Melbourne Market Values Seldom Equal their Replacement Values

April 16th, 2016

4-7-16-replacementvalue“Ideal” is a Shangri-La kind of a word. It’s not just because of its feel-good, pie-in-the-sky definition (“a standard of perfection or excellence”)—but because contained right there inside the word itself is a tacit admission. It’s only an idea—not something necessarily connected to concrete reality.

Melbourne residents don’t come across “ideal” anything very often in their daily routines, so few would be surprised to learn that even in something as important as determining the value of their Melbourne residence, the calculation turns out to be less than straightforward. The ambiguity owes to the fact that it all depends on how you look at it.

In reality, there are two quite different approaches for determining any Melbourne home’s value. Ideally, both methods would produce the same value for the same Melbourne property. That would be the Shangri-La outcome—a fine idea—but it’s seldom the case. The two methods are the Market Value approach and the Replacement Cost approach. Knowing how and why they differ explains why they yield dissimilar results.

When Melbourne homeowners examine their home insurance policies, they may find a breakdown of the replacement cost. The face amount of such a policy is meant to cover what the current cost would be to construct a similar building of equal quality—one that would have the same utility as the one that was destroyed. Such factors as materials, labor, the builder’s overhead, profit and fees are probably part of that calculation. In actuality, some of the costs that might be encountered may not be included, though: things like demolition of the old structure, debris removal, licenses and permits. It depends on the policy.

The market value is an estimate of the amount a buyer would pay in today’s market to purchase the same home in its current condition. Right off the bat, you can see that this would include the cost of the land—so you might deduce that its market value would automatically be greater than the replacement value. Ideally, that might be true. If the home were brand new. But for structures that have been in existence for a while, that might or might not hold true. For a home in less than top condition, the total might be less… likewise, if the local residential market were in a slump. On the other hand, for older homes having architectural details with fine workmanship that is expensive to duplicate today, the reverse would be true. You get the idea: given the vast number of variables that can influence the difference between market and replacement value calculations, it would be miraculous if the two ever came out the same.

When you are buying, selling—or even insuring—your Melbourne home, weighing market and replacement values is more than an abstract exercise. I’m here to help with those and many other issues that will help you determine how to make the choices that serve you best. Call me!

Top 10 Listing Phrases Might Not Attract Melbourne Home Hunters

April 14th, 2016

4-7-16-listingphrasesIt’s small wonder that with this spring’s selling season underway, Melbourne’s house hunters can afford to be a discriminating bunch—they have the luxury of picking and choosing from a crop of truly inviting offerings. And it doesn’t hurt that today’s low mortgage interest rates have enabled more Melbourne properties to fit within more family budgets.

For those of us who get to translate those home offerings into words for the Melbourne listings, the job is to find phrases that draw attention to each given property’s uniquely attractive features.

But there’s another dimension that complicates things. English is a rich and powerful language, but when it comes to marketing lingo, it’s also true that these days everyone is being deluged 24/7 by vivid advertising claims. We’ve all developed callouses when it comes to the ballyhooing we get from every quarter.

Today’s house hunters have developed sales resistance. Times 10!

So what’s the answer for cooking up language that helps a property jump out from among the others? One way is to find out Melbourne’s Top 10 listing phrases—and avoid overusing them! Same ‘ol, same ‘ol isn’t what works when the object is to attract Melbourne prospects. True, some truly accurate descriptors can’t be totally avoided—but emphasizing them isn’t likely to fire many house hunters’ imaginations, either.

Here are a group of most frequently appearing Top 10 listing words and phrases—with some alternatives more likely to spark more attention from Melbourne house hunters:

1. Beautiful (‘gorgeous’ ‘spectacular’ or ‘captivating’ bring more energy)
2. Hardwood floors (what kind of wood—and what hue?)
3. Stainless steel (at the very least, add ‘gleaming’ or ‘lustrous’)
4. Updated (‘renovated’ ‘remodeled’ ‘renewed’…or maybe even ‘reimagined’)
5. Private (this one is actually okay as-is…it may be a cliché, but it’s a desirable one!)
6. Spacious (puh-lese! How about ‘cavernous’ ‘commodious’ or ‘enormous’?)
7. Landscaped (another okay one, but in need of a boost—like ‘lusciously’ ‘stunningly’ or ‘exquisitely’)
8. Custom (‘tailor made’ ‘individualized’ ‘unique’ ‘personalized’ or ‘specially crafted’)
9. Clean (this is close to Top 10 listing phrase malpractice: if it’s clean, it’s surely also ‘spotless’ ‘flawless’ or ‘immaculate’)
10. Brand new (could be ‘state of the art’ ‘untouched’ ‘mint’ or ‘just completed’)

