Archive for the 'Selling A Duplex' Category
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Real estate isn’t like a Rolling Stones tune.
A seller can’t always get what he wants, or needs, out of the Minneapolis duplex or multi-family property he’s selling.
The market determines the value of investment property; not the amount of capital gains tax a seller may have to pay when he sells, nor the amount of money he’s put into the property.
What contributes to value?
First, duplexes can be difficult to price because there are two distinctly different markets for them: owner-occupants and investors.
For today, I would like to discuss an investor’s perspective.
Unlike single family homes, duplexes are not valued by the amount of finished square feet, nor the numbers of bedrooms or bathrooms.
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One of the challenges facing owners who occupy their duplexes is a common misconception about their home equity line.
While a home equity line was a terrific tool useful when it came time to making large repairs or improvements, what most people don’t realize is “home equity loan” is a pleasant term for a second mortgage.
What many homeowners don’t know is when it comes time to either sell or refinance the property, this loan has to be paid off. In other words, the amount you need to pay off your entire indebtedness on the duplex is the amount you owe on your mortgage AND your equity line.
While to some this may seem obvious, I have run into many people who hadn’t received the benefit of a clear explanation of this fact when they were granted the equity line. These owners are often surprised when it comes time to sell in today’s challenging market, that they owe more than they thought.
This presents a problem in that in all likelihood, they can no longer sell the home for the amount it was valued at when the line was granted, thereby resulting in a short sale (where you are short in the amount you owe the bank).
If you have a home equity line, and are thinking of selling, be sure to disclose this information to your Realtor. That way, your agent can position your property and work with both lenders for the best possible outcome.
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Are we at the bottom of the market? We could look at MAAR’s weekly activity report this morning for hints. Then again, these numbers are confusing. We might have more fun asking the Magic Eight Ball and getting the side of the floating triangle that says, “Who Knows?”
According to MAAR, the trend of pending sales being significantly above those from the same time a year ago continued. In fact, sales were up a whopping 19.1 percent.
Of course, the tendency toward lender-mediated sales remains equally robust. Of the properties that received purchase agreements, 53.5 percent involved a bank at some level. What’s more, 41.9 percent were in the lower tier of pricing; being listed at $150,000 or below; usually first time home buyer territory.
The number of single family homes new to the market continued its downward trend, with new listings being 9.0 percent below last year’s mark.
This was not the case in the small multi-family home sector, however. New listings were up a staggering 265 percent. The silver lining in this news, however, is that while last year’s new listings were 80 percent lender mediated, the number of bank-involved properties during the same week this year dropped to 75 percent.
On the pending sales side of the duplex market, the surge continued. Forty-eight properties received purchase agreements; up 369 percent over the same week last year. Of these, 85 percent were lender mediated. Last year, all of the pended properties included a bank in the negotiations.
While the average sale price of the pended homes dropped from last week’s mark, so too did the figures for 2007. The 2007 figure reflected an average sale price for duplexes of $130,270. This year’s mark was $105,560.
This week’s figures certainly send mixed messages. However, there does appear to be a leveling off of the number of short sale and foreclosure properties.
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In this tough housing market, many property owners are attempting to save money by selling their duplexes themselves. On the surface, this line of thinking appears to make sense. Most Realtors in the Twin Cities market charge anywhere from 5-7 percent to list and sell a property.
Why not save this money? After all, if you’ve already lost equity in the changing market.
While this seems logical enough, it is, in fact, a myth. I know what you’re thinking. “She’s a Realtor, of course she’s going to say that.” So let me offer some proof.
1. You’ll Under Price Your Property.
I try to stop in to as many For Sale By Owner (FSBO) properties as I can. Sometimes I have a client looking for a very specific property, and for all I know, the one down the street with the hardware store sign might be it. On more than one occasion, the minute I got in my car to drive away, I was on my cell phone, looking for a buyer. In one instance, I knew immediately the owner had under-priced his property by at least $70,000. By the time I found an interested party (the next day), it had been sold. To a Realtor.
2. You’ll Have Access to A Smaller Pool of Buyers
Once upon a time, it was possible to put a sign from the hardware store and sell to someone who happened to drive by. Heck, there was even a time when buyers drove up and down the streets looking for “for sale” signs.
