Biggest Real Estate Risk: Falling Prices Or Rising Interest Rates?

In the early 2000′s, real estate was sexy and appeared to be without risk.  People talked about flipping houses and purchasing vacation homes as if they were investments with large, guaranteed returns.  It was not uncommon to hear stories about triple-digit returns in just 5 years.  We all know the result of that over-exuberance.

Today, most homeowners/future homeowners look at real estate as what it really is...a good long-term investment and a place to call home.  There is trepidation, once again, as to how long prices will continue to drop and how low they will go before a sustainable recovery occurs.  Will the economy continue its upswing or are we going to see a "double-dip" recession and watch real estate prices plummet? 

Unfortunately, The Cascade Team Real Estate is not a prognosticator and we do not employ a crack staff of economic analysts to guide your decision-making process.  However, as real as lower home prices might be, that might not be your biggest risk is you plan on buying real estate.

Your Biggest Risk In Buying Real Estate Is Higher Interest Rates.
Once again, interest rates hit new all-time lows.  For those of you insomniacs nervous about retirement and your failed financial planning efforts, the impact of these rates is akin to a sleeping pill.  You could buy a home today and pay it off in 15 years when it would have taken you 20 years to pay it off with the same payment just 3 years ago.  The following example is based on a 30-year fixed rate mortgage:

Today’s Interest Rates
Monthly Payment = $1,500 / Interest Rate = 4.5% / Buying Power = $296,000

Interest Rates 3 Years Ago
Monthly Payment = $1,500 / Interest Rate = 6.5% / Buying Power = $237,000

Buying a house is the largest investment most people will ever make.  It is not a decision to be made lightly.  But if you are in the market for a home, you must consider how interest rates will impact your buying power in the future.  We are not suggesting that you should buy more house than you can afford because interest rates are low.  We are suggesting that you evaluate the assumptions in your buying decision (price, down payment, interest rates, term, income level) and perform sensitivity tests to help you determine your correct path. 

At the end of the day, when interest rates go up, your buying power will decrease.  And that may well be your biggest risk.

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What April 5, 2010 Means To Clients

The 7 Deadly Sins of Overpricing

"WE CAN ALWAYS GO DOWN, BUT NOT UP"

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If you're selling or thinking of selling your home in this environment, you've probably had this thought.  But when it comes to setting a pricing strategy for your home, is it a good idea to start high and work your way down, especially in a market flooded with inventory?

Probably not.  Most experts would advise that the best way to increase your odds of a successful sale is to price your home at fair market value. But, as logical as this advice sounds, for many sellers it is still tempting to tack a few percentage points onto the price to "leave room to negotiate."  To avoid this temptation, let's take a look at the seven deadly sins of overpricing:

Sin #1:  Appraisal Problems

Even if you do find a buyer willing to pay an inflated price, the fact is over 90% of buyers use some kind of financing to pay for their home purchase. If your home won't appraise for the purchase price the sale, there is a strong likelyhool it will not close.

Sin #2:  No Showings

Today's sophisticated home buyers are well-educated about the real estate market. If your home is overpriced, they won't bother looking at it, let alone make you an offer.

Sin #3:  Branding Problems

When a new listing hits the market, every agent quickly checks the property out to see if it's a good fit for their clients.  If your home is branded poorly (such as overpriced or a fixer-upper), re-igniting interest may take drastic (i.e. expensive) measures.

Sin #4:  Selling The Competition

Overpricing helps your competition. How? You make their lower prices seem like bargains. Nothing is worse than watching your neighbors put up a sold sign.

Sin #5:  Stagnation

The longer your home sits on the market, the more likely it is to become stigmatized or stale. Have you ever seen a property that seems to be perpetually for sale?  Do you ever wonder - What's wrong with that house?

Sin #6:  Tougher Negotiations

Buyers who do view your home may negotiate harder because the home has been on the market for a longer period of time and because it is overpriced compared to the competition.