Even after a bit of polishing, those Top 10 listing phrases and words need to have a credibility boost via listing photography that illustrates what’s being promised. Putting the whole package together is just one part of the service you can count on when you give me a call!

Home Inspection or Offer? Which Comes First?

April 12th, 2016

4-7-16-homeinspectionA reasonable question posted recently on a real estate website can open an interesting discussion. It’s one that touches on a fundamental component of most Melbourne real estate sales.

The question was, “Can I request a home inspection before I make an offer on the home?”

The answer from the moderator was, “I can’t think of one good reason why you would do this.” The moderator should have thought a little harder! And the truth is, for any would-be Melbourne buyer who has never been involved in buying or selling a home, it’s a pretty logical question.

Take a fictional example. We have a young couple who have no previous real estate experience. Their parents never walked them through how they had gone about buying the homes they’d been raised in, and although both husband and wife have college degrees, neither has been exposed to the first thing about buying and selling a house (this is a hole in the educational setup that would seem to be pretty easy to fix…but at least for now, parents have to fill the void).

Our couple has fallen in love with an existing home. They like its size, style, and its Melbourne neighborhood—which is in a superior school district. They have some reservation about the asking price, which is a little more than their pre-determined target, but they decide to make an offer that shaves a few percentage points off the asking. They agree with their agent that for the seller to entertain their offer seriously, they need to accompany it with a 1%-2% earnest money deposit.

Just as they are on the verge of taking the leap…one other thing occurs to them. What, they wonder, will guarantee that there aren’t serious mechanical or other difficulties with the house? The solution would be simple—just order an inspection—except that, not yet being in a contract, the $300 – $600 inspection fee could be a waste of money. What if the sellers accept an offer in between the time the young couple orders the inspection and submits their offer?

In practice, a “before offer” inspection IS done in some cases – usually when a multiple offer situation is expected. In such cases, multiple sets of buyers would probably be advised by their savvy agents to invest the money on the front end to increase their odds of writing the offer that will be accepted. The way savvy agents help their seller clients avoid this problem for buyers is to have the sellers order a home inspection report themselves—and make it available to any potential buyers for review. This helps the sellers to get ahead of any unknown issues that might come up, as well as encouraging offers. When buyers have information about the basic condition of the home, it frees them to write an offer with more confidence.

A sound offer triggers the start of a process that ends in handshakes and smiles all around—and the transfer of a very valuable set of keys.

Whether buying or selling, strategic guidance regarding the offer is just one contribution of your chosen Melbourne real estate agent—and another reason why teaming with the right one is so key to getting the result you are looking for. I hope you’ll give me a call to discuss how I will help you reach those goals!

Melbourne Luxury Real Estate Escapes April Fool’s Day Worries

April 10th, 2016

4-7-16-luxuryaprilfoolIt looked like another chuckle-worthy April Fool’s Day dispatch: CNBC’s webcast “Is NYC luxury real estate about to go bust?” It was barely 7 in the morning on April 1—but only the most bleary-eyed Melbourne web watchers were likely to have been caught off-guard.

Pranksters had already made mincemeat of the credibility Friday news dispatches normally deserve. Web parodists had started early (against all common decency, the day before). Late on Thursday, Gizmodo had announced the sale of the “Moon Watch”—its $27,500 price tag justified by a housing made from genuine moon rock brought back to earth by the Soviet’s 1974 Luna probe. Sure.

Even before the sun came up, Google Express made its first sky-enabled delivery. Not by drone: the first delivery was an axe, dropped by parachute.

Duolongo advertised a miraculous new product—a pillow that uses Morse code to teach you a language while you sleep (“I went to bed speaking only English, but woke up bilingual. Buenos dias a todos!”).

