Wednesday, December 3, 2008

The Kirk Report

The Kirk Report

Our New Home

Posted: 03 Dec 2008 11:34 AM CST

Yesterday was a big day for my wife and I as we finally closed the deal on the purchase of our new home.

Our New Home

It was a very time-consuming and arduous process, but we feel good about it and have every reason to believe that we will enjoy living there for hopefully many years to come. Although I'm not quite sure how we will fully utilize all 6,000 square feet (6 bedrooms & 4.5 bathrooms), I'm sure we'll have fun trying!

While I am the first to admit that I am no real estate guru, like most things in life, experience counts for something. And, we gained plenty of it this year in the real-estate market. Here are some random thoughts I would like to share about our real-estate transactions this year. If you are trying to sell your home and/or thinking about buying another, hopefully this will be of some help to you.

On Selling

  • Use family realtors: The agent who sold our home had his own agency along with his wife and daughter. All three people had different strengths and weaknesses, but as combination they were a great team. We felt like we were getting three agents for the price of one. Our buyer agent also worked with his wife (i.e. spouses selling houses) and that helped him so that he could always put us at the top of his priority list. Bottom line, if you can get several agents working on your behalf for the price of one, in our experience that has been a better way to go.

  • Use a nearby realtor: We've found that if the realtor lives nearby (especially in your own neighborhood), they'll tend to work harder for you than if they have to drive 30 minutes to get to your house for a showing. Time is money in real estate and the less time they have to spend traveling, the more time they'll devote to selling your home.

  • Find an experienced agent: You really want someone who has been around longer than the last few years and who has experienced both good and bad real estate markets. Simply put, your agent can't sell your home if they're also having trouble paying their own bills and gas money. In addition, make sure you can cancel your realtor agreement at any time you see fit. Many agents will force you to stick with them for a certain period of time but the best agents will never force you into that type of one-sided relationship.

  • Only show buyers what you plan to leave: Before showing the house - make sure you remove anything that you want to keep. And, I mean everything! For example, we had several cheap Ikea shoe shelves in our home and the buyers specifically requested them even though we planned on keeping them. In addition, the way the housing market is right now, buyers are putting a lot of personal possessions into their offers so if you have something you can't let go, move it out before you show.

  • Get your home staged: If you suck at decorating, admit it, and get the sucker staged. Both my wife and I enjoy and frankly spend far too much money on home decorating so this was not a big issue for us, but we have friends who refuse to stage because they think they shouldn't have to. Frankly, if you don't think your home is suitable for a magazine photo shoot, a good stager can be of tremendous help. The fact is that when people look at your home, they look mostly at the furniture and the lifestyle you live. The key to getting top dollar is to provide a buyer a lifestyle they can move into. If your lifestyle sucks, you need some help. So get it!

  • Clean it up & declutter: No matter what, make sure the home is clean (all of the animals are out of sight) and the clutter is gone. We visited many homes and we couldn't believe the filth that some people live in and all of the junk they have. Once you decide to put your home up for sale, you no longer live there. So, move your crap and animals out, get it cleaned, and make your home fit for a king.

  • Get the hell out: If you're having your home viewed by a prospective buyer, get the hell out. There were several homes we liked and would have considered more if the owners were not present during the showing. The owners made us feel uncomfortable and never helped us to like a house more by their presence. In fact, my favorite was the guy who decided to play guitar on his living room sofa to entertain us while we "looked around." Although it was a nice home, we never gave that home much of a chance.

  • Make the repairs: Have a list of items in your home in need of repair (wall cracks, leaky faucets, etc.) and get them fixed, especially the visible ones. Most people want a turn-key solution and that includes having no items to repair the first day they move in. Offering a home warrantee for the first year is also an absolute must.

  • Be realistic: You never know what your home is really worth until you try to sell it. It doesn't matter how much you've put into it, what it would cost to rebuild, and what others have told you (including your agent) regarding the home's value. If you really want to sell it, find the true value and be prepared to go there to get it sold fast. Most homes don't sell because home owners refuse to face the music and come fully to terms that they've purchased a losing investment. As we all know from the market, it is tough to admit it when we are wrong and take ownership in the consequences, but it must be done. Clearly, this is a tough pill to swallow now especially because so many are upside down in the homes, have used their homes as ATM machines, and ultimately owe far more than what the home is worth. Until this dynamic is changed in a significant way, I don't see how the housing market will stage a big recovery.

