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The Case Shiller index of home prices across the US was just released.  Follow the link to learn about the present market in your city.

Home Prices in My Town

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With news of the financial crisis and the possible federal bailout of US lenders looming over our heads, it comes as no big surprise that August existing home sales were dismal.

In brief, the numbers provided by the National Association are as follows:

• Existing home sales were down another 2.2 percent in August, bringing the drop to 9.7 percent compared to 2007 levels.
• The average sales price of an existing home fell to $203,100 compared to $224,400 one year ago.
• The inventory of existing homes on the market fell in August to a 10.4 month supply.   A slight uptrend from the 10.9 month supply on the market in July.

Falling inventory levels are a bit of good news among all the bad news.   But keep in mind that the slight dip in inventory is not due solely to a growing number of sales.  Cancelations, listing expirations and owners who chose to withdraw their property from the market until activity picks up, also decrease the total number of homes on the market.

The current 10.4 month supply means we are still in a buyers market.   An inventory of 5-6 months is usually a sign of a balanced market, with an equal number of buyers and sellers.

To read the report from the National Association of Realtors, click the link.

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Property auction

Real estate auctions are a fast and efficient method for selling property.   They work on the principle of competitive bidding and provide an ideal situation for buyer and seller, alike.

The Benefits for Sellers Include:

• Speed- The auction selling process is swift and accelerated. 
• No Negotiations- Auctions eliminate haggling, counteroffers and remove the seller from the pain of negotiating.
• No Home Showings- Buyers are given specific dates and times that the property will be Open to the Public for viewing, before bidding begins.  The process eliminates the hassle’s of showing the home to numerous people, one person at a time.
• Certainty -The seller knows exactly when the property will sell, decreasing long-term carrying costs, such as mortgage payments, taxes, maintenance and insurance.
• Qualification- Potential Buyers are required to Pre-Qualify for financing before they can bid on the property.
• Exposure- Auction exposes property to a wide range of qualified buyers and the aggressive timeline to sale increases interest and urgency.
• Competition-Auctions create competition among buyers.  Due to the competitive nature of auctions, it is not unusual for the auction price to exceed the price the seller would have gotten through negotiations. 
• Real Value- Auction sales are live, real time events.  The auction process assures that the seller that the property was sold at its real market value.
• Serious-Buyers who attend auctions arrive ready and willing to buy.

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While the US housing crash is certainly not breaking news, the likely crash in commercial real estate values may be. 

Now bankrupt, Lehman Brothers, attempted to dump their commercial portfolio’s, without success.  Insurer AIG, who will face insolvency in the absence of a bailout, also has a huge portfolio of commercial property that they will be forced to liquidate.   Bank of America, Wachovia, Citibank, Merrill Lynch and other financial behemoth’s are also likely to dump billions of dollars of commercial real estate on the market, as they race to head off bankruptcy. 

This progression in the collapse our financial systems spells much more misery for the US home owner.  The human casualties will continue to rise, as thousands of “potential” home buyer’s will be eliminated from the housing market due to job loss.  In addition, we are likely to see an increase in housing inventory, as displaced workers can no longer afford the payments on their over priced homes.

It seems the real beneficiaries of the tax payer bailouts, which doubled the US national debt, are the banks of China and Japan who hold billions of dollars in US government sponsored enterprise (GSE) debt.

So, what does this mean for you and me?   In a nut shell, falling real estate values, more unemployment, more homelessness and more suffering. 

Why is it happening?  The policies of the Bush administration, who found it unnecessary to regulated or supervise the greedy bankers, most of whom are its friends and contributors. 

Is there an upside for residential homeowners?  The short upside is that the Fed will likely be forced to lower interest rates this week, which will help those who need to refinance or those who trying to qualify for a loan.

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Every offer to purchase a home will contain a repair contingency.   The contingency will outline the options for seller and buyer, in the likely event that repair issues are discovered during the buyer’s property inspection. 

Before we begin to address the repair issues, I would like for all sellers and buyers to remember that there is no perfect home.  Every house, new or old, will most certainly turn up a list of repairs.   If you are a buyer searching for a perfect house, you can stop searching.   There are no perfect houses.

The purpose of home inspections is to identify safety issues or serious (ie: expensive) problems that are in need of repair, before the buyer complete’s the home purchase.  The buyer will use an inspection report to compile a list of repairs that they want the seller to fix, before closing.   Since both parties desire to maximize their cash, sellers are often left to make a decision about which repairs are necessary or reasonable, and which are not. 