Today’s consumers, however, can’t afford the gas. And they are incredibly Internet savvy. They scour the MLS looking for their dream home, using multiple web sites and search engines. If your property isn’t on the net, it almost might as well not be for sale.
Most agents I know are, at any given time, working with between eight and twelve buyers. Usually these are people at various states of readiness; often simply looking for the perfect opportunity.
Realtors frequently ask other agents if they know of anyone who has or is looking for a specific property; with many sold before they ever hit the MLS.
We all know demand helps raise the price. If one knows about your home, it won’t sell for as great of a number as it would have were there multiple buyers vying for the chance to own it.
3. It Costs Money to Put It On The MLS
In the Twin Cities there are a couple of companies that, for a fee, will help an owner sell his or her investment property. Fees typically range from $100-$300.
4. You’ll Pay A Commission to the Buyer’s Agent Anyway
The MLS is, essentially, a co-op among real estate brokers. It’s a way for Realtors to share information about the inventory they have. Putting a property on the MLS, is like saying, “Hey, if you bring me a buyer, I’ll pay you this.” Payouts to buyer’s brokers in the Twin Cities market average between 2.7 and 3.5 percent of the sales price.
Now all you’re saving is the other half of the original 5-7 percent commission. Read the rest of this entry »
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One of the most frustrating transactions in today’s real estate market for buyers, sellers and Realtors is the short sale.
As discussed here before, a short sale is when a property is being sold for less than the amount owed to the bank. The seller may or may not be behind in payments. Due to the decline in market values over the last year, he or she simply can’t sell the house for what he bought it for.
In many cases, properties receive strong offers, which are accepted by the seller. Then everyone involved has to wait for the bank or banks with mortgages on the property to respond as to whether or not they will accept less than the amount they are owed. This can take months. Many, many months.
I have a buyer who wrote such an offer on Mother’s Day. The bank who holds the second mortgage on the property has refused to negotiate in any way. So we sit and wait for something to happen. That buyer has the patience of a saint. Others do not.
That’s the case on a gorgeous Mediterranean duplex in southwest Minneapolis. It’s been on the market for a while, and had numerous offers on it, which have been accepted by the seller. Months passed, and still no response from the bank. With built-ins, fireplaces, coved ceilings, three bedrooms on each floor and separate utilities, it’s a no-brainer in any other market. In fact, it sold for well over $100,000 more than it’s presently on the market for just two years ago. But none of the buyers have been able to outlast the bank.
If you’re patient, call me and we’ll take a look. It’s a terrific deal, and an even better long-term value.
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Over the past few weeks, I have been reminded that just because someone holds a real estate license, they are not necessarily qualified when it comes to buying or selling multi-family housing.
I saw evidence of this over and over during the boom years. Countless Realtors sold their clients over-priced properties that didn’t cash flow.
I see many of those properties re-listed now. The MLS information almost always reflects a short sale or foreclosure, which makes me angry. I truly believe if the buyer had competent representation, the foreclosure could have been avoided (because the property would not have been purchased at that price in the first place).
Many of those types of agents have been shaken out of the business this year. As a result, most of the Minneapolis and St Paul duplexes that sell today make financial sense. However, I don’t think anyone can sound the all clear alarm just yet.
The other day a property came on the market that I thought might be suitable for a client. As I studied the MLS listing, however, I noticed while it stated that the tenants were responsible for their own fuel costs, the seller was also reporting annual heat and electric expenses of thousands and thousands of dollars. Certainly a mixed message there.
I called the listing agent for clarification. It seems the property owner had called the power and gas companies, gotten the annual totals for both units and reported them to the agent. While the tenants were in fact responsible for paying for everything but water and sewer, the data reported the owner was. As I’ve explained before, if the landlord pays for heat, the property has a different value. The listing agent didn’t understand.
I also recently received an e-mail from an agent who had property their client wanted to do a 1031 or Starker exchange with. The agent did not explain what the property was, so I called with the hope that it would be multi-family housing. It was a chunk of land. And it was the agent’s understanding that a 1031 exchange was a straight up trade of one piece of property for another. Nope.
