The Town Broker

Archive for July, 2010

Buying Your Westfield Home: The Cost Of Renovation

When I’m working with buyers looking for a home in Westfield (or any town with traditional older homes) it’s common to discuss a big decision: Should they buy a more expensive home that is “turn-key ready”, or buy cheaper and then do the renovation themselves?

I had the opportunity to spend some time this weekend with some Westfield buyers facing just that dilemma. Fortunately, they had the resources to do either one. So how should a buyer approach this decision?

Calculating The Renovation Cost and The Time Value Of Money.

It’s important to begin this discussion by acknowledging that there are a LOT of factors that come into play when selecting the perfect home. Location… including the quality of the neighborhood, schools and commuting distance to work are among the most important. This post assumes that everything else is equal, and that the buyer is deciding whether to buy a more expensive ”turn- key ready” home in the neighborhood, or one that needs major upgrading. It also assumes that the buyer has the finances and resources to do this without relying on some crazy exotic mortgage product to do it.

If you read this blog frequently, you know how I feel about people getting over extended!

In order for my buyers to consider the older Westfield home, they would want to do these 2 common home renovation projects: 1) a two-story addition, 2) a major kitchen remodel. According to Remodeling Magazine’s 2009/10 Cost vs. Value Report, the cost of these jobs done at the “mid-range project level” in the NY metro area is as follows:

1. Two-story Addition – $201,780
2. Major Kitchen Remodel – $69,069

The total for this work is $270,849 …hardly small change! But if they could save enough on the purchase of the older Westfield home, it might be worth it, right? Maybe.

Let’s assume for a moment that since we’re EXCELLENT negotiators (smile) we were able to get the older home for a full $350K LESS than the renovated home in the same Westfield neighborhood. Looking at these numbers, the cost of the renovation seems to pay for itself, right? Maybe…and maybe not. Here’s why:

It’s all about LEVERAGE

Real estate is one of the most leveraged purchases you can make. That is…most buyers use very little of their own money to secure the deal. They put up a down payment (we’ll assume 20% for this post), and use the bank’s money to leverage the rest.

And leverage can be very helpful when paying for home renovation.

According to Bankrate.com at the time of this writing, a 30-year fixed mortgage is going for 4.59%/ year. And according to their mortgage calculator, if you were to finance the full $350K for the “already renovated home”, it would cost you an additional $1792/month for the principal and interest.

If you started the remodeling of the older home on the day you moved in, how long do you think it would take to complete? Let’s say it took 1 full year. According to the numbers above, you’ll need to pull $270,849 out of your personal investments within 1 year to pay the contractor. The fully remodeled home would have only cost you an additional $21,504 over that same year ($1792 x 12 months).

In fact, at $1792/ month it would take 151 months… 12 years and 7 months…before you spend the $270K you forked over in year 1 of the remodel.

A buyer needs to consider how long they’re planning on staying in this house. The average American moves every 7- 10 years (although I’m beginning to see these numbers increase in our area). So in this example, if you financed the renovation and planned to move before year 12, you came out ahead (at least on the ledger).

The good news for the re-modeler is that you get to make the home your own. You can do the job the way YOU want to. But the bad news is that you have to tie up a lot of money to do it. A lot of your “liquid assets” will be converted into home equity… a very “illiquid” asset at best.

By leveraging these remodeling  jobs your money could be used in other ways during this time (college costs come to mind).

Now I know that there will be those who criticize this post saying “hey… he’s in a commission based sales business. Of course he’ll advocate for the more expensive house!” That’s a fair criticism. And my builder friends…many who are already struggling in this economy… might be really angry after reading this!  I hope not.

My purpose here is not to advocate one option over the other. It IS to encourage people to think past the dollar figures and think of renovation costs in terms of “money spent” vs. “money leveraged”.

Deciding which option is best for you depends on your specific situation.

Westfield NJ Homes For Sale – Life After Tax Credit

Did you hear the sound? You know…the “thud” that occurred in May, and then echoed throughout June?  It was the sound of the local housing market falling on its face as the home buyer’s tax credits expired. But for those who had Westfield NJ homes for sale, the market remained stable. Well…only for those that were priced properly!

Westfield NJ Homes For Sale: It’s STILL All About Price!

