The Second Home Muse

Election Day Results - Property Rights

The elections contained many issues, and, for some states, real estate was one of them with a variety of initiatives about Eminent Domain coming up for votes. As you may know, eminent domain is the right of the state to take property for public use. And a few years ago, a controversial use of that power put property owners on notice that their rights seemed challenged in a new way. Therefore several states put up initiatives as a reaction, to limit the use of eminent domain. The problem is, that eminent domain in general is not a bad thing... it is meant for the use of land for the greater good.  So depending on what state you were in, it was or was not a good idea to limit the state's use. One important issue was when the state wants to protect land for environmental reasons, which is why perhaps California led the way in rejecting the limitations.

It is beyond this column to evaluate each initiave, but, if you are a voter, here's some results on initiatives to limit eminent domain seizures:
Arizona. Approved
California. Rejected
Florida. Approved
Georgia. Approved
Idaho. Rejected
Michigan. Approved
North Dakota. Approved
New Hampshire. Approved
Nevada. Approved
Oregon. Approved
South Carolina. Approved

Paying for Second Homes

I find it always helpful to keep facts in mind about second homes. Sometime we forget reality. A recent report by the Mortgage Bankers Association, for example, reminded me that of the 43 million U.S. households headed by people 50-plus-- 15 percent, or 6.6 million--owned a second home, and did not pay for it with a new mortgage.  The report says that those homes account for only 4 percent of mortgages.

How are 6 million people paying for these homes? That's interesting. Cash is a first answer. Cash could come from selling securities. Or cash could come from a home equity loan on the first home.  Home equity loans would not be considered a mortgage in this case, since the seller would get cash directly. Another possibility for paying for the home would be not paying at all:  if the second home passed from a previous generation, the new owners also would not need a mortgage. Last, and perhaps not so frequent, but certainly possible, is for private sellers to hold mortgages for the second home. That was probably more likely when interest rates were higher, but it's not impossible even today to find a willing seller who will finance the property for you.

It adds up to this: when you are ready to get your second home, there's more than one way to make it happen.

Cancelling Your Real Estate Purchase

The Wall Street Journal ran a story last week about the high rate of cancellations in new home contracts. It seems that they were running about 40% this year, twice last year's rate. They offer some really simple reasons: buyers see new homes listed for less than they were going to pay, or, they were buying contingent on a sale, and their buyer backed out. Sort of the snowball effect.  The interesting thing is that buyers were willing to take the loss, which can be from 1 to 5% of purchase price.

The new home market, however, it quite different from the sales of existing homes. There, cancellation normally runs about 2%. It might be interesting to understand why that is so. I wonder if it has to do with the fact that in one case, you are dealing with corporations, and in the other, usually it's just another person selling their home. And the negotiation to make it a win-win situation may be easier. Often the one selling a home is also buying another one, and everyone wants the deal to go through.

In any case, a word to the wise is sufficient: in this current market, nothing is sure until the check is in the bank!

Who IS buying Second Homes?

Here's an interesting statistic, courtesy of a web site that specializes in Baby Boomers, or as they politely phrase it, The Mature Market (don't you just love that? I know my editor does!)

"Despite anecdotal evidence, the rate of second-home ownership among 50 –60 year olds —the peak demanders for these properties among older households —has remained flat over the 12-year period from 1992-2004. The Early Baby Boomers were no more likely to own such homes than older cohorts of homeowners."

I guess the interesting thing here is that it says, "the rate has remained flat" but it still says that they are the 'peak demanders". That is, if I read it right, boomers represent the majority of second home buyers. It's fine if the number isn't getting bigger, as long as it is still leading the buying group. The article heading is that Boomers aren't as hot on second homes. I don't see that their numbers prove that. As far as I can tell, second homes and baby boomers are still a hot duo. Can someone else read this article and tell me what I'm missing?   

Selling Real Estate in a Buyers Market

A few days ago I was asking for tips on how to sell in a buyers market. This morning, I read one that is such a bad idea, I feel compelled to pass it on, in order to be sure you don't follow it. And this is not a joke. Fox News printed an article about selling in a buyers market, with this advice, "If you're in a buyer's market, consider skipping the agent — you save yourself the 5 percent or 6 percent commission you'd commonly have to pay."