So, what helpful facts should sellers and buyers know about handling repair requests?

1. First, all Buyers should have an independant, professional home inspection and seller’s should only accept inspection reports done by a qualified, home inspector.  Sellers are not obligated to accept the opinions of the buyer, the buyer’s friend or cousin, or any non-professional, for that matter.
2. The Buyer should provide a copy of the inspection report, along with the list of items they want the seller to fix.   If the seller hasn’t received a copy of the report, they should ask the buyer to provide it, before responding to the buyers repair request.
3. The Buyer should not “nit pick”.  A request for repairs should focus on major problems and safety issues.   The buyer should not ask the seller to fix cosmetic problems, such as a bad paint job or peeling wallpaper.  The buyer should have addressed those issues in the purchase offer, during their initial walk through.
4. If a seller receives a long list of repairs, they can consider offering a home warranty that covers major defects.  This insurance can save a deal by easing the buyer’s fear that the home is a money pit.  For a few hundred dollars, companies such as American Home Shield, provide an insurance policy at closing, which  covers major items and gives the buyer peace of mind.
5. In a buyer’s market, they often want everything fixed.  Sometimes the seller can ascertain inside information about which “big ticket” items are the most important to the buyer, but the seller should always keep in mind that they risk the buyer walking, if they don’t agree to complete the entire list of repairs.
6. When a seller is presented with a lengthy repair list, they should remember that known problems become material facts.  If a seller declines to fix buyer requested repairs, the problems are now “known” and must be disclosed to any future purchaser, in the event the buyer walks and the deal falls through.
7. If a seller wants to cooperate with a buyer, but is unable or unavailable to oversee repairs, the buyer might be willing to accept a cash credit at closing to cover the expense estimates.   Many buyer’s are comforted by the fact they can use the seller’s money and hire their own contractors to make the repairs in a way the seller may not have done.

What Repairs Requests are Deal Breakers?  Which are Reasonable for the Seller to Refuse?

1. Lender Required Repairs-Any problem noted on an appraisal, such as a bad roof or structural problem, is grounds for the bank to refuse to lend money on the property until the problem is fixed and the structure is properly protected.   Sellers are advised to make all repairs noted on an appraisal.  They affect the buyer’s ability to borrow funds and complete the purchase.
2. Leaking Pipes-It is not unreasonable to ask a seller to repair water leaks and the damage which the leaks may have caused.  Unrepaired leaks raise mold issues and other problems seller’s don’t want to have if the deal falls through.
3. Water Penetration-Sellers should address water penetration issues.  Most are caused by improper drainage of water away from the home.  Adjusting the grade or installing a french drain is usually the fix. 
4. Roofing System-As stated in item #1, the seller should expect to repair or replace their roof, if deferred maintanence has caused water penetration issues.   If your roof is in good shape, sellers can aleviate problems ahead of time, by providing the buyer with a roof certificate, since most inspectors do not cover roof inspections.
5. HVAC and Hot Water Heaters-Usually, age is a good indicator of whether the seller should replace these systems.  The average life expectancy of a HVAC system is about 20 years, and about 10 years for a water heater.  It is not unusual for the buyer to ask for new systems, if the existing ones are on their last legs, but these are big ticket items for the seller to repair, so no easy answer here. 
6. “Tar Paper” Sewer Lines, aka “Orangeburg” Sewer Pipes-These pipes, which are made from tar paper, are famous for collapsing.  Generally, they last about 30 years before they disintegrate.  While replacing sewer lines is expensive, they are an item most sellers will replace.
7. Unsafe Decking or Handrails-Sellers should generally fix any items that effect the safety of the occupants, or are matters of local code enforcement.
8. Galvanized Water Pipes-Many homes built 30 years ago have galvanized, steel water pipes.   These pipes become clogged with minerals overtime, which is often the cause of low water pressure.  These type of pipes are also prone to rust and leaks.  While it isn’t unreasonable to expect the seller to fix leaks, few sellers are willing to replace all the plumbing lines.
9. Electrical System-The electrical panel should be safe and not overloaded.  The breakers should be marked with the name of the area of the home that they service.  Sellers, again should expect to repair any safety or fire issues that are found during the inspection.   If your home was built before 1960, it is likely the electrical service is Ungrounded, meaning the plugs have only two outlets.   Most sellers will refuse to rewire a house, simply because the service is Ungrounded, since it does not cause any problems.  A tip might be for the seller to offer to run “Romex” from the electrical panel to any new receptacles that the buyer intends to use for sensitive electronics and large appliances.  As a general rule, buyers who require grounded wiring should be looking for newer homes.
10. Foundation or Wet Basement-These are difficult issues that effect the very structure the home is built on.  These homes are best purchased “as is” at a steep discount.   Buyers should always think twice about purchasing a home with this type of problem.  Problems with or repairs to these systems never go away.  These are material defects and must be disclosed to any future purchaser.

