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Understanding our obsession with homes and real estate

During the boom years, books about striking it rich in real estate, as well as designing and decorating our abodes, were stacked up in bookstores like bricks. Now that the party is long over, more sober assessments on our national obsession with shelter are hitting the shelves.

“Craving Community: The New American Dream” by Todd W. Mansfield, Ross P. Yockey and L. Beth Yockey (Abecedary Press, 2007). Suburbia has been satirized as sterile almost as long as it has existed, but now it has a new label: Community Deprivation Syndrome. Drawing from sociological studies and adding anecdotes from themselves and others, the authors replow well-worn ground: that people were not meant to live in isolation — and that car-driven suburban land planning, along with the Internet, keep us in isolated cocoons, watching videos in our home theaters rather than going to the movies and having wine in our cellars rather than bars, locked away from our neighbors, rather than fostering healthy relationships in more nurturing village settings.

No news here; everybody’s already aware that we’ve been bowling alone for years. Some of the examples that the authors give, however — like the lonely condo owner who died and dried up into a mummy before his neighbors noticed he was missing — are compelling.

So what’s the answer? For many community planners, it’s a return to village life known variously as Traditional New Developments, New Urbanism and Smart Growth, ideas which have been tried, though not widely adopted, since the early 1980s. The book comprehensively reviews these attempts, though not with a very critical eye (not surprising, since the lead author, Todd Mansfield, helped lead the movement as president of the Walt Disney Company development division that created Celebration, one of the hallmark communities in this genre).

Making a walkable community that integrates all the necessities of life –including shops, offices, homes and green space — is an admirable goal. Why, then, isn’t that sort of plan now the norm? One reason is that it’s a strategic nightmare and daunting to all but the deepest pockets, both facts that this book glosses over. Similarly, achieving a satisfying integration of housing and services may not be possible when a community is first developed, no matter how well-intentioned the planners. The villages that the planners turn to for their inspiration, in places like England’s Cotswolds or Italy’s Tuscany, took centuries to reach their current forms.

Mr. Mansfield is chairman of the Urban Land Institute, which wrestles with the big questions of how communities should be made. So it’s not surprising that much of this book seems directed to developers, zoning officials and land planners, rather than homeowners, who really don’t have much say about whether a coffee shop will be built within walking distance of their home or whether their porch will abut their neighbors’. Nevertheless, the book is a well-researched review of the roots of suburban loneliness and sends a message that bears repeating to those who create our communities: It takes a village to make a village.

“House Lust: American’s Obsession with Our Homes” by Daniel McGinn (Doubleday, 2007). Given our lack of community and our isolation, it’s not surprising that Americans are obsessed about our homes.

Author Daniel McGinn, a Newsweek writer, adopts the persona of a naïf as he travels through familiar tropes — the new home, the cramped apartment, the flip, the ratty rental, the vacation house and the timeshare — interviewing builders, brokers, sellers, buyers and looky-loos across the country.

His goal, he says, is to understand why we babble on about our abodes at cocktail parties, TiVo home and design shows, keep track of celebrity home sales, waste our weekends visiting neighbors’ open houses and ripping out our own drywall to install the latest shower spa, and sneak time looking at Internet listings of island homes at our office desks — in short, why we’ve become almost pathologically fixated on shelter.

Part of the reason is financial, of course, as homeowners increasingly see their homes as nest eggs rather than just nests, but as Mr. McGinn observes, it’s more than that: the renovators who show off their remodeling pictures as aggressively as some parents show baby pictures, McMansion owners who decide they can’t live without two dishwashers, middle-class workers who decorate their vacation homes to appeal to renters, then decide they can’t bear to have strangers staying in them.

Mr. McGinn’s reporter’s eye is sharp and often touchingly funny, as when he recounts how a solemn kindergartner told his parents, wrangling over a botched home-theater installation, “Guys, you have to calm down.” But as entertaining as his Candide-like tour of the housing landscape is, the meaning of it all is missing. As Mr. McGinn writes in his final chapter: “For decades, owning a house has been marketed as the American Dream — and as anyone knows who’s woken up halfway through a surreal, incoherent narrative knows, dreams don’t always make sense.”

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How to find true values in foreclosures

Following the facts on discounts can help you find the real deals

The headlines are ominous: some 243,000 foreclosures in August, up 36% from July and 115% from August 2006. There’s blood in the streets.

So how do you get from “there must be bargains out there” to “how much will I save, and where are the best bargains?”
I like to guide any buying decision as much as possible with the facts. But while lots of foreclosures are out there, how good an opportunity they might be was hard to know. Until now.
For sale and on sale
RealtyTrac, the same real estate portal and analysis group that supplies monthly national foreclosure statistics, also calculates the average discount-to-value by market — that is, how much foreclosed homes actually sold for vs. their estimated market value in their markets. So — bingo — you’ve got a good indicator of how good an opportunity you’re looking at.
Search on “foreclosures by state,” and then click “view (state) foreclosure trends,” and you’ll get a nice snapshot of foreclosure filings, actual sales, average sales price and — most of all — the discount-to-value.
You could page through state by state to get a national picture of where the good deals are. Instead, I went to the source. RealtyTrac was kind enough to supply me with source data in a spreadsheet. I’ll share the most interesting findings.
National trends
Nationwide, in the three months June through August, some 68,426 foreclosed homes sold in 2007 vs. 54,886 in 2006. The average sales price dropped from $271,000 to just over $239,000.
The discount-to-market ratio increased slightly from 76.42% to 77.68%. How do you read this ratio? It is the actual foreclosure sales price compared to the perceived market value of the home. So 77.68% means, on average, you’d get just over a 22% savings or “discount” on your foreclosure purchase. That’s down from just over 23% a year ago.
The best (and worst) around the country
So, now the fun part: a state by state look at where the best deals and biggest changes are happening:
From June-August 2006 to June-August 2007, California, Nevada, Michigan, Massachusetts and Arizona showed the greatest increase in the number of foreclosure sales, while New York, New Jersey and North Carolina posted the biggest decreases among states that had 1,000 or more foreclosure sales.
But while California heads the list in sales, the discount is relatively small — one of the five smallest in the country at only 17%. The best deals are in troubled Rust Belt or manufacturing-centric states — Alabama, Pennsylvania, Indiana and Ohio.

