Selling a House—What I learned

Posted on July 5, 2012July 5, 2012 by Danielle

I never thought it would happen. I finally sold my dad’s Listing Image house. Dad passed away in November of 2010, but the house was vacant for several months while he moved in and out of hospitalizations and I was just too busy even to think about it. I had to put it on hold until March since I was studying for my CFP® exam. Shortly thereafter I broke my foot, which took me all of last summer to recover from–no stairs and no carrying. Dear daughter and I spent September through December (while in the throes of college applications) clearing out 50 years’ worth of my parents’ possessions. By January, we were ready to go, but the contractors weren’t. The woes of dealing with contractors are fodder for another post, but let’s just say that the last one finished up two weeks ago. So here’s the first lesson I learned:

If you plan to sell your home quickly to cover care expenses, you will most certainly need Plan B. Really, look around your house—is it ready for a buyer? Or do you have tons of junk, sentimental ugly memorabilia you can’t get rid of, filing you’re planning to get to, and a yard long list of niggling home repairs you just haven’t gotten to? My hand’s up. Do you think you will be able to accomplish all of this when you need urgent and continuing care? Do you think your children or friends could clean it all up in the 2 or 3 months before Medicare kicks you off their payroll (if you’re lucky)? Why your home is not an investment will also be the subject of a future post, but right now, PLEASE do not consider your home your long-term care insurance. Buy real insurance.

Which brings me to another lesson, and a pretty intense scrutiny of my to-do list. Keep up with home repairs. My dad let them go over the years as he got older and less able to see. Many issues he never told me about, not wanting to bother me. In truth, I barely keep up with my own repair list, so he was probably right. But those things grow and multiply until either all the little problems end up taking a ton of time to get fixed, or a few little ones grown into really big ones. Sometimes it’s even hard to identify what type of repairperson can even fix the problem.

Similarly, update your decorating. Even good design doesn’t stay static. My house is all Prairie-style which I think is a classic, but the cats have worked over the couch and the whole place could use a repaint. If peach was in fashion in the 80s, and you had the whole place repainted then, it’s time for another look (sorry, Mom). Similarly, stuff like pillows and cushions can have an amazing impact on perceived worth and price.

Get some staging advice. I am interested in design, but I’m not a pro. My friend Nilda Carlo is. She is a feng shui expert with great design sense and I asked her for a staging plan, including paint colors. It was amazing. I used to thump this when I sold real estate many years ago, mostly because I listed too many houses that looked like crap and the owners couldn’t see it. I knew Dad’s house looked like crap but didn’t know what to do about it, besides cleaning and clearing. She did. (email or call me for her number).

It’s gonna cost you. I wrote more than $10,000 in repairs, paint, hardware, and spackling checks. And really, the house wasn’t in that bad shape to start.

Keep up with cleaning. Your kids/heirs will thank you. Hundreds of times.

Talk to several realtors. After selling real estate for 7 years, okay, I’m a little skeptical of realtors, but there’s been a huge industry shakeout so my guess is more of the strong survived. I talked to 3. One was the rather oily kind I remember who’s hoping to impress with charm and scare you into listing at a rock bottom price for (his) quick sale. I should have known about this particular guy as I find his photocopied flyers scattered all over my lawn. The second one was quite presentable, had sold a house quickly and recently, near a friend of mine, and came in with a $5,000 higher listing price. However, my very good friend had worked with another agent, equally presentable, and I went with her and her listing price which was $10,000 higher than door #2.

Normally I’m highly suspicious of the realtor who snags a listing by hooking the owner with a high price, but she had a convincing argument—the market is crazy enough that it’s worth testing. If I’m paraphrasing her correctly, there’s a lot on the market, but a lot is a) short sales or foreclosures that take FOREVER to complete or b) looks like crap (see above!). I thought it was gutsy. And, because I didn’t want to see that sign out there growing moss, I made a firm commitment to myself that if it didn’t generate at least one offer for every 10 showings, or wasn’t shown at least 10 times in two weeks, I’d drop the price.

It was a stampede.

The property was listed last Friday. By Monday evening it had been shown 19 times and I had three offers. As long as it passes inspection (which I expect), it’s sold. At $5,000 less than listing price, which makes me conclude that it was the right price and it is certainly worth it to test the market. On the other hand, not too much, judging from the apparently permanent installation of several other for sale signs in the neighborhood.

Side note to realtor #2—I sent you a nice note giving you honest and complimentary feedback, the kind of feedback I and most other service providers would be happy to have. A little thank-you-see-you-next-time might have actually engendered a referral or two in the future. Utter silence—not nice. And note to other realtors: don’t let your clients (or was it you) leave half eaten hamburgers in the basement of a vacant home. Also not nice.

I won’t say I was exactly ready to retire on the price I got for it. The appraisal I had right after Dad died was $32,000 higher than the sale price. Yes, the market has dropped, and maybe the appraiser was a tad optimistic, ya think? But, get an appraisal immediately if you inherit property. It wasn’t uppermost in my mind, but luckily my CPA was thinking more clearly than I was. It’s probably going to be a long time before I pay capital gains taxes again. (Personal residence losses are not deductible, but inherited property that you don’t reside in or other investment property losses may be. I’m not an accountant, so see one for tax advice).

