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'REAL' Estate in Palm Beach County Florida

The ugly truth

Hello everyone,
It seems as though everyone thinks that real estate in south Florida is circling the toilet bowl.
And even I, as the eternal optimist, have to say it isn't as good as it used to be...for some people.

Think of this, during the past five years, home prices soared causing most of the local population to be 'priced out' of the market. Good news for sellers cashing in...bad news for someone looking for a place to put their family. The predominant category that suffered were first time home buyers. Imagine finding the house you absolutely love only to have it just out of financial reach, or worse, having it stripped away from you by another person willing to offer twenty thousand dollars more.

Fast forward to present day.

The current downward trend of home prices often portrayed by the media can be easily summed up in two words----"Buyer's Advantage." Someone purchasing can easily make an offer previously considered down right offensive hoping some nervous homeowner might gladly accept without even a counteroffer. What happens instead is the equivalent of stepping between a mother bear and her cub, upsetting the seller and insulting the buyer, who leaves and finds one of the thousand other properties that fit their criteria. The end result is leaving the property on the market for a seeming eternity and giving the media fuel for the Apocalypse.

Now, I should clarify before my numerous clients, or future home sellers, searching my website decide to light the torches and rush to Home Depot for a brand new Pitch fork. I say this; if you purchased your home prior to last year, you could still be making a decent profit. It would be wise to try and understand the dynamic of Real Estate which is in reverse of the Stock Market. Think of it in terms of a playground seesaw with one being on each end. Keep in mind, however, that they move in similar fashion.

Think of this, if you bought 1000 shares of a stock at $5/share and it rode up to $20/share you would think you made $20,0000 by spending $5000, right. Wrong. Until you sell those shares, the amount can easily fluctuate in either direction. Some cosmic force usually requires it to go down when you want it to go up and up when you think it to going down.
If you were ever in Las Vegas, or any casino, for that matter, you can see this dynamic in action. Regardless of how many chips someone has sitting in front of them until they walk to the cage and turn those chips into cash and exit the building, it can be gone. Sometimes in the blink of an eye.

Real Estate is a bit different.
A house bought for $100,000, typically won't mean you will be holding a worthless piece of paper in the end. If that property went from 100K to 300K, then proceeds to dip at a rate of 17% a year, what might the reasonable course of action be? One might choose to sell for a decent price now than to hold it until it goes down to 120K.

I hate to be the one to say it, but everything doesn't need to be doom and gloom. A positive outlook will make all the difference in the world.

Thanks for listening,

Jesse Kearney

You look around the house and it seems tired. Suddenly, the floor plan makes you feel claustrophobic, and the kitchen looks as old-fashioned as an "Ozzie and Harriet" set. When you flush the toilet and scald your significant other in the shower, you decide, "That's the last straw! Something's got to change."

Homeowners realize they need a change for many reasons: Some have growing families, others need a home office and still others have problems with their home's plumbing and electrical work.

But whatever the reason, the homeowner has two options for change summed up in the simple question: Should I stay or should I go? Remodel or move?

However, choosing whether to remodel or move is not simple. There are many factors both financial and emotional to consider, so where do you start?

"Location is everything," says Mark Brick, a Wisconsin remodeling contractor and past president of the National Association of the Remodeling Industry.

On the financial end, location determines the value of the property and whether a remodeling project or a move will be worth the money spent, he says.

Location also helps shape an owner's gut feeling about whether to stay or go.

"Some people are willing to live in an older home without the bells and whistles of newer construction because it is in a very desirable school district," says Mary Ann Appleton-Miller, a real estate agent with Keystone Group Inc. in Greensboro, N.C. Proximity to work, shopping, play, daycare and aging parents also may come into play, she adds.

Location also affects your potential remodeling options, Brick says. "You have to keep in mind (community) legal restraints that may prevent you from doing a remodeling job the way you would like to do it."

Still, if owners like the location and general feeling of the current home, it usually can be turned into their dream house.

"Can you find another home with the same features in the area you want to be in?" he asks.

Appleton-Miller suggests that before making that decision, homeowners should explore the housing market to determine whether they can get more house for the money or whether they should stand pat and remodel.

All other factors being equal though, she says owners should trust their feelings.

