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More buyers priced out of the market with higher rates | North Salem Real Estate

By Na Zhao, Ph.DNAHB Economics and Housing Policy GroupReport available to the public as a courtesy of HousingEconomics.com

This article announces NAHB’s “priced out estimates” for 2019, showing how higher home prices and interest rates affect housing affordability. The 2019 U.S. estimates indicate that a $1,000 increase in the median new home price would price 127,560 U.S. households out of the market. In other words, 127,560 households would qualify for the new home mortgage before the change, but not afterwards. Similarly, 25 basis points added to the current mortgage rate would price out around 1 million households. The article also includes priced out estimates for individual states and more than 300 metropolitan areas.

The Priced Out Methodology and Data

The NAHB Priced Out model uses the ability to qualify a mortgage to measure housing affordability, because most home buyers finance their new home purchase with conventional loans, [1] and because convenient underwriting standards for these loans exist. The standard NAHB adopts for its priced-out estimates is that the sum of the mortgage payment (including the principal amount, loan interest, property tax, homeowners’ property and private mortgage insurance premiums (PITI), is no more than 28 percent of monthly gross household income.

As a result the number of households that qualify for mortgages for a certain priced home depends on the household income distribution in an area and the mortgage interest rate at that time. The most recent detailed household income distributions for all states and metro areas are from the 2017 American Community Survey (ACS). NAHB adjusts the income distributions to reflect the income and population changes that may happen from 2017 to 2019. The income distribution is adjusted for inflation using the 2018 median family income published by the Department of Housing and Urban Development (HUD) for all states and metro areas, and then extrapolated it into 2019. The number of households in 2019 is projected by the growth rate of households from 2016 to 2017.

The assumptions of the priced out calculation include a 10% s down payment and a 30-year fixed rate mortgage, at an interest rate of 4.85%. For a loan with this down payment, private mortgage insurance is required by lenders and also included as part of PITI. The typical private mortgage insurance annual premium is 73 basis points[2], based on the standard assumption of national median credit score of 738[3] and 10% down payment and 30-year fixed mortgage rate. Effective local property tax rates are calculated using data from the 2017 American Community Survey (ACS) summary files. Homeowner’s insurance rates are constructed from the 2016 ACS Public Use Microdata Sample (PUMS).[4] For the U.S. as a whole, the property tax is $12 per $1,000 of property value and the homeowner insurance is $4 per $1,000 property value.

Under these assumptions, 32.7 million of the 122.5 million U.S. households could afford to buy a new median priced home at $355,183 in 2019. A $1,000 home price increase thus would price 127,560 households out of the market for this home. These are the households that can qualify for a mortgage before a $1,000 increase but not afterwards, as shown in Table 1 below.

Table 1. US Households Priced Out of the Market by Increases in House Prices, 2019

State and Local Estimates

The number of priced out households varies across both states and metropolitan areas, largely affected by the sizes of local population and the affordability of new homes. The 2019 priced-out estimates for all states and the District of Columbia are shown in Table 2 (available in the Additional Resources box), which presents the projected 2019 median new home price and the amount of income needed to qualify the mortgage, and the number of households could be priced out if price goes up by $1,000. Among all the states, Texas registered the largest number of households priced out of the market by a $1,000 increase in the median-priced home in the state (11,152), followed by California (9,897), and Ohio (7,341).

Table 3, which is available in the Additional Resources box, shows the 2019 priced-out estimates for 382 metropolitan statistical areas. The metropolitan area with the largest priced out effect, in terms of absolute numbers, is Chicago-Naperville-Elgin, IL-IN-WI, where 4,499 households are squeezed out of the market for a new median-priced home if price increases by $1,000. This is largely because Chicago is a populous metropolitan area with a large number of households; and, compared to the largest metropolitan areas on the East and West costs, the median priced home is more affordable to begin with. Around 27% of households there are capable of buying new median-priced homes. For similar reasons, Houston-The Woodlands-Sugar Land, TX metro area, where nearly 33% of households can afford median-priced new homes.to begin with, registered the second largest number of priced out households (3,546), where nearly 33% of households can afford median-priced new homes. In New York-Newark-Jersey City, NY-NJ-PA, 3,531 households are squeezed out of the housing market for a new median-priced home if price increases by $1,000. Compared to Chicago or Houston, the median-priced new home is affordable to a smaller share of the households in New York, but New York is the largest metro area by population size with over 7 million households.

