Let me share a story with you. This is a situation that caught me totally off guard, although being in the business this long I thought I was prepared for almost anything.

The story starts out fine. One of my best friends, who was also my college roommate, and his wife were looking for their first house. So we sit down and talk about his price range, towns he was interested in, and so forth. I set him up to receive properties daily from me so he can learn the market. Over time he sees places he likes and I setup appointments to see the places, and go see them with him. He even saw places he liked so much he made offers. He could never quite seal the deal though. He is a bit stubborn and thought the seller was trying to rip him off. I tried to talk him out of it, but the stubbornness kicked in.

A little over a year goes by. He and his wife have been looking the whole time. Over the course of the year I showed him a little over 40 houses and sent them the list of open houses every Sunday. We also made 3 offers on different properties that he did not get because he would not bid high enough, even though it was under his price range and against my advice.

Out of the blue I get a call from him on Sunday telling me he has something he needs to talk to me about. He proceeds to tell me that he has decided that he is not going to use a buyer’s agent to buy his house. To be honest when I heard this I was caught completely off guard. I should have said more, but mostly I listened to his reasons. He told me this has nothing to do with the job that I did for him. According to him I did a fantastic job and he would recommend me to anyone who was looking. His only reason for not using me as his agent was he thought the listing agent would try harder to get him the property if he went in there alone and they would get the full commission. I told him the listing agent had to present all offers and the seller made the final choice, but his mind was made up.

I also asked him some questions. Here are some of the questions I remember and his response. For this argument we will use his “fictional” name of Joe.

1.)

Me: “Don’t you think I deserve to get paid for all the work I did no your behalf.”

Joe: “Of course I really appreciate all you did for us.”

Me: “I don’t get paid anything if you do not use me.”

Joe: “I want to take you out for dinner.”

Me: “You are not taking me out to dinner.”

2.)

Me: “Don’t you think this is kind of a dick move on your part? Have you thought about this from my point of view?”

Joe: “I don’t think it is a dick it is a dick move. I think that if I were in your shoes I would be disappointed that we were not using you, but I would realize the friendship is more important.”

3.)

Me: “So you have made a conscious decision to cut me out of the buying process after a year of work. You do realize that you have decided that all the work I have done for you so far is worth zero dollars to you.”

Joe: “No, I am going to take you out to dinner to show my appreciation for all you have done for me.”

Me: “You are not taking me out to dinner.”

Joe: “I know you think it’s gay, but I am taking you out to dinner.”

Me: “Joe it is the difference between $100 and $10,000. I have spent well over $100 in gas alone. There will be no dinner.”

4.)

Joe: “Another reason that I have decided not to use you guys is that it isn’t good to mix friends and business.”

Me: “Don’t you think it is a little late for that?”

Joe: “Well that is why I am ending it now.”

Me: “Like I said it is about a year too late.”

There were many more hilarious exchanges between the two of us, but as I said I was caught a little off guard and did not ask all the questions I should have.

Since the exchange I have been very upset and started thinking that I was overreacting to the whole situation. So I posted a question on Yahoo! Answers from his point of view asking if what I did was the wrong thing to do. Here is the link. I think it speaks for itself.

http://answers.yahoo.com/question/index;_ylt=Ako7dZfiMdU0lxePbEQABR7sy6IX?qid=20070507074547AAAZT1B

Hopefully he does something to rectify the situation, but people certainly get crazy when house are involved. Feel free to share your options on this matter. I would love to hear them. Thanks for listening. Writing it down is therapeutic in a way.

I was talking to some former buyers of mine and decided to write about this topic. They are having a tough time financially right now. They were telling me that they did not even buy at the high end of their pre-approval, but they are still having trouble making the payments. I feel their pain and know that it is tough to go from renting to owning. There are a lot of expenses that they were not prepared for. The following is some advice to consider when determining how much you will be able to pay for a home.

Make a Budget

I think everyone knows to do this and I think most people do before they buy a house, but you have to be sure you take into account all your new monthly expenses. When you make your budget make sure you take all of these things into account:

1. Mortgage Payment
2. Real Estate Taxes
3. Car Payment
4. Real Estate and Car Insurance
5. Other Loans (ie. Student Loans)
6. Subscriptions (Newspaper, Netflix, Magazines)
7. Gas for the Car (also Tolls)
8. Electric Bill
9. Gas/ Oil Bill (for Heat if needed)
10. Cable Bill
11. Phone Bill
12. Other Expenses you may have
13. Food
14. Spending Money (Leisure Money)

If you add all these expenses up and subtract them from your current income and still come up with a positive then you might be in good shape. If you are trying to figure out how much you can afford then leave the all the housing numbers blank and once again subtract all the expenses except the housing expenses from your income. The number you have left is approximately how much you can afford to spend monthly on a house. You can use a mortgage calculator tool to figure out what this will translate into for a house price. Don’t forget to leave room for all of the other housing expense such as Insurance, Taxes, and Heat.

