Personal Financial Tip 9

We live in a marvelous time. Never in the history of mankind has information been so readily available. We don’t even have to leave our desks. We can access information on any topic through a few mouse clicks. This empowers us to make more informed decisions. However, having easy access to so much information does have a downside. We can put ourselves in a position of information overload. This happens when the volume of information collected causes confusion instead of clarity. This overload inhibits our ability to prioritize the information making it difficult to focus on what’s truly important.

Even more dangerous is coming to the conclusion that we are now experts. A little knowledge is a dangerous thing. An example of this problem is what’s happening in doctors’ offices. Patients are meeting with their doctors with preconceived ideas as to the course of action that should be taken. If the doctor doesn’t conform to these preconceived ideas then the patient loses confidence in the doctor and may avoid coming back. The doctor may simply give in to the patient’s wishes concluding, “There’s no harm done”. This is a major reason why doctors prescribe unnecessary medication so often.

In the past we’re hired experts because we knew we couldn’t do the job as well as they could or we couldn’t do the job at all. In selling a home we would hire a real estate broker to handle the transaction. We would use a mortgage broker to arrange for the financing when purchasing a home. We didn’t know how to do it, so we hired someone else to do it for us.

Today we hire professionals for the experience they bring to the transaction more than their knowledge. Theoretically we can learn enough to get by through our own research but that’s not enough to get the job done. We can absorb all the knowledge that’s needed to fly a plane but without hands on experience we can’t be considered pilots.

The same holds true when working with a broker. You can have done all the research but the lack of experience will put you at a disadvantage in the transaction. The questions you need to answer are these. Is the money I am savings by not hiring a professional worth the time that’s spent researching? Is my lack of experience going to make the transaction more expensive for me? Am I going to make an expensive mistake?

A professional is hired because he brings a level of expertise that can only be developed over time. He will explain what is happening, what he needs to do, what you need to do as well as the consequences of all actions taken. Research that’s done on your part allows you to utilize the professional’s service efficiently. You already know the basics so all discussions between the two of you are on a higher level giving you more value for the money.

In choosing a professional to work with you should be looking for a person with years of experience, one who takes the time to explain what needs to be done, is willing to answer your questions and most importantly one you are comfortable doing business with. Each one of us has our own unique personality and every professional has his own personality. If these personalities clash, if the two of you aren’t on the same wavelength, then this is not the person you should be conducting business with.

Once you have chosen a professional to work with you need to trust him. He has been picked by you to become a member of your team. If you are going to second-guess his advice or worse question everything he does you are making him ineffective. You will be paying for a service that you aren’t using, the worse possible combination.

Utilize the Internet and any other reference material you have available. Take the time to become an empowered consumer. With that knowledge choose the professionals to work with, surrounding yourself with the most competent team you can. Now, allow them to do their jobs. Working with them, respecting the skills they are bringing to the transaction and having faith in the decision you made when you hired them will yield the best results.

Personal Financial Tip 8

A common way to prevent your credit card balances from getting any larger is to try to make all your purchases the old fashion way, with cash. An alternative to carry cash around is to use a debit card. When using a debit card you are not borrowing money that you agree to pay back at a later date, you are authorizing the store to immediately deduct the amount of your purchase directly out of your checking account. Banks across the country have been encouraging consumers to use debit cards as an alternative to credit cards promoting the advantages of a debit card over a credit card.

At first look this seems like a reasonable approach to rein in your credit card spending and at the same time eliminate the need to carry large sums of cash around. However, you need to recognize all the negatives of taking this approach before you decide to modify your spending habits in this way.

The first issue is that using a debit card doesn’t supply the same restrictions that using cash does. Remember you are making this decision to help you become more conscious of your spending with the goal of exercising greater control over your debt.

The reasoning behind making your purchases with cash is that you have limited your buying power to the amount of cash you’re carrying. If you don’t have the money, you can’t spend it. Using a debit card doesn’t have this very important restriction. You spending limit is not the amount of cash you are carrying at the time of purchase but the balance in your checking account, as well as any overdraft protection you have on the account.

If you plan on using a debit card you better keep track of the balance in your checking account at all times. The purchase you are making triggers an immediate transfer of money from your checking account into the merchant’s account. If you’re not careful you may find yourself bouncing checks that your recently wrote out as a result of a recent purchase. In reality you are not adding a true level of discipline to your spending habits when you move from a credit to a debit card.

Next there is a security concern when using a debit card. There is a major difference between a debit card purchase and a credit card purchase. In using a credit card a bank is entering into a loan agreement with you for the amount of the purchase. When you sign your name you are agreeing to the terms of the loan being offered. The bank is obligated to confirm that the person using the credit card is actually you. If your credit card is stolen and used by another person, you have little or no liability to pay the bank for that outstanding balance. Your maximum liability on a credit card that was stolen is $50.00 but it’s rare for a lender even to collect that from you. Their ongoing business relationship with you is more valuable to the bank than $50.00.

