Kauai Paradise Homes -- Blog

Recent 3^rd quarter statistics for Kauai appear to indicate a leveling off of pricing in the market.  Numbers indicate that sales are up and median pricing is also slightly up, leading to the notion that the bottom of the market may be behind us.  This is great news for buyers and sellers.  Buyers can take advantage of the low prices and look forward to increases in value in the coming months and sellers can finally make friends with current market value and sell their homes.

While the market stabilizes itself, the matter of the mortgage financing crunch and the possible loss of the mortgage interest tax allowance looms large.  We can only use our influence as realtors with the NAR to lobby against any further injury to the housing market...but that's for another post. 

In the meantime, buying while the pricing is good can only help your clients realize their dreams now.  Happy selling!!

It may seem obvious to most real estate agents that Buyers and Sellers have two very different values for the same home and for very different reasons.  The trick is to get the two (Buyer and Seller) on the same page.  This situation is not so obvious to the Buyers and the Sellers of property...especially during the current foreclosure crisis.

As home prices continue to fall, Sellers are losing more on their investments and finding it difficult to believe that their (once) beautiful home could be worth so much less than when they bought a few short years ago.  Nothing could be worse when you are losing your home and trying to short sell to avoid foreclosure.  To make matters more difficult, Buyers have high expectations and are offering much less than list price.  

With all the confusion and new factors involved in home sales, it's no wonder that real estate sales are becoming more complex.

Buyers

The pendulum has shifted and it is truly a Buyer's market.  Of course, the Buyer's Agent wants to get the best price for the Buyer; however, there are many more factors at play now than ever before.  

First, home values are still on a downward trend.  The "bottom" is still not defined.  That will only happen when the prices come up.  Secondly, in the case of short sales, the lender has to approve the sale price or there is no deal.  Many a sale has been lost because the Buyers low-balled the offer, the Seller accepted it, and the lender declined. On the other hand, the Buyer does not want to pay for a home that is still losing value. 

Another very important factor is the value to the Buyer.  I have seen many Buyers come in and start deducting the costs they will incur to remodel a home.  It is normal to allow for major repairs when considering the amount of an offer, but remodel is the choice of the Buyer and has no bearing on the home's current value.  This is the bane of the Buyer's Agent: trying to explain to a Buyer that the remodel work will likely increase the home's value, but can't be detracted reasonably from the purchase price. 

So, value on the Buyer's part depends on (among other things) the following:

• how much they like the house
• what they think they'll have to do to make the house perfect for them
• where the house is located
• major repairs
• how little they think they can get away with paying - notice I said, "they think".  This will tell their Agent about how long it will take to find them a home or if the whole exercise is futile.

Sellers

Sellers are just as adamant about the value of their home - whether they lived in it or bought it for investment or retirement. 

Generally, homes are priced based on the current condition of the home and the neighboring comparables.  The Seller's Agent will "comp out" the list price based on fair market value and what the Seller will accept.  In the case of the short sale, the Seller's Agent has to be able to sell the price to the lender once an offer is received.  In this case, they must also factor in what they think the Broker's Price Opinion will bear out.  Ultimately, after all the research is done, the list price is the Seller's choice.

Sellers put their homes on the market for various reasons.  However, now, with the increased threat of foreclosure, many are listing their homes because they can no longer make the payments and it's the only way to avoid foreclosure.  Every sale is emotional to some degree.  The foreclosure situation can create a more volatile emotional backdrop.  Sellers are shocked at the lack of value in their home, angry with the lender, and emotionally spent from the stress.  The Seller's Agent has to spend time comforting and keeping the Seller positive during the course of selling their home.  Here comes a potential Buyer, and the Seller sees someone who is ready to pounce on his misfortune.

Of course, not all short sales are quite so raw, but this situation is common.  Nerves are frayed and the thought of someone else taking advantage of their situation is, frankly, hurtful.  Ultimately, the Seller bases value on their home with the following considerations:

• how much they like their home
• the improvements they have made to the home
• their neighborhood
• major repairs they either can't or don't want to handle themselves
• how much they think they should get for the home (there's that "they think" again).

The Bottom Line

Of course, neither of the lists above is complete, but I believe they are major factors in determining the value of a home.  No matter what side you are on, it is important to remember the other side's point of view.  This can help the two sides come to a meeting of the minds more easily.  In the case of short sales, it is truly important for Buyers to be more sensitive to the Seller's situation.  It makes the whole transaction proceed more smoothly.