On Buying

  • Buy what you can afford: It really is that simple. Try using some of the online mortgage calculators to get an idea of what you can afford and then cut those estimates by at least 25%. You never want to put yourself in the position that you and your spouse are sweating the mortgage payment every month. Indeed, bad stuff happens to people (family illness, large medical bills, loss of job, etc.) and none of us can entirely insure ourselves against those awful possibilities, but at the same time you want to give yourself plenty of room for error. The 25% difference will also allow you to "pay yourself first" and fully fund your retirement plans.

  • Take your time: Trying to force a quick relocation is a recipe for disaster. After all, learn from our mistake this year. This past July we were stupid enough to think that if we shopped for a new home in a week (it's a small town, right?) that we'd be able to find the best place for our money. While we found a great builder and a very nice home, it was built on a flood plain known by many, but rarely disclosed by agents or builders. By sheer luck, the home was flooded two weeks prior to closing which saved us thousands of dollars. After that happened, we rented a home for awhile and pretty much spent all of our free time shopping for a new home. Although it is a tremendous hassle to move two times (once to the rental and again to the more permanent home), it is the best way to go. No matter how much you can learn about a new place, there is nothing that replaces actually living there for a time.

  • Do the research: A good agent will help tremendously, but like most things, you really need to know more than what the agent can or will provide you. This just takes a lot of time. Before all was said and done, we visited over 70 homes and the three homes we made an offer on, we visited several times (an average of 5 times) before making the offer. In addition, we did a lot of outside research as well. In fact, so much so that when our home appraisal came in, we were only off by $5K dollars. So, by visiting so many homes, we had a good idea of what our budget could afford and where the true values were. A few more extra tips: 1) Visit every house for sale in the neighborhood even if it is not in your target price range. This will help you understand the market and the fair value of the location. 2) Do drive-bys on the weekends. The neighbors are usually out and working on their yards and if you strike up a conversation with them you'll discover things about your home and neighborhood that you could never have discovered in any other way. 3) If you know who built the home, get to know the builder and other homes he has built. If possible, talk to owners of those homes and ask them about their experience and problems so far. 4) Try to find a good value in an expensive neighborhood. Just three homes away we have a home that is 4 times as much as ours. 5) Location, location, location: find out where the realtors and the builders live and you'll know the best place to start. It is by no coincidence that our new neighbors are both. In addition, you'll need to research the foreclosures in your area to make sure you're not surrounded by homes that will significantly sink in value.

  • Make a low offer & walk away: Though it is a very emotional decision to buy a home (even for an experienced trader), you have to adopt a robot mentality regarding this decision. Emotional decisions, much like in investing and trading, are wrong decisions. As our agent once told us, "Make them an offer. The worst thing that can happen is that they say no." And, he is right. Figure out how much you think the home is worth (your agent can provide comparables concerning price to square footage, etc.) and then make an offer you know they won't accept and walk away when they don't. Although we did this several times to no avail, the home we purchased yesterday we made our original offer at the beginning of September. The owner refused to budge and negotiate, but as time went on, he changed his point of view. No doubt, the conditions of the market and economy these past few weeks played a significant role, but we were willing to stand our ground, make him a low-chance offer, and see what happens. After several months passed by, the owner became more motivated and had far reduced expectations, so we were ultimately able to get to a price we both could live with. In the end, your first offer should never be accepted if you're doing your job. Keep in mind that most real estate agents will advise you to make an offer that has a good chance of success, but that is because they want to sell a home more than getting you the best price.

  • Hire a good inspector: Licensing requirements to be an inspector in Utah (and many States for that matter) is a complete joke. So we hired a man who builds homes for a living (in fact a competitor) to offer his own evaluation. A guy who builds homes is going to know a whole lot more than some joker selling themselves out as a licensed inspector. The good thing about this market is that many home builders aren't working very much and they would love the opportunity to criticize another person's work. That's the type of inspector you really want.