So CNBC’s projection of doomsday for Manhattan luxury real estate—for April-Fools-wary Melbourne readers, at least—would not have been taken very seriously. The problem was, it actually was authentic. Sort of.

The webcast was a segment lifted from the CNBC Squawkbox show, presumably aired that morning. The blurb promised, “CNBC’s Robert Frank takes the wraps off a new report that shows the luxury real estate market in NYC is about to crumble.” And it did have a promising setup for what (to anyone living outside The City, possibly including a few Melbourne residents) might take to be breathtakingly unsustainable price levels. Some of the new records posted:

Average apartment sales prices top $2 million (for the first time)
Price Per Sq/Foot = $1,713
Number of sales = 2,877 (a jump of 8%)

But…so where is the promised luxury real estate “bust”? It didn’t seem readily at hand—especially after we were shown a 5-bedroom Central Park coop. It had been bought in 2003 for a pittance ($12 million). Now it had sold quickly. By regular Melbourne standards, at least, that didn’t seem to evidence much luxury real estate crumbling, since the selling price had been $35 million. Frank explained that the owners had done “some renovating”—so we were momentarily left wondering if the crumbling was because they’d had to go to so much trouble…

No! The reason put forth was that many of the record sales resulted from contracts signed as much as 18 months earlier. So maybe it was possible that these high prices and sales volumes might not be sustainable. There was no evidence beyond nervousness about China and the stock market tumble (which had just reversed, oddly enough).

That the report on NYC luxury real estate was not an April Fool’s joke was a sort of April Fool’s joke in itself. Here in Melbourne, those kinds of worries were less widespread. China seemed a bit remote—and the stock market had already come roaring back—but neither seemed to be key to Town’s luxury real estate. If you would like some authentically real-world market info, do give me a call!

3 Benchmarks for Melbourne Real Estate Agent Dowsing

April 8th, 2016

3-30-16-realestateagentWhenever a buyer or seller is set to enter the market, they find themselves faced with the task of identifying the Melbourne real estate agent who will serve them best. There are many of us to choose from—and not a lot guidance on how to proceed.

Maybe there should be something like a Real Estate Agent Dowser. You remember dowsers—the folks who divine where to drill for ground water. Most do it by walking around, holding a dowsing rod (usually Y-shaped). When it shivers or points down, BINGO! That’s where the water is. Pay the fee and call the drilling company. Now, it’s said that there is absolutely no scientific evidence that dowsing works. Yet there are plenty of folks who live out in the country who will tell you that, of course it’s hard to believe, but still… That’s why dowsing is a real occupation. Just ask any one of the American Society of Dowsers’ 3,000 members…

Here in Melbourne, when you set out to find a real estate agent to help with buying or selling a home, there is no American Society of Real Estate Agent Dowsers to help. Fortunately, Melbourne’s real estate agents aren’t as hard to find as underground water pockets—but even so, detecting which of us is best suited to be your partner is no “gimme.”

One good solution is to interview the candidates with an eye toward finding out how they stack up against three practical benchmarks:

Selling Skill. A great real estate agent is a great salesperson—easy to talk to, sympathetic to your needs—genuinely likeable. When you are interviewing potential agents, offer an objection or two to test how seamlessly the conversation proceeds. The most valuable sales representatives are those who can adapt to resistance without batting an eye, or letting negativity prevail.
Current knowledge and experience. Being able to provide accurate and fact-based market information and analysis is an important indicator— as is having successfully performed in a variety of Melbourne real estate transactions.
Negotiation Skill. When all else points to a good fit, discuss the terms that candidate proposes between you. Your chosen real estate agent will be negotiating on your behalf—so your agent’s ability to present hard business matters in a relaxed and amenable way will serve you well.

When you become your own real estate agent dowser, you won’t need a witch hazel stick to point the way. A few thoughtful interviews will do the trick—and I hope you’ll be sure to give me a call as soon as you go dowsing!

Notes on the Ins and Outs of Melbourne Short Sale Listings

April 6th, 2016

3-30-shortsaleAny dedicated bargain hunter who scours the Melbourne listings is not surprised to find among the most deeply discounted entries one of two notations: foreclosure or short sale.