Interest Rates

The NAHB 2019 priced-out estimates also present how interest rates affect the number of households would be priced out of the new home market. If the mortgage interest rate goes up, the monthly mortgage payments will increase as well and therefore higher household income thresholds to qualify a mortgage loan. Table 4 shows the number of households priced out of the market for a new median priced home at $355,183 by each 25 basis-point increase in interest rate from 2.85% to 10.85%. When interest rates goes up from 2.85% to 3.10%, around 1.26 million households could no longer afford buying median-priced new homes. An increase from 4.85% to 5.10% could price approximately one million households out of the market. However, about 423,000 households would be squeezed out of the market if interest rate goes up to 10.85% from 10.6%. This diminishing effects happen because only a few households at the thinner end of household income distribution will be affected. On the contrary, when interest rates are relatively low, 25 basis-point increase would affect a larger number of households at the thicker part of income distribution.

Table 4. US Households Priced Out of the Market by an Increase in Interest Rates, 2019

Footnotes[1]According to the 2017 American Housing Survey (funded by HUD and conducted by the Census Bureau), 74 percent of the home buyers who moved into their homes in 2016 or 2017 had a regular primary mortgage on the home.[2]Private mortgage insurance premium (PMI) is obtained from the PMI Cost Calculator( https://www.hsh.com/calc-pmionly.html)[3]Median credit score information is shown in the article “Four ways today’s high home prices affect the larger economy” October 2018 Urban Institute https://www.urban.org/urban-wire/four-ways-todays-high-home-prices-affect-larger-economy[4]Producing metro level estimates from the ACS PUMS involves aggregating Public Use Microdata Area (PUMA) level data according to the latest definitions of metropolitan areas. Due to complexity of these procedures and since metro level insurance rates tend to remain stable over time, NAHB revises these estimates only periodically.

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http://www.nahbclassic.org/generic.aspx?genericContentID=265844&_ga=2.145431924.1759393123.1547037557-774800730.1539205172

Soaring lumber prices hitting home buyers, rehabbers | North Salem Real Estate

2_By_4_Clue_Stick.jpg (1132×1052)

Ranjit Sharma is a custom home builder, who specializes in upscale houses with fine trim and old world woodwork.

His company has been on a tear the past five years, thanks to the soaring housing market.

But he now worries about rising prices from tariffs on Canadian lumber that have sent the price of the beams, joists, and other wood he uses up almost 10 percent this year.

“Everything from the framing to the roofing to the interior trim,” he said,” has had price hikes.”

Reasons for price hikes

It’s not just tariffs causing the price spike:  Western wildfires and last year’s hurricanes in Texas and Florida are also causing many of Sharma’s suppliers to raise prices on materials like drywall.

“We have also seen prices on steel, drywall, flooring, concrete, and just about everything go up,” he said.

And these soaring prices can impact you not only if you are building a new home, but even if you are just rehabbing your kitchen, or replacing your back deck.

Not just home builders affected

Outside a Home Depot store in Deerfield Township, Jack Allen was loading supplies to build a deck and fence.

He says the price of cedar, that he was hoping to use for the fence, has almost doubled in the past year.

“Can’t afford a cedar fence any longer. Each picket is about $4, and there are two pickets every one foot.”

As a result, he’s downgrading to cheaper pressure treated lumber, which will lower his fence cost by a third.

For now, builder Ranjit Sharma is not passing along the price hikes to his home buyers. But he may soon because it’s about to cost him $5,000 – $10,000 more for each house he builds.

What can you do if you are planning a construction project? Builders suggest that cash-strapped homeowners:

Ask about cheaper wood, if you are using cedar or other woods that have spiked in price.

Downside the project (in other words, reduce the size of that deck).

Consider wood-look laminate flooring instead of real wood.

