It's Showtime

The resale home inventory in Maricopa County (Phoenix) just broke the 57,000 unit barrier and continues to climb. The days are gone where an agent or owner could rely on the three P's – put up a sign, put the listing in MLS, and pray a buyer will submit an offer.

In a restaurant, the presentation of the food may be as impressive as the location of the establishment, the price of the entrée, or the quality of the ingredients. When a buyer views a property the staging is now critical. In my opinion, leaving the owner a video, and assuming they will correct their distracting décor is a dereliction of duty.

My wife recently received her ASP designation. This was after I asked her why she wanted to invest several hundred dollars, and several days to become a staging professional. Once again, I was wrong. On a listing presentation, staging services now become a point of our differentiation.

It is absolutely amazing how strange many homes appear. I recently suggested to a seller that his royal blue curtains, baby blue bedroom, and purple bonus room would be offensive to buyers. He replied that those were his favorite colors. After, he vacated the property his daughter stayed behind. She bought a cat to keep her company. According to a recent showing agent, the property now looks bad and smells bad.

This owner was given an ultimatum. Paint the property, get rid of the cat, and drop the price $10,000 or find another agent. Most sellers who are 'serious about selling' will correct the items that a stager suggests. This stubborn seller felt his favorite colors should be everyone's favorite colors. And, his kid's kitten was odorless.

Listings are necessary, but not sufficient in this market to affect a sale. The property needs to be competitively priced and staged properly. A seller needs to become a listening expert. Listen to the feedback from their agent, showing agents, and designated staging professionals.

Tips for Packing Like a Pro

1.      Develop a master “to do” list so you won’t forget something critical.

2.      Sort and get rid of things you no longer want or need. Have a garage sale, donate to a charity, or recycle.

3.      Don’t throw out everything. If your inclination is to just toss it, ask yourself how frequently you use an item and how you’d feel if you no longer had it.

4.      Pack like items together. Put toys with toys, kitchen utensils with kitchen utensils.

5.      Decide what if anything you plan to move yourself. Precious items, such as family photos, valuable breakables, or must-haves during the move, should probably stay with you.

6.      Use the right box for the item. Loose items encourage breakage.

7.      Put heavy items in small boxes so they’re easier to lift. Keep weight under 50 lbs. if possible.

8.      Don’t over-pack boxes and increase the chances they will break.

9.      Wrap every fragile item separately and pad bottom and sides of boxes.

10.  Label every box on all sides. You never know how they’ll be stacked and you don’t want to have to move other boxes aside to find out what’s there.

11.  Use color-coded labels to indicate which room each item should go in. Color-code a floor plan for your new house to help movers.

12.  Keep your moving documents together, including phone numbers, driver’s name, and van number. Also keep your address book handy.

13.  Back up your computer files before moving your computer.

14.  Inspect each box and all furniture for damage as soon as it arrives.

15.  Remember, most movers won’t take plants.

What Not to Overlook on a Final Walk-through

Be sure that:

§         Repairs you’ve requested have been made. Obtain copies of paid bills and any related warranties.

§         All items that were included in the sale price—draperies, lighting fixtures—are still there.

§         Screens and storm windows are in place or stored.

§         All appliances are operating.

§         Intercom, doorbell, and alarm are operational.

§         Hot water heater is working.

§         HVAC is working.

§         No plants or shrubs have been removed from the yard.

§         Garage door opener and other remotes are available.

§         Instruction books and warranties on appliances and fixtures are there.

§         All personal items of the sellers and all debris have been removed.

6 Creative Ways to Afford a Home

If your income and savings are making homebuying a challenge, consider these options.

1.      Investigate local, state, and national downpayment assistance programs. These programs give loans or grants to cover all or part of your required downpayment. National programs include the Nehemiah program (http://www.getdownpayment.com) and the American Dream Downpayment Fund from the U.S. Department of Housing and Urban Development (http://www.hud.gov).

2.      Get the seller to provide financing. In some cases, sellers may be willing to finance all or part of the purchase price of the home and let you repay them gradually, just as you do a mortgage.

3.      Consider a shared-appreciation, or shared equity, arrangement. Under this arrangement, your family, friends, or even a third-party may buy a portion of the home and thus share in any appreciation when the home is sold. The owner/occupant usually pays the mortgage, property taxes, and all maintenance costs, but all investors’ names are usually on the mortgage. There are companies that can help you find such an investor if your family can’t participate.

4.      Get help from your family. Perhaps a family member will loan you money for the downpayment and/or act as a cosigner for the mortgage. Lenders often like to have a cosigner if you have little credit history

5.      Lease with the option to buy. Renting the home for a year or more will give you the chance to save more toward your downpayment. And in many cases, owners will apply some of the rental amount toward the purchase price. You usually have to pay a small, nonrefundable option fee to the owner.

6.      See if you can qualify for a short-term second mortgage to give you the money to make a higher downpayment. This may be possible if you have a good income and little other debt.