As an active real estate broker, I had my concerns that the home buyer’s incentive could be creating a “bubble” in the local housing market. Many in the industry worried that the credit might not actually stimulate as many new buyers as hoped, but rather move the existing buyers into an earlier buying decision. If that was the case, then buying activity could exceed recent trends prior to the phasing out of the credit, and then drop off dramatically afterward.

So what actually happened?

The charts below show the homes placed under contract from January through June. The first is Union County, and the second is Westfield, NJ. Pay close attention to the yellow line in both graphs (which represents 2010). Notice how pending sales exceeds 2008 & 2009 in through the spring. But when the Home Buyer Tax Credit expired on April 30th? Ouch!

The Westfield market took a while to get going this spring (again, the yellow line), but by March, it exceeded both 2008 & 2009 in terms of pending sales. But the elimination of the buyer incentive was felt here as well, as pending sales fell below previous levels in May & June.

So what does PRICE have to do with anything?

As I mentioned in a previous post, homes that come to market priced properly (with the original list price within 5% of the final sale price) sell faster, and for a higher percentage of their original last price. So which homes went under contract AFTER the tax credit expired? Those that were priced properly!

Take a look at these two graphics. They represent the 22 Westfield listings that went under contract AFTER April 30th AND closed by the time of this posting. The first chart shows the homes that came to market priced RIGHT (original price within 5% of the final sale price). The average return was a whopping 99.39%. For those who priced too high out of the gate, the return was only 85.7%

And what about time on market? Those that were right priced sold in an average of 15 days. And those that came on too high and needed to have a price adjustment? The average here was 98 days on market.

So what is the take away here?

At first blush, it looks like the home buyer tax credit DID move buyers into an earlier decision, rather than stimulate additional buying activity. (We’ll need a few more months of data to know for sure.) But if this IS the case, then the pool of available buyers could be smaller than usual in the upcoming months.

Sellers MUST understand that PRICE is critical. This is NOT the time to “test the market” with an inflated price. Buyers know value when they see it.  As this data proves once again, if you come to market with no more than a 5% cushion for negotiation, you’ll sell faster and retain your price. If you ask for too much, the market will wait for you to get it right.

And if the buyer pool is smaller for the remainder of the year, you could be waiting a LONG time!

Tags: Westfield NJ Homes For Sale

Garwood NJ Home Sales – June 2010

Garwood NJ Home Sales - June 2010

(The following data is provided by the Garden State Multiple Listing Service, LLC. It is deemed to be reliable, but is not guaranteed.)

• Average List Price For Active Listings     =     $387,144
• Number of New Listings Entering Market     =     4
• Number of Listings Placed Under Contract     =     1
• Absorption Rate     =       17.0 Months
• Number of Sales Closed During Month     =      4
  • Average Original List Price     =     $415,700
  • Average Sale Price     =     $402,250
  • Average OLP/SP Ratio     =     96.76%
  • Average Days on Market     =     58

The Following Is The List of Sold Homes Sorted by Closing Date

Street#	Street	Town	OLP	SP	CLOSED	DOM
205	HEMLOCK AVE*	Garwood Boro*	$369,900	$345,000	6/23/2010	38
208	2ND AVE*	Garwood Boro	$349,000	$345,000	6/29/2010	18
228	2ND AVE	Garwood Boro	$349,900	$335,000	6/30/2010	94
345	HEMLOCK AVE*	Garwood Boro	$594,000	$584,000	6/30/2010	81

For additional information on these or any other homes sold in Garwood, contact Hal Benz - Garwood NJ’s Home Sale & Short Sale Specialist. 908-216-4836

Tags: Home Sales, market report

Kenilworth NJ Home Sales – June 2010

Kelilworth NJ Home Sales - June 2010

(The following data is provided by the Garden State Multiple Listing Service, LLC. It is deemed to be reliable, but is not guaranteed.)

• Average List Price For Active Listings     =     $394,687
• Number of New Listings Entering Market     =     11
• Number of Listings Placed Under Contract     =     5
• Absorption Rate     =       6.6 Months
• Number of Sales Closed During Month     =      6
  • Average Original List Price     =     $342,117
  • Average Sale Price     =     $307,917
  • Average OLP/SP Ratio     =     90.0%
  • Average Days on Market     =     63

The Following Is The List of Closed Home Sales Sorted by Closing Date

Tags: Home Sales, market report

Roselle Park NJ Home Sales – June 2010

Roselle Park NJ Home Sales - June 2010

(The following data is provided by the Garden State Multiple Listing Service, LLC. It is deemed to be reliable, but is not guaranteed.)