Buyer Be Educated, Seller Be Prepared

If you are looking for a home but you think you can't quite qualify, please check out the Mortgage Credit Certificate site at http://hawaii.gov/dbedt/hhfdc/homebuyers/MCC_html. Basically, this credit reduces the amount of taxes you pay to the federal government so you have more income to qualify for a loan.

There are strict requirements, but if you qualify, you could be on your way to owning your own home! Check it out and please remember to share the info with a family and friends.

Each state has different requirements and time lines concerning the real property purchase process.  A major part of this process is, of course, the loan process.  As real estate agents, we must be certain to educate our buyers on this process and its importance with regard to the purchase transaction.  This is especially important for those of us doing business in resort or vacation areas frequented by buyers who do not live in the state where they are buying property.

Therefore, in order to have your buyers as educated as possible, one of the first things you want to discuss with your buyer is getting pre-approved.  This saves everyone a lot of time and allows the buyer to understand that the loan process is key in getting an accepted offer as well as staying compliant with the purchase contract timeline.

While it's understandable that some buyers may hesitate in starting the loan process -- maybe they are concerned that the inspection will reveal some devastating damage or they are still looking at other properties -- various contingencies are dependent on the timely completion of each task within the loan process.  It is important to let your clients know that it is easier to cancel the process than it is to start the ball rolling. 

To help make sure the buyers are aware, I have added a flow chart of my state's loan process to my buyer's packet.  This allows me the opportunity to go over the various informational documents with the buyers when I give it to them.  Not only am I perceived as well-informed, the buyers understand what's important.

Buyer be educated.  Seller be prepared.

In today's market, the term "foreclosure" is bantered about quite freely and used to cover the varying stages of the foreclosure process. 

• Foreclosure: This is a property that has been foreclosed on and the bank now owns it. Also known as an REO (real estate owned).
  
• Short Sale: This is a pre-foreclosure.  The property is still in the owner's name; however, they can no longer make their mortgage payments and are usually several months in arrears.
  
• Auction:  This is a property that the lender is foreclosing on and is scheduled to go to auction on the Courthouse steps.  Yes, they really do this on the Courthouse steps!

Many buyers call an agent and say they are interested in buying a foreclosure.  Many agents don't blink an eye and start looking at all the foreclosed and short sale properties on the MLS (Multiple Listing Service).  However, there is a "market" that s becoming more popular: the auction.

As stated earlier, auctions occur on the Courthouse steps and attendance varies, depending on the area.  Here on Kauai, there are generally few attendees.  Auctions take place Monday through Friday.  The key to successfully navigating an auction is to know the process, the pros, and the cons.  Or, hire a real estate agent who can. 

As real estate agents, we work hard to find the right properties and navigate through the sale process for our clients.  With auction properties, the search is more time consuming.  Upcoming auction properties are not listed as such on the MLS. 

If you are interested in properties being auctioned, searching on your own can be daunting.  Hiring an agent can alleviate your stress and the agent can utilize resources you don't have access to to find the right property for you.  In addition, an agent will have information on the process, the pros, and the cons in his or her own state. 

In any case, knowing the differences between the different types of properties (foreclosure, short sale, or auction) helps you determine the process so you can make informed decisions about your purchase.     

Buyer Be Educated, Seller Be Prepared

©2010 by Nance Overton, RA, CDPE (RE/MAX Kauai)

As real estate agents, we deal with contracts, paperwork, and many diverse situations on a daily basis.  Any of these matters can easily cause confusion for our clients.  We have to remember that in representing our buyers and sellers, we must be very clear in explaining the documents they sign, the type & form of information they must provide, and the remedies/implications of any situation that may occur.   

I decided to write this because I fell into the trap of assuming (don't we all hate that word) that my client knew what I meant when I was explaining to her what type of paperwork she needed to provide me for her short sale package.  Until I received the paperwork, I did not realize she completely misunderstood what I needed!  All the conversations went well and it never occurred to either of us that we were not on the same page.  Now, she has to do all the work again in a different form and I am feeling terrible about it all! 

Mind you, this happens more often here because, on Kauai, many of our clients live on the mainland, so our communication is usually by phone or email.  When there is a lack of face-to-face conversation, understanding frequently gets lost in translation.  We have to remember that our clients do not always know they need more clarification and head off into the wrong direction.  This is not an excuse, but a circumstance that requires more care on our part as realtors.