Everyone knows what the “foreclosure” designation means—it’s been repossessed by the bank. It’s an REO (real estate owned). By discounting the asking price, the lending entity invites buyers to take the property off its books. It is here that the economists’ favorite acronym, “TANSTAAFL” (There Ain’t No Such Thing As A Free Lunch), comes into play. Foreclosed properties have frequently been neglected by their previous owners, who are not happy campers. So the cost of rehabilitation must be factored in before any offer is made. Still, foreclosures can represent real opportunities for buyers with patience and determination.

Slightly different are foreclosures’ first cousins: Melbourne’s short sale listings. There are any number of unforeseen circumstances that can cause an owner to fall into financial distress, but when their home has to be repossessed, the impact on the borrower’s credit is immediate and drastic. It can make finding a new place to live difficult, and can even make future employers hesitate to hire someone whose record includes that kind of hefty unpaid debt.

Melbourne properties which fall in the “short sale” category are those in which the borrower has been unable to keep up with the mortgage payments, but who is arranging for the lender to agree to accept a payoff that’s less than the full amount owed. When a short sale is finalized, the result is still some damage to the original borrower’s credit, but less than had a foreclosure proceeded. The buyer will benefit from what should be a substantially lower price than a comparable Melbourne property would bring—and a home that is usually in better condition. An eager lender can also sometimes offer favorable financing terms, too.

But remembering what the economists say about TANSTAAFL, there are also these points to keep in mind:

Short sales involve extra bureaucratic red tape. The fine print includes items such as the lender having to approve details of the sale—and that can result in nerve-racking delays.
Although the owner is usually trying to keep a short sale property in good shape to facilitate the deal, banks won’t allow a short sale until the borrower has seriously fallen behind in payments. That can mean an inability to keep up with the expense of proper maintenance. As in a foreclosure, canny short sale buyers make certain they know the cost of rehabilitation.
The possibility of sticky legal issues needs to be recognized. For instance, if the seller has filed for bankruptcy, it could squelch the whole deal. Negotiating a short sale can be considered a “collection activity”—and those aren’t allowed in most bankruptcy courts.

If one of Melbourne’s foreclosure or short sale-denoted listings has grabbed your attention, I can help. It will require attending to some technical issues attached to the specific property—but I’ll be pleased to help you navigate the process from beginning to end!

Melbourne Buyers and Sellers Arrive with Differing Mindsets

April 4th, 2016

3-30-buyersellermindRight now, just a few days into spring, we are right at the start of Melbourne’s peak real estate selling season. I’ve always found it odd that you don’t hear much about it—but that also makes it the beginning of the buying season, too!

As a licensed Melbourne Realtor®, throughout the course of the year I am privileged to act as the agent for both buyers and sellers in many different transactions. The details I’m called upon to manage do vary somewhat depending on which side I am representing in any given sale—but there is one very significant goal that I regard as identical, no matter in which capacity I serve (more on that later).

There are some generalizations that usually hold true about the difference in mindset between prospective buyers and sellers. For one thing, sellers automatically have in-depth knowledge about their Melbourne property. Gained through the years, they know the community; they know the most reliable local tradespeople; they know the ins and outs of getting around town. Sellers have a degree of confidence that comes with experience: and when it come to the property at issue, they’re old hands!

Buyers, on the other hand, find themselves to some extent venturing into the unknown. Even if they are already Melbourne residents, the prospective neighborhood may be largely terra incognita. And for sure, they can’t be positive about the details of the property—what are its strong points, and (worrisome, this) its unknown vulnerabilities, if there are any. In short, buyers automatically come armed with less confidence.

Bringing more parity to the two sides is one of the key services that will lead to the result both want. Whether my own client happens to be on the seller side or buyer side, when the buyers gain confidence that they are as close as possible to the sellers’ encyclopedic knowledge of the property, the best result has the best chance of being met.

As a practical matter, that means digging in and working diligently to assemble and relate all possible information that can be gathered. It can also mean sometimes finding out where the buyers feel least confident, and laboring as needed to see that the gap is filled.

