The Insulting Lowball Offer

A lowball offer is one that insults a reasonable person and is so far below market value that it is outrageous.

A buyer that makes a lowball offer is usually unmotivated to make a purchase and is only looking for a "deal". They often try to take advantage, especially, if they think the seller is desperate or that the property is extremely overpriced.

Real buyers know the difference between leaving some negotiating room and a preposterous offer. Buyers who lowball a well priced property destroy any chance of negotiating or developing trust with the seller.

If you receive a lowball, insulting offer, you can handle it a few different ways. Put on your game face and don't let your rage get the best of you.

1. Back at You: Counter the lowball offer at full price.

2. Nip It: Thank you for your offer, but No Thanks.

3. Get Real: I'm so happy you like my home, but make an offer I can work with.

4. Give a Dog a Bone: Counter with a small price reduction and "We are open to negotiate with you, when you get closer."

5. Slap Back: Counterback at full price and ask for a letter of prequalification.

How You can Rid Yourself of Private Mortgage Insurance

Q. We purchased our home for $210,000 with a 5% down payment. Our lender required Private Mortgage Insurance on our loan because we did not have a 20% equity position. Now the value of our home is $300,000 and we only owe $207,000, can we get rid of the monthly PMI charge? We could save about $1200 per year. Please help.

Answer: First, congratulations on your real estate investment. Yes, it sounds as if you can get rid of the PMI and save $1200 a year. But, as I am sure you expected, there are a few hoops to jump through. Given the money you will save, I would encourage you to contact your lender as soon as possible, and find out specifics about your loan. Thank you for your question.

General Outline for Erasing PMI: The Homeowners Protection Act of 1998 requires lenders to automatically cancel coverage, if you ask for it and if the following criteria is met:

1. One provision is that your loan balance is paid down to 78% - 80% of the value of your home.

2. Your loan must be at least 2 years old. If not, it doesn't matter how much equity you have. The exception is if you made a signficant improvement to the property (adding on; finishing out a basement, etc.), you may be exempt from the 2 year ban.

3. Your payments must be current.

4. Make sure you have enough equity. You can spend $25 for an automated valuation that will give you a ballpark price range for your property. If it looks like you have 20-22% equity, call your lender and proceed with the full appraisal. Caution: Do not order an appraisal yourself ($300-$350). Your lender will require that they place the order on your behalf.

5. Even though the lender must cancel the PMI if you meet the criteria, "surprisingly", you will have to be the one to initiate the request to cancel.

6. For more information, check out www.privateemi.com. The site outlines the most hassel-free way to get the ball rolling. It also includes some sample letters that you can use to get the cancelation process in motion.

Please address any questions or comments about your home to tommi@infotube.net

Valuing Real Estate by Price per Square Foot

Buying or Selling, Price Per Square Foot is an excellent method, used by appraisers, to determine market value. The closer the subject house compares to yours in age, condition, square footage and lot size, the more accurate your calculations will be. Use the information your legwork uncovered to arrive at the price per square foot for at least 3 homes competing against yours in the market place.

To determine price per square foot, take the homes asking price and divide it by the finished square footage of the home, (finished usually means heated or air conditioned floor space and does not include garages, attics, etc.).

Sales Price ÷ Square Feet = Price Per Square Foot

Step 2: Average the price per square foot in your neighborhood. By averaging, you even out the highs and lows. Total the price per square foot for each of the comparable homes. Divide the total, by the number of houses you included. You now know the Average Price Per Square Foot of Homes For Sale in Your Neighborhood.

Step 3: Take the Average Price per Foot and multiple it by the square footage of your home. You now know the sales price based on the average price per foot price for comparable homes.

Your Square Feet x Average Price Per Foot = Average Sales Price

The opposite view can also be helpful in comparing your price relative to your competition. How does your asking price compare with the average asking price per foot of your competitors?

Your Target Asking Price ÷ Your Square Feet = Your Asking Price/Foot

The more closely your house matches the features of the subject properties, the more certain you can be. Most important is to be objective and realistic when pricing your home against your competition. You know the hard work, upgrades, window treatments, custom paint, wallpapers, etc. that you have paid for during your time of ownership. The question is, will a buyer recognize these upgrades and be willing to pay more for them?

For more information read our previous blog on the dangers of overpricing. As always, if you have a question, comment or feedback about real estate or marketing, email tommi@infotube.net.

How to Accurately Price or Value a Home

Pricing your home or valuing a home purchase is the most important decision you will make. Priced too high, your home will sit on the market. Priced too low, you lose money. So, what determines the correct asking price? We will explore several excellent ways to obtain good information about the current value of your home relative to the marketplace.

Competitive Market Analysis: Probably the best way to obtain an accurate price for a home is to have a real estate professional complete a competitive market analysis, (CMA). For home sellers this involves having a real estate agent come to your home to examine its condition, décor, location, etc. This service can be obtained with no obligation and with minimal cost to you. The downside is that you are no longer anonymous. You will likely be called and marketed to by salespeople wanting to list your home.