Lesson learned and I plan to avoid this mistake in the future.  In some cases, it may be of greater benefit to provide samples of the information the client must provide.  Therefore, I am writing this as a reminder to all of us - clients included - that clarity is one of the necessary keys to a successful transaction and, as we get busier, we must be careful not to sidestep or make assumptions.

Buyer be educated -- Seller be prepared!

Nance Overton, RA, CDPE - RE/MAX Kauai
  

In this time of buyer's markets, the seller concerns seems to have been lost in the shuffle.  Because the home prices are coming down and sellers are usually taking a hit on their investment, many want to spend as little as possible selling their home. 

This is a time when a listing agent can be the savior or messenger.  Limiting your sellers' exposure to surprise fees and charges is of the utmost importance.  This is especially true for markets like Kauai, where many homeowners live in another state (and their real estate laws may be different).  If you don't already, you might consider adding the following to your listing presentation:

1. List of the common fees and percentage the seller must pay (yes this is in our contract, but it bears repeating),
2. Sale process flow chart,
3. List of common things that are likely to arise during the course of the transaction and the sellers' responsibility for those situations. 

Being prepared is key in anything you do; but it is golden when your seller is well-prepared. No yelling or negative declarations ("I am NOT paying for that!"), or added stress from the surprise.  Keep your sellers calm and the sale is more likely to  yield positive results. 

Of course, some sellers just want to be skeptical and dismal and there is nothing you can do to keep them calm and happy.  However, being able to refer to your well-prepared listing presentation can help you keep them from tilting in the wrong direction.

Buyer be Educated -- Seller be Prepared!

In the first two installments of this series, the buyer has (hopefully) come away with a lot of information.  It is necessary in this high tech world to understand the opportunities and pitfalls you may encounter while searching for your first home.  This installment has more to do with expectations than information.  First time homebuyers get very excited about buying their first home, and they should be.  In spite of this, with all the short sales and REOs out there, buyer need to curb their expectations and become realistic.  While one might never think of letting their new home fall into disrepair and filth (yes, filth), this is exactly what can happen when the current owner falls behind in their mortgage payments and realizes their dreams are about to go up in smoke. 

Keep in mind the following when looking at short sales and REOs

1. The owners are quite emotional and the prospect of losing their home and being in worse debt than they ever imagined takes a huge toll. 
   • Many sellers become lethargic and just stop caring for the home.
   • Sellers of short sales cannot afford to fix things...an "As-Is Addendum" means just that in these cases.  Unless a seller can and is willing to fix some small things themselves, the buyer should not expect any room for renegotiation or repairs once the house has been inspected. 
   • With REOs, the previous owners moved out long ago and probably left the house in poor condition. The bank, now the current owner, is not paying for upkeep.  Wear your shoes and don't touch anything!
2. In a short sale, while the lender does not own the property yet, they do have the final say on price.  They will have an appraisal or broker's price opinion (BPO) done and they will keep as close to that price as possible.  It doesn't matter what you think the property is worth, it matters what the lender thinks.
3. Don't expect the lender to allow for too many seller expenditures as it comes out of their proceeds and they are already losing money. (Mind you, I have no sympathy for the lenders, but that's how it is.)
4. If you are looking at short sales, quick sales, and REOs, don't expect the house to be perfect.  You will likely have to put some of that money you saved on the purchase and/or your own time and sweat into repairs and remodeling.  Your decision is whether or not it's worth it for each property you consider.

It is important to decide what you are willing to do to make a home yours before you start looking.  This will help narrow down your search and make it easier for your real estate agent to find suitable homes to show you.  You don't have to include any homes that don't meet your needs. However, don't discount a potential home just because it is a short sale or an REO.  The key is to be prepared for the worst and revel in finding a great deal.  Make sure your agent checks the comparables in the neighborhood or area so you can see what is selling and at what prices - not just current listings.  

And don't forget, as with any commodity, the less expensive a home is listed for, the poorer the condition is likely to be - in most cases.  There are a few cases where beautiful homes are going for a fraction of their value because the market is so bad and the sellers are desperate, but finding those among the haystack of other homes is difficult (we have 2 of those).  Unfortunately, in this real estate climate, many buyers are mis-informed as to value vs pricing and their expectations are too high for the money they are willing to spend. 

Above all, it is YOUR responsibility to know the market you are searching in, because, it is YOUR money and YOUR decision to buy.  This is the biggest purchase you will make in your life - your first home!   Ask your agent, ask around the neighborhood, do your homework.

Buyer, be educated!!

© 2010, Nance Overton, RA, CDPE, RE/MAX Kauai, Princeville, HI.  All rights reserved.