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Recession Is Here… Six Costly Mistakes Home Sellers Make During Recessions And How To Avoid Them

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The U.S. is officially in a recession. What is a recession? A recession is a business cycle contraction or general economic decline due to significant drop in spending and other commercial activities. Most pundits and politicians will blame Covid-19 crisis for the recession, but even pre-Covid-19 the proverbial writing was on the wall.

The U.S. had over 120 months of economic growth, which was the longest expansion in the modern history. Other indicators, such as negative yield spread on treasuries (long term bonds having lower interest rates than short term T-notes), were pointing to an imminent change of the economic cycle and an impending recession. The only real question was: when and how bad?

Then Covid-19 came… If the cycle was going to change anyway, Covid-19 acted as a huge and unexpected accelerant to make the recession much more immediate and severe.

Inevitably during recessions all classes of real estate, including residential homes and condominiums, will be negatively impacted as lower consumer spending and higher unemployment rates affect real estate prices and marketing times.

Here are the six costly mistakes home and other real property sellers make during recessions and how to avoid them:

Mistake #1: This will pass and real estate market will be hot again soon

First thing to remember is that real estate cycles are much longer than general economic cycles. Even if the general economy recovers, which eventually it always does, a typical real estate cycle takes as long as 10 to 15 years. The cycle has four key stages: Top, Decline, Bottom and Rise.

Let us consider the last real estate cycle, which lasted approximately 14 years:

  • 2006 – Prices hit the Top
  • 2006 to 2012 – Prices Decline
  • 2012 – Prices hit the Bottom (Trough)
  • 2012 to 2019 – Prices Rise*
  • 2020 – Prices hit the Top
  • 2020 to? – Prices Decline

*NOTE: In 2016 the national residential real estate price index reached its pre-recession 2006 peak levels. It took 10 years for the real estate market to recover.

The way to avoid this mistake is to recognize that real estate cycles take years to run and plan accordingly. Additionally, nobody knows for sure when the prices will hit the top or bottom until after the fact.

Mistake #2: Low interest rates will make the economy and real estate market rebound

Between 2006 and 2011 the interest rates (Fed Funds) were continuously cut by the Federal Reserve Board and went from low 5% to almost 0%. However, that did not stop the real estate recession and depreciation of property values.

Undoubtedly, low interest rates made the economic decline and real estate recession less severe and saved some properties from foreclosures, but it still took six painful years for the real estate market to hit the bottom and then four more years for the prices to go back to their pre-recession levels.

Some markets had never fully recovered. For example, residential home prices in some parts of California, Arizona and Nevada are still below their 2006 highs.

To avoid this mistake, one needs to realize that although low interest rates help stimulate the economy and the real estate market, they do not cure them.

Mistake #3: I don’t need to sell now, so I don’t care

If you do not need to sell until the cycle plays out, which typically is over ten years, then you will not be as affected, especially if you have a strong equity position, limited mortgage debt, and solid liquid assets.

However, it is good to keep in mind that “life happens” and either professional or personal circumstances can change and we may need to sell property before the downturn runs its course.

Furthermore, if a property has a mortgages and its value declines to the point being “upside down,” meaning the mortgage loan balance exceeds the value of the property, then the options of selling, refinancing or even obtaining an equity line of credit, will be significantly limited.

This does not mean that everybody should be rushing into selling their real estate if there is no need to do so, just keep in mind that circumstances may and often do change and property options will be affected, so plan in advance. As one wise proverb says: “Dig your well before your thirst.”

Mistake #4: I’m selling, but I won’t sell below my “bottom line” price

This is a common and potentially very costly mistake. Generally speaking, every seller wants to sell for the highest price and every buyer wants to pay the lowest price. That’s nothing new. When selling real estate, most sellers want to achieve a certain price point and/or have a “bottom line.”

However, it is important to understand that the market does not care what the Seller, or his/her Agent, think the property value should be at. The market value is a price a willing and able buyer will pay, when a property is offered on an open market for a reasonable amount of time.

Overpricing property based on Seller’s subjective value or what is sometimes called an “aspirational price,” especially in a declining market, is a sure first step to losing money. When a property lingers on the market for an extended period of time, carrying costs will continue to accumulate and property value will depreciate in line with the market conditions.

Additionally, properties with prolonged marketing times tend to get “stale” and attract fewer buyers. The solution is to honestly assess your selling objectives, including the desired time-frame, evaluate your property’s attributes and physical condition, analyze comparable sales and market conditions, and then decide on market-based pricing and marketing strategies.

Mistake #5: I will list my property for sale only with Agent who promises the highest price

Real estate is a competitive business and real estate agents compete to list properties for sale which generate their sales commission incomes. It is not unusual that Seller will interview several agents before signing an exclusive listing agreement and go with the agent who agrees to list the property at the highest price, often regardless if such price is market-based.