Finally, selling this house confirmed my perennial investing advice—go with your best shot today. No matter what you do, you’re taking a risk and you can’t know the future of the investment from one hour to the next. Would I have made more money if I’d sold in 2010? Would it have sold at the 2010 price if I hadn’t bothered cleaning it up? Would it have sold at all? Could I have gotten more? Who knows? As we used to say in real estate, sell when you have a buyer. The real worth of any investment is what you can get today. With the real estate market, it’s hard to see what will drive any huge improvement. The baby boom is over, and that (and easy credit) is what drove the last boom. Maybe we’ve returned to sanity—and a house that’s just a place to live. I hope my new buyers will be as happy in the house as my parents were.

Investing—time to get some balance

Posted on January 26, 2012January 26, 2012 by Danielle

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It’s that time of year again–time to throw out those New Year’s resolutions. By this time the health club should be cleared out and diet club meetings are back to the regulars. But there is one January task that you shouldn’t forget. It’s time to rebalance. And no, that doesn’t require any exercise equipment.

While I generally preach that you should decide on your investments and change the mix only rarely (when something really major changes in your life, like retirement), I don’t advocate a totally set-it-and-forget-it approach. Don’t look at your investments every day or you’ll shave years off your life, particularly in this volatile market. But don’t ignore them for years, either.

We all want to buy low and sell high, right? And most of us and the rest of the investment world end up doing the opposite. Rebalancing is the best chance you have of getting it right. Really, it’s simple but for some reason it requires intestinal fortitude. Here’s how.

Say you started out with an investment mix of 60% stock funds and 40% bond funds. But say the bonds have done pretty well this year and now your portfolio looks more like 54% stocks and 46% bonds. Move ‘em around—sell or exchange the extra 6% in bonds and buy more of the stock funds. Don’t tell me that bonds are doing better than stocks—that’s obvious. No, you DON’T want to hold on—you want to sell the high flyers (bonds, in this case) to buy what’s “cheap”—the stocks. (no specific investment recommendations intended). As with lottery tickets, it’s not a win unless you collect it! If you’re retired, this is also the time to re-fund your spending account.

Sure, sometimes one asset will keep going up, but over the long run, rebalancing has been shown to eke out better returns and protect you from the overvalued hysteria that inevitably hits certain classes of investments. So, screw up your courage and make those changes. Really, it doesn’t hurt much.

Should your financial advisor be a nice guy?

Posted on January 11, 2012January 11, 2012 by Danielle

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Guy?! What! what! If you’ve read even a few of my blog posts, you already know the answer. I’ll even ignore the word “guy” for a while, that part of the answer being just too obvious. What’s sparking my ire is 45 pages in the November Chicago magazine (I read it at the doctor’s office) of sycophantic advertorial crap about the top wealth managers in the Chicago area. I hope people aren’t stupid enough to identify this as actual reportage, although that’s certainly what the magazine and the “winners” are hoping for, and shame on Chicago magazine. Oh shucks, I guess they’ll never feature me now.

Okay, for 35 pages I’ve looked at smiling white-guy suits (with some chicks thrown in, mostly blondes and under 40) declaring how they give “unbiased advice”, are dedicated to the “best interests of the client” and talk about how hard they work and how they’ll work to build your wealth. Yeah, right, but they’re gonna work to build THEIR wealth a lot harder, I guarantee. Because surprise, surprise, every one of them as far as I can see is a stock broker(okay, maybe a CPA or attorney thrown in). They have no legal duty to work for your best interests, only to recommend “appropriate” investments. So let’s see what these nice guys will cost you.

I’m going to give them the benefit of a doubt and assume they’re going to recommend fairly reasonable investments to you, say, a large cap mutual fund and not some insane hedge fund scheme or Ponzi-scheme non-traded REIT. Okay, so this lovely fund carries a 5.75% load (par for the course if the fund is called Lord Abbett or Putnam or Oppenheimer–bet you’ve heard those names if you’ve ever talked to a broker). Plus, the Lord Putheimer fund has yearly management fees of, let’s be nice, 1.5%. Invest a million bucks and you’re going to lose 7.25% right off the bat–$72,500. No wonder those guys are smiling. Are you? Do you think the Lord Putheimer fund is going to make you that much this year?

In contrast, I’ll meet with you on an hourly basis. If you have the most complicated investments around (you were working with a broker, right?), you can still take a zero off that number and cut it in half–it’s highly unlikely that advice alone would cost more than $3,500, and plenty of clients pay far less. Want investment management? My fee, which includes a financial plan and an actual person who will talk to you without canned junk to sell you and do most of the worrying for you, would cost you $8,000 for that million, billed over a year. Not cheap, but not $72K, either. The funds I recommend generally have management fees in the range of 0.17% to 0.50%, so you’ll get professional management and investments at less than their funds alone nick you for. I don’t collect any commissions, or referral fees. I do get some free brochures from Vanguard, pens from Scottrade, and a refrigerator magnet now and then, which I can assure you are compelling my recommendations. Not. I’ll even wear a lavender tie if it’ll make you feel better. I draw the line at blonde.

But back to the original question. I don’t think nice is the important quality here. There’s no nice way to tell you your dog is dead. You are paying for and should be getting honest advice–the truth–not some suck up that will pat you on the back as he picks your pocket. The advisor who really has your best interests at heart will tell you the truth about any stinkers in your investments, help you face what you need to, and move forward with investments that have a reasonable chance at success without skinning you alive. THAT will be a lot nicer when you look to your dough for retirement, or sending your kid to college. A lot nicer than visiting that nice guy in his very nice office.