A lot of buyers worry that the right house will never come.  But the right house always appears eventually.  And, buyers should be able to take as much time as they need find it.  But, one of the obstacles to finding it without spending two years looking and fretting is to begin eliminating as many communities as possible – as early on as possible – so that they can target the town that is perfect.  In a region like Essex County, New Jersey where there are so many towns to choose from in very close proximity, it’s easy to conduct a search in 5 or 6 of them at once.  However, one of the interesting characteristics about our area is that the towns are each very unique and different from one another.  They vary in their transit systems, their housing inventory, tax ratios, politics, goods and services, lot sizes, school systems, household income levels, parks and recreation programs, and so much more.

Steps 1 and 2
After getting pre-approved for a mortgage – which is the first thing a buyer should do – eliminating towns is the next step.  You might need a few weeks to target the top choice but the best way to get there is by ‘process of elimination’.  Finding the house is not that hard.  In fact, it’s actually the easy part, believe it or not.  Even if the community you choose is a little pricey for your wallet, you can always buy a smaller home and expand, or a fixer-upper and improve down the road. But you’ll never be able to change the address – or create services, beauty or amenities that just don’t exist in the municipality.  It’s better to buy a home that may need a little work in a town that you’re over the moon about then to buy a better house in a town that is just okay in your mind.  Once you’re in, you’re in. Like a marriage, you want to be 100% sure that you know what you’re getting into. 

How to Choose the Right Town
How do you judge a town?  Certainly, don’t judge it by looking at a bunch of attractive affordable listings on the internet.  I don’t care how great they are; those are just buildings.  They tell you nothing about the fabric of the community.  You can easily be compelled to go see one of those homes, get seduced by its charm and temporarily forget that the location makes your commute more difficult.  You’ll realize this, of course, the next day when you think it about it but, by then you’ve already wasted a Saturday or Sunday afternoon with your family by having gone to see this home.  I know that it didn’t cost you anything but your time.  But these hours of searching in the wrong towns can add up and wear you down – making your search a chore rather than the fun and exciting experience it should be.

Things to Consider
Just the way you have priorities for the house itself (location, size or condition), prioritize the towns by deciding what your top three criteria are.  Is the school system your highest priority?  Are lower taxes next?  Do you absolutely require proximity to major highways or business centers?  Once you establish these priorities, the decisions almost make themselves.  Some of the criteria to consider are:

• School rankings and/or teaching philosophy (Rankings don’t always tell the whole story.  Some highly ranked school systems have difficulty managing children with slight learning disabilities and you will pay extra for services.)
• Property taxes  (In many cases, you get what you pay for so when you see a town with ultra-low taxes, find out why they are so low.  There is always a reason.)
• Sports and Recreation  (How many parks are there?  What sports programs do they offer?  Is there a Community Center?  A YMCA?)
• Do they have their own Police and Fire Dept?  (Some small communities share with neighboring towns and they may be volunteer departments – as opposed to being paid by the municipality.)
• Where is the top of the market?  (How much do the most expensive homes in the town sell for?  Are you buying one of the best homes in town?  Or are most of the homes around you more expensive?)
• Who lives there?  (What’s the profile of the residents?  Are they mostly professionals?  Tradesmen?  Artists?  How does the town skew politically?  What’s the vibe?)
• Medical Services (Where is the nearest hospital, medical center or walk-in clinic?  How highly is it ranked?)
• Town Center  (Walk through it; talk to the shopkeepers to help get a vibe on the community)

There is a saying in real estate: “In the absence of proper pricing, no amount of marketing or advertising will sell your home.” You could have the most beautiful home in your community; have hundreds of buyers come through it; and advertise it all over the internet and in magazines and newspapers.  But, if the buyers do not perceive value at your asking price, unfortunately, they will not make an offer.

Of all the steps involved in selling real estate, pricing a home correctly is truly the most important.  And a well-priced home will always sell - in any market – because the buyers perceived value at the right number, and almost no value at the wrong number.  What I mean is, they won’t make any offer at all if they think the price is too high… not even a lowball offer.

Perception of Value Works
When you have created a perception of value with price, the home will also sell more quickly and at a higher number than if you didn’t.  Statistics show that the fewer number of Days that your home has been on the Market (DOM), the more money you’ll get for the property.  Conversely, the ultimate sale price goes downward the longer the property sits on the market.