• Average List Price For Active Listings     =     $282,627
• Number of New Listings Entering Market     =     15
• Number of Listings Placed Under Contract     =     6
• Absorption Rate     =       17.67 Months
• Number of Sales Closed During Month     =      8
  • Average Original List Price     =     $264,375
  • Average Sale Price     =     $249,375
  • Average OLP/SP Ratio     =     94.33%
  • Average Days on Market     =     48

The Following Is The List of Closed Home Sales Sorted by Closing Date

Tags: Home Sales, market report

Mountainside NJ Home Sales – June 2010

Mountainside NJ Home Sales - June 2010

(The following data is provided by the Garden State Multiple Listing Service, LLC. It is deemed to be reliable, but is not guaranteed.)

• Average List Price For Active Listings     =     $840,424
• Number of New Listings Entering Market     =     13
• Number of Listings Placed Under Contract     =     2
• Absorption Rate     =       30.5 Months
• Number of Sales Closed During Month     =      7
  • Average Original List Price     =     $645,100
  • Average Sale Price     =     $607,698
  • Average OLP/SP Ratio     =     94.2%
  • Average Days on Market     =     38

The Following Is The List of Closed Home Sales Sorted by Closing Date

Tags: Home Sales, market report

Springfield NJ Home Sales – June 2010

Springfield NJ Home Sales - June 2010

(The following data is provided by the Garden State Multiple Listing Service, LLC. It is deemed to be reliable, but is not guaranteed.)

• Average List Price For Active Listings     =     $463,242
• Number of New Listings Entering Market     =     23
• Number of Listings Placed Under Contract     =     12
• Absorption Rate     =       8.67 Months
• Number of Sales Closed During Month     =      12
  • Average Original List Price     =     $436,108
  • Average Sale Price     =     $411,242
  • Average OLP/SP Ratio     =     94.3%
  • Average Days on Market     =     64

The Following Is The List of Closed Home Sales Sorted by Closing Date

Tags: Home Sales, market report

Clark NJ Home Sales – June 2010

Clark NJ Home Sales - June 2010

(The following data is provided by the Garden State Multiple Listing Service, LLC. It is deemed to be reliable, but is not guaranteed.)

• Average List Price For Active Listings     =     $456,397
• Number of New Listings Entering Market     =     20
• Number of Listings Placed Under Contract     =     8
• Absorption Rate     =       12.25 Months
• Number of Sales Closed During Month     =      17
  • Average Original List Price     =     $448,847
  • Average Sale Price     =     $411,647
  • Average OLP/SP Ratio     =     91.71%
  • Average Days on Market     =     84

The Following Is The List of Closed Home Sales Sorted by Closing Date

Tags: Home Sales, market report

Fanwood NJ Home Sales – June 2010

Fanwood NJ Home Sales - June 2010

(The following data is provided by the Garden State Multiple Listing Service, LLC. It is deemed to be reliable, but is not guaranteed.)

• Average List Price For Active Listings     =     $444,549
• Number of New Listings Entering Market     =     13
• Number of Listings Placed Under Contract     =     2
• Absorption Rate     =       21.5 Months
• Number of Sales Closed During Month     =      12
  • Average Original List Price     =     $463,467
  • Average Sale Price     =     $435,292
  • Average OLP/SP Ratio     =     93.92%
  • Average Days on Market     =     42

The Following Is The List of Closed Home Sales Sorted by Closing Date

Tags: Home Sales, market report

Scotch Plains NJ Home Sales – June 2010

Scotch Plains NJ Home Sales - June 2010

(The following data is provided by the Garden State Multiple Listing Service, LLC. It is deemed to be reliable, but is not guaranteed.)

• Average List Price For Active Listings     =     $595,837
• Number of New Listings Entering Market     =     48
• Number of Listings Placed Under Contract     =     19
• Absorption Rate     =       9.26 Months
• Number of Sales Closed During Month     =      35
  • Average Original List Price     =     $555,911
  • Average Sale Price     =     $525,941
  • Average OLP/SP Ratio     =     94.61%
  • Average Days on Market     =     63

The Following Is The List of Closed Home Sales Sorted by Closing Date

Tags: Home Sales, market report