"People know down deep how they feel about their house, their neighborhood and what trade-offs they are willing to make," Appleton-Miller says. "If you love the neighborhood and the skeleton of the home, go ahead and remodel. If you are tired of the house or feel that you won't get your money out of fixing it up, then I would suggest looking at newer construction or remodeled homes in areas you do like."

Kevin and Melanie Peyton of San Jose, Calif., trusted their feelings, deciding six years ago that they loved their neighborhood so much that they would rather remodel than sell.

"We didn't really want to relocate," Kevin says.

Financial considerations reinforced their feelings.

"By remodeling, you can fit the house exactly to your lifestyle," Kevin Peyton says. "We found that we would get much more house than we could afford to buy."

Their project produced a virtually new house with 800 extra square feet, a formal dining room, a larger kitchen, a breakfast nook, a finished basement and a new facade.

The 63-year-old house had been remodeled a few times before, "so it presented a number of electrical and plumbing challenges," Peyton says. Many of the earlier changes were "held together by baling wire and duct tape."

"You quickly find that one thing leads to another," so they installed new wiring, plumbing and insulation in ceiling and walls. The improvements helped improve the home's fire safety and produced an annual $300 savings on the Peytons' homeowners insurance premium.

The Peytons knew the changes would hold their value because their neighborhood was desirable and that's proved true.

"For every dollar I put in here, I got two dollars back," Peyton says. The appraised value of the house just about doubled, he says.

He gives a great deal of credit to his remodeling contractor for helping them realize what was possible. That echoes advice that both Appleton-Miller and Brick give about consulting contractors who can help you to visualize exactly what you want rather than impose their vision upon you.

In researching whether to move, Appleton-Miller adds, you should consult with potential new neighbors to find out what living in that neighborhood is like.

When considering the remodeling route, she says, talk to friends and family for firsthand information.

"Sometimes people have had such headaches with a remodeling job that they say they would never do it again," Appleton-Miller says. "Others are so thrilled with the end product that they say all the inconveniences were worth it. These people are a great resource. They will bring a reality check to prospective remodelers who may be looking at the project through rose-colored glasses or they can help those on the fence with the push to move ahead."

One piece of advice that John and Beth Fuller of Reading, Mass., got was to avoid living in their house while it was being remodeled, but they didn't follow it and that's Beth Fuller's sole regret about the project, which was completed two years ago.

"Friends who had been through remodeling projects told me it would be stressful and hard on our marriage to live in the house while it was being worked on," she says. Living with the rubble, dust and workmen entering your private space takes a toll on every relationship. "I found that whatever your friends tell you about how tough it is you have to multiply by a hundred."

The Fullers' reasons for remodeling rather than moving were much the same as the Peytons'.

"We had bought our house at the right time," she says. "It was the last bargain in Reading."

The house's value, even without remodeling, was going up, up, up. That escalating market priced them out of buying another house in the area. Still, the plain fact was that the house was too small for them and their growing family, which now includes two children. Their solution was to refinance, taking advantage of lower interest rates and cashing out some equity to pay for adding an extra wing and refurbishing their 1850s farmhouse.

In addition to getting just the house they needed in the area where they wanted to stay, they boosted the appraised value of their home from about $300,000 before the remodeling to $500,000 afterward.

But remodeling is not always the answer, even if you love the home. Take the example of Shannon Wilkinson of Portland, Ore.

Several years ago she was living in a house that was built in 1906. It badly needed a second bathroom. Although she knew from the financial end that any remodeling would add to the home's value, "I wasn't really interested in surviving a remodeling while living in the house," Wilkinson says.

The house had never been remodeled before but it had some of those baling wire and duct tape fixes that would have to be addressed during a project and make it drag on.

"I didn't want to move out, remodel and then move back in, so I decided to buy another house that had more of the features I wanted already in place," she says.

Her experience offers proof that there are times when you can find such a house in the area where you want to live. In fact, the house she bought is just blocks away from her former house.

The "new" house, built in 1925, featured two bathrooms, a master bedroom and a bigger yard that better accommodates her two large dogs: a boxer and a Great Dane.

"I absolutely wanted to stay in the neighborhood," she says. "And if I couldn't have found the house I wanted, I probably would have moved out of the neighborhood, but that was really my last choice."

Financial considerations reinforced their feelings.