Sin #7:  Lost Opportunities

You will lose a percentage of buyers who are outside of your price point.  These are buyers who are looking only within the price range that the home will eventually sell for and will not see your home because the price is above their pre-set budget.  Internet search options play strongly here.

Finally, it's important to mention the popular myth that a great marketing plan may overcome a pricing problem.  It won't.  No amount of spending on advertising, internet ads, and television spots will motivate buyers to overpay.  And please don't count on "emotional buyers" either.  Research tells us that most buyers look at 10-15 homes before making an offer.  Sellers must price their homes correctly from the start.

Expenses When Selling San Diego Real Estate

Many buyers and sellers of residential real estate are surprised by the expenses associated with transactions.  The following expenses may be anticipated when buying or selling a San Diego home:

Closing Costs: Although most of the closing costs are the responsibility of the buyer, the seller is expected to pay the property taxes and insurance up to the date of the closing, even if they’re not due yet.  In addition, some buyers will ask the seller for help with other closing costs as part of the negotiations.  Closing costs typically run about 2% - 3% of the price of the home. 

Brokerage Commission:  Sellers will typically pay a  5% - 6% commission on the sale price of the house if they opt to utilize an agent.  The Cascade Team Real Estate (CCT) provides Full service for a total of 4%!  Check out the commission grid below illustrating the savings and Click here for more details.

Home Inspections:  Although some homes--notably foreclosures--are sold "as is," it is recommended that both buyers and sellers to obtain a home and pest inspection.  Most homes have at least some unidentified problems and a little due diligence goes a long way towards closing a transaction. 

Prepayment Penalties:  Many mortgages have prepayment penalties if you pay off the mortgage early. Be sure to examine your mortgage agreement and read the fine print.  There are no prepayment penalties on FHA, VA or conforming loans.  Additionally, prepayment penalties are not permitted after 5 years. 

Please call a CCT real estate agent/broker for further explanation or a professional consultation. 

Is Your San Diego Real Estate Agent Selling Your House With This?

One of our pet-peeves is the real estate marketing flyer. You know, the 8 1/2" X 11" sales piece in the mailbox attached to a "For Sale" sign? Our experience is that 90% are on cheap copy paper, have been weather-beaten by the sun or water, do little to catch attention, and many times do not even include a price. This is what San Diego homeowners are getting for a 3% sales commission?

The Cascade Team Real Estate - San Diego believes homeowners deserve more. Our San Diego area real estate agents use state-of-the-art CD flyers that include unlimited pictures, school and community data, an always updated home price, and resist all weather. They also link buyers directly to the home selling agent and allow them to schedule showings. All that for a 1% sales commission? Yes. Perhaps that's why our listings sell faster and for more money?  Click here to check out San Diego real estate and homes for sale...http://www.thecascadeteam-sd.com/.

Strategic Foreclosures

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Project Crayon Drive!

The Cascade Team - San Diego, in partnership with Rady Children’s Hospital, is pleased to announce Project Crayon Drive.  We will be collecting Crayola-brand crayons during the month of March for the kids at Rady Children's Hospital.  We will have donation points setup throughout the area where you can drop-off crayons.  Please begin collecting crayons and help us support this tremendous need.  Our goal is to collect 30,000 crayons! We hope you will join us in making a difference in the lives of so many children.

All details will be published here and on our main website (http://www.thecascadeteam-sd.com/) in the coming weeks. You may also call our main number (1-858-429-5751) for more information. We thank you in advance for your generous support.

San Diego Foreclosures Hurt Us All

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Have Real Estate Values Stabilized In The San Diego Market?

The Cascade Team - San Diego provides our real estate clients automatic, real-time data for the San Diego real estate market.  Have you ever wondered what homes in your neighborhood have sold for, or how many homes are currently for sale on the market?  Check out our home value analysis tool and see what real estate values are doing in your neighborhood.  This report will come to you via email every two weeks.  Click here for your FREE...Home Value Analysis