I am not saying that you should under price or give your house away. Actually, I’m talking about strategic pricing. I am also saying that the pricing process has never been more complicated and home buyers in this economy are avid comparison shoppers. They will compare every detail of two similar homes priced in the same range.  If the buyers feel that the two properties are just about equal in most ways except in price, the odds are that they will put an offer on the lower priced home. 

How To Price
I’m sure you’ve heard of Comparables or, “comps” as the most popular tool used to price a home. Comps are listings of other homes which are similar to your in style, condition and location. I can perform and interpret a Comparable Market Analysis (CMA) for you.  But let me explain here how they work.

There are three types of comps:
Currently On the Market:  Those homes currently or actively on the market. Many, but not all, of these homes are available to see on the internet.

Under Contract But Not Yet Closed:  Transactions which are pending or which have gone under contract but have not yet closed. Until these transactions close, the under-contract price is usually privileged information and can only be gotten through private contacts or Realtors who keep themselves in-the-know.

Closed: These are transactions which have sold or closed. The sale price is now public information and is accessible to anyone. To be relevant, sold comps should not be more than about one year old and, even then, they may be irrelevant depending on how much the market is fluctuating.

Other Factors in the Selling Process
Other factors to consider when selling include staging every square inch of the home - including closets; broad exposure of the home to the entire pool of motivated and qualified buyers (with a big global brand name like RE/MAX; and having a very strong realtor with good negotiating skills to lead the deal all the way to the closing table.  Look for future blogs on these issues!

I get this question ALL the time.  I have clients who call me over to their home and ask what I think.  I also have buyers who ask if they should buy a smaller house and build an addition later.  I’ll discuss both scenarios – and tell you what I plan to do with my own living situation this year.

If You Already Own and You Need More Room

There are many questions to ask but the first and simplest is, ‘Do you love your location?’  If you don’t, forget the addition and just buy a bigger house.  It’s a huge investment to add on – not to mention the inconvenience.  Why bother investing in a spot that you may want to leave before the equity has increased enough to justify the expense?

But, if you do love it, that’s a good motivator for improving.  You can change just about everything about a house except the address. It’s possible that you might not find another location as good as the one you already have.  And if you have great neighbors and your kids have loads of friends on the street, it’s even harder to leave.

Structurally Speaking

Is a doing an addition structurally prudent?  If all the homes around yours are about the same general size, it could be a huge mistake to build a big addition – making your home the largest on the street.  Most buyers are hesitant to purchase the largest house in the neighborhood.  In fact, buyers often lean the opposite way and purchase the smallest home on the best street they can find.  It’s important for resale value that your home be ‘amongst its peers’ and not stick out like a sore thumb.
How Much Does an Addition Cost?

A local contractor recently told me that the cost of building an addition in the Montclair, New Jersey area is $120 – $140 per square foot.  For a 1,500 sq foot addition, that’s $180,000 – $210,000.  And that’s before you pay for appliances, light fixtures, sinks, tubs, toilets, flooring and carpeting.  Financially, the cost of borrowing money right now – to buy or to build – is extremely low.  However, if you will owe more than 50-60% of the new value or worth of the home after you put an addition on, be very careful about moving forward.  You may need to stay in the house a very, very long time for the renovated house to appreciate enough to sell and not cause you to lose money.  This scenario was one of the major cautionary tales of the subprime crash.  Over-improving caused millions of Americans to go into foreclosure or to declare personal bankruptcy.

The best advice you can get is to call in a realtor before you make this momentous decision.  Let him or her tell you whether or not it’s advisable and what it might be worth when the addition is complete.  Best of all, the realtor’s advice is free so you have nothing to lose by doing your homework.

If You’re Looking to Buy a House and Add on Later

First, congratulations on buying a home right now.  We will probably never have a better climate  in which to buy real estate than today.  It’s a virtual candy store out there with loads of inventory to choose from.  That said, the market is improving in Montclair, Glen Ridge, the Caldwell’s, Verona and other towns in Essex County, New Jersey.  The window of opportunity will close.  Interest rates are already bouncing back up over 5% and expected to climb steadily throughout 2010.  A fraction of point climb can make a big difference in your monthly mortgage payment.