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https://www.abc27.com/news/consumer/don-t-waste-your-money/soaring-lumber-prices-hitting-home-buyers-rehabbers/1410436782

Baby Boomers won’t downsize homes anytime soon | North Salem Real Estate

Spring house

Baby Boomers are staying put and their kids are sticking with them.

A study released Thursday by Trulia examined the housing situations of homeowners 65 and older and compared it with a decade ago.

It uncovered a 3.4% jump in the number of seniors working in 2016 compared with 2005, and a 1.7% increase in the number living with younger generations.

It also showed that seniors appear to be holding off on downsizing just the same as they were 10 years prior.

Only 5.5% of seniors moved,according to Trulia, and of those who did, the split was pretty even between single-family and multifamily residences.

But Trulia analyst Alexandra Lee points out that while the percentage of downsizers hasn’t changed, the number of those moving actually has.

“Because the Boomer generation is so much larger than previous generations, that 5.5% moving rate translates into very different raw numbers across the years,” Lee wrote. “There were about 7 million more senior households in 2016 than 2005, meaning 386,000 more senior households moved in 2016.”

The age at which seniors decide to downsize has also shifted. The survey revealed that in 2005, seniors were moving into multifamily residences by age 75. By 2016, this had moved to 80.

The study sought to examine whether Baby Boomers holding onto their homes was driving up home prices. In looking at the nation’s top 100 metros, it determined that Boomers were not eroding affordability.

“Like the general population, seniors in expensive and unaffordable metros rent at much higher rates,” Lee wrote. “The higher the income required to purchase the median home, the lower the proportion of senior households that could downsize.”

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https://www.housingwire.com/articles/46757-baby-boomers-wont-downsize-homes-anytime-soon?utm_campaign=Newsletter%20-%20HousingWire%20Daily&utm_source=hs_email&utm_medium=email&utm_content=65785845&_hsenc=p2ANqtz-8DJkz26bVvBlKjbpqVtwDRlTZEW2huOUt-knTDcKEEdq4EO-a-n_9-htcpsaznU7v7J7YkAGQyY0DPwieutdTFa6lf3Q&_hsmi=65785845

Houseplants help clean the air | North Salem Real Estate

Houseplants can improve your life in many ways (more on that later), but if you’re expecting that peace lily on your desk to rid your home of toxins, you’re in for a surprise.

1989 NASA study attempted to find new ways to clean the air in space stations. Despite some pretty neat findings, it never claimed houseplants are great at removing chemicals from your home’s air — although countless articles have since cited the study as proof of that point.

And the headline “Houseplants Remove Toxins” does sound a lot more exciting than the report’s actual statement:

“Low-light-requiring houseplants, along with activated carbon plant filters, have demonstrated the potential for improving indoor air quality by removing trace organic pollutants from the air in energy-efficient buildings.”

And if you thought that was a buzzkill, the paper’s summary continues to disappoint:

“Activated carbon filters containing fans have the capacity for rapidly filtering large volumes of polluted air and should be considered an integral part of any plan using houseplants for solving indoor air pollution problems.”

In other words, even if your dracaena had the potential to remove trace toxins from your energy-efficient home, you’d still need to recreate NASA’s complicated system, which blows air through the activated carbon in the plant’s root zone.

Furthermore, if you see a list of the best plants for removing toxins, it’s nothing more than a list of the plants used in the study.

So can houseplants purify my air or not?

In theory, yes. But if you’re thinking of making your own botanical air filtration system, you’ve got a lot of work to do.

As an EPA reviewer explained in 1992, “To achieve the same pollutant removal rate reached in the NASA chamber study,” you would need “680 plants in a typical house.”

You’d be better off buying an actual air filtration system or, at the very least, vacuuming more often.

Yes, it’s true that some plants in the NASA list were more effective at removing benzene, trichloroethylene, and/or formaldehyde than others, but the amount is so negligible that neither the American Lung Association nor the EPA recommends using houseplants to improve your air.

Taking it a step further, both organizations warn that houseplants can worsen your air quality, introducing bacteria that grows in damp potting mix or pesticides used by the nursery.

Don’t let that discourage you from indoor gardening, though. If you’re that worried about your air quality, you’d never step outside in the first place.

