Expert: Russel Ray - 10/7/2007

Question
Hi, I have a couple questions about our equity.  We have a first loan for 314K and a second (equity) for 141K.  A couple years ago homes like ours were selling in the mid 500K range I think we appraised at 529K..They have come down a little where we live and havent gone up like that had in the past.  My husband is concerned about moving now because he feels in addition to the slow market if we have to keep reducing we could come out with maybe 50K not including realtor fees and all that this is if we can get 500K.....500K always was our magic number we didnt want to go down but he thinks we may have to.  Do you think there is any way to be able to move if we only look at homes that are in the 450K range which I think would be what Im paying a month now? We jsut want more yard and room for the kids....I really wanted to move this spring but he is having second thoughts.  Does the second loan have to be paid off. is there any other way to do them seperate or do they go hand in hand at settlement? Its very scary right now.  THank you, Jen in Md

Answer
Hey, Jen.

If you sell the house, then both loans will be paid off with the proceeds from the sale. That's just the way the system works. However, if you're current on your payments, and have good credit, you might be able to do 100% financing on the new home since the second lender would still like to have your business.

Remember that Realtor fees are negotiable. Also get the best Realtor, one who is having success in the slow market. They are out there but you will have to search for them. Some of the well-established Realtors have enough money from the good times to see them through the bad times, so don't hire a Realtor just because you see his/her name everywhere. Make sure that they are having success selling homes in the slow market--references, references, references.

The best time to move is when you don't have to move, so if you're considering moving, then start checking out homes now at realtor.com and other Internet sites. You'll get a good feel for the homes that are out there and what they are selling for.

Also, since you don't have to move, spend some time and some money making sure that your home is in tip-top shape. Don't overspend, though. I recently tried to help a couple renovate their home and was only able to reach the dad, and mommy carried the day. She upgraded the kitchen with the priciest of kitchen appliances and then she wanted all her money back, and then some, when they sold the house. The neighborhood and the market just won't support it.

For example, let's look at a refrigerator. They range in price from $199 to over $5,000. Interestingly, regardless of the price, the manufacturer's warranty is always one year. So don't buy the $5,000 refrigerator if you're going to sell. The $199 does just as good a job refrigerating and freezing foods as the $5,000 refrigerator and comes with the same warranty. The difference is in convenience since the $5,000 unit spits out water and ice through the front door and has 25 cubic feet of space.

I was going to provide you with a short list, but rather than do that, check out this document that I make available to my property inspection Clients:

http://www.abouthomes.info/NACHI/Marketing/0001-Preparing-for-a-buyer's-home-ins...

That has lots of little things that you can do that will make your house show much better than the competition, unless one of my Maryland friends is using my document in his service area.

The areas where you want to spend most of your time is in curb appeal, so make sure the lawn is green and cut, that bushes and trees are not overgrown, that walkways are clear, etc. Make sure that the exterior has a good coat of paint on any wood sections.

Next, work in the kitchen and bathrooms. Those are areas where people can usually get all their investment back, and sometimes more.

The best Realtors have success in a slow market will usually want to sell your property at their highest commission rate. However, if you have your home in show condition, then the Realtor won't have as much work to do, so don't let them over-commission you just because they are successful in a slow market.

Also, go with a 90-day contract. If the Realtor doesn't want to do that, even in a slow market, then find another Realtor. A Realtor who knows how to work in the slow market will be happy to sign another 90-day contract if necessary.

I once renovated a very high-end property and, not having experience selling such a property, contracted with a Realtor who did. Unfortunately, as soon as we contracted with her, she took off on a 30-day cruise to Rio. Now those types of cruises are not something that you book overnight, so she should have disclosed to me that she was leaving for 30 days and would not be holding any open houses while she was gone. She didn't, and I held eight open houses myself while she was gone and garnered two purchase offers and accepted one. Ms Realtor came back and wanted her 3% cut of the pie. I've only lost my temper three times in my life, once each decade since 1973, and that was one of them. After weeks and weeks of fighting, she lowered her commission to 1½% and the buyer's Realtor paid that out of his commission because I wasn't about to pay her anything at all.

So the moral of the story is, do your due diligence when searching for a Realtor, but even then don't sign them for more than a 90-day contract. If you can, also make sure that it is an open listing (I think that's what it's called) so that if your boss decides that he wants to buy your house and use it as rental income property, you can sell it directly to him and skip the Realtor, thereby skip paying the Realtor fees. Some Realtors won't want to work with an open listing, but many will, especially those with confidence that they will find a buyer before you do. You want to leave all your options open, though.

If you need any help about deciding what improvements or maintenance to do around your home, check back with me.

Good luck with everything.