Before seller’s make a judgement about what items they will, or will not, repair, they should strongly consider that we are in a buyer’s market.  Buyers are hard to come by and they have a lot of home choices available to them.  If you need to sell, you should realize that it is likely the buyer will walk, if you refuse to address reasonable problems with your home.  In addition, if another buyer comes along in the future, it is likely they will ask that the same items be fixed.  Smart sellers should take a deep breath, and if you have to err, do it on the side of caution.   A qualified buyer has a great deal of value in this marketplace.  Please don’t lose your deal over a small deferred maintanence issue.

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The buyer’s home inspection is one of the many steps involved in selling a home, that by its nature, pits buyer against seller.   No seller wants to be faced with a lengthy, and often, expensive list of repairs.  No buyer wants to purchase a potential money pit.  

Sellers should be prepared for the news that in a buyer’s market, buyers clearly ask for more repairs than they would have ask for a couple of years ago.   Sellers need to understand that it is critical to separate the emotional or insulting nature of an inspection report from the transaction itself.  And, although objectivity is a difficult task to master, seller’s should always be calm, never angry, when responding to the buyer.

Seller’s need remind themselves that the inspector works for the buyer.  It is the inspector’s job to document a large list of items that may cost the buyer money down the road.   This doesn’t mean the inspector thinks your home is a piece of trash or that you don’t maintain it.  They are simply noting items about your home that may need attention. 

So, what should the seller do after they receive a list of repair requests?   Although state laws regarding inspections and repairs differ slightly, most sellers have three options.

1. You can accept the entire repair request list.
2. You can decline the entire repair request list.
3. You can agree to part of the repair request list.

Each of the three options have a potential effect on the transaction.

If you accept the entire repair list, the deal moves forward and proceeds ultimately to the closing table.  Keep in mind you have to make the requested repairs and the buyer will do a walk thru before closing to make sure the repairs are acceptable.  Don’t try to save a little money by doing the work yourself, if you aren’t confident in the outcome of the job.

If you decline to make any repairs on the list, the buyer can accept the house in “as is” condition.  Or, they can cancel the contract and get their earnest money refunded.

If you agree to fix some, but not all, items on the list, the buyer can cancel the contract and get their earnest money back.  Or, accept the repairs you have agreed to do and proceed to closing.

Note:  As a general rule, repair request negotiations are one-time affairs.  They do not go back and forth with an offer and counter offer.   Repair requests do not involve other terms of the contract such as price, closing date, etc. 

Tomorrow, I will address what items on a repair list are reasonable requests and which should be declined.   If you have an specific issues, please leave a comment in section below.

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The web is a great resource for the real estate or local scene enthusiast.  Today, we invite you to take a look at four of our favorite websites that specialize in keeping tabs on the ‘hood’.

Gasbuddy.com:  Just like the name says… this website is your best friend when it comes to finding the cheapest gas in your neighborhood.  Check out it out before you fill up.

AltosResearch.com:  Fantastic website for your current, local real estate market and trends.  The site shows graphs of real estate price trends in your town; housing market conditions, homes sales and demand trends, including average days on market; local home prices per square foot; the number of all homes for sale in your neighborhood. 

Altos focuses on the local market, which is what real estate is really all about anyway.  After entering my zipcode, I could instantly see what was really going on in my neighborhood, what prices were really doing and received the information I should know about my area.    

RottenNeighbor.com: What are your neighbors saying about you? This website reports on noise, odors and other neigborhood nuisances. The site pinpoints the homes of obnoxious, trashy or violent crazy neighbors, as well as registered sex offenders and vacant foreclosured homes.

If you want the dirt about any neighborhood or your daughters’ best friend’s neighborhood, Rotten Neighbor is the place to do some voyuering.

Introin.com: This website provides the inside scoop on apartments and rentals. It provides rental availability, building and landlord evaluations. Check it out before you sign that lease.

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