In any case, here’s how to keep your houseplants squeaky clean:

  • Dust those leaves! While you’re at it, dust the house.
  • Keep potting mix in its place with an ornamental mulch of river rocks or gravel.
  • Avoid using pesticides whenever possible.
  • Place saucers under each plant to catch excess potting mix.
  • To prevent mold, water plants only when the top half inch of the potting mix is dry.
  • Remove any diseased, yellowed, damaged, or fallen leaves.

Grow houseplants for happiness

True story: I once grew over a hundred plants in my tiny apartment, and I can attest that there was nothing clean about the experience – at all.

Dust filled the air, tree frogs and lizards leaped out of the foliage, and some plants even had stinky fertilizers in the potting mix. Those plants may not have made my air any cleaner, but cultivating a rainforest in the comfort of my home definitely made me a happier person.

Houseplants are a lot more exciting than you’d think. I was actually excited to wake up every morning, because each day brought the promise of a fresh new leaf, a different flower to admire, or another thick orchid root to mist with water.

Helping these living plants grow and thrive gave me a sense of purpose and a connection to the natural world. They also made me sneeze, but only because I spilled potting mix on the floor fairly often.

The only reason you need to grow a houseplant is to be happy. There are, of course, studies suggesting that living with plants improves your concentration, calmness, and productivity, but there’s no point in proving what we already know.

Nobody would bother growing houseplants if they didn’t make us happy.

 

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Mortgage rates average 4.20% | North Salem Real Estate

 

Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates moving lower for the first time in ten weeks.

News Facts

  • 30-year fixed-rate mortgage (FRM) averaged 4.20 percent with an average 0.5 point for the week ending January 5, 2017, down from last week when it averaged 4.32 percent. A year ago at this time, the 30-year FRM averaged 3.97 percent.
  • 15-year FRM this week averaged 3.44 percent with an average 0.5 point, down from last week when it averaged 3.55 percent. A year ago at this time, the 15-year FRM averaged 3.26 percent.
  • 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.33 percent this week with an average 0.4 point, up from last week when it averaged 3.30 percent. A year ago, the 5-year ARM averaged 3.09 percent.

Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.

Quote
Attributed to Sean Becketti, chief economist, Freddie Mac.

“The 30-year mortgage rate fell this week for the first time since the presidential election, dropping 12 basis points to 4.20 percent. This marks the first time since 2014 that mortgage rates opened the year above 4 percent. Despite this week’s breather, the 66-basis point increase in the mortgage rate since November 3 is taking its toll — the MBA’s refinance index plunged 22 percent this week.”

First-Time House Hunters Lose | North Salem Real Estate

Before beginning the hunt for their first house, Tennessee residents Brittany and Craig Murphy pared their student debt, saved for a down payment and got an income boost from her new job. The major hurdle was what came next.

In the last month, the couple lost two bidding wars on Nashville homes to competitors willing to pay more than 10 percent above the asking price.

“I was not expecting the actual finding of the house to be the difficult part,” said Brittany Murphy, a 26-year-old Web designer whose husband, 27, is a software developer.

Steady job growth, low mortgage rates and record apartment rents are turning millennials like the Murphys into homebuyers — if they can find a house. As the key U.S. spring sales season gets under way, robust real estate demand is being outweighed by a persistent lack of lower-priced supply that’s poised to limit transactions and worsen an affordability crunch for young people. They’re faring worse than purchasers at the higher end of the market, where inventory is piling up.

Rising interest in home tours indicates prospective buyers are coming out in droves. An index by Redfin that measures requests for property visits rose in the first two months of the year to the highest level since at least 2012, when the data began.

“As soon as a house hits the market, it will be eaten by the huge demand appetite,” said Nela Richardson, Redfin’s chief economist.

Limited Inventory

Surging homebuying interest won’t necessarily translate into a big jump in sales. Prices will rise while limited inventory will put a cap on transactions, said Doug Duncan, chief economist of Fannie Mae. He estimates that U.S. single-family home prices will climb 5 percent this year, about the same as in 2015, while sales will increase 3 percent. That’s a slowdown from 2015, when existing-home purchases jumped 7 percent.

