Real Estate Information

How Long Should Your Mortgage Be?

When you're taking out a mortgage on a home, you have many factors to consider. The term of the loan is definitely one of your most important considerations. Mortgages are available with 15-, 30-, 40- and even 50-year terms. How can you determine which is best for you?

How Long will you Stay in the Home?

Start by deciding how long you plan to keep the home. Many people buy a home and sell within a seven-year period. If you know you're simply purchasing the home to live in before moving to another location, the longer term mortgage may be a wise choice for you. After all, if you can pay a lower payment for three years and then sell, you may actually end up saving money on your home. If on the other hand, you plan to retire in your home and live there the rest of your life, you should take out a shorter term mortgage, such as a 20- or even 30-year mortgage.

The difference between a 20-year mortgage and 50-year mortgage is tremendous. The following is an example of what the total payoff will be on mortgages with different terms.

As shown above, the difference between the payment of a 15-year mortgage and a 50-year mortgage is approximately $600. However, in choosing a 50-year term, you will find yourself paying almost $400,000 more on interest. If you choose to take out a 50- year mortgage on a home you plan to live in the rest of your life, you will be paying over $700,000 in total for a $200,000 home.

Smart Planning Now Can Pay Big Dividends Over Time

You don't need to overpay on your home. If you plan to live in the home for a short period before moving, take out the longer loan and save some money on the interest. However, if this will be your home indefinitely, it is much wiser to take out a shorter term loan and save yourself the money on interest, unless you are of an age where you will not be around for the life of the loan. For example, if you're a 50-year-old who takes out a 50-year mortgage on a retirement home, it may be a wise decision. After all, most people do not live long enough to pay off their mortgage.

Take some time now to determine which path makes the most sense for you. A wise choice now can pay major dividends down the road.

Inflation Still Mild
A dip in gasoline prices helped chill inflation. But don't count on that continuing -- there are some rises ahead.

By Jerome Idaszak

July 18, 2007

Finally, a month of good inflation news as declining gasoline prices resulted in the Consumer Price Index rising a small 0.2% in June, following spurts of 0.7%, 0.4% and 0.6% in the previous three months. But don't jump for joy yet. Gas prices are heading up again. That, combined with persistent increases in food prices, will keep inflation percolating for at least the next couple of months.

Moreover, precisely because food and energy prices can jump around so much, federal monetary policymakers try to screen out their impact, focusing on core inflation. And that rate rose 0.2% in June, a bit faster than the 0.1% pace registered in the previous month. That puts the 12-month increase for core inflation at 2.2%. Since that's about as much as the Federal Reserve will tolerate, it forecloses the option of nudging up economic growth by shaving short-term interest rates.

Come next year, the story is likely to change, however, with concerns about inflation weighing more heavily on the Fed than worry about the sluggish economy. As the economy shakes off the housing slump and the pace of gross domestic product picks up, a couple of rate hikes will be seen as just what's needed to keep inflation pressures in check.

Still, the core rate for the year isn't likely to top last year's 2.6% increase and may well wind up slightly below that. About 40% of the core rate hinges on housing rents, and the high number of unsold homes will keep a lid on rents for the rest of this year.

For businesses, as well as household consumers, the distinction between the core rate and overall inflation may be mere academic twaddle, since the bottom line is less money left after paying expenses. Both manufacturing and services firms are being hit hard by high fuel cost increases, largely in the form of surcharges padding their shipping costs. Wages, too, continue to rise at an annual rate of about 4%, while productivity gains have slowed. In the sluggish economy, few companies are in a position to pass those increased costs on to their customers, so profits are being squeezed. The result is that businesses are seeing profits trimmed, while overall inflation continues to march toward about a 2.7% rate for the year.

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Do you know how a magician pulls a rabbit out of his hat? He puts the animal in the hat before the show begins. How can an agent receive multiple offers in this buyers market with inflated inventories? Simply price the property 10% below market value before you enter the listing in MLS.

