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Guaranteed Buyouts Cost Sellers $$$$

One of our former clients in sent us an email today.  They are considering building a new home in Indianapolis and want to find a Realtor or builder who is willing to offer a Guaranteed Buy Out.  Are we interested?  Here was our response.....

We have never taken on a Guaranteed Buyout because we don’t feel it is in the best interests of our clients.  In essence, to provide a GBO we would have to hedge the risk of selling your home.  To do that we would have to offer less as a GBO price than the current market value.  For instance:  We might offer you 80% of your list price for your home if it doesn't sell within a particular time frame.

We have met with some of the best builders around Indianapolis.  Most of them are also hesitant to do a GBO, even if the “new” home is significantly higher priced.  There is a substantial amount of risk involved – particularly in the current real estate marketplace. 

Understandably, the idea of a GBO is very appealing to a seller– mostly because you won’t end up owning 2 homes at the same time at some point in the future.  However there is a cost to that reduced risk.   

In our experience the best way to reduce your cost and maximize your return is to hire a great agent and sell the home out right.  The housing market is very much like the financial market – it is very efficient and if it seems like too good of a deal it probably is.  If a builder is offering a GBO, the dollars are “still in there” – they just move to a different column on the spreadsheet.  A GBO requires a builder to assume the risk of selling your property.  Because the market is efficient they have one of two options:

1.  Offer you less than market value as a GBO price.
2.  Offer you market value, but add the “risk value” to the purchase price of the new home.

Either way there is a cost to you if the home doesn't sell in the designated time. 

You have several different options. 

 Aggressively market your home with an experienced agent, sell your home at a price you are comfortable accepting, then contract with a builder at the very best price you can negotiate. (May require a double move.

Accept a guaranteed buyout price that is significantly below market price, but know you won't own 2 homes at the same time. (From either a builder or broker who is willing to provide a GBO.)

Accept an inflated guaranteed buyout price from a builder and wonder how much just got added to the price of the new home.

We firmly believe that in order to get the best price on your new construction home in Indianapolis, you should negotiate the price independent of any discussion of a guaranteed buyout from a builder.  It's the same principle as negotiating a price on a new car without a trade in!  That way you can know for certain the true cost of your home and compare builders more accurately.  For the most part, our experience has shown that Guaranteed Buyouts Cost Sellers $$$.  Unless you happen to come across a broker or builder that doesn't know the market or is willing to agree to a buyout at market price.  In that case... they will usually end up keeping the home on the market for months after the buyout, accruing steep holding costs, leasing or selling at a significant loss.  In which case the GBO costs them $$$$ and you, the seller WIN!

Homes for Sale in Meadow Bend - 8103 Stoney Bend - SOLD!!!!

Just Sold!!! -- This beautiful home in Meadow Bend is filled with custom amenities seldom seen in this price range. Enjoy formal dinners in the lovely dining room or casual BBQ’s on the large patio overlooking the serene pond and fountain. Versatile floor plan lends itself to entertaining or quiet evenings at home. Plenty of room to play in the large loft or sneak away to the private den or relaxing master suite for some quiet time. Upgrades include 9’ ceilings, extensive crown moldings, corner fireplace, 42’ maple cabinetry, marble vanities, tile floors in baths & entry, Jacuzzi tub, front porch, security system, huge walk-in closets, over sized 3 car garage plus many more. Near I-65 & only 15 mi to downtown Indianapolis.

"Distribution vs Destination"

"It's in the MLS, right?"

That was the number one question from Indianapolis area sellers - in 1990!  Just like today's seller, they wanted to ensure that their listing was visible to every potential buyer, and the local MLS was the single place that published listing information.  Every month the book was printed and distributed to real estate agents.  If your home was on the market it was "in there".  If not, it was nearly invisible to everyone.  

But it's 2009 and the MLS is no longer published in a book -- it's progressed to the internet.  Yet many seller's still ask "I'll be in the MLS -- right?"  Isn't that still the all important destination for listings?

Think about it.  Is the local MLS site the only property search on the internet?  Is it the only one that potential buyers visit?  Absolutely not!  That's why it's so important to not only post listings to the local Indianapolis area MLS, but also more than 65 other websites that online visitors may frequent.  We find that distribution of your listing to many sites on the web trumps leaving it on a single destination that an online looker may or may not visit.  Nearly 90% of buyers begin their search on the internet.  You want them to find your home, wherever they're looking!

Is 65 enough?  No!  We are constantly on the lookout for other internet avenues where we can market our seller's properties.  We find that the more venues we use to find buyers, the better the results.  Here is a sampling of the sites we distribute to today.  Some of them will be familiar, others you may have never heard of, -- but buyers out there are using all of them! 