Before, I noted that there is one significant way in which my goal as representative for Melbourne’s buyers and sellers is always the same. It’s this: the best result is always achieved when both sides come away fully satisfied that their interests have been well served.

For the seller, importantly, that means that they’ve received fair compensation for their home. For the buyer, likewise—with the added element of emerging with the gut feeling that no matter what the future holds, they know that they have been leveled with. When buyers and sellers each have confidence that the sale has resulted in fair dealing, the positive feeling lasts.

Whether your next Melbourne real estate venture is buying or selling, I hope you’ll give my office a call!

Predicting Home Sales: More Quandary Than Certainty

April 2nd, 2016

3-30-homesalesEven the least vigilant of Melbourne’s market-watchers had their antennae out last week, the traditional time of month when real estate statistics are released from the most authoritative sources. National trends in home sales frequently provide clues to the direction the Melbourne market is likely to take—and with the spring selling season already under way, this is the time of year when movements can be more volatile than usual.

Last week’s data was less exciting than has been the case in recent years—and what movement there was seemed to leave opinion-makers perplexed. The Associated Press writers put it this way:

“The housing market enters the traditional spring buying season facing a quandary.”

When you are interested in clues to how home sales are likely to fare, words like “quandary” don’t help. It was in fact glass-half-full/glass-half-empty kind of news. You could see what you wanted to see.

If you were a pessimistic type, your predisposition might have been bolstered by The New York Times Headline, “Existing Home Sales Drop More Than Expected.” There it was! Confirmation of a downturn in activity. Though you could have admitted that the trend might not extend to every corner of the country, the possibility that Melbourne home sales might now head south couldn’t be denied. The New York Times said so!

On the other hand, if you were among Melbourne’s more numerous optimistic observers, reading the same news left you thinking that the very same headline was actually slightly misleading. It was based on the National Association of Realtors® report that talked about home sales prices continuing to rise. The “home sales drop” was only (as the headline actually read) against what had been “expected.” Sales levels had been sizzling for months, so expectations had been high (not among the pessimists, certainly). But the numbers showed that existing home sales were actually 2.2% higher than a year earlier!

Reading the entire NAR report could explain why The New York Times emerged with a quandary. In it, readers learned that U.S. job growth “continues to hum along at a robust pace” which could explain why “overall demand for buying is still solid entering the busy spring season.” But then they learned that “anxiety about the health of the economy is holding back a segment of would-be buyers.” On one hand, there was the 48th consecutive month of “steadfast price growth;” on the other, “unshakably low supply levels.” The share of first time home buyers fell 30%; yet the share of first time home buyers “is up 29% from a year ago.”

The Times’ quandary was certainly understandable. But although not much light may have been shed on the prognosis for home sales in Melbourne, a couple of factors could have been deduced. In the coming months, home sales certainly won’t “be affected by the large East Coast blizzard” that had impacted February numbers.

What is likely to affect sales is the continuation of tantalizingly low 30-year, conventional fixed-rate mortgage rates, “the lowest since April 2015.” If that kind of encouragement has you interested in checking out the current crop of great Melbourne home offerings, I hope you’ll forego the quandary altogether—just give me a call!

Melbourne Home Loan Calculations Depend on DTI Diagnosis

March 31st, 2016

3-23-16-homeloanIt might sound shocking, but Melbourne’s homeowners—present and future—have DTIs!

Although the press has been largely silent, it’s important that the public be fully educated on the subject. But before anyone calls an emergency meeting to see what can be done…

The good news is that, despite how dire it may sound, having DTIs isn’t a health menace (even though it is true that Melbourne homeowners have both front-end and back-end DTIs). In fact, they’re not only not a problem, the truth is that without DTIs, it’s doubtful any of us could qualify for even the simplest Melbourne home loan.

You needn’t bother Googling “DTIs”—they are Debt-To-Income ratios. So everyone with debts and an income has them. They are quite useful when it comes to predicting the maximum home loan amount that can be handled comfortably. Knowing your DTI will clue you in on how much home you can easily afford. It will also tell the bank or other mortgage lender the same thing—once they verify from your credit history that you are an established bill-paying good citizen.