“Affordability is a challenge this spring,” Duncan said. Prospective buyers “would have gotten their credit in shape and they’ll have a job. But they will be frustrated because, in their market, there simply won’t be affordable homes.”

 

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http://www.bloomberg.com/news/articles/2016-03-16/first-time-house-hunters-lose-out-in-busy-u-s-homebuying-season

NAHB: Builder Confidence increased to 70 in December | North Salem Real Estate

 

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 70 in December, up from 63 in November. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Builder Confidence Closes Year on a High Note

Builder confidence in the market for newly-built single-family homes jumped seven points to a level of 70 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest reading since July 2005.

“Though this significant increase in builder confidence could be considered an outlier, the fact remains that the economic fundamentals continue to look good for housing,” said NAHB Chief Economist Robert Dietz. “The rise in the HMI is consistent with recent gains for the stock market and consumer confidence. At the same time, builders remain sensitive to rising mortgage rates and continue to deal with shortages of lots and labor.”

All three HMI components posted healthy gains in December. The component gauging current sales conditions increased seven points to 76 while the index charting sales expectations in the next six months jumped nine points to 78. Meanwhile, the component measuring buyer traffic rose six points to 53, marking the first time this gauge has topped 50 since October 2005.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose six points to 51, the Midwest posted a three-point gain to 61, the South rose one point to 67 and the West registered a two-point gain to 79.

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http://www.calculatedriskblog.com/2016/12/nahb-builder-confidence-increased-to-70.html

 

Housing Construction Trends Heat Up in June | North Salem Real Estate

Total housing starts expanded 9.8% month over month in June, reaching a 1.174 million annual starts pace, which was led by a surge in multifamily development.

Single-family starts were effectively flat, recording a 0.9% monthly decline to a 685,000 seasonally adjusted annual rate but were up 14.7% year over year. As measured on a three-month moving average, the pace of single-family starts hit a post-recession high in June. Looking forward, single-family permits were up 0.9% for June and 6% year-over-year, reaching a 687,000 annual rate. Regionally, single-family starts were up 6.8% for the month in the South, but down 27.3% in the Northeast, 7.1% in the West, and 4% in the Midwest.

Pointing to future growth, the July NAHB/Wells Fargo Housing Market Index reached 60 in July, which is the highest level since November 2005. Two of its three components also rose to levels last seen in late 2005. The index of current sales rose one point from the June level to 66, the highest in 10 years. The index for expected sales rose two points from June’s 69 to 71, also the highest in almost 10 years. The index for traffic fell one point to 43 from the six-month high in June of 44.

And more good news from June: The National Association of Realtors measure of existing home salesexisting home sales increased 3.2%, reaching the highest level since February 2007. Given that most new home sales are to move-up buyers, a rise in the volume of existing sales bodes well for additional single-family construction. Inventory of resale homes continues to be limited, falling to a five-month supply in June as the current sales rate.

However, the standout of the June housing starts report was multifamily construction, which for units in buildings with five or more units climbed to a 476,000 annual rate with a 28.6% monthly growth rate. Permits also expanded greatly, jumping 16.1% to a 621,000 annual rate. NAHB expects this level of apartment development to cool in the coming months.

On the supply side of the market, the most recent Producer Price Index data from the BLS revealed a small increase for wood products in June after trending down for the start of 2015. Softwood lumber prices rose 1% for the month but are down 9.1% from a recent high in September 2014. Prices for OSB rose 2.4% in June after a 20.4% slide that followed the collapse in prices that ended in July 2013. Gypsum prices slipped 1.5% in June after being flat in May, increasing to 5.3% the retreat from a February peak.

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http://eyeonhousing.org/2015/07/eye-on-the-economy-housing-construction-trends-heat-up-in-june/

California housing market slows considerably | North Salem Real Estate

California’s massive housing market is slowing down in almost every way imaginable, according to the latest California Real Property Report from PropertyRadar.

California single-family home and condominium sales dropped 3.5% to 36,912 in May from 38,249 in April.