Metropolitan Indianapolis Board of Realtors' property search website and although the search capabilities may not be as technologically advanced as many other sites, MIBOR.com  is a beginning search point for many buyers when they enter the local market and they'll find all of our listing.  As they continue their home search, many move onto other sites with more features and ease of use such as those below. 

Craigslist is a local classified website with a worldwide reach, currently in 700 cities spread throughout 70 countries.  They are ranked 7^th highest in the world for number of page views with 50 million users in the US alone.  People may start looking for a used sofa, but next thing you know, they're checking out real estate too!  We realize significant clicks back to our website with each new listing posted on Craigslist.  

Realtor.com is the world's largest real estate database of homes for sale and the official site of the National Association of REALTORS.  It's a Buyer favorite for ease of use and the sheer number of listings -- over 3 million properties from all over the US, pulled from nearly every Multiple Listing Service in the country.

Homefinder has 2.5 million listings on their home search site through relationships with over 140 online newspapers  including the Indianapolis Star, LA Times, Chicago Tribune, Miami Herald and Newsday Long Island, just to name a few!  Participating agents can choose to advertise at different levels.  All of our listings are upgraded to the "Enhanced Platinum Package" which means they contain special features like unlimited pictures, virtual tours and are posted at the top of each page of search results.

Active Rain is a social network and marketing platform for real estate professionals. It allows us to develop business relationships with agents around the country sharing the latest industry updates in addition to connecting with consumers through blogging.  We regularly post articles on a variety of real estate topics plus local area content and of course feature all of our listings.  Active rain ranks very high in the search engines, sending "goggle juice" to our website -- providing more exposure for your property.  

Localism is an online blogging platform where neighbors and local real estate professionals connect to talk about what is happening in their communities.   It's part of the Active Rain Community in which we are members and proudly participate.  We post listings, price adjustments, open houses and other local area news on a site your neighbors frequent.

PerfectPlaceForYou is our team website which provides real estate information for both buyers and sellers and features the best real estate search technology we've seen -- and we've done a lot of research on this!   Investing in this state of the art search brings more buyers to our site and keeps them there!  It also allows us the added control to place our listings at the top of every search results page, providing higher visibility and more "on-line showings". 

IndyChats is our team blog.  We author articles about local community events, real estate news and provide extra exposure for our clients by including blogs about new listings, price adjustments, open houses and other interesting information.  This blog drives traffic back to our website ensuring more exposure for our listings.

Facebook is one of the most popular and fastest growing social networks.  All of our listings are posted on our new Hoagland Group Real Estate Consulting Business Page and we network with many clients, prospects and other agents through our personal pages as well.  Send us a friend invitation!

Twitter is an engaging micro-blogging services that allows users to send out short messages known as "tweets".  All of our blogs, including new listings, open houses, etc. are posted on twitter.

CallCarpenter is the home website of our brokerage firm, CallCarpenter.com offers quick and easy searches for homes throughout Central Indiana.  All Carpenter listings received the enhanced Guided Tour feature.

Backpage.com is a group of local community classified sites operated by various local media outlets including newspapers, radio stations, and television stations.

 Trulia is a well known site and a popular place for many buyers to begin their real estate search.  They offer a content rich, intuitive experience that directs viewers back to our website for more details on the listings we post there.

Topix is the world's largest community news website and has a proven record of high Google rankings.  You can search for news on national or local town level.  Topix also monitors and ranks 25,000 blogs and we are excited to have recently been selected to add ours to the list!

RELOHomeSearch is an exclusive service of the Leading Real Estate Companies of the World^®, the #1 family relocation network in the country,  of which Carpenter, and more than 600 other top local companies around the world participate.  Together, these local firms produce more than any national franchise and all of our listings are included on their excellent Real Estate search and community research website. That means more out-of-town buyers for your home.

HomesAndLand.com combined with Homes & Land magazine reaches a large, qualified home buying audience with more than 1.48 monthly unique visitors.

Homes.com is one of the nation's top online destinations for real estate listings, with a database of nearly one-million homes for sale.

Point2Agent is a neighborhood based search which is provided through our website hosting company, Point2, designed to generate traffic and leads back to us.  Our listings are also populated to other Point2 agent's personal websites putting your property in front of more buyers.

 Check out other marketing solutions the Hoagland Team uses to "Capture the Eyes of Buyers"!

Selling Your First House?  -- Here's the Scoop! (Part 3 - Title Insurance)  -- So what is Title Insurance, why do you need it and how expensive is it?

The most important thing to know is that it protects your family, the buyer and the lender against any possible future questions over legal ownership of the property.  Prior to all closings in Indiana, a title company will complete a title search to see if there are any known defects or liens against the title -- in other words, does the person selling the home really own the property and has anyone filed a lien against it for unpaid debt?  (Like the county for unpaid taxes or a contractor who performed work on the property, but was never paid)  If something arises from that search, it will need to be remedied prior to closing, but what if something surfaces after closing?  Chicago Title, explains it this way:

How can there be title defect if the title has been searched and a loan policy issued?
Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.

