Entering 2010, many home sellers feel they're mired in the winter of their discontent, but there are signs the real estate market is on the mend. Sales activity is up, homebuilders are finally moving inventory and values are rising slightly in many American cities. At year-end 2009, mortgage rates stood at historic lows, spurring a wave of new applications.
But don't be too jubilant. A recent report by Deutsche Bank estimates that by 2011, about 48 percent of all U.S. mortgages will be underwater. Short sales and foreclosures will continue to put pressure on home prices in 2010 as they work their way through the pipeline slowly. It was apparent in 2009 that lenders were holding back much of their foreclosure inventories and REO, or real estate-owned property, in an effort to keep values up.
Meanwhile, housing's biggest economic driver -- the job market -- continues to stagnate as average unemployment remains high, at around 10 percent. So it's no surprise the new year will ring in another buyer's market, though with far more upside than in 2009. With that as a backdrop, here are 10 real estate tips for homebuyers and owners in 2010.
Tip 1: Take up Uncle Sam on his offer.
Might as well get a piece of that big stimulus pie while it lasts. At some point, the federal government will have to let the toddler walk on its own legs.
The $8,000 first-time homebuyer tax credit program that helped jump-start the real estate market in 2009 has been extended into 2010 and expanded. First-time homebuyers who sign a binding contract to buy a home by April 30, 2010, and close on it by June 30, 2010, qualify. The program's maximum income limits have jumped from $75,000 to $125,000 for individuals and from $150,000 to $225,000 for couples.
For those who have owned their homes for at least five years and want to trade up to a different primary residence, a separate $6,500 tax credit has been added. Further, many homeowners who are underwater in their real estate loans are eligible for a loan-modification program with their current mortgage company or loan servicer through the Making Home Affordable Program.
Tip 2: Find down payment assistance.
There are several down payment assistance programs for first-time homebuyers at the federal and local levels. Other down-payment assistance programs that can piggyback ongoing federal programs are often available at the city, county and state level. Just conduct an Internet search for "down-payment assistance programs" with your locality's name added.
Tip 3: Make home improvements now.
For households with access to credit, now may be the best time in years to fix up the homestead, either for a potential sale or simply for the sake of better living. Low financing costs, reduced construction materials costs and lower contractor costs make rehabs more affordable. Repairs that typically yield the highest returns are kitchen and bathroom makeovers with an emphasis on counters and cabinets. Get three different estimates. Then, factor in an additional 10 percent for those on-the-fly "change orders" that inevitably crop up.
Tip 4: Hire real estate agents and home inspectors wisely.
Now is not the time to hire a friend or relative as your real estate agent, especially with one of the most important transactions of your life on the line in this still-shaky market. You want someone who is well-connected with other agents, lenders and other fellow industry pros. Check credentials, references and recent performance histories.
If you're hiring an appraiser, make sure he or she is a veteran with at least five years of experience who's appropriately state-licensed or state-certified. Because of potential conflicts of interest, don't pick one based solely on a reference from a real estate agent. The same diligence should apply to hiring a home inspector. Conduct reasonably brief phone interviews with at least two or three before you choose.
Tip 5: Price accordingly, sellers.
This should be on every real estate seller's priority list. In most of the U.S., there are few reasons that a house can't go under contract in 60 days or less. The listings that generate activity while others gather dust are typically those whose owners have adjusted expectations based on comparably priced homes, or "comps." That doesn't mean you should drop your price precipitously on your well-maintained home to undercut the litany of poor-condition foreclosure homes. It just means "price to the present," not to a fantasy market.
Tip 6: Don't wait out the recovery.
Yes sellers, housing has been repriced. And by the looks of things, it will take years -- even a decade or more -- for values to return to their highs of two years ago. That potential loss you're fretting over may only be on paper, especially if you've been in the house awhile. Example: Take a move-in-ready house that appraises for $500,000. Because there's competing inventory, your agent advises you to take 5 percent off the price. Now you'll be selling for $475,000. "Ouch," you might say. But consider that you only paid $400,000 for the place in 2000. So how is a $75,000 profit, a loss? What's more, if you're planning to move up in the same or a similar market, you will likely realize that same 5 percent discount on your move-up purchase
Tip 7: Think long term.
Buyers, don't settle for "good enough." Just because you're getting a bargain doesn't mean you're getting a home that suits your long-term needs. Think functionality, neighborhood, location, access to services, highway access, work routes, schools, relatives and mass transit, and not price only. Do your homework, keep a cool head and carefully examine all the options. If you can spare the time, give yourself an extra month or two to make a decision. A house is a habitat first, an investment second.
Tip 8: Energy largesse.
Through Dec. 31, 2010, homeowners who buy and install specific energy-efficient windows, insulation, roofs, doors and heating and air-conditioning equipment can get a 30 percent tax credit for up to $1,500 of their costs on each product.
If you want to take it a step further, you can buy greener (and more expensive) energy-saving products, including solar energy systems, geothermal heat pumps, small wind systems, residential fuel cells and micro-turbine systems, and get 30 percent tax credit with no spending limit on each system, through 2016. Go to EnergyStar.gov's Federal Tax Credits for Energy Efficiency for a complete summary.
Tip 9: Consider rent-to-own deals.
The current market has driven many former homeowners into rentals, where they have nothing to show for their payments. Rent-to-own or lease-to-own deals allow buyers to "tire-kick" a home for a designated period while paying a higher-than-market rent to buy down an eventual down-payment. This gets renters vested in a home while they repair their credit and also helps frustrated sellers generate an above-market revenue stream. Make sure to draft a very specific contract that spells out all the options.
Tip 10: Don't take or make it personal.
Our homes have such a personal connection to us that we're often challenged to turn them back into just plain houses when it's time for us to sell. It is always best to remove personal effects such as pictures, knickknacks, mementos, trophies, greeting cards and the like before showing a house. (A good agent or home-stager should emphasize this.) There is a rule of thumb that you should count every item in every room of a for-sale home and eliminate or store 50 percent of them.
The buyers want to imagine themselves in the house for years to come and your excess decor and whatnots only distract from this vision. And don't get defensive about colors or design patterns or flooring that you love. It's OK to grit your teeth as you grin. Let your agent be the buffer. Remember, the customers (your buyers) are always right, unless, of course, they're low-balling you.
Learn more at www.TheCascadeTeam.com
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