Market offers no room for second guessing

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Dear Michael: My mom passed away and I am putting her house on the market. My Realtor wants me to get rid of most furniture and clutter that accumulated over the years. Will getting rid of her belongings really help the sale?

Answer: Absolutely. It’s difficult for a seller to envision after so many years of living in the same home and being content with his/her surroundings just how much more appealing the home could look with a makeover.

The first impression is crucial. This market offers no room for second guessing. Be willing to negotiate. This is a buyer’s market and you will be competing against other sellers who may be just as motivated as you are. Make sure your property stands out not only by pricing it right, but also by making it attractive for buyers. Your Realtor knows best. Good luck.

Dear Michael: Is there a formula to determine how much I can afford to pay for a house?

Answer: There is no simple answer to this question. A formula is going to fall short of looking at all the details of your budget, your costs, etc., to determine what really makes sense for you. Consider two employees of the same company who have the same salary and identical savings, credit card and car debt. One of those employees has no children, while the other has two. Obviously, though they make the same amount of money, the household budgets of those two potential buyers are going to be substantially different for many years to come.

A bank cannot discriminate, but a prudent buyer will have to consider real costs in order to arrive at an affordable payment. Fannie Mae and Freddie Mac indicate, as a guideline only, that the cost of the house payment itself (that is, mortgage, taxes, insurances and any homeowner’s association fee) should be no more than 28% of gross income (before taxes). FHA (government-insured loans) indicates that number should be about 31% or less.

Additionally, when factoring in other debt as well as the mortgage (student loans, credit card payments, car payments, etc.), in some cases a lender will allow even more leeway. Consider these possibilities: The property is a multi-unit home where there is rental income, or there are additional family members contributing to household income, or the income in the borrower’s line of work is expected to rise substantially in the near future. In such cases, a lender may allow up to 45% – 50% of the gross income to be used in qualifying, provided the lender is assured that the borrower has substantial savings, good credit history of handling similar payments, such as comparable rent and stability.

To determine how much you can afford, consider the following: What are your exact household expenses going to be in the new home? How different is that from your current costs – are you currently saving the difference each month? Would you be able to do so? Try living at the same cost standard as your new home for a few months. How much do you have in savings – would you have enough on a rainy day fund if things were difficult for a few months? How do you expect your income and expenses to change in the coming years? What payment number frightens you? What do you think you can handle? When you conclude what makes sense to you, talk to your lender. Using your level of comfort and his/her numbers, you should be able to arrive at a comfortable figure.

Dear Michael: My house has been on the market for three months. The feedback has been very positive but no one is making me a decent offer. I have been low-balled twice when I know my home is well worth more than both of those offers. This has been a frustrating and emotional ride.

Answer: These are challenging times. We are in a recession. Don’t take those low-ball offers personally, I know how frustrating things can get. Buyers are on the fence and decision-making is taking a bit longer. You can’t blame a buyer for trying to get a good deal in a market like this one. Buyers are being cautious. They don’t want to overpay for a house no matter what the comparables are stating.

As a seller, the key to getting your home sold will be to stay calm and not let your emotions get the best of you. Listen to your Realtor; he/she is looking out for your best interest. Once your house is sold you’ll be able to move on, but until then, you’ll have to hang in there and recognize that you are not alone with this situation. Good luck.

Michael Kayem is a Realtor with Re/max Execs serving Culver City and the Westside since 2001. Contact him at (310) 390-3337 or homes@agentmichael.com.