Should I rent my home and wait for prices to rise before I sell? Or should I sell my home now?

Many home owners are considering these two options right now. Although every situation is unique, our strong recommendation is you should sell your home now. Here are six reasons why:

# 1: When you add up your mortgage, taxes, insurance and other expenses, the odds are you will lose money every month when you rent a home in our market.

#2: Even if your mortgage amount is small and you can cash flow your property, the return on your equity is likely to be small. For example it can be helpful to do some quick math. Let's suppose you have $200,000 in equity in your home and you can rent it out and cash flow it at $300 per month (or $3,600 per year). The return on your $200,000 of equity is 1.8% ($3,600/$200,000).

#3: Home values and home sales are decreasing, so it will be at least 2 years (and likely more) before prices bottom out, start rising again, and then get back to the price levels of today. This means you can count on a hold time of at least 3 to 5 years before prices are appreciably higher than they are right now. The bottom line is most sellers who choose to rent are choosing to lose money on their tenants every month while the value of their property falls. The losses add up very quickly under this scenario.

#4: What kind of tenants will you have in your home? Will they respect your home? Or just the opposite? Will they pay in full and on time? Or not? You won't know until you've signed the lease.

#5: Keep in mind when it comes time to sell you and your tenant have very different priorities. You want to get your home sold quickly and at the highest market price. All your tenant wants to do is live his daily life. Here are some important questions to ask yourself about your tenant: Will my tenant allow the home to be staged? Will he accommodate all showing requests? Will the home be clean and immaculate for every showing? We've shown rented homes where the tenant did a decent job of making sure the home was in good showing shape. We've also shown homes that looked like they were straight out of the television show Hoarders, or the movie Animal House.

#6: You may have the most wonderful tenant in the world, but there is a stigma that comes with a rented property. Many buyers will assume a rented home has been poorly maintained and undergone a large amount of wear and tear, even if the opposite is true. Although perception and reality may be different, the perception will have a negative impact on the sale of your home.

Renting can be an alluring option because it defers a lot of the financial pain that can come with selling a home in this market. Many would-be sellers are choosing to rent because it hurts less to lose a few hundred dollars each month from their lease than it does to lose $10,000 or $20,000 on the sale of their home right now.

In the end many would-be sellers will wish they had never chosen to rent. They will lose much more money in the long run by renting and deferring their sale, and they will realize they didn't enjoy the responsibilities that come with being a landlord.

Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

On the last day of each month we measure the number of active home and condo listings and compare that number to the inventory level from the prior year.

As of August 31st of 2010, there were 46 fewer Dane County home and condo listings compared to August 31st of 2009 - a modest improvement. However the numbers begin to tell more of a story when we break them down and look at homes and condos separately.

Dane County home inventory on August 31st was 296 units higher than the level from last year. This year-over-year increase in home inventory appears to be on an upward trend. As of July 31st, there were 246 more homes listed than July 31st of last year. On June 30th, there were only 84 more units listed than June 30th the year prior. Now that the tax credit has passed and demand has slowed, we're seeing a clear trend toward increasing home inventory.

Dane County condo inventory on August 31st was 342 units less than the level from last year. On July 31st, there were 381 fewer units listed compared to July 31st of last year. On June 30th, there were 404 fewer units listed than the year prior. Although condo inventory is well below the level from last year, the magnitude of that inventory decrease is getting smaller.

The latest inventory trends provide another reason for sellers to critically evaluate their pricing. The dangers of pricing too high in a downward trending market are very real and can come with some serious consequences.

Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

I've been asked this question two times in the past several weeks and both times my answer was a clear "no".

Six years ago anyone could flip a house. Sales and prices were rising quickly, and the "flipper margin for error" was very large. Back then the market was so hot a flipper's investment would appreciate in value before he even owned it (a property's market value would rise even as the investor waited for his property to close following his accepted offer).

Now the flipper margin for error is zero.