What I’m Going To Do in 2010

So, what size home should you buy?  Should you purchase small and add on later or – buy as big a house as you can find?  I’m actually a potential buyer myself right now so let me share my plans with you as a way of answering the question. I currently own a home and am looking to trade up this year and am planning on making location my #1 consideration and size the #2 factor.  I am much less concerned with the interior condition because I know that I can always improve it over time.  Personally, I’m not really interested in dealing with the hassle of an addition.  I don’t want to spend the money to move walls around and spend months living amid debris and dust – or worse, spending thousands of dollars on a short term rental to move into while the work is being done.

I want a bigger house in a fabulous location and I’ll save loads of money for two reasons. First, I’ll buy my ‘forever’ house at a record low interest rate and second, I’m not going to pay a premium for someone else’s ‘move-in condition’ home.  I’ll make the interior upgrades myself, even if they are somewhat inconvenient. But, they won’t be nearly as inconvenient as building an addition.  So, bring on the old kitchen and bathrooms!  Just give me size and location – and let the contractors go build an addition for someone else!

I – and many of my colleagues – believe that local real estate is poised for a very active Spring 2010 market (mid-late January through June).  Some people are not so sure of this and point to the high levels of inventory that will come on the market – with both new listings as well as those which were withdrawn in 2009 and will return to the market in 2010.  However, those of us working with buyers know how much pent-up demand there is from 2009 and that the demand will likely grow in 2010 with brand new buyers entering the marketplace.

The good news is that the local real estate market appears to be more stable.  There are still some headwinds coming in 2010 and I will discuss them later in this blog. 

Local Real Estate Market
In Montclair, Glen Ridge, Verona, Bloomfield, Cedar Grove, Essex Fells, The Caldwell’s, West Orange, South Orange and Maplewood, New Jersey, homes are selling – right now.   Well over 200 single family residential properties went under contract in the month of December alone. Fully 90% of them were listed below $800,000 which is likely a reflection of the homebuyer tax credit which caps out at that purchase price. Personally, I can’t recall any December where I have shown this many houses – in all price ranges (luxury included).

New Jersey (and Northern N.J.) Real Estate Market
New Jersey, and northern New Jersey in particular, is in the front of the nation in terms of stabilization.  Home sales and home prices in most counties have stopped falling and in many counties, are actually up. But we are still in a varying month-to-month performance trajectory. Earlier this month, Patrick O’Keefe of J.H. Cohn in Roseland said, “I think it’s apparent in the data that the April point was the bottom. But the improvement since then – here in North Jersey area – has not been an unbroken upward line.”
Even in the very hard-hit new construction sector, the CEO of Hovnanian (New Jersey’s largest home builder) reported more price stability and a narrowing of it’s 4th quarter losses.

New Jersey continues to be a popular area for first-time homebuyers with 52% of sales attributed to them vs. 47% nationally.

National Real Estate Market
The Case-Schiller index (used by the Wall Street investment community to gauge the health of the real estate market) reports that home prices in 20 cities are up for the 5th consecutive month with San Francisco experiencing the biggest month-to-month gain.

Refinancing, as you might imagine, is also way up.  Wells Fargo is reporting a 55% increase(!) in current homeowners refinancing from 30 yr down to 15 yr mortgages.  Of course, they were driven by low interest rates but no matter how you look at that, the monthly payments are going to go up for that homeowner. It’s not only a smart move but it also reflects a considerable measure of confidence.

The Headwinds Coming in 2010
The first half of 2010 is expected to remain a challenge for real estate.  Among the particular headwinds we face in the coming months are:

Job Market:  The jobless rate is expected to be above 10% through the first two quarters of 2010.

Foreclosures:  Expected to remain a major issue in 2010.

ARM’s:  Many adjustable rate mortgages purchased in the run-away market will be ‘re-set’ in 2010 to higher rates – possibly leading to more foreclosures, short sales or personal bankruptcies.

Interest rates:  At the end of March, 2010 – the Federal Reserve will end its $1.25 trillion program of buying down interest rates– setting the stage for their steady climb the rest of the year.

Homebuyer Tax Credit:  This significant government tax credit for first time and current homeowners will conclude on April 30, 2010