Making tough decisions in a tough real estate market
While certain sectors of the real estate market are finally showing signs of improvement, the residential housing market is still troubled–unless of course you’re a buyer. Volumes are written and reported every day, it seems, about the “finding the bottom,” or a “new wave of foreclosures,” “loan modification difficulties,” etc. While the news can be gloomy, if you must sell a home along the Grand Strand, there is still hope. There are a few things you as a potential seller can and should do, and it starts with knowing where you are, and remembering that selling isn’t always the only option.
Having a clear picture of your situation will help you make the right decisions, and it can start with a casual conversation, even before you sign a listing agreement with a Realtor. Ask friends, family and associates who’ve had recent real estate transactions for their recommendations, and make a call to a trusted Realtor to ask a few basic questions. Most will be happy to give you essential information without long-term commitments.
Ask these questions: What have similar homes in my neighborhood been selling for? This is called a Comparative Market Analysis, or CMA. How long have they stayed on the market? What selling percentage (the cost you as a seller must pay at closing) does the Realtor offer (5-7 percent is average)? What (if any) marketing will the Realtor commit to, including open houses, email blasts, print advertising, etc.?
With these few questions answered you can size up the home you need to sell, and calculate a price. An inspection by the Realtor can help you adjust the price up or down, as important variables such as location, curb appeal, size and newness of kitchens and bathrooms and overall square footage all make a difference.
Once you determine a reasonable selling price for your home, do a little number crunching. If you find your rock-bottom selling price is 20 percent or higher than the price a CMA recommends, then you may want to consider staying put. Overpriced homes don’t sell. If you can afford to take the loss, then price your home to sell, and be done with it. Homes are selling–but it’s the lowest priced that go first, and you’re competing with foreclosures. If you don’t want to, or cannot take a loss on your home, there are other options.
For Sale. For Rent.
If you’re leaving the area and don’t want to be a long distance landlord, consider talking to one of the several long-term rental agencies in town. You may find that the rent you could expect to receive will more than cover your current mortgage payment. Rental agencies usually take 10-15 percent of the monthly rent, plus the equivalent of one month’s rent as a placement fee, once a tenant is secured. A three-bedroom, three-bathroom home in Myrtle Beach can easily fetch $1,200 per month in rent. After a potential tenant’s vetting process, done by the agency, and substantial deposits are in place, a homeowner is in reasonably safe territory.
An agency finds your tenants, collects the money for you, mails you a check each month, and handles emergencies when you’re not available.
Benny Baldonado is the co-owner of By The Beach Properties in Myrtle Beach. The company focuses on the long-term rental market, placing qualified renters with homeowners in need. “We find tenants in a variety of ways,” said Baldonado, “through the branding of our company and Website, word-of-mouth, referrals. The Internet including Craigslist, and social media like Facebook, and even Twitter–are all great ways to find tenants.
“We pre-screen [potential tenants] over the phone,” said Baldonado, “to first find out what they’re looking for. Then we look for prior evictions–we don’t qualify those tenants. There’s a verification process. But credit isn’t everything–we understand people get into trouble in this economy. If they made enough money and had great credit, they’d probably just buy a home–we have to massage the situation.” What’s the current rental market look like? That depends on location, location, location.
“Rents are set based on location,” continued Baldonado. “We have a one-bedroom efficiency on Ocean Boulevard that rents for $925 per month–but it’s on the oceanfront. You could get a three-bedroom townhouse for that same price just five or ten minutes off the beach. [Single family] homes rent for more. A three-bedroom home, say in Carolina Forest, usually rents for at least $1100 per month.”
Lease To Own
A lease-to-own deal is a rental on steroids. Here, the tenant wants to buy your property, but either doesn’t have a large enough down payment to obtain a mortgage, or doesn’t qualify for other reasons. You are basically offering a rent-to-own scenario, which requires a sizeable, negotiable and non refundable down payment–called an Option Fee–usually 5 percent of the selling price, and an agreement that stays in force for an average of two years. This gives the tenant/buyer time to clean up spotty credit, and then essentially re-finance, with the initial option fee considered part of a down payment.
Meanwhile, you’ve got a tenant with a stake in the home who is more likely to keep it well maintained, and not likely to walk away from a deal in which he or she has thousands invested. The downside to you is you’re still carrying your mortgage, and you’ve allowed the tenant/buyer to lock in at 2011 price, which you must honor in 2013 (or whenever the option expires), when the property might be worth more.
Worse case scenario: If the tenant defaults and must be evicted or vacate the property voluntarily, you’ve been collecting rent and have the initial large deposit as a cash bonus. These types of deals are tricky for both the tenant/buyer, and the homeowner. Find a real estate firm and/or attorney that specializes in this type of transaction.
Don’t Give Up Hope
An old saying in real estate is that “it only takes one buyer,” and the truth of that sentiment is that buying a home can be an emotional purchase, and your home might push all the right buttons for one particular buyer–even if priced slightly higher than similar homes in your neighborhood. Stay realistic and push forward with confidence.
Paul Grimshaw is a freelance journalist and licensed South Carolina Realtor. These are only the opinions of the author, and not legal advice. The comments contained within should not be applied to any specific real estate transaction.