When using a debit card, an authorization is given by the holder of the card to the store to do an electronic transfer. Proof of this authorization is when the cardholder supplies the “pin”. It’s the cardholder’s responsibility to keep the “pin” private. In the event a thief was to gain access to the “pin” he could clean out your account. You are stuck with the loss.

The government has imposed an important level of responsibility on a lender when it issues a credit card. There is business relationship between the lender and the merchant making both entities responsible to you, the consumer. For example you buy a piece of furniture with your credit card and have it delivered. The furniture is damaged and the store isn’t being responsive in making the repair. Consumer protection laws permit you to dispute the purchase with the credit card company, who then withholds payment to the store until you are satisfied with the repair. Your credit card is credited with the full cost of the transaction and you incur no interest charges while the store addresses your problem. In your fight with the store to correct the problem you have a powerful weapon, being able to withhold payment.

If this same purchase were made with a debit card you would not have this weapon available to you. When making a purchase with a credit card you have a no cost insurance policy guaranteeing your satisfaction. Not something you should give up lightly.

My suggestion is to do the following. Take one credit card and use it for all your purchases. If you currently have an outstanding balance on that card concentrate on paying down the balance on that credit card first. Your goal is to have a credit card with no running balance on it and treat it as a debit card. Make all your purchases on that card during the month and pay off the entire balance when the bill comes in.

The benefits of taking this approach are:
1. You have one less thing to worry about. Your checking account has one less way to be accessed by a thief. Should the card be stolen, your losses are minimized.
2. You have all the consumer protections afforded to you by the government whenever you make a purchase.
3. You don’t have to be concerned with overdrawing your checking account. All withdrawals are done when you decide to focus on paying your bills at the end of the month not every time you make a purchase.
4. You have an accounting statement sent to you every month itemizing all your charges. This allows you to easily review your ongoing spending habits each month, making changes going forward as you see fit.
5. When you pay off the entire outstanding balance on a credit card each month there are no interest charges. The bank that issued the card is giving you an interest free loan every month to cover your purchases during the month. It’s a nice feeling getting something back from a credit card for a change!

By taking this approach you have all the advantages of a debit card with none of the risks. What more can you ask for?

Personal Financial Tip 7

The time has come to sell your home. For whatever the reason, the home no longer suits your needs. Maybe you have a growing family and you need something bigger, maybe you’re an empty nester and need something smaller or maybe you’ve had some financial difficulties and can’t afford the expense of this particular property. You’ve made the decision now you need to get the job done.

Regardless of whether you are going to hire a real estate broker to market the home or you plan on doing it yourself you goal should be to sell for the best price in the most efficient manner. You can only do this by separating your emotional attachment to the home from the realities of the marketplace.

The home you’re living in has a special value to you. You decided to buy this home, you decorated it, it has been a part of your life and you may have even raised your family in it. No potential buyer is going to have these attachments to the property. A buyer, just as you did when you bought this home, will be comparing this property to everything else he’s seem. If he likes the property and it suits his wants and needs an offer will be presented. This offer will be based on the buyer’s personal evaluation of the marketplace and his evaluation of your home. In order for you to be equipped to respond to the offer you need to have a working knowledge of the local housing market.

You need to know which houses in your neighborhood have recently sold, for what price and when the closing occurred. You need to discover which other homes in your community are on the market and at what price. You want to be as knowledgeable as the buyer and recognize the fact there is no special add on to market price because your home is special to you.

It’s based on your knowledge of the market that you will negotiate. The only way you can properly negotiate the terms of an offer is by putting yourself in the potential buyer’s shoes. You need to know where he’s coming from. Without doing the necessary research you home will not sell at the proper price or worse, never even get an offer because your expectations are out of line with the market.

Once you have done your research you are now prepared to market your home. Keep in mind that this is going to be a job, it is going to be a major distraction in your life and it is going to require an investment on your part. You are going to be investing your most valuable asset, your free time. This is why it is important to sell your home in the most efficient way possible.

Once you have calculated a price that you can reasonably expect to get for your home you need to decide on an asking price. The theory that you should start high because you can always lower your price doesn’t work. You end up wasting time on the market and the longer your house in on the market the more likely buyers will assume there is something wrong with the property. This results in fewer buyers viewing your home and encourages them to make lowball offers, neither of which is a path to selling your home at the best price.

Let’s say that your research supports a sales price of $500,000 and you decide to put your home on the market for $700,000 figuring that you can always reduce your price and hope for the best. Think about it, individuals that can afford a $500,000 home aren’t looking as high as $700,000 and people looking to buy a $700,000 house are expecting more house for the money. When you overprice your house, you are marketing to the wrong set of potential buyers.