10 Questions to Ask a Home Inspector

1. What are your qualifications? Are you a member of the American Association of Home Inspectors?
   
   
2. Do you have a current license? Inspectors are not required to be licensed in every state.
   
   
3. How many inspections of properties such as this do you do each year?
   
   
4. Do you have a list of past clients I can contact?
   
   
5. Do you carry professional errors and omission insurance? May I have a copy of the policy?
   
   
6. Do you provide any guarantees of your work?
   
   
7. What specifically will the inspection cover?
   
   
8. What type of report will I receive after the inspection?
   
   
9. How long will the inspection take and how long will it take to receive the report?
   
   
10. How much will the inspection cost?

10 Things to Take the Trauma Out of Homebuying

1. Find a real estate professional who’s simpatico. Homebuying is not only a big financial commitment, but also an emotional one. It’s critical that the practitioner you choose is both skilled and a good fit with your personality.

2. Remember, there’s no “right” time to buy, any more than there’s a right time to sell. If you find a home now, don’t try to second-guess the interest rates or the housing market by waiting. Changes don’t usually occur fast enough to make that much difference in price, and a good home won’t stay on the market long.

3. Don’t ask for too many opinions. It’s natural to want reassurance for such a big decision, but too many ideas will make it much harder to make a decision.

4. Accept that no house is ever perfect. Focus in on the things that are most important to you and let the minor ones go.

5. Don’t try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to “win” by getting an extra-low price may lose you the home you love.

6. Remember your home doesn’t exist in a vacuum. Don’t get so caught up in the physical aspects of the house itself—room size, kitchen—that you forget such issues as amenities, noise level, etc., that have a big impact on what it’s like to live in your new home.

7. Don’t wait until you’ve found a home and made an offer to get approved for a mortgage, investigate insurance availability, and consider a schedule for moving. Presenting an offer contingent on a lot of unresolved issues will make your bid much less attractive to sellers.

8. Factor in maintenance and repair costs in your post-homebuying budget. Even if you buy a new home, there will be some costs. Don’t leave yourself short and let your home deteriorate.

9. Accept that a little buyer’s remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big commitment, but it also yields big benefits.

10. Choose a home first because you love it; then think about appreciation. While U.S. homes have appreciated an average of 5.4 percent annually from 1998 to 2002, a home’s most important role is as a comfortable, safe place to live.

10 Tips for First-Time Homebuyers

1. Be picky, but don’t be unrealistic. There is no perfect home.

2. Do your homework before you start looking. Decide specifically what features you want in a home and which are most important to you.

3. Get your finances in order. Review your credit report and be sure you have enough money to cover your downpayment and your closing costs.

4. Don’t wait to get a loan. Talk to a lender and get prequalified for a mortgage before you start looking.

5. Don’t ask too many people for opinions. It will drive you crazy. Select one or two people to turn to if you feel you need a second opinion.

6. Decide when you could move. When is your lease up? Are you allowed to sublet? How tight is the rental market in your area?

7. Think long-term. Are you looking for a starter house with the idea of moving up in a few years or do you hope to stay in this home longer? This decision may dictate what type of home you’ll buy as well as the type of mortgage terms that suit you best.

8. Don’t let yourself be “house poor”. If you max yourself out to buy the biggest home you can afford, you’ll have no money left for maintenance or decoration or to save money for other financial goals.

9. Don’t be naïve. Insist on a home inspection and, if possible, get a warranty from the seller to cover defects within one year.

10. Get help. Consider hiring a REALTOR^Ò as a buyer’s representative. Unlike a listing agent, whose first duty is to the seller, a buyer’s representative is working only for you. And often, buyer’s reps are paid out of the seller’s commission payment.

Using Their IRAs to Make Home Loans

In the midst of the mortgage meltdown, some lenders are actually rooting for foreclosures: investors who make mortgage loans with their IRAs.

Through a little-known tool known as a self-directed individual retirement account, individuals can pursue a wide variety of investments, from real estate to businesses. Now, at least several thousand people are trying to goose their retirement savings by using self-directed IRAs to invest in mortgages, according to companies that promote the strategy.

Typically, IRA investors aren't looking to back 30-year conventional mortgages; more often, they make loans with terms lasting from three months to a few years to fixer-uppers, small-scale developers or families who are relocating and need a bridge loan between home sales. They normally find borrowers through an informal network of real-estate agents, mortgage brokers and other investors.

BETTING ON THE HOUSE

 

More IRA owners are making short-term mortgage loans with their retirement savings. Some pros and cons:

• Investors typically extend loans for fixer-uppers or bridge financing, charging interest of 10% or more.

• If the borrower defaults, lenders often are able to take possession of the property at a discount.

• Foreclosing on a property can run up legal fees and other costs. If the IRA can't pay them, it risks running afoul of IRS rules.

IRA owners pay an annual custodial fee and transaction fees, ranging from $50 to a few thousand dollars a year, depending on asset size and activity. They typically charge borrowers a rate of at least 10%. If the borrower defaults, the IRA can wind up owning the property at a deep discount, since these deals are typically structured with the property as collateral.

"I really don't trust the stock market right now, and by doing this I can get a great return secured by real estate," says Doug Blackwell, a Phoenix real-estate adviser who set up a self-directed IRA last month with $100,000 from other retirement savings so he can fund mortgages.

