884
Eric@ISellLVHomes.com
www.EricFernwood.com