However, the report explained that what is unusual this month is that the decrease in sales was due to a decline in both distressed and non-distressed property sales that fell 8.6% and 2.5%, respectively.  The monthly decline in non-distressed sales is the first May decline since 2005.

On a yearly basis, sales were up slightly, gaining 2.3% from 36,096 in May 2014.

“With the exception of a few counties, price increases have slowed considerably,” said Madeline Schnapp, director of economic research for PropertyRadar. “You cannot defy gravity.”

“The environment of rising prices on lower sales volumes was destined not to last.  Higher borrowing costs since the beginning of the year and decreased affordability was bound to impact sales sooner or later. We may also be seeing the fourth year in a row where prices jumped early in the year, only to roll-over and head lower later the rest of the year,” Schnapp continued.

Back in March, PropertyRadar’s report showed California was finally ramping up for the spring homebuying season, posting that March single-family home and condominium sales surged to 31,989, a 33.1% jump from 24,031 in February. It was the biggest March increase in three years.

Meanwhile, May’s median price of a California home was nearly unchanged at $396,750 in May, down 1.8% from $404,000 in April.

Within California’s 26 largest counties, most experienced slight increases in median home prices, edging higher in 21 of California’s largest 26 counties.

Year-over-year, the median price of a California home was nearly unchanged, up 0.4% from $395,000 dollars in April 2014.

While at the county level most of California’s 26 largest counties exhibited slower price increases, four counties continued to post double digit gains.

 

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http://www.housingwire.com/articles/34297-california-housing-market-slows-considerably

Buying a North Salem FSBO | North Salem Real Estate

Selling your home without an agent is entirely possible and, in some ways, easier today than in the past. Going for sale by owner (FSBO) could be a huge cost savings, since the real estate commission is the largest expense of any home sale. But FSBO is not for everyone.

If you go this route, you must be deliberate each step of the way. You’ll have to do your research and learn your market to discover what works and what doesn’t. Are homes staged? Do people price low for multiple offers or price high and wait? Is it a strong buyers’ market, or do sellers rule? Sometimes it can be hard to know, as markets can shift by neighborhood — or even by block.

In real estate today, sometimes you only get one chance to make a first impression. If you make a mistake your first time out, the market may punish you later on. Here are some other FSBO considerations for the next-generation home seller.

Online access to pricing makes going FSBO easier today

One of the biggest hurdles for sellers is pricing their home correctly and knowing the comparable home sales. It’s easier to understand pricing today, given how much information is online — particularly for someone who lives in a home where the recent comparable home sales are cut and dry. An example of this is a newer suburban development where the floor plans, layouts, fixtures and finishes are all similar.

Research your market offline, too

Learning a real estate market doesn’t take a huge amount of effort, but it does take time. Go to open houses and see what is for sale. Start this process early, and do it often.

Monitor a few nearby homes from listing to close. Real estate agents do it day in and day out, which makes them uniquely qualified to understand a market.

Be prepared to detach emotionally

Selling a home has both financial and emotional implications, whether you sell it yourself or through an agent. Knowing that complete strangers will be running through and potentially criticizing your home is enough to make any home seller feel like a wreck.

Imagine dealing with these strangers directly. If you go the FSBO route, you are front and center from start to finish. You can’t let your emotions get the best of you, and you must focus on the investment aspect of your home.

Sometimes sellers who can’t emotionally detach find themselves leaving money on the table, alienating perfectly good buyers, or both. But if you think you can see your home objectively, as a third-party product, then you might be good to go with FSBO.

It can become a part-time job

Remember the last time you sold a car or some furniture on Craigslist? It probably required time and energy to photograph your goods, post the listings, field calls, and show the items before you finally made the sale. With real estate, you can amplify that effort 10-fold.

Going FSBO can be excellent for someone with a flexible schedule or who works from home. But getting the home ready to sell means doing all of the standard sale prep work that you would do as a seller — and then taking it a step further. You need to be ready to show the home at a moment’s notice, do follow-ups, and manage the open houses and scheduling, not to mention negotiate and see the sale through firsthand.

 

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http://www.zillow.com/blog/is-for-sale-by-owner-right-for-you-176805/