If you are a home buyer, ask your agent for a comparable market analysis (comp's) for any home you are considering. A comparable analysis provides all the details about homes that have been sold in the last six months. Use the comp sales data to see how the home you are considering compares in terms of price, ammenities, location, number of days on the market, etc. to the homes purchased by others.

The Internet and Media: Whether an agent is involved or not, we advise you do a little legwork. Find homes currently for sale in your neighborhood and surrounding area’s. Find homes by visiting http://www.infotube.net and http://www.realtor.com/; realty company websites; calling the home seller; collecting brochures from InfoTubes or InfoBoxes; attending Open Houses; looking at newspaper classifieds or Homes for Sale magazines.

While there are websites that claim to offer “Free Home Valuations”, we find that most of these services are simply lead generation tools for Mortgage Companies and Real Estate Agents. Be aware when using these services, that the information you provide will likely be sold to advertisers and used for sales calls.

Check back with us tommorow as we address valuing or pricing a home based upon its price per square foot. Buying or selling, you owe it to yourself to know how to value real estate objectively.

New 40 Year Mortgage Lowers House Payments

Mortgage companies will expand the availability of 40 year fixed- rate home mortgages in 2006. 40 year loans are already catching on in California and other areas with high home prices. In 2005, 25% of all new loans in California were 40 year mortgages versus the traditional 30 year loan term.

The 40 year mortgage does carry a slightly higher interest rate than a 30 year loan. But, stretching the loan term lowers the monthly house payment. The reduction in payment can mean the difference between renting and buying for lower income families, or in areas with expensive home prices.

For example, on a $400,000 loan at 6%, the borrower's monthly payment will be $200 less per month for 40 years, than it would be for the traditional 30 year loan. Although less money goes toward paying off the house, most homeowners never pay off a house, anyway. In the U.S. the average homeowner will sell or refinance their home every seven years.

In my opinion, stretching the fixed rate loan term to 40 years is less risky than most Adjustable Rate Mortgages (ARM's). ARM payments go up as interest rates rise and many have no ceiling on how high your payment can go. ARM's can spell sticker shock, or worst case, families may face an increase in their payment that exceeds what they can afford.

While 40 year loans may not be for everyone, the product is a safer for those who can not qualify or afford a 30 year fixed rate mortgage. With the 40 year mortgage, at least the loan is fixed and the payment will not change for as long as you need it. If you feel that a 40 year mortgage would be better or safer alternative for you, talk to the lenders and make an informed decision.

Over Price Your Home & You Risk Your Profit

In today's real estate market, you are more likely to face competition from a slowing market and other sellers who want to cash in on their extraordinary home price appreciation. If you over price your home in this market, you will be lucky to receive any offers at all. Worse yet, you risk a downward spiral and monetary free-fall.

Seller Rational One: Price it a little too high to allow some negotiating room. The truth is that buyers won't make an offer, if they think the listing price is too high. Most buyers will not waste their time or commit to an emotional involvement for a listing that is over-priced. Over pricing indicates to a buyer that a seller has unrealistic expectations, is not serious, or will be very difficult to deal with.

Bottom Line: Buyers don't need to deal with an unrealistic seller, when there are other listings to choose from?

Seller Rational Two: Our home is nicer than those others down the street. It is very difficult to be objective about the value of your home. However, it is not difficult for the buyer to be objective about its value. Upgrades, decorator items, new roofs and mechanical systems have very little impact on a home's sales price. The buyer considers location and price, first, and the homes' condition, second.

Bottom Line: Price per square foot is the only real factor when pricing your home. If your home is priced higher per square foot than the competition, the buyer will never get out of their car to see your home's upgrades.

Seller Rational Three: We can always lower the price. After your home sits on the market a month or two without a nibble, buyers could care less, even after you correct the price. Everyone looks for a property that is in high demand and will likely have a good resale value. The longer it sits, the bigger the risk that it develops a negative stigma.

Bottom Line: A house that sits on the market, while others sell, becomes a White Elephant. Everyone asks, "What is wrong with that house?" Sadly, it's usually just the price.

Seller Rational Four: My neighbor got that much money for their house just a few months ago. The real estate market is an ever changing dynamic marketplace. In many cases, sellers are no longer in control of the market, as they were a couple of months ago. As the market softens, as it has in many areas, you may have to make further price concessions. Comparable sales from a few months ago may be out of date. If your neighbors house sold for an exceptional price, it may have been the only game in town at the time.

Bottom Line: Buyers tend to gravitate toward new listings, not ones that have been on the market for months, with sellers that are forced to cut their price to be competitive.

Seller Rational Five: Too bad, that's the price we want/need for our home. Sorry, but we are not buying it. Buyers will not overpay for something as costly as a home, when better choices are out there. Well-priced listings will come on the market and sell, while yours sits and becomes stale. When you reluctantly drop the price, buyers will think something is wrong with your house. Months later, you will have to drop your price even further, to attract the bargain hunters. Thus goes the downward housing spiral.

Bottom Line: Buyer's agents are using your over-priced home to help them sell the well-priced listings that come on the market.

Conclusion: An over-priced home listing will sit on the market. The longer the house sits unsold, the less it is worth. Use recent comparable sales and know your competition. Price your home in the market and it will move. Don't...and it won't.