Milpitas North San Jose Berryessa Real Estate News

3. Rentals.  Rising rental rates in many markets are making home ownership a more appealing option, especially for those seaking to buy distressed property.  But many households aren't financially ready to buy, either because of credit dings or the continuing overly tight credit restrictions of lenders.  Others are waiting to make sure home prices have bottomed out.  That's why many real estate companies have shifted their business model to include rental and property management.

Bill Bloomberg, broker-owner of Distinctive Rental Homes in Eden Prairie, minn., opened his business in 2011 with high-end rentals as his central focus, providing assistance to both renters and owners who choose to rent rather than sell their property.

And when owners opt to rent their property rather than sell it, they may be providing a unique opportunity, helping renters get one foot into a neighborhood that's currently beyond their buyer power, says Gina Chirico, sales associate with Lattimer Realty in Fairfield, NJ.

"As long as wages go down, traditional homes sales will suffer," Bloomberg says.  "People say I'm pessimistic, but understanding how the economy works has helped me make the adjustments I needed to make it in my business."  Another plus, he says: Rentals are less stressful than sales.

2. Distressed inventory in centrally located neighborhoods.  Affordable housing in inner-ring suburbs or center city areas may be real estate's sweet spot in 2012, Block says, because buyers today aren't looking just for bargains, they're looking for convenience and lifestyle amentities.  A 2011 survey of U.S. adults conducted for NAR by research firm Belden Russonello & Stewart seems to support Block's assertion.  Nearly six in ten adults (58 percent) said they'd prefer to live in a neighborhood with a mix of houses and stores and other businesses within an easy walk.

Block says he has seen first-hand the shift among both first-timers and retirees toward smaller, close-to-the-city homes in walkable neighborhoods.  He reaches out to potential clients by using social media and blogging to talk about issues like lengthy commutes.

Slowly, a recovery seems to be taking hold.  "More jobs, rising rents, a rising stock market, and continuing high affordability conditions" are combining to get more people into the market, says NAR Chief Economist Lawrence Yun. 

With prices expected to rise slightly in both existing and new home sales in 2012, buyers may not get quite the same bargain they got last year.  Still, conditions remain favorable for buyers, and NAR is forecasting a 5 percent increase in existing-home sales over 2011.  Here are three pockets of opportunity.

1. International investment.  With U.S. real estate values down, a favorable currency exchange rate, and the promise of a stable place to invest while Europe deals with debt crises in Greece, Spain, Italy, and other countries, foreign buyers continue to stream steadily to the United States.

"People are trying to move their cash somewhere safer," says Brian Block, broker-associate with RE/MAX Allegiance in Arlington and McLean, Va.

Elaine Murphy Carlson, a broker-associate with RE/MAX Palos Verdes Realty in Palos Verdes Peninsula, Calif., says foreign investors who stayed away during the darkest days of the financial crisis are coming back.  Indeed, NAR's 2011 Profile of International Home Buying Activity shows foreign households bought $82 billion worth of residential real estate last year, up from $66 billion in 2010.

Block says the investors he works with are professionally successful individuals with cash available.  "They will buy when they see a good deal," he says.  He has gained investor business by demonstrating a solid knowledge of the market and finding networking opportunities, from local Chamber of Commerce meetings to regular real estate industry functions.

Freddie Mac is replacing its Debt Coverage Ratio program with a new option, called a Standard Modification.  The program is designed to assist borrowers who are ineligible for a HAMP loan modification or have previously defaulted on a HAMP or other loan mod.  For those who are approved, the program reduces a borrower's mortgage principal and monthly payment by at least 10 percent each, thereby making the payments more affordable.

To qualify, homeowners must be at least 60 days past due on their mortgage.  Those who are not at least 60 days past due can qualify by proving they are in imminent danger of default, through demonstrating an eligible hardship and providing verification of income.

Houseing affordability is about the best it's ever been, but tight lending conditions have made it difficult for buyers to take advantage of the good conditions.  For investors with cash, though, it's a golden time to buy, and we're seeing the investor community step up.  Its share of home purchases reached 22 percent in August, a good part of that is all-cash transactions, because lending is especially tight for non-primary occupant homes.

For investors who can hire out or manage property themselves, the attractive rates of return from rising rental income is a strong lure.  Rents rose at a better than 3 percent annualized rate in the third quarter of 2011, government data show, and private data sources imply even faster rent growth.

Nor is there any reason to believe this rent growth will cool, given the favorable demographics of a rising number of young adults over the next 20 years, a high number of owners of foreclosed homes who can't buy in the near term, and the low construction rate of apartments.

If annual rent gains stay near 3.5 percent, rents will double in 20 years.  If they reach 5 percent, rent doubling would occur in 14 years.

In addition to strong rent returns, investors can anticipate solid home price appreciation over the long haul.  Using 2000 as a "normal" year in which the market saw neither a bubble nor a bust, the metrics on home prices in relation to consumer prices imply a 14 percent undervaluation, and in relation to rent rates, a 20 percent undervaluation.

With the bubble clearly gone, the future home price path should follow the future rent growth path.  That means home prices could also double in 14 to 20 years, though it is unclear when home prices will begin to catch up with rents.  But long-term investors buying today are sure to catch some, if not most, of the upward ride.

