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Lynn Hayes: Chapel Hill area blog

Real estate news from the Triangle area of North Carolina

By Lynn Hayes | Broker in Carrboro, NC
  • Is real estate a lousy investment?

    Posted Under: Home Buying in Chapel Hill, Home Selling in Chapel Hill  |  August 31, 2011 2:26 AM  |  151 views  |  2 comments

    is home a bad investmentWith property values plummeting, there have been lots of articles like this in the news lately:

    Is it wise for coming generations to continue to view ownership as the cornerstone of personal finance? Young people planning for retirement increasingly face a choice between house payments and contributions to retirement accounts. They simply can't afford both. With the specter of looming cuts in Social Security and other entitlement programs, or even possible systemic insolvency, the challenge for tomorrow's retirees is income self-sufficiency.

    A nation of house buyers becomes captive to the economic cyclicality caused by bursts of construction activity, and it is not lifted or sustained by the limited levels of service employment related to existing housing. By contrast, a nation of business startups and investors supports our capital markets and creates long-term employment, income, exports and the myriad technological advancements desperately needed by an expanding American society.

    The idea that a home is an investment is rather a recent one.  In my old neighborhood in Durham, my elderly neighbors  moved into those homes when they were young, paid off the mortgage, and stayed their rent-free at the end of their lives.  They considered THAT to be an investment.  Over the past ten years or so we have become accustomed to seeing our house as an ATM from which we could withdraw ever increasing amounts of cash.  People I knew took out equity loans for adoptions, for lake houses, for kids' college educations, and for vacations.

    I think the days of homes as ATMs is over, and I would argue that this is a good thing.  But the idea of a home as an investment requires an attitude adjustment.

    The idea of a home being one's castle is as old as time itself.  Goethe wrote, “He is the happiest, be he king or peasant, who finds peace in his home."  Poet Robert Southey wrote, “There is a magic in that little world, home; it is a mystic circle that surrounds comforts and virtues never known beyond its hallowed limits."

    When we purchase a home with a 30-year mortgage, in 30 years (or less if we pay extra) we no longer make monthly payments towards housing as opposed to renting, in which only your landlord gets to celebrate in 30 years.  Unless Congress decides to do away with the mortgage interest deduction, which is looking more likely every day, there currently are tax benefits as well.  If we're planning to stay in our home for the long term, a short-term drop in prices doesn't affect us.  We're in it for the long haul.

    But even more important are the less tangible benefits of homeownership over renting.  You don't have to ask permission to get a pet.  You don't have to worry about the landlord selling the home and kicking you out.  There is a sense of security and stability that is unachievable in any other way.

    There are also benefits to the greater society.  Homeowners tend to be more active in local politics and more engaged in their communities.

    Americans tend to go overboard in virtually everything we do, so it's not surprising that there is this strong reaction against homeownership now.  It wasn't homeownership that got us into this mess; it was too many people buying homes which they could not afford.   The new normal is turning out to be the old normal: save for a down payment, don't spend more than 28% of your income on your housing payment and keep your total debts under 36% of your income.  Don't buy a home unless you're planning to stay put for five years.

    If you follow these rules, and love your home, it will take care of you in the long run.

    Lynn Hayes, owner-broker

    Lynn Hayes Properties

    Serving the Triangle area of North Carolina, including Chapel Hill, Carrboro, Pittsboro, Hillsborough, Chatham County, Raleigh and Cary

  • Negotiating strategy: Low offers

    Posted Under: Home Buying in Chapel Hill, Home Selling in Chapel Hill  |  August 31, 2011 2:16 AM  |  171 views  |  2 comments

    negotiating low offersI was interested to see this blog article by Realtor Herb Johnson in Kentucky on dealing with low offers because I had just returned from a meeting with some clients of mine who are buying a home in Durham in which we discussed this very subject since they had just negotiated an offer on their home in Ohio and were on both sides of the equation.

    In some markets, such as New York and New Jersey, an offer that is 10% below market value is evidently the norm.  But in the Triangle area of North Carolina, the area that I serve, homes have historically sold for 96-98% of their asking price, no matter what kind of market we're in.

    No matter whether I'm representing the buyer or the seller, at a certain point the subject of low offers is likely to come up.  When a buyer is making an offer, especially in this market, it's tempting to make a very low offer to see how desperate a seller is, and in some situations that is an effective strategy.  If a house is vacant and the sellers have lots of equity but just want to move on; in an estate sale where the heirs are just looking for a way out - these situations offer buyers an opportunity to purchase a home below market value.  But sometimes buyers' low offers can backfire, and if the offer is rejected by the seller the buyers' bargaining position is weakened.  I have found that an offer within 5% of the asking price will generally receive a counteroffer in a non-distressed situation.

      If a non-distressed seller responds to a very low offer they are signaling desperation, which weakens their negotiating position.  If my seller is in a distressed situation I will probably recommend making a counteroffer, but in a normal situation I may recommend politely rejecting the offer.  If the buyer isn't serious they will walk away, but that's something that we want to know sooner than later anyway.  If the buyer is serious they will come back with a better offer, and then the seller has a stronger position from which to negotiate.

    Sometimes when a seller receives a low offer it's because the home is overpriced for the current market, and in that case ideally the agent has already discussed that fact with the seller so they will not be surprised to receive a lower offer.  In those cases delivering examples of recent comparable sales with the offer is always helpful.

    Both buyers and sellers become very emotional during price negotiations which is why this process is much more effective when conducted through experienced listing and buyers agents.  I've seen sellers get so mad at a low offer that they took another buyer's offer even after the original buyer made a better one.  Having a good agent as an intermediary takes the emotion out of the equation and generally results in a more satisfactory conclusion.

    Lynn Hayes, owner-broker

    Lynn Hayes Properties

    Serving the Triangle area of North Carolina, including Chapel Hill, Carrboro, Pittsboro, Hillsborough, Chatham County, Raleigh and Cary

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