Similarly to Mistake #4, this mistake can be very damaging to Sellers, as overpriced properties stay on the market for extended periods of time costing Sellers carrying expenses such as mortgage payments, property taxes, insurance, utilities and maintenance.

Furthermore, there is the “opportunity cost” since the equity is “frozen,” and it cannot be deployed elsewhere till the property is sold. However, the most expensive cost is the loss of property value while the real estate market deteriorates.

During the last recession, we have seen multiple cases where overpriced properties stayed on the market for years and ended up selling for 25% to 40% below their initial fair market values.

The solution is to make sure that your pricing strategy is based on the market, not empty promises or wishful thinking.

Mistake #6: I will list my property only with Agent who charges the lowest commission

Real estate commission rates are negotiable and not set by law. A commission usually represents the highest transactional expense in selling real properties and is typically split between Brokers and Agents who work on the transaction

Some real estate agents offer discounted commissions, in order to induce Sellers to list their properties with them. But does paying a discounted commission ensure savings for the Seller? Not necessarily.

For example, if the final sales price is 5% to 10% below property’s highest market value, which is not that unusual, due to inadequate marketing, bad pricing strategy, and/or poor negotiation skills, it will easily wipe out any commission savings and actually cost the Seller tens of thousands of dollars in lost revenues.

The solution is to engage an agent who is a “Trusted Advisor,” not just a “Salesperson.” A Trusted Advisor will take his/her time and effort to do the following: 1) Perform Needs Analysis: listen and understand your property needs and concerns; 2) Prepare Property Analysis: thoroughly evaluate your property and market conditions; 3) Execute Sales and Marketing Plan: prepare and implement custom sales and marketing plan for your property; and 4) Obtain Optimal Results: be your trusted advocate throughout the process and achieve the best possible outcome.

Finding such a real estate professional may not be always easy, but it certainly is worth the effort and will pay off at the end.

In conclusion, this article has outlined six costly mistakes real estate Sellers make during recessions and how to avoid them. The first mistake is not understanding that real estate cycles are long and take years. The second mistake is a misconception that low interest rates alone will create a recovery. Another mistake is not realizing that circumstances may change and not planning in advance. Mistakes number four, five and six pertain to understanding the market value, proper pricing and selecting the right real estate professional.

By understanding and avoiding these mistakes, real estate Sellers have significantly better chances of minimizing the negative impact of a recession while selling their properties.

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Codependency – Do You Need to Be Needed?

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Maybe you grew up in a dysfunctional home in a codependent relationship. In the bestselling book, The Glass Castle, Jeannette Walls tells of her hardscrabble childhood. Her father was an alcoholic, her mother abdicated her role as caregiver, and the children had to fend for themselves. Walls’ parents made their children serve them, not the other way around. Perhaps your situation is not so deeply dysfunctional, but it doesn’t have to be to grow up codependent.

What does it mean to be codependent?

Basically, you are codependent when you are in a relationship in which someone who is pathological, possibly with an addiction, controls you. The dysfunctional relationship puts you in a position to help or enable someone else to be immature, irresponsible or incompetent in some way.

Children who grew up with a tenuous bond with their parents, as Walls did, were in a constant state of anxiety. They had to forget their own needs, let alone what they wanted. They even had to forget who they were at their core in order to survive. You don’t have to be a child of an alcoholic to feel that you’re not good enough, and that your own feelings are unworthy. Children with parents suffering from narcissism, borderline personality disorders and other problems can feel equally insecure.

What happens when codependent children grow up?

As children, they learned to sublimate their needs, and most continue in that pattern. Their self-esteem has been eroded, so they need the approval of others, just as in their childhood. They pay more attention to others’ feelings and needs than their own and cater to others so they won’t be abandoned or rejected, as they fear they would have been as children. They have no ability to assert their own needs in a relationship, and often end up with a partner who continues the pattern of codependency.

Yet, having learned in childhood how to manage others, they can appear completely confident and competent. Because they are the person others depend on, they appear mentally and emotionally strong. They understand from experience that they shouldn’t depend on anyone else. They are the problem-solver, the caretaker, the decision-maker and the rescuer. They are driven by the need to be loved and accepted, as they never were by their parents or original caretakers.

Codependents need to be needed.

So they seek out someone who they can ‘help,’ and therefore feel good about themselves. But what often happens as the relationship evolves, is they support the other person’s negative behavior, whether it be incompetency, immaturity, irresponsibility or poor mental and physical health. If they end up with an alcoholic, for example, they enable the behavior by covering for their partner. They continue to rescue their partner-all the while feeling very needed-from problems. In actuality, they are accommodating unhealthy behavior. Unfortunately, the result is they prolong that behavior the longer they enable it.