States with largest discounts Average foreclosure sale price Average % of market value

Alabama $133,834 59.95
Pennsylvania 110,936 61.68
Indiana 99,255 63.50
Ohio 90,300 64.70
Missouri 144,768 67.25
States with smallest discounts Average foreclosure sale price Average % of market value
Hawaii $657,211 85.41
Washington 288,397 83.68
Virginia 338,912 83.48
Massachusetts 290,835 83.03
California 437,813 83.00

Finally, trends are interesting: Discounts are increasing in Midwestern states and in New Mexico, while decreasing some in Alaska, Iowa and Texas. This may be a sign of strengthening real estate markets in those states — or weak market values to begin with.

State Average % of market value Discount increase (decrease)

Louisiana 74.04 15.88%
New Mexico 72.59 12.01
Minnesota 72.79 10.50
Indiana 73.52 9.82
Alabama 63.50 7.48
Alaska 82.02 (8.03)
Iowa 77.32 (5.34)
Texas 78.75 (4.82)
Kansas 74.03 (4.56)
Hawaii 85.41 (3.47)

These facts will help you know how much to pay — and to know if foreclosures are right for you in the first place. They may also say something about which way the market in your area is likely to go. Either way, they will help you find the “real” deal.

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Seller Financing to the Rescue

The Problem

When it comes to selling real estate, one of the most difficult and
frustrating situations for sellers is when market conditions make it
nearly impossible to sell at the desired price point. A high initial
listing price might be because the seller simply has an unrealistic
idea of how their house stacks up against the competition in the area,
or because the owner needs to sell for a set minimum price in order to
pay off their loan against the property.

With traditional property sales methods, the only way to prevent the
property from sitting on the market indefinitely is to keep dropping
the price. Unfortunately, this technique doesn’t always work -
especially if the seller is unwilling to “discount” their house by
much.

In areas flooded with homes for sale, reducing the asking price
slightly will not bring the desired result. In fact, it’s common that
the property will continue to sit on the market without offers,
alongside the multitude of other unsold properties with similarly
reduced prices.

Anyone experienced in sales understands that making your product stand
out from the crowd is a critical technique for success. But if there’s
too much competition offering the same attributes, the only logical
way to attract the attention of serious buyers is to drop the price so
that your property is a much better value than the competition.

In cases where the seller is too inflexible with their asking price,
this is not a practical solution. Without an alternative strategy, the
seller is forced to keep the house on the market for an extended
period of time with an unrealistic asking price, hoping for the right
buyer to come along. And as you know, that “Mr./Mrs. Right” might
NEVER materialize!

The Seller Finance Solution

Property sellers who want to both obtain their desired price and close
on the deal quickly should consider seller financing. Seller financing
is a powerful tool to remedy real estate situations that otherwise
look grim.

Many home sellers (and their real estate agents) do not see seller
financing as a viable option. In actuality, seller financing can bring
new attention to the listing and invite a different group of potential
buyers - thereby opening up a unique, untapped market.

A large percentage of people throughout the country cannot get
approved for bank funding to buy real estate because of their credit
situation. Many of these people are still in the market to buy a
house, however. The “credit-challenged” are often frustrated with the
limitations of apartment living or being renters; as a result, many
are willing to pay a higher price just for a chance to get seller
financing and improve their quality of life.

A savvy property seller who recognizes this opportunity can salvage an
unfavorable situation and turn it into a bonafide seller’s market. By
using this type of creative financing, the seller could actually end
up getting more than the original asking price - without resorting to
the questionable strategy of patiently waiting for the “right buyer”.

Seller finance can enable homeowners to receive a favorable selling
price despite bad market conditions. In addition, the real estate
agent (if any) gets to close a deal and move on to other sales, while
a home buyer with poor credit is able to become a home owner. It’s one
of those rare situations where everyone at the negotiating table gets
what they want.

Paper Tigers

Many home sellers never consider seller financing because they don’t
understand the benefits. There are also common misconceptions that
it’s much too complicated to attempt to orchestrate a seller financed
deal, or that there are no buyers willing to sign a private note.

Once a property seller takes the time to learn about the basic
process, the advantages of offering financing instead of a lower price
to sell their property become very clear. Plus, a little education
about seller finance will make it apparent that drafting a secured
private note is actually a very straightforward process.

The bottom line is seller financing can enable a home owner to “have
their cake and eat it too” - i.e., sell at the desired price, close
the deal quickly, and even receive additional income from interest
payments as well.

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