What title insurance protects against.
Here are just a few of the most common hidden risks that can cause loss of title or create an encumbrance on title:

• False impersonation of the true owner of the property
• Forged deeds, releases or wills
• Undisclosed or missing heirs
• Instruments executed under invalid or expired power of attorney
• Mistakes in recording legal documents
• Misinterpretations of wills
• Deeds by persons of unsound mind
• Deeds by minors
• Deeds by persons supposedly single, but in fact married
• Liens for unpaid estate, inheritance, income or gift taxes
• Fraud

If the property is being purchased using a mortgage loan, there will be two simultaneous policiies.  The seller normally purchases a policy to protect the buyer, while the buyer purchases an additional policy to cover their lender.  The rates are based on the sales price.  In Indianapolis and surrounding areas, a policy purchased by the seller for the buyer might range from as little as $600 for a $100,000 property to $1,070 for a $500,000 sale.  This should be part of the Estimated Net Proceeds document that any good agent will complete for you when listing your home. 

For more information on Title Insurance, visit Chicago Title's website.

Other blogs in this series:

Here's the Scoop! (Part 1 - Real Estate Fees)

Here's the Scoop! (Part 2 - Indiana's Pro-rated Taxes)

Show me the money!  How much do you walk away with after the sale of your home?   That's what you really want to know -- right?  Here's the calculation:

Sales Price - Your Mortgage Payoff - Expenses  =  Net Proceeds. 

A good listing agent will provide you with an estimate of these Net Proceeds based on different sales prices prior to placing your home on the market.    Later, when you receive an offer, your agent will revise this estimate based on the specific variables in the offer. 

Examples of common seller expenses are:  Brokerage Fees (covered in Part 1), Pro-rated Property Taxes, Title Insurance, Home Warranty, Recording Fees, and other Misc Fees which vary with each transaction.

In part 2 of this series, we're tackling the subject of pro-rated taxes.  If you live in almost any other state...it's probably no big deal.  But if you live in Indiana, where taxes are billed one year in arrears.....it's a crazy big deal!  So, here's a brief and hopefully easy to understand explanation of how pro-rated taxes work in the state of Indiana ("easy" and "property taxes" -- now that's truly an oxymoron!)

In Indiana, property taxes are billed twice a year, in May and September for the prior year.  It works like this:  In May of 2009 a tax bill was mailed, from the county where the property is located, for payment of property taxes for the period of January 1 through June 30 of 2008.  In September 2009 a second tax bill will go out for payment of taxes for the period of July 1 through December 31, 2008.  This continues each year until a homeowner decides to sell their home.  At the time of closing, since the seller has been paying a year in arrears, they will need to "catch up" on taxes through the date of closing.  Understand, the homeowner isn't behind in their payments.  The county hasn't billed them yet! 

Let's look at an example of how this affects a seller:  It's June 1, 2009 and you've just successfully negotiated an offer to sell your home and the closing is scheduled for June 30.  The purchase agreement specifies taxes are to be pro-rated through date of closing, which is customary in Indiana.  You've already paid the May 2009 bill which was applied to the taxes for the first half of 2008, but you still owe taxes from July 1, 2008 through date of closing, June 30, 2009, even though these have not yet been billed. 

For our example, let's say that taxes on this property are $2000/half (every 6 months), as the seller you will be required to pay the buyer $4000 at closing in order to "catch up" to the date of closing.  Why does the money go to the buyer?  Why doesn't it go to the county?  Good question.    Because the seller has paid all of the taxes which have billed, the county won't accept "pre-payment" for future bills.  That means that the next bill in September 2009 will go to the new homeowner, even though it's for a time period prior to their purchase of the home.  Make sense?

This pro-rated tax amount can be a significant number and may seriously impact a seller's bottom line.  Here's the good news.    When you purchase your next home, the seller of that property will also be paying you a lump sum at closing to cover taxes which are due, but not yet billed.

Well that's a brief and over simplified explanation of pro-rated property taxes for Hoosiers.    Over simplified???? Unfortunately, yes!   For instance, not all counties bill at the same time of year, and many counties, like Marion (Indianapolis) are often billing an additional 6 months or more behind.   The good news? -- You don't need to understand every scenario, that's why you hire a knowledgeable agent to guide you through the process!

For more detailed information regarding Indiana Property Taxes:

• General Property Tax Information
• Property Tax Deductions
• Property Tax Appeals Process
• Learn Where Tax Dollars Are Spent in Indiana