When getting a real estate license, the educational background for the state test is broad and general. After that, it is up to individual agents to pursue continuing education courses and expertise in an area they’re interested in. Commercial and multi-family properties, as well as land for development, each have their own unique sets of challenges and rules.
It is absolutely essential that you work with an agent who understands the nuances of the investment you’d like to make. After all, not every foreclosure is the result of predatory lending.
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There are several questions I get asked repeatedly in my job. One of the most common is, “What did it sell for?”
I usually hear this when a client was interested in and missed out on a property that just went from “Active” status on the MLS to “Pending”.
The trouble is, I can’t answer this question. At least not right away.
When a property owner has accepted an offer, there is a gap between his or her signing the document and the sale closing. Unless the buyer is purchasing with cash or a contract-for-deed, it usually takes 30 to 60 days for the a loan to be readied in order for the property to change hands.
In this waiting period (which is called “escrow” in states like California), there is still a possibility that the sale may not come together. The buyer may be unable to obtain financing, suddenly receive notice of a job transfer…while not necessarily common, things do happen.
Were either the buyer or seller’s agent to share what the final negotiated sales price was during this time, and the transaction not close, the seller’s position in the marketplace could be seriously compromised.
How so?
Well, it would be public knowledge what the seller “would take” for the property. If he then needed to put his duplex back on the market, he would not be able to do so at a price higher than the one he had just agreed to; at least not without looking greedy.
I can eventually tell you what that duplex sold for…just as soon as the keys change hands.
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With each day’s basket full of negative, I’m increasingly convinced the banking industry doesn’t want any of us to buy property ever again. OK, so maybe it’s not quite that dramatic, but…
First it was the end of stated income programs.
Then it was word that as of August 8, Freddie Mac will restrict lending for investors who own more than four properties.
And there’s the looming threat of the end of gift programs for seller down payments like Ameridream, Nehemiah and Genesis.
Regardless of market conditions, people will always need to buy and sell property. There are countless circumstances other than short sales or foreclosures that necessitate a sale. Perhaps a seller faces a job transfer, an addition to the family, a divorce, or has simply happened upon a better investment opportunity.
So how are those with less than perfect credit, who own five or more properties or work for themselves going to finance real estate?
My guess is we’ll see the re-emergence of the contract for deed, which is also known as a land contract.
With the impossibly low interest rates and readily available loans of recent years, this way of financing fell out of style. (Except in the case of farm land which is often difficult to obtain conventional financing for.) However, it was not an uncommon way to finance property in the late 1970’s, when interest rates hovered in the high teens and low 20s.
Quite simply, when a property is purchased on a contract for deed, the seller becomes the bank.
How does this benefit the seller?
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The weekly MAAR activity report came out and there appears to be a bit of good news in the single family and multi-family home markets.
New listings of single family homes continued to drop, being 23 percent behind the same week in 2007. Meanwhile, pending sales increased 4.9 percent over last year; a number that represents the biggest year-over-year increase in 117 weeks (29.25 months!) This is only the third increase in that time. The second happened just two weeks ago.
Meanwhile, the multi-family market continued along at a healthy clip. Sales of 2-4 unit properties were up 182.4 percent over the same week last year. Of these sales, 84 percent were for properties in a short sale or foreclosure situation.
New listings in the multi-family category decreased by 22.2 percent, meaning, for now anyway, supply has begun to decrease.
It will be interesting to see whether Freddie Mac’s August lending restrictions impact this market.
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I had a unique experience the other day while showing properties in one of my favorite “secret” neighborhoods. Well, I don’t know if it’s a secret exactly, but I do think it’s under-appreciated: the Riverview/Cherokee area of St Paul.
The neighborhood is a quiet little strip across the river from downtown. It has many of the amenities people look for in other, more well-known areas, including walking/biking trails along the river, parks, big old trees and most relevant to this blog, a beautiful and diverse selection of early 20th century architecture (woodwork!) . The prices, however, tend to be comparatively reasonable.
I was first introduced to this area years ago by a client. Since then, I have helped move a lot of first time home and duplex buyers to the area.
My client and I looked at two properties, exactly next door to one other. From the outside, one appeared to have been built late in the Victorian era. The other looked more like a Craftsman. Both had very good cash flows and long-term tenants with solid rents.
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