"By remodeling, you can fit the house exactly to your lifestyle," Kevin Peyton says. "We found that we would get much more house than we could afford to buy."

Their project produced a virtually new house with 800 extra square feet, a formal dining room, a larger kitchen, a breakfast nook, a finished basement and a new facade.

The 63-year-old house had been remodeled a few times before, "so it presented a number of electrical and plumbing challenges," Peyton says. Many of the earlier changes were "held together by baling wire and duct tape."

"You quickly find that one thing leads to another," so they installed new wiring, plumbing and insulation in ceiling and walls. The improvements helped improve the home's fire safety and produced an annual $300 savings on the Peytons' homeowners insurance premium.

The Peytons knew the changes would hold their value because their neighborhood was desirable and that's proved true.

The Secret to Pricing Your Home to Sell

Contrary to popular belief, when selling your home its value is determined by one thing and one thing only - what a qualified buyer is willing to pay for it. No more and no less. Sure, many sellers will argue that their home has an insurance replacement value, or an appraised value, or a tax assessed value, but unless your insurance agent, your banker, or your tax assessor is willing to write you a check for the home - guess what? None of that matters. A home without a buyer has no value in the market place. Sure it might have a value to you the seller, and it might have a value to your banker, and to your insurance agent, and to your appraiser. But none of these people are buyers.

So here is the secret to pricing your home to sell - It's not what you think the home is worth that matters, it's what a reasonable buyer will think your home is worth that will ultimately determine if your home will sell.

Now you maybe thinking - Hey wait, if I left it up to a buyer, they would pay me as little as possible for my home. True, they would. But in the real world every buyer knows that you, the seller, have no obligation to sell your home at any price. To purchase your home the buyer will have to make you an offer you can't or won't refuse. One that will motivate you to pack up your Ken and Barbie collection, hire a local mover, and wave good bye to a home full of memories.

But here-in lies the trap that many sellers fall into (myself included), which is the mistaken idea that we can hold out for an inflated price and eventually the market will come to us. Wrong! Buyers are under no obligation to buy any particular home, and no amount of marketing, open houses, websites, or signage will motivate a buyer to purchase an overpriced home. Why? Because they can buy one of your neighbors homes for less! This reveals one of the most important considerations in pricing your home - Price VS Time.

Understanding Price VS Time

The age old dilemma that has faced buyers and sellers since the dawn of private property rights is a simple question: What is more important price or time? Believe it or not this conundrum underlies and controls every sellers decision to sell, and every buyers need to complete a purchase. For sellers this boils down to the need to sell within a set time frame or instead to hold out for the best possible price, and as you might guess, for buyers it's the need to buy within a set time frame or to purchase a home for the lowest possible price.

A seller who would like to sell for top dollar should be prepared to potentially wait longer for a buyer willing to pay a premium price. Like trying to sell ice during December, a seller might have to give the stuff away just to get rid of it, but if they wait long enough, say until mid-August when temperatures crest over 100 degrees suddenly that same ice can have real value. On the flip side, a seller who needs to sell quickly, and doesn't have time to wait, should expect to discount their price somewhat because of the limited time they have to expose their home to the market.

What's the difference? Timing!

Buyers are in the same boat. A buyer who has the luxury of shopping for a home over a long period of time can probably wait to find a bargain, while another buyer who must buy a home in the next few weeks will probably be willing to pay a premium. Again it boils down to price vs time. So you might ask yourself what is your highest priority - Selling quickly or selling for a higher price?

Most sellers want their cake with the icing generously slathered on top. Because of this, many homeowners will attempt to put the responsibility of getting both top dollar and fast sale on the back of their hired gun, the real estate agent. The result can be summed up in one word - frustration. Why? Because no matter how much a seller yells, screams, and kicks a real estate agent, they don't do miracles. This is why successful sellers understand that while a real estate agents job is to provide marketing, expert advice, and negotiating services, in the end they don't own the property. They don't make the final decisions on pricing. The seller does, and ultimately the seller's asking price will in large part determine how slowly or quickly the home will sell.