For investors, one risk in foreclosing on a house is racking up so many expenses -- from legal fees to repair bills -- that the IRA runs out of money. If that happens, the IRA owner faces a difficult choice: Get a loan, or close out your IRA and pay any taxes or penalties.

Still, some IRA lenders welcome foreclosures because they increase their potential returns. No one tracks IRA loan defaults, but experienced individual lenders say it has happened rarely -- though they are bracing for an uptick, given the shaky state of the housing market in many areas.

"You don't want them to pay you," says Charlie Adams, a Houston investor who has made about 20 mortgage loans through his and his mother's IRAs in the past 10 years, typically charging 15% interest for one-year loans. "What's the worst thing that can happen -- you wind up owning a house at 70% of its cost?" He lends no more than 70% of a property's value and charges interest-only payments. More conservative lenders will go no higher than 50%.

With the one foreclosure he's done, his mother had lent $40,000 to a renovator to refurbish a house worth $85,000. The borrower made 12 months of interest payments, then stopped, and did not make the balloon payment due. Mr. Adams foreclosed on the house, his mother's IRA spent $14,000 to finish fixing it up, and they sold it in three months for $85,000, he says, adding that he helped his mother's IRA increase in value to $140,000 from $50,000 in five years.

Other lenders try to avoid foreclosures. Dennis Galbraith, who also lives in Houston, makes short-term bridge loans with his IRA, for which he says he charges 12% to 15% interest, and takes what's called "first-lien position," meaning he's first in line to get his money back from the borrower. But he's had to restructure two loans in recent months because the borrowers' "exit strategy was initially to sell the house, and it didn't work because the buyer didn't get financing approval."

Mr. Galbraith extended the loan terms so the borrowers can rent out the properties for a year and pay him off "like a normal mortgage" with the rental income. "If I choose to foreclose, I could, but I'm personally willing to work with the borrowers," says Mr. Galbraith, who works for an energy company and moonlights as a real-estate agent.

Like Mr. Galbraith, many people lending their IRA assets are connected to the residential real-estate business. Others are people phasing out of corporate careers who learn about such lending through local clubs for real-estate investors. They say that they usually connect with borrowers through word of mouth.

The maximum loan rates that self-styled IRA lenders can charge are regulated by usury laws that vary from state to state. In California, for instance, interest rates are typically capped at 10%, says Hugh Bromma, chief executive of Entrust Group Inc. in Oakland, Calif., which administers self-directed IRAs.

Self-directed IRAs make up less than 2% of the overall $4.2 trillion IRA market, but they are increasing in popularity. And the handful of firms that handle such accounts are logging increased usage by self-styled mortgage lenders.

Two thousand of the 40,000 self-directed IRAs handled by Entrust are making real-estate loans, and the average account is valued at $250,000, says Mr. Bromma. The number of accounts with such activity has doubled each year since 2005.

The story is much the same at Pensco Trust Co. of San Francisco, where about $367 million of the $2.2 billion in IRA assets it has in its custody has been lent for real-estate deals.

Guidant Financial Group Inc. in Bellevue, Wash., sets up limited-liability companies through which IRA owners invest in accounts with an average value of $180,000. It says it has seen interest in lending, mainly for real estate, increase 20% in the past two months.

With a self-directed IRA, you can invest in things other than mutual funds, such as rental property, businesses or community-bank stock -- just as long as any profits go to the IRA and not your regular bank account. (You're also prohibited from using the property as a personal residence.)

Entrust charges IRA owners $250 a year to invest in one mortgage, or $2,000 a year for unlimited transactions. Setting up a Guidant account costs $130. IRA lenders also have to pay other mortgage loan costs, including escrow and closing fees. At least some of those costs, though, usually can be passed along to borrowers.

Another risk to investors is running afoul of the Internal Revenue Service's rules for IRAs. "You cannot take any kind of fee from your IRA for doing something inside your IRA, and if you have to start using money from other sources to bail out something happening with the loan inside the IRA, that's a big problem," says Natalie Choate, a Boston tax attorney. So it's important to make sure the IRA has enough money in it to pay any legal fees involved in foreclosure, or property taxes and insurance costs if you wind up owning a house for a while before you can sell it.

The IRA can borrow to pay those costs, Ms. Choate says, but doing so creates taxable income and complicates your tax return.

Don Baglien, a truck-stop manager in Roseburg, Ore., recently rolled over $100,000 from a former employer's 401(k) to a self-directed IRA because "I'm just too busy to follow the stock market closely and stay on top of it," he says. After attending a Guidant seminar, he set up an account and recently made a second-mortgage loan, with a two-year term and 20% interest, to a local pizza parlor in need of repair. So far, it's borrowed $40,000 for a new heating-and-air-conditioning system and roof, he says. The restaurant owner owes $900,000 on the building, appraised at $1.3 million, "so I definitely felt like there's some equity there.

"If he doesn't pay, I guess I'm going to be eating an awful lot of pizza," Mr. Baglien says. "Hopefully, they'll still have some beer left."

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Write to Kelly Greene at kelly.greene@wsj.com¹

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