  • Make the seller feel like a winner: One of the things I learned back in law school is how to negotiate. I took several classes on dispute resolution and fortunately many of those skills have stayed with me. One of the things I learned is that in any tough negotiation you have to ask for things you don't really want so that you can give in later on provide the seller with the feeling that they have "won." I have two examples here to share. In our old home, we had a 40 inch flat screen hung on the wall of our kitchen. Because I didn't want to move it (plasma screens are notoriously tricky to move without causing damage) I purposely excluded it from the sale of our home. When our home was showed, my wife even put a sign on the TV saying that "this is not included in sale." Sure enough, in the buyer's offer we received, they said they wanted the TV to be included. This allowed us to give in to that demand (something that we wanted to do anyway since we didn't really want to move it) but it made the buyer feel much better about the deal. Here's another example. When we made the offer for our new home, we asked for several personal possessions that we knew would stir emotions (for example, like the fancy downstairs pool table). Although I enjoy playing pool as much as the next guy, it didn't really matter to me that they left the possession so we asked for it anyway knowing that I could negotiate it out of the deal later on. This provided us more power in the negotiations. Bottom line, in your offer, ask for something you know the seller would have trouble with including so you can negotiate it out later on.

  • Your offer is more than the price: People tend to fixate on price when buying a home (the same is true for investors as well.) The trouble with that is there is much more than price involved. For example, our realtor tells us now that buyers are demanding that closing costs are included in the offer more and more as well as personal possessions. Bottom line - while price is important, consider the whole deal and negotiate accordingly. Another tip - always make your offer subject to an independent appraisal. Our agent has told us that many offers now are coming in above the appraisals so this is an important thing to work into the contract now. As a buyer, it will allow you to renegotiate your original offer later on if the appraisal comes in lower, which is happening more and more.

  • Think long term: Sad to say, many Americans over the past few years saw real estate as the opportunity to make a living and secure their retirements. The truth is that real estate, while a good long-term investment, is a poor one on a short-term basis. What we've seen recently is not unusual, especially following prior booms. The old rule that you have to live in a home for more than 8 years just to break even is something that will come back in vogue.

  • Know your goals and limitations: Just like trading and investing, you have to know your goals and limitations. When we moved to Utah, we considered several options. One of which was to buy a foreclosures or short-sells (perhaps several) and then spend time repairing and getting them ready for eventual sale. There were dozens of properties in good locations here that just two years ago were selling for more than $300K and now can be had for $150K or less. However, we ultimately decided that while that would be fun, it would take valuable time away from things we love to do more (our family time, trading, my wife's career, golf, friends, etc.) and so we knew our limitations. There are tremendous opportunities in real estate for those with plenty of cash and patience, but you have to know what is right for you and make decisions in agreement with that first and foremost.

  • Don't time the housing market: When we purchased our last home in 2004, we knew and often commented that we were timing the absolute top of the market. While the top wasn't really found for another couple of years, we made the transaction anyway because it was both right for that stage of our life and we could live with the worst case scenario. Just like successful investing, know the worst case scenario first. If you can live with that, then you're well on your way to finding the right opportunity for you and your family. Also, don't put off buying a home because you think you can time the bottom and get the best price. If your family needs a bigger home now and you can afford it, don't get caught up in the race to find the bottom of the housing market. Instead, put your family first and consider your home your castle, not a way to produce investment income. In my opinion and experience, there are easier ways to make money than real estate!

All in all, we are happy to have this stage behind us. Now, we have to focus on the fun job of moving and settling in!

No Help Wanted

Posted: 03 Dec 2008 08:30 AM CST

Help Wanted
Good morning. If you're looking for good news, you've come to the wrong place.

Premarket futures are firmly in negative territory following disappointing data on employment. According to the ADP employment report, November nonfarm private employment fell 250,000, which was much worse than the expected drop of 205,000. October was also revised lower to -179,000 from -157,000. Also, corporate layoffs surged to nearly a 7-year high. In combination, both reports point to a disappointing employment report this Friday.

In other news, Research in Motion cut its third quarter revenue and earnings outlook citing a weaker dollar and lower than estimated unit shipments of existing products. Meanwhile, mortgage applications soar following the Fed actions last week as interest rates plummet and people try to take advantage of the decline. Nonfarm productivity was up 1.3% in Q3, more than the 0.9% economists expected.



The calendar is filled today with lots more data. At 10:AM we have the ISM Non-Manufacturing Survey (should be a market mover), at 10:35 the weekly EIA Petroleum Status report, and at 2PM the Fed's Beige Book. We also have some Fedspeak from Kroszner at 10:15AM and Lacker at 1:PM.

Be prepared for some whiplash and random-like trading out there today. All eyes, of course, we be focused again on Monday's pullback lows. Have a wonderful Wednesday!