Now that you know your budget you can probably figure out want you can afford for a house. Don’t forget to also get pre-approved from a bank to make sure they agree with your calculations. Before you go out and look for the perfect home make sure you continue reading.

Live on that budget

I highly recommend trying this next part out before attempting to purchase a home. You have done the easy part in creating a budget. Now you know exactly what you can afford. The next step is trying to live according to the budget you setup.

You can do this by taking your current housing expenses, before buying or upgrading, and subtracting them from the housing expenses you figured out in your budget. There will most likely be a positive number, if there is not then you will be downgrading and if you can afford where you live currently you should be all set. Now for the next couple of months, three months should suffice you have to try to save the amount of money that you came up with above. This is a way of making sure you are actually able to afford what you think you can without actually making the commitment. If you have no problem saving the money then your budget is right on and you are ready to go look for that house. If you could not consistently save what your budget says you must then you should revisit your budget and do a little tweaking and then give it another shot.

As always good luck, I hope you can afford the house you always wanted and if not, just keep trying you will get there.

I wanted to offer up some quick thoughts about my feelings on the current state of the housing market and most importantly where I think house prices are headed in the future. I clearly cannot predict the future and I think that in a world where American Idol is the most popular show on TV no one can. I mean don’t get me wrong I like it, but really.

The only way to try to accurately predict the direction of housing prices is to use the data we do have. I am going to look specifically at the areas of population growth, historical real estate prices, and the state of the economy.

Population

Population in the US and around the world is growing and as the saying goes, “God isn’t making any more land.” The United States Census Bureau estimates that between July 1, 2005 and July, 1 2006 the population of the United States grew by 2,891,423 people.

That is a population growth of approximately 1% a year. Using this estimate for every 100 people that live in your neighborhood this year there will be 101 next year. If you multiply that by the number of people that live in my neighborhood it turns out to be a significant increase. We are already packed in like sardines. All of these new people are going to need places to live.

The United States is pretty thickly settled and cities are overcrowded. The rate of new houses being built is not keeping up with the influx of population and because there are crowds of people fighting over the same houses, I am speaking in general here (it may not be true of your house if you are trying to sell), this is leading to a rise in real estate prices all over the nation.

Although there may be a slump from time to time, if we consider population as a lone factor, we should continue to see a steady rise in prices.

Historical Real Estate Prices

In the chart below are the historical median and average home prices all the way back to 1963. The data was provided by the United States Census Bureau. As you can see since the Census stared keeping track of this home price data it has been on the upswing.

There are a few notable timeframes on the upward curve of the chart. Notice the drop in home prices between 1989 and 1992. According to the chart it looks as if home prices fell for a period of a couple years. This seems to be the biggest drop in homes prices since the Census started keeping track. Even so it does not look so significant when looking at the chart as a whole. Seems like a person that bought a home in 1989 just had to wait 4 years until 1993 to be able to be able to sell it for what he bought it for.

Taking this into consideration even if this is the biggest slump in history I doubt price will fall more than 10% during the slump. Even if they do it looks like all you have to do is wait it out. If history is any indication home prices will be on the rise again soon enough. There has not been a real estate bubble ever in the whole time period the Census has been tracking home prices and I don’t think one is likely in this case either. If this is anything it is a slight correction.

The State of the Economy

If you take a look at the real estate economy not everything is perfect, but there are signs of it turning around. Interest rates are still relatively low and the National Association of Realtors expects them to stay that way through 2008. According to the same source, existing home sales fell 8.5% in 2006, but are only expected to fall .9% in 2007. In 2008 the National Association of Realtors projects existing homes sales to actually be up 3.7%.

The National Association of Realtors also states that median existing home prices, after being up 12.4% in 2005 and only 1.0% in 2006, should recover a bit in 2007 and grow by 1.2%. In 2008 they see an even bigger turnaround with prices projected to rise by 3.1%.

Conclusion

With the population on the rise, history on our side, and the housing economy coming around I expect that this housing bubble that everyone fears will be a fleeting memory in a few years. If any of the current statistics above are correct then the current housing “bubble” will be much less severe than the one we suffered in the beginning of the 1990s.

I don’t expect prices to gain at a 10% clip like they were in the early 2000s either. Slow steady growth will be what is good for our economy and what I hope and expect to happen in the future.

