House #1 Being Listed and Agent's Comments

I won't actually sign the listing papers until tomorrow, but since the deadline for the monthly listings guide is today, I faxed a handwritten/signed note to my agent with my listing price: $140,000. Since I left work yesterday, I bounced between $135k-$140k, and finally arrived at $140k based on both the suggestions here and from my wife. What I found a little interesting was a reply my RE agent sent me in regards to me asking her opinion on a few things.

I asked her what her experience was in listing properties "under the 5's" - IOW, listing for $xx4,900 vs. $xx5,000. Her response was as follows:

[...] people qualify for loans on the $5000s. In other words, they may actually be qualified for $135,000. Would they look higher? Probably, telling their realtor to look up to $140,000 and figuring that they could negotiate to $135,000. On the other hand, people who qualify for $130,000 will be telling their realtor to look at properties up to $135,000. (And lower is probably your market in Hutto.) What I won't do is price something at just under a 5000 break, as in 139,500. If you do that, you are missing hits from searches where people are looking for "$140-150K", for example. Several of us have done our own experiments with this, and we have found that we get more hits on realtor.com at $140K than at $139,500.

Another question I had was in regards to this particular property. I had told her that based on my comps and the comps she gave me, the house had a value of around $142,500 (based on square footage). I told her that that seemed high, and I would probably bring it down to $135,000 to sell it. This was her response ...

Overall, I think you should consider timing. The lower you price the house, the faster it will sell, and the fewer mortgage payments, utility payments, taxes and insurance you will put out. Most investors don't try to wring the most out of a property they want to turn quickly. They make it a bargain for an owner occupant, or price it so that an investor could cover the note with the rent. In other words, leave a little money on the table because early money is worth more than late money. If you priced the house at $130,000, settled at $128,000, you would net about $119000 after real estate fees and closing costs. Your net income would be around $15,000 for 2-3 months part-time work.

First of all, from my best guess, I think she is basing the net profit on buy/sold and commission prices alone, and forgetting about what I call "recovery" costs. Things like closing costs, inspection, repairs, etc. These things add up to a lot more than just pocket change. If I got a buyer to close before the end of June at $128,000, I would see a net gain of around $8,600. Not bad, but definately a lot lower than $15,000. Secondly, all the holding costs come out to roughly $1,000/mo. So, for each $1,000 I realize in profit, I can hold for another month. Therefore, if I have to hold the property through the end of August, and drop the price $10,000 to $130,000, it would be almost the same net gain as selling for $128,000 by the end of June (about a $250 difference). I'd rather risk doing the latter in this current market, but there are definate disadvantages - mainly, my money is tied-up in this property until it gets sold.

I also asked her about simultaneously leasing the property (and no mention of lease-options/purchases). Here was her response ...

I can say that people do call in and ask if we have any lease-options; we don't really do many of those, more lease purchases. Either one is handled by an attorney. You would probably want a lease purchase, which is a sales contract with an extended closing date, tied to a long-term lease. It can also include an amount to be deposited into a savings account (by you) for the term of the lease, to be used toward the buyer's down payment or earnest money at the time of the contract. The actual tying document has to be drawn up by an attorney, they charge around $300 for it. It sets up the terms such as who pays for repairs, will there be a final walk through and when, etc.

From what I've been reading, there really is no difference between a lease/option and a lease/purchase. Maybe there are contractual differences, but the general idea is hte same: to get a tenant into your property for future purchase. Am I missing something here? I'll be talking to her more about it when we sign the agreement tomorrow.