DTI computations are wonderfully simple. In fact, even without formally knowing how they are calculated, most Melbourne residents have a feel for what they measure—it comes with paying the bills every month.

The front-end ratio is easy to arrive at. By taking a home loan payment (all-in: principal, interest, taxes and insurance) and dividing it by the monthly before-tax income, you come up with a percentage. A $2,000 mortgage payment with an $8,000 income yields 2000/8000, or 20%. Most lenders would smile on that number; but a maximum of 28% is considered standard for the front-end ratio (although no debt ratio rule is carved in stone).

The back-end ratio is broader. It’s what’s usually meant when “DTI” is cited. Among the bills included are those for credit card and car loan payments, alimony and/or child support, student loans, personal installment loans and payments for co-signed loans (even if the co-signee is paying them). NOT included are other monthly expenses like utility bills, health insurance payments, cell phone and cable bills.

To finish calculating the back-end ratio, just take those debt payments, add them to the home loan payment, then divide that total by income: the resulting ratio comes out as a percentage. An income of $6,000 with debts of $2,500 would yield a DTI of 41.67%, which is within the federal “qualified mortgage rule.” Forty-three percent is the top number officially allowed.

So, a rule-of-thumb like “no more than 28% of debt should go toward servicing a home loan” actually just restates the front-end DTI guideline. Other factors—like credit history and liquid assets available for a down payment—go into the banks’ decision-making, but as soon as you familiarize yourself with your DTIs, you’re talking the lenders’ language!

Call me when it’s time to buy or sell, and we’ll soon be talking all of the dialects that make up Melbourne’s real estate language!

Melbourne Real Estate Benefits from Events…and Non-Events!

March 29th, 2016

3-23-16-realestatenewsA couple of recent developments made the news recently that promised to impact Melbourne’s real estate scene either now or in the future. The one that got most of the attention last Wednesday came from a familiar source: Federal Reserve Chair Janet Yellen. Her news conference’s less-than-stirring pronouncement (“Caution is appropriate”) made headlines nonetheless because of the accompanying action (actually, inaction): no increase in interest rates.

Melbourne real estate watchers will remember that when the Fed increased their Fed Funds target rate by a quarter of a point last December, they nudged it upward from zero to .25%. It was the first move in nine years, and was accompanied by a statement that they anticipated making three or four similar small increases throughout 2016. Thus it was expected that another quarter of a percentage point would be announced by now, so the news marked a mildly surprising turn—one that will be welcome to anyone contemplating buying or selling real estate in Melbourne. The continuation of a miniscule Fed Funds rate translates into significant savings for everyone, particularly when measured against the historical norm of 2%-5%.

Soooo: as for the first development, ring the bell: good news!

The other development had come earlier. It was one that might turn out to benefit real estate activity—but it could conceivably have the opposite effect. It, too, dealt with government and finance, this time in the realm of real estate taxation: a bill introduced in Congress. H.R. 4494, the Renters Fairness and Equality Act, would amend the IRS Code to give renters a federal tax break. It would put renters on a footing similar to that which allows Melbourne homeowners to deduct mortgage interest and property taxes.

As in all things Washingtonian, the proposed details are complicated. The total amount of rent paid would become federally deductible, but only for some (tenants in very expensive areas wouldn’t qualify). The way such proposals become law, the final rules could differ—and in any case, there is faint likelihood of swift enactment. The legislation had been introduced by a lone Democrat, and was now sitting in the Republican-led House Committee on Ways and Means, where it was predicted to evoke continuous and profound inactivity.

But even if that turns out to be its fate, H.R. 4494’s introduction was an interesting development—an idea that might someday catch on. Around here, it raised the question about whether this would be good news for Melbourne home values. The federal tax break is a major inducement prompting renters to buy, so a number of prospective buyers might go missing. On the other hand, many renters who have been priced out of the market because they’ve been unable to save for a down payment would get meaningful relief. Additionally, the prospects for Melbourne investment real estate could benefit greatly if consumer demand for rental accommodations were to expand—as groups promoting affordable housing projected.

The promise that mortgage rates will continue to provide a welcoming backdrop for this spring’s selling season comes as unambiguously exhilarating news for Town’s real estate market. To investigate further, do give me a call!