There are actions every homeowner should take to help maximize the chances they have to sell their house. The following are the 6 measures I have found to be most important when trying to sell your house. These are things that are simple and easy to accomplish with very little or no money at all.

Remove Clutter

It is very important to clear all the clutter from a house when showing it to a perspective buyer. This may seem like common sense, but let me assure you I have seen houses in all sorts of conditions and there is nothing worse than the house that physically has nothing wrong with it, but is a mess throughout.

So pick up all the toys your children were playing with, make the bed, and check that the laundry hamper is not overflowing. Remove obstructions from hallways and narrow spaces that would get foot traffic, such as stairwells.

By removing all the clutter from a house it has the ability to make the house seem a little bit bigger, not to mention more well kept. You want to give of the impression that everything in the house runs smoothly, even though it may not. Your main goal is to make the buyer feel at home.

Keep it Clean

Even more common sense than keeping the clutter out of a house is to keep the house clean. This point is a sort of continuation of the point above. Nobody wants to live in a dirty house and if your house is in not in tip top shape the buyer may feel like you don’t properly take care of the house. If a buyer feels you don’t keep a clean house they may wonder what other things you are not taking care of around the house.

You do not want to give any perspective buyer any reason to think you do not take pride in your house. Try to keep the house clean when a buyer is coming to see it.

Turn on all the Lights and Open all the Shades

It is important when you show a house to a perspective buyer to make sure you have all the lights on and shades open. The reason for this is that the lighter it is inside a home the better it will show. A home that appears brighter seems more cheery and people notice and comment on it right away. Houses that are dark give off a gloomy feeling and make the home seem less warm.

If you have a lot of natural light this is even better. Sunlight gives off a warm feeling and buyers do notice it. If your house is dark and does not have a lot of light it may be in your best interest to purchase a lamp or more powerful light bulbs for the darker areas of your home.

Rearrange the Furniture

Most home owners arrange their furniture is based on how they use it. This is great when you live there, but when you try to sell your house the most utilitarian arrangement is not always the best.

When trying to sell a house the furniture should be arranged in a way to make the house seem larger. You should try to leave as much open space as possible. This may be done by pushing the television further into the corner or moving a couch against a wall. You may even want to go as far as removing some furniture all together. If you have a lot of furniture because you have a lot of “stuff” the furniture might not be needed and may just have collected over the years. Only keep furniture for looks and not fir use. This is easier said than done when you are still living in the house, but it should help.

Fresh Coat of Paint never hurts

If your walls are white or a light color than you have nothing to worry about here. If you decided to go a different route when living in your house you may have a little problem. You have to keep in mind that not all people have the same taste as you do. You do not want to get in a situation where buyers are turned away from your house simply because of the wall coloring.

For example I had a couple that was interested in buying a house, but could not get over the fact that one room was dark blue. The couple that owned the house had let the son paint the room whatever color they wanted and that is what he chose. I tried to reason with the buyer and tell them it just needed to be painted, but that one room turned them off from the rest of the house.

As a seller you do not want to turn away buyers. If you have dark paint on the walls or interesting wallpaper you may want to paint the wall white.

Stay out of the Way

In my experience I have found that most buyers like to look at the house by themselves and would rather you did not follow them around. It is best to setup shop somewhere in the house where you can stand near something unimportant such as an area of the kitchen counter top and not wonder too far from there.

Buyers like to talk amongst themselves and comment on the house they are looking at. They are less likely to do so if you are around. By staying in one place they will be able to go into another section of the house and talk about what they are seeing and how they like the house. They will also know where to come if they have any questions about the house.

Just as a note before I start, not all advice is perfect in all situations. The following is general advice on submitting offers.

The Agent Most Likely is not Lying to You

The title of this point goes to show you how people feel about real estate agents. I think I read something where people trust real estate agents just about as much as they trust used car salesmen. I would never have known before getting into the industry myself, but I am not going to stand here and tell you agents do not lie. They do lie, but not as much as you think. Not for moral reasons, but more because they have no reason to lie.

I have worked with many buyers who have thought the seller’s agent was making things up as they went along and no matter how much I told them that they probably weren’t they did not want to hear it. If the seller’s agent tells you the seller will not take any less than a certain amount, odds are the seller probably said that to the seller’s agent. This could be a technique by the seller’s agent, but to me it seems like a bad one. If the buyer walks away because they are not willing to go up on their offer price then the seller’s agent has to explain what happened to the seller. The seller will not be pleased if the agent caused them to lose the sale over a few thousand dollars. The other reason the seller’s agent does not care is because a few extra thousand dollars on the final sales price makes almost no difference at all on their commission dollars. An agent’s number one job is to complete the sale, price is secondary.