Recently, I received a referral from an agent who had a friend who was serious about selling. This woman had her home on the market with another agent, but the property expired. The seller wanted the property sold within 30 days. We determined the market value, then subtracted ten percent to determine the list price. Within the first week we had a half dozen showing and three offers. The acceptable offer was full price.

A home properly priced is half sold, even in this market. This seller believed this maxim and listed, sold, and closed her property within 30 days! We determined market value by triangulation. First we studied the comps. The we looked at a recent appraisal. Finally, we went online and looked at www.zillow.com.

I realize Zillow is controversial. But, on a tract home, in my opinion, it is relatively accurate. It is also useful for a listing agent to see what some buyers may be relying on to determine the value of their listing. Sometimes this on-line value is inaccurate because the metrics are in error. Recently, I had a seller edit their property due to a square footage inaccuracy,

What if a seller is serious about selling but unwilling to price their house (remember it's no longer a home!) ten percent below market value? The reduce the price every week until showings increase and offers begin to be submitted.

Proper pricing really is simple, it's just not easy. Gordon Gecko told us, "greed is good." But, a house is only worth what someone is willing to pay.

Best Practices

What do you like best about the real estate company you are affiliated with?  Both the general brand, and the specific franchise or office.

In August of 1977 I obtained a real estate license and joined a large local firm.  In my opinion, their best practice was asking agents to submit their yearly goals.  Their agent goals became part of the company goals for the year. Another best practice this firm had was assigning new agents a seasoned mentor.

A few years later, I joined a national franchise.  The local broker had periodic contests that lasted a month.  My favorite was called ‘steak, hamburger, or hotdogs!’  The office was divided into three teams.  Each team was headed by a top producer who ‘drew straws’ for the team members.  One point was given for a listing or sale.  A half point was awarded for a listing sold.  At the end of the month the team with the most points received steak at a company BBQ.  Team #2 received burgers, and team #3 received hot dogs.  The camaraderie, competition, and accountability was fun and productive.

Five years later I joined a strong, local 100% company.  Their best practices included a weekly newsletter with ‘haves and wants’ and timely tips from the broker on industry issues.  Each commission check had the agents YTD G.C.I listed.  Quarterly re-licensing class were offered for free at a light lunch provided by sponsors.

Currently, I’m with a large company. Their best practices include satellite T.V. education and designation programs, cumulative production awards (hall of fame, lifetime, circle of legends), a quarterly newspaper, a weekly e-newsletter with a blog for agent input, and numerous charities to support.

Recently, I received a call from my 401K planner.  He asked for a few minutes to get together and review my account performances.  We discussed my goals, and expectations.  After he left, I thought a periodic performance review would be a great best practice for a real estate company.

Reverse Offers

When was the last time you came across  a really novel idea that motivated a buyer, who is represented by another agent, to make an offer on your listing? The technique is called a reverse offer and here’s how it works.

Let’s say you have a listing on a property for $575,000. The property is getting some activity, but no offers. And then a buyer visits the property for a second showing. The seller calls and says the buyer asked a lot of questions and stayed for almost an hour taking photos and notes. You call the buyer’s broker for feedback and they confess your listing is one of the buyer’s top two choices. The buyers are currently deciding which home to select.

A typical listing agent would pray their listing is selected. A creative agent would coach the seller into writing a reverse offer. The seller writes a contract for a specific price, let’s say $550,000, and submits it to the buyer’s agent. This causes the buyer to focus on this property and possibly consummate the deal. Even if the buyer declines the seller’s offer, the listing agent can then ask for a price reduction.

The optimistic agent may agree this is an aggressive way to force a hesitant buyer’s hand, and possibly get the property sold. A pessimistic agent may conclude that this is an unorthodox method not worthy of consideration because they have never done it that way before. Eric Hoffer would say, “In times of change, the learners will inherit the earth, while the knowers will find themselves beautifully equipped to deal with a world that no longer exists”.