The closer to your targeted price of $500,000 you start your marketing at, the more activity you are going to get. The activity you get will be from buyers who are interested in buying in your price range. Now you are marketing to the right people.

You have also earned the right to be firm when you are negotiating with a buyer. Any serious buyer will recognize that you have priced the home properly and therefore expect to settle on a number that is close to your asking price. You have no reason to talk to any one presenting a lowball offer because you have the data to support your numbers. You have the freedom to pick and choose which offers you are willing to entertain.

After you’ve determined your asking price, the next step is to prepare your home. You are dealing with a buyers’ market. Meaning that there are a lot of homes on the market and buyers can be more selective in making their decisions. There are things you need to do to that will make your house more appealing. You don't need to spend a lot of money or drastically changing your lifestyle.

There in no reason to take on major remodeling projects, bring in an interior decorator to stage your property or totally depersonalize your home. Variations of these approaches are being suggested in “how to” books and the news media. My theory is “less is more”. The less you do to the home the more attractive it is to a buyer.

The first step is to do a general cleaning. Take the day-to-day clutter of family life and get it organized. Wash all the windows and adjust your window treatments to allow as much light into each room. The interior of the home will have a more appealing “feel” to it if it is organized and bright. Any opportunity to air out the house should be taken. Every day the weather permits, shut off the air conditioning and open the windows. Any closed space will begin to smell stale trapping any pet or cooking odors in the air.

Any damage in the home need to be repaired but upgrades shouldn’t be done. Repair the dripping facet in the bathroom but don’t remodel the bath. If the bathroom on the second floor is leaking into the first floor then remodeling may be appropriate but updating the bath because it’s 50 years old would not be a good investment. Replacing the stove in the kitchen because it’s not working is one thing. Replacing a working stove with one with a fancy nameplate on it is something else.

A suggestion that I come across a lot is to paint. A fresh coat of paint makes any room seem more appealing. If you feel a need to paint every room in your house, fine. If you are thinking about painting one or two rooms, don’t. Although those rooms will shine it will make every other room look more worn. In most cases you are better off not painting, unless you plan on doing the entire house.

Keep in mind that anything that is done to the property will look like it’s just been done. A potential buyer will assume that the only reason the work was done was for the purpose of selling the home. This raises a question in the buyer’s mind. Better the buyer see a 50-year-old well maintained bathroom than a brand new bath that looks like it was never used. The buyer will prefer to buy a home that presents itself as being well maintained yet dated over one that looks like it’s been cosmetically renovated for sale. Remember, any investment in the renovation will be in the sales price and the buyer is well aware of that.

The outside of the house is as important as the inside. Keeping the lawn moved and the bushes trimmed makes for the right first impression. This is called “curb appeal” in the industry. Be sure to keep the lawn well watered, lawns are expected to be green and that means plenty of water.

Lastly, the home needs to be accessible. Buyers won’t buy what they can’t see. The easier it is for people to come see your home the faster you will get is sold. Be prepared to be available on the weekends as well as in the evening.

It’s a tough market right now but houses are still selling. If you price it right, present it in its best light and make it convenient for potential buyers to see it, it will sell. You just may have to be a little patient.

Personal Financial Tip 6

You’ve tired of paying rent and you’ve decided to purchase a home. You feel now is a good time. There’s plenty of inventory to choose from and although the credit market is tight rates are still attractively low. Now it’s time to get organized.

House hunting is exciting but it’s also a lot of work. You are going to be investing a lot of your time in researching, viewing and then negotiating the property. The time you are investing is your most scarce commodity. That is your free time. You don’t have a lot of it to begin with and now you are going to use a good portion of it in your desire to buy a place to live.

There are several avenues available to you as you begin your search. There’s direct advertising such as newspapers and the Internet. There’s open houses held every weekend that you can take advantage of. You can talk to your friends, co-workers and relatives to discover what’s currently on the market. And finally, you can work with Realtors.

Every avenue should be utilized to help you develop your own opinion as to where you want to live, the type of home you’d like to buy and the price you are willing to pay for that property.

Before you start actively searching there is some homework you need to do first. Begin by getting an idea of what your housing needs are, but keep this general. Starting off with a detailed list of what you want will work against you. In its worse form it can discourage you from even looking. As you view properties you will note the attributes of each property. You will begin to develop a list of priorities. The action of looking at properties will supply you with the data from which you can determine what is really important to you from things that would be nice to have from things you really don’t want.

You also need to find out what you can afford and more importantly what you feel comfortable paying each month. The way you do this is to total up your current assets and your current income and then talk with a professional. Get a recommendation for a mortgage broker from you accountant, attorney or use the Internet to find one. In using the Internet begin your search with the UpFront Mortgage Brokers Association and The National Association of Mortgage Brokers. Brokers who become members of these associations tend to take their business more seriously, especially those who take an active roll in the association. They also tend to have more experience.