Your First Offer Should not be Your Best Offer

When you first make an offer on a house you want to make sure you leave some negotiating room between your initial offer and the maximum you are willing to pay for the piece of real estate. The majority of offers are not accepted the first time they are presented to the seller. I have only seen an offer accepted without a counter-offer a couple of times and those offers were almost at asking price.

A good place to start negotiations for the real estate you plan to buy is about 5% off asking price. If the property has been on the market for a quite a while, 3 months or more, then you can lower your initial offer price based on the properties time on market. If the owner is willing to negotiate in most cases, certainly not all cases, the final price of the property usually ends up very close to the middle of the asking price and the initial offer price. If the owner does not counter offer and you raise your initial offer to a higher price this will start the clock all over again. The final price of the property will most likely end up in the middle of this second offer assuming the seller is willing to negotiate.

This advice applies in all types of markets, but works better in a buyer’s market. Also if there is another offer on the property at the same time you make your offer you should be more careful when considering your initial and counter-offers. Competition is only good for the seller.

Know Your Price Range

Only you can know your max price range. Your bank will probably approve you for way more than you can afford. You real estate agent will probably pressure you to overspend. Your family might even pressure you to live in a certain neighborhood beyond your means. So make sure you set your maximum price range before you make your first offer. If you set your price range beforehand then you are less likely to get into a situation where you overspend.

Overspending on a house is one of the worst situations I come across as a real estate agent. Financial pressure leads to a less enjoyable lifestyle. In some of the more severe cases it can lead to foreclosure and bankruptcy. One way to avoid all of this is to know how much you can afford before even making your first offer. This is especially important in a bidding war between two buyers I have seen many people get carried away to make sure they get the house, but end up paying for it later.

One way to make sure you can afford the amount you think you can is to start living like you already are spending that amount on your house. For example if you have a monthly rent or mortgage payment of $1,000 a month and you think you can afford $1,500 a month then start saving that extra $500 a month. That way you will know what it will be like when you move into the more expensive place. Plus you will be saving money as well.

There is More to an Offer than Just the Money You are Willing to Pay

By far the dollar amount of your offer is the most important part of the offer letter. It is not the only important part though. The other aspects of an offer are also important. They are:

• Closing Date – Probably the second most important piece of information on the offer letter. Typical closing date for an offer letter is about 5 weeks from the offer date. If it gets to be much more than that your offer becomes a weaker offer. If it is less than 5 weeks it is a stringer offer. Be careful when making it less than 5 weeks. Make sure your mortgage company can do it this quickly before submitting the offer.
• Terms and Conditions – This line is important as well, the buyer would list all conditions they have for backing out of the sale. For example a weak offer may contain the line, “Buyer to obtain 100% financing.” This would mean the buyer has no down payment and must obtain 100% financing from the bank, which is risky to the seller.
• Special Provisions – I have never seen an offer fall apart over this section of the offer letter, but it could happen. This is the section where you would ask for specific things to stay with the house. For example, this line might read, “All appliances to stay.” This would just mean all appliances would belong to the buyer after the sale. You could even ask for something more unusual on this line such as the big screen television.
• Offer Expiration Date – Not too important, assuming you give the seller ample time to review the offer. Standard time period is about 24 hours.
• Purchase and Sales Date – This part of the offer is important because, as any real estate agent knows, offers are easy to back out of, but Purchase and Sales Agreements (P&S) are much harder to back out of. This is the date where you would put down your first real down payment on the property should you have one.
• Down Payment – This part f the offer is important because it is the money that ends up securing the Purchase and Sales Agreement. If this number is low then there is little to bind you to the Purchase and Sales Agreement and ultimately the whole deal. A very small down payment may signify to the seller that you are unsure about the property. If the seller has two offers on the table for about the same money and one has no down payment the seller will most likely choose the one with a down payment.

Keep the Negotiations Alive

I have seen a great number of deals fall apart over stubbornness on either side of the offer. The fact is both parties want this deal to happen. The negotiations are just for the terms. Obviously the terms are the most important part, but you cannot forget that everyone wants this deal to happen. Try your best to keep negotiating alive and moving forward. Once you stop countering the negotiations are over. I have seen many people lose a house because they think they can get if for a couple thousand less and hold strong at their offer even though a couple of hours before we got to this point they were willing to pay a couple thousand more. They lose the house because they took themselves out of the negotiations. Once you stop negotiating the deal is dead and you will most likely lose the real estate property.