First of all, the comment is from a biased source, someone who runs a for-sale-by-owner business. But more than that, it is totally unhelpful and untrue. What good is saving 5 percent, if you actually can't sell the property in the first place? The point of a buyers market is that selling the property becomes more difficult, because there is more property out there. It's at this time that someone who knows the industry and can guide the seller in both pricing and good marketing, could make the difference between a sale, or sitting on the shelf for a year.

Thanks, Fox News, for the bad advice. Perhaps some basic math would help you: 5% of nothing is still nothing.

Second Homes for Families

Having a specialty sometimes helps everyone. One realtor we read about specializes in helping families find homes. And she had some great tips, that can also be applied to finding a second home.  Some of these might not occur to you to check on, because you assume to know the answer. Look at this list and see if you need to add more to your vacation home search criteria:

- Are there walking trails suitable for you and your toddler?
- Do you need to improve backyard safety for toddlers and pets?
- Will you be able to open the garage without waking up the baby?
-  Will the HOA allow a basketball hoop or tall swing set?

In short, if you are getting a second home for your family's enjoyment, be sure to include the essentials in a 'must-have' list. Thanks to Elena Thurston for these.

Buying in a Buyers Market

With a buyers market in many areas, and certainly vacation homes are no exception, it's great to find some useful tips on how to proceed. And proceed is the key word here. Waiting for prices to keep dropping doesn't actually help you get your dream house. The Orlando Sentinel had a few good points worth passing on to buyers. These stood out for me:
1. When you find the right house at the right price, buy it; don't start haggling just to get a better deal.
2. If you negotiate, do it intelligently; just because it's a buyers market, don't insult the sellers with ridiculous offers.
3. Watch out for gimmicks. This is a good one. If the sellers have give-aways, be sure they are related to the property itself. That's the only thing that is actually adding value to the price.

Now, it would be great to have some tips for sellers!

On-Line Real Estate

It's a no-brainer to understand my commitment to the Internet as a major force in the real estate market.  EscapeHomes.com has certainly proved the premise for the second home buyers and sellers. However, with a soft market in general, what will happen to on-line real estate?  An informative article in Red Herring discusses the future for Internet real estate. The article offered these interesting facts:

- 77 percent of home buyers do online research
- 61 percent of agents still don’t advertise on the Internet

In essence, in a buyers market, the Internet will only grow, and with it, agents will of necessity migrate their adverstising dollars. At the same time, in a buyers market, sellers will look for ways to cut costs, and some of the Internet sites offer reduced commission rates, and more economical adverstising rates. It seems that there will continue to be a necessity for both channels -- the personal agent who helps facilitate the sale, and the web site that can offer instant, conglomerated information that buyers want. Real estate buying will only get better and easier, which is good for everyone, don't you think?

Second Home Criteria

We've often championed making lists of exactly what you want in a second home. However, it may not have been stated often enough... you also need to let the realtors know as well. It sure helps them do a proper search for you. Recently, one of our EscapeHomes readers shared a great example of a list. What I loved about the list was how they helped narrow the search. They included these details:

- Needs to be a four-season home
- What kind of house (ie, log, etc)
- Which 11 counties within their desired state
- The size of the lake and the amount of lake front property they want
- Max purchase price, # of bedrooms, baths
- Age of the house (ie, new)
- Feel of the house (ie, wooded, open, etc)

You can see that with a list like this, they and the realtor save time. No looking at inappropriate sites. And the best part is, with a nice broad geographical area included, there's no way they won't find their dream home. So dream big... and dream specific. Then you get what you want.

Real Estate Future(s)

Everyone has an opinion about the future of the real estate market. However, it was certainly interesting to read and hear one expert talk about the 'futures' of the real estate market. Given the speculative nature of some of the housing markets, it logically follows that a medium would rise up to be able to hedge your bets, so to speak. So now there is a  future's market at the Chicago Mercantile Exchange where you can "short" the Miami home market, for starters.

On a recent "Living on Earth" program on NPR, Yale economist Robert Shiller pointed out that the next round of speculative real estate is most likely to be the coastal areas. More importantly, he explains the challenges that coastal property faces due to the effects of global warming, including more storms and higher sea levels. That, coupled with an already challenging market, is what may make hedging your property the only way to place your bets. Another way... watch where you buy, and stay out of trouble. To me, that's a much safer bet.