Once you meet with the broker and feel comfortable with his knowledge as well as his personality you can then discuss your financial situation. The broker needs to prove to you that he is not only knowledgeable but also willing to take the time to understand your position and help you in making decisions that you will be happy with.

Based on your financial data and his understanding of your wants and concerns the broker can then make suggestions as to the price of the home you should be looking for. You will be leaving this meeting with more than a prequalification letter. You should have an understanding of the current underwriting criteria, the process in getting a mortgage, what the maximum financing that a lender will be willing to grant you and most importantly, where you want to be after closing on the purchase. After you close on the purchase you will be facing a new monthly expense and less cash assets that you had when you were paying rent. You need to understand that you will be facing a balance between the mortgage payment and the amount of cash left on hand.

As your hunt progresses you will be talking with your broker. You will be updating him as to what you’ve found in terms of price, property tax etc. and he will be updating you to the current mortgage market.

Now that you an idea as to what features you want to have and what you feel comfortable paying you can begin your search. If you don’t have a specific area your interested in then you need to superficially look at as wide a geographic region as necessary. Use the media and the Internet to find open houses. By visiting these properties you will be able to develop a feel for the neighborhood, the styles of homes that are typical for each neighbor and a general idea of the housing costs. This will give you the background from which you will be able to focus in on one or two areas. Now you can begin to look seriously.

You will be using multiple sources of information in your search. Always keep in mind the strengths and weaknesses of each source. Friends, relatives and co-workers have the best intentions when then give you information. They sincerely have your best interests in mind. They are however limited in the quality of their data. They may have purchased a home in a different market or at a different time. Recent sales activity that they are giving you may not be accurate. The information typically comes from a friend of a friend. Before depending on anything information you should confirm it through another source.

The media, the Internet and open houses will give you the asking prices of the properties you’re viewing. This is not the market value; it is a price a homeowner is asking. You need to keep in mind that there is no formula available that converts an asking price to the market price.

Realtors, except in the rare condition that they are working as a buyer’s broker, represent and are compensated by the seller. You need to keep this in mind for two reasons. Information supplied to you will be from the seller’s prospective. The Realtor’s job is to get the highest and best price for the seller. Conducting business through a Realtor does not cost you any more that dealing directly with the owner. You will be buying the property at a price that you feel is right for you. What financial commitment the seller has made with the proceeds of sale doesn’t impact what you’re prepared to pay.

The Realtor has access to closed sales in the neighborhood. This is date you need to negotiate intelligently. There is no way for you to know how close a seller’s asking price is to market price if you don’t have market data available. Based on your analysis of the closed sales data you will be able present an offer based on facts. This will force the seller to argue your facts if he wants to get a higher price from you.

Let’s take a simple example. You are selling your home. This is a house that you have lived in for many years and therefore has special value to you. You are selling the home for $500,000. There are two buyers interested the home. The first buyer offer you $425,000 claiming that’s all they can afford, there are a lot of homes on the market, they’ve read in the paper that housing prices are down and there are sure prices are going to fall further.

The second buyer offers the same $425,000. This buyer acknowledges the qualities of the home as the reason he wants to buy it. The buyer points out that six months ago a house around the corner was sold for $440,000 and last month the house across the street closed for $425,000. He couldn’t find any other sales in the neighborhood.

The first buyer is negotiating with the same thought process as the seller. The property is worth $425,000 to the buyer because that’s what he wants to pay and it’s worth $500,000 to the seller because that’s what he wants to get. This is similar to 2 kids fighting over a piece of candy.

The seller has a different issue when address the second buyer. Here the seller can take the position that he doesn’t care what the market value is, he wants what he wants. It’s obvious that this seller will not be selling his home anytime soon with that attitude. If the seller is truly interested in selling the property he is now forced to address the recent sales. He will have to find similar closed sales at a higher price then the second buyer or will have to prove that his property is substantially better that what already sold. Maybe the house is bigger or it’s been updated, etc. The seller is pressured to deal with facts and figures, not emotion.

There is another benefit in negotiating with facts. What if there are higher priced sales in the neighborhood justifying a higher price for this property? The seller identifies them and presents them to this buyer. Should the buyer want to purchase this property and is willing to increase the offer, he can do that with the confidence that he paying a proper price for the home. The buyer is dealing with facts, not emotion, in the negotiating process.

When finding a home that you would to buy, there in no guarantee that you will be able to buy it at a price you’re happy with. You do however stand the best chance if you are properly prepared and negotiate based on facts.

Buying a home is a job. You need to dedicate the time necessary to do the search and develop the skill set that gives you the ability to identify the right house and purchase it at the right price.