More about codependency next time.

Orange County Counseling professional. If you need safe, effective counseling services, please get in touch.

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Amendoim – What is it and How Does it Stack Up to Other Exotic Hardwoods?

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As exotic hardwood floors continue to gain in popularity, Amendoim is sprouting up as a popular hardwood flooring option. But what is it exactly, and where does it come from?

Amendoim is commonly referred to as Brazilian Oak, although another species, Tauari, is also called Brazilian Oak, which has lead to a great deal of confusion among the flooring industry. It is grown in Brazil, Argentina, and Paraguay, and is also used to make fine furniture because it sands and shapes very well compared to other hardwoods.

Much like Brazilian Cherry, Amendoim has a reddish hue, but it has a more golden cast, particularly the sapwood. Amendoim Hardwood Floors have more swirls and rings than seen with Brazilian Cherry, but much like its sister specie, its soft brush strokes look as though they were painted on with watercolor. It will darken with sunlight, also like Brazilian Cherry Hardwood Floors, but it’s a much more subtle difference.

Also like Brazilian Cherry and other exotics, Amendoim is very, very strong, showing top ratings on the Janka hardness scale – 1912, which is above maple and red oak, and equivalent to Santos Mahogany. Brazilian Walnut is considered the strongest at 3680.

Amedoim is available in both solid and engineered hardwoods, with some engineered collections offering very inexpensive options. Engineered products range from $2.89 per square foot to $6.69 depending on the finish, distressing techniques, plank width, and thickness.

You can find solid Amendoim floors ranging from $4.09 per square foot for smaller spaces up to $7.70 for 5 ½ inch wide planks, which are typically the best sellers in all wood flooring products.

Price-wise, Amendoim is somewhat similar to Brazilian Cherry, perhaps a little more expensive, but much of that depends on what you’re looking to do. Handscraped floors will cost more than smoother finishes regardless of the specie. Brazilian Cherry seems to have more engineered options on the market with cheaper prices, but if you’re set on something solid, Amendoim is cheaper.

If you’re still exploring your options for a floor, have a free hardwood floor sample sent to your home so you can actually see the product and cut of the wood. This is particularly important with Amendoim because you could either be getting the tan sapwood or the reddish heartwood. Some cuts have lots of swirls and others don’t. You just want to be sure that you’re getting what you pay for.

A reputable exotic flooring retailer can walk you through the selection process and help you figure out if Amendoim is right for your home.

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How to Clean and Fix Your Oscillating Fan

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When cleaning the fan, you will need the following things:

-a screwdriver, to open the fan

-detergent and some warm water to clean it

-dry cloth or a towel to wipe off the remaining water

Not really a lot of things, right? Well, that’s one more benefit of oscillating fans-they are really easy to open and clean. An oscillating fan cools down more air than a regular fan, so it’s more likely to get dirty faster and more often. That’s why it’s design must allow easy cleaning.

So, the first thing you have to do in order to clean the fan safely is to unplug it from the electricity. After that wipe off the surface dust from the fan. When you have done that, you can begin disassembling it. Remove the grill by unscrewing the screws that keep it together. Some grills don’t have crews but clips and that makes the process even easier. Remove the blades by taking off the screws that keep them attached to the fan. Now you can use detergent to clean the grill and the blades. Be very careful with this because you don’t want any electrical components to get wet. After that use a dry towel or a cloth to dry the washed parts. Before reassembling, the grill and the blades should be left for some minutes to dry a bit more. That way, you will avoid getting injured or breaking down your fan. Reassemble the fan in the reversed order in which the parts were removed. Tightly screw in all the screws, plug it in and test it. Your crispy clean fan should now work perfectly, the ticking is probably gone, and the air is better because you stopped the accumulated dust from spreading around the room.

If you can hear the clicking noise while the head of the fan moves it could be just dirt. However, it could be that the gears are worn or loose. You will have to open it anyway so unplug it and to that.

– Take a screw driver and unscrew the grill of the fan. Take off the blades and clean them altogether with the grill, the shaft and the motor housing. For the grill and the blades you can use only water and detergent but for the shaft and the motor housing vacuum cleaning wouldn’t be such a bad idea. While you are there inspect the motor. If the gears look OK put everything back together again in the reverse order and plug the fan in the electricity. The fan should be running quietly now.

– If the gears look like they need a replacement or tightening up, then your work is not done yet. First check the set screw. If it’s loose tighten it up because this screw balances the blades and when it gets loose they are not balanced correctly and that may cause the buzzing and clicking sound.

– Also inspect the gear assembly and the motor housing. Try tightening them up. If you can then all should be good. But, if they can’t be tightened that means that they are worn and you have to replace them. After they are tightened or replaced lubricate the shaft and reassemble your fan.

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