3. Don't get "creative" with your asking price

Sometimes, seller want to get creative with their asking price.  I had a seller whose home was valued between $750k and $800k, and they wanted to ask $787,777.

Such an oddly specific figure calls attention to itself for no good reason, like a house painted purple.  Buyers will often wonder why the seller chose that figure.  From there, they get curious about who the seller is, and so on.  In my experience, it's best to keep the seller far in the background, if not entirely invisible.  That's why we have sellers remove all their personal stuff (such as photos, diplomas, and such) from their homes and decorate in neutral colors.  The goal is to showcase the property, not the seller, and to appeal to as wide an audience as possible.  Getting quirky with your asking price counteracts this tried-and-true strategy.

4. Work out a pricing contingency plan before you put your home on the market

Sometimes, sellers have high expectations about their property's appeal and they want to ask top dollar for it, even if their agent doesn't believe they'll get it.  Or perhaps another agent they talked to planted a high price tag in their mind.  Whatever the reason, as a listing agent, I'll agree to try and sell the home at the higher price.  But before the "For Sale" sign goes up, I always try to work out a contingency plan with the seller, in case the property doesn't go for the desired price.  By having everything on the table from the get-go, we'll have a plan B should the first plan fail.  This saves time and helps set the appropriate expectations in the seller's mind, so there are no unpleasant surprises down the road.

5. Pricing is an ongoing discussion

Ultimately, listen carefully to your agent's pricing strategy.  It's their job to know what works and doesn't.  And as with any strategy, be prepared to have an ongoing discussion about pricing with your real estate agent.  Pricing a home isn't a "set-and-forget" procedure.  A lot of factors can come into play when selling or buying a home, and not all of them can be anticipated.  If you can be flexible and react quickly to changing market conditions or new information, you're more likely to get the best price with the least aggravation.

1. Appeal to the "herd mentality"

Given the high stakes of real estate, a buyer doesn't want to be the only one interested in a house.  By pricing your property on the lower end of the value range, you could stimulate interest among more than one buyer and create a herd mentality.  Also, if you're under the gun to sell quickly, this would be a good option.

2. Price it to be found in real estate searches

Most buyers tell their agent they want a three-bedroom home in a certain neighborhood under $500k (or some other dollar amount).  Their real estate agent may then set up an automated buyer search in their local database for properties under $500k.  But if a home is listed at $510k, that buyer will miss it.  So, if your list price is higher out of the gates, you may miss a segment of buyers.

While this scenario happens frequently, many savvy agents will set up search parameters for their buyers to include properties listed a little bit more above their price ceiling.  Knowing how flexible home prices can be, buyers should be made aware of properties that could be a good match for them, even if those homes are above - but within reasonable range of - what they want to pay.  often times the buyer can offer under the list price, or the property will get reduced.

Is a $499 iPad a bargain compared to one that cost $500?  Not exactly.  But retailers have long priced products just below a round number because, psychologically, $499 feels more like a deal than $500, even if the difference is only $1.

In real estate, the "99" strategy is nearly always employed.  For instance, if a seller prices their home at $499k instead of $500k, the $1k they lose will cover some of the buyer's closing costs, but in the buyer's mind, they are paying $500k.  In most cases, though, knocking off $1k to bring the price below a rounded figure doesn't make that much difference to a buyer or seller.

Nonetheless, there's a fair amount of pshychology - and strategy - that goes into determining a home's asking price.

If you're a seller, you and your real estate agent should identify (and agree on) the approximate value of the property.  Let's say you determine your home is worth around $500k, based on comparable of similar properties sold in your neighborhood and other market considerations.  The next step is to understand the price range for the list price - in this case, somewhere between $480k and $520k, depending on the market conditions, competing properties, time of year or inventory.  The price range typically goes a bit higher with more expensive properties; a home worth about $1 million might have a range of $950k to $1.05 million.

Once you know your home's value and have a price range in mind, it's time nail down the final list price.

I will put the five pricing strategies for sellers in the later series.  Stay tuned.

Owning a home is more affordable than renting in 74% of major U.S. cities, according to Trulia's Summer 2011 Rent vs. Buy Index.  The index compared the median list price and the median annualized rent on a two-bedroom apartment, condominium, or townhouse in America's 50 largest cities based on population.

The top five cities where buying is cheaper than renting are Las Vegas; Detroit; Mesa, Arz; Fresno, Calif; and Arlington, Texas.

Cities where it clearly is better to rent are New York; Fort Worth, Texas; Omaha, Neb; Seattle; San Francisco; and Kansas City, Mo.

There is, however, a gray area.  Depending on personal circumstances, such as one's tax bracket, it may make more sense to buy a home in Oakland, San Jose, or Los Angeles, Calif; Austin, Texas; Memphis, Tenn; Boston; and Portland, Ore, even though it is still relatively cheaper to rent.

As Trulia defines it, the total costs of homeownership include mortgage principal and interest, property taxes, hazard insurance, closing costs at time of purchase, and ongoing HOA dues and private mortgage insurance, where applicable.  It also includes an offset for the tax advantages of homeownership, including mortgage interest, property tax, and closing cost deductions.