To frame this discussion in a different way, consider what you will do should you arrive luggage in hand at the end of your listing period and the home has not yet sold. At that point are you more likely to give it a little more time or adjust your price? I know - Neither, I'll just fire the agent! To be honest, this is exactly what many sellers' do, they fire their agent and reboot the marketing. Does it work? Sometimes it does, but often these sellers end up three months later in the same slow boat to nowhere. Successful sellers on the other hand take ownership of their pricing decisions by making a clear decision about which is more important to them, selling quickly or selling for top dollar.

Successful sellers have learned that to price their home accurately means they need to think like a buyer, they need to get inside a buyers skin and look at the world through a buyers eyes. For instance, imagine for a minute that you are moving to another area of the country, to a city that you are completely unfamiliar with. If you were faced with buying a home in strange city what would be your first step?

If you're like most buyers you would probably start online by viewing listings at websites like www.realtor.com or www.yahoo.com/realestate to get a general feel for local home prices. Next you might narrow your search down to a specific community or neighborhood by comparing utility costs, school reports, and crime statistics with other online tools like www.homefair.com or www.neigborhoodscout.com. Feeling good about your findings you might then venture out into the real world to begin viewing homes in person.

As a typical internet empowered real estate buyer you will look at an average of nine homes over eight weeks with the assistance of a real estate professional. By the end of your journey, like many buyers, you become so knowledgeable about the market that by the last showing you are able to guess, with reasonable accuracy, each homes listing price before your agent can even tell you.

So what happened here? As a buyer you went from a blank slate, with no impression of the market to having the ability to predict listing prices. A big leap sure, but this description is exactly what most buyers' experience. But this is only the build up, the next step for buyers who have found their dream home is to review a Comparative Market Analysis.

A Comparative Market Analysis is a report that compares a specific home, often called the "subject home" with other homes in a specific neighborhood. This analysis is then used to provide an anticipated sales price or price range for the subject property. Although not formally called an appraisal, the report provides a similar function by giving home buyers and home sellers a clear understanding of the market data that might affect their opinion of value.

Pricing Ahead of the Curve - How to get Ahead of the Market

What if your market is trending quickly down or quickly up? Can this affect your pricing strategy? Of course! In both cases you might miss an opportunity to sell your listings for top dollar by not keeping a careful eye on the market trends. In a rapidly rising market for instance it might be wise to closely evaluate not just the sold properties but to look very closely at the pending sale prices and the active listings. Based on this a savvy seller might want to consider pricing their home more aggressively knowing that if they are slightly above the market in a very short time the market will "catch up".

But what about the reverse, a declining market? You might think of a declining real estate market like a stock market sell-off. In a bear stock market what tends to happen is that sellers chase the market down. In other words they keep agreeing to lower, and lower prices just to lock in what little profit they may have left. Believe it or not the same is often true in a bear real estate market. Sellers chase the market. First rushing to put their home on the market, thus causing a buildup of an inventory, and then slashing their price just to get their home sold.

This is a dangerous position for any seller. For instance in a declining market even if they price their home competitively within a few days or weeks their price maybe significantly over what more motivated sellers are asking for their homes. Take a look at how easy this can happen with Suzy Homeowner.

Suzy would really like to sell her home in the next 60 days but of course she would wants to net as much money as possible from the sale. Studying her competition and relying on the advice of her real estate professional she lists her home for $345,000.

Based on this price let's take a look at Suzy's competitive position today:

• Competitor Home A: $368,000
• Competitor Home B: $349,000
• Suzy's Home Today: $345,000
• Competitor Home C: $345,000
• Competitor Home D: $333,000
• Competitor Home E: $329,000

She appears to be very competitively priced relative to the market. But let's see what happens 30 days later:

• Competitor Home A: Expired
• Suzy's Home Today: $345,000
• Competitor Home B: $339,000 (Reduced Price)
• Competitor Home C: $335,000 (Reduced Price)
• Competitor Home D: Sold
• Competitor Home E: Pending
• Competitor Home F: $326,000 (New Listing)
• Competitor Home G: $325,000 (New Listing)
• Competitor Home H: $319,000 (New Listing)

Wow! What a market transition! Suzy went from being very competitively priced to becoming the highest priced property within her price range. As a buyer which home would you look at last? This is a terrible position to be in and the scary part of this scenario is that in most cases a seller like Suzy would never know it. Why? Most sellers only request a market analysis at the beginning of a relationship with a real estate agent. Savvy agents on the other hand make sure to provide updated list of comparable listings every thirty days!