Unless you truly know what you're doing, you should steer clear of the flip. A safer alternative would be to invest in multifamily real estate. The short-term direction of the market is not as important for the investor who earns a nice, monthly cash flow from his long-term investment.

Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

Talk of another tax credit was revived last weekend and is making its way around the internet this week. Here are 3 things we can count on if another tax credit is implemented in the coming months:

#1: The tax credit will boost sales, but it won't impact the market to the extent that the most recent tax credit did. Two years of housing stimulus have already drawn a large portion of the tax credit audience into the market.

#2: Sales will fall after the tax credit expires, but the decrease will be less than the decrease we are experiencing right now (see #1 above).

#3: Most important, the biggest winners will be sellers. Tax credits offer sellers a tremendous opportunity to get their properties sold in an enhanced market; however, there are real consequences for the home owners who fail to sell during the tax credit window. The market becomes much more challenging after a tax credit expires.

Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

Is now a good time to buy a home?

The salesperson will provide an answer along the lines of this: "It's a fantastic time to buy. Interest rates are low. Selection is high." The salesperson tells you what you want to hear. Regardless of your target market and your personal circumstances, the answer is always the same.

The advisor will provide an answer that goes something like this: "You'll get a lot more for your money now than buyers have gotten in a long time, but also remember real estate is a long-term investment. Your new home's value will probably decrease before it rises again. As long as your circumstances allow for this and you accept this up front, then yes, it's a good time to buy."

The advisor tells you what you need to hear. He will vary his answer depending on the type of property you are considering (home versus condo), your price range, the market in your targeted area, and your anticipated hold time. Another big factor is your financial position. In the end your advisor's final answer takes into account his assessment of the market and his understanding of your personal situation. In some cases this means his answer will be, "no, it's not a good time for you to buy".

For many buyers now is an excellent time to buy. Sellers have become more flexible since the tax credit expired, and now as we enter the Fall season demand will be dropping as it does every Fall, giving buyers added leverage. Combine this with very low interest rates and today's buyers will be getting some very good deals over the coming months. But that doesn't mean the time is right for everyone.

For more on how we represent our buyer clients, please see our how we help you buy document at DaneCountyMarket.com.

Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

We recently wrote how pricing is the main driver in the Dane County condo market. Condo buyers are very selective, which means only those condos that offer the very best in value achieve a successful sale.

Here is one such condo on the west side of Madison, just a few minutes from the Epic Systems campus in Verona. For $159,600, this 2 bedroom/2.5 bath town house at 3140 Limekiln St offers a combination of upgrades, style and space that is hard to beat on Madison's west side.

Check out this video and these panoramic views for a closer look at this town house. Read on below for a few more details:

The living room offers plenty of natural light, a gas fireplace, high quality berber carpet, and surround sound speakers.

And a vaulted ceiling...

The kitchen features stainless steel appliances, hardwood flooring, upgraded lighting and pull-out cabinets.

The dining room leads to a private balcony.

A huge first floor master bedroom offers a full bath.

On the upper level, a second large master bedroom offers a full bathroom and walk-in closet.

This unit features over 1,600 square feet of living space, a private entrance, and a 2 car garage. View this condo and then view the competing condos on Madison's west side. You will see this unit is priced to sell.

Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

This immaculate 4 BR/2.5 BA home at 2810 Hollyhock St in Fitchburg's Swan Creek subdivision is loaded with upgrades and is now available for the fantastic price of $374,900. See this video and this panoramic tour for an up-close look. View this PDF for more on this home's many fine features. You can also view this home in person at our open house this Sunday, August 29th, from 1 to 3 PM.

In the meantime here is a quick photo preview of this gorgeous home:

This ranch style home features a brick exterior and 3,400 square feet of living space.

This huge eat-in kitchen features new stainless steel appliances, solid surface counter tops, maple flooring, and plenty of maple cabinets.

This classy living room includes maple flooring and a gas fireplace.

The master bedroom features a tray ceiling and walk-in closet...

And a huge bathroom with a granite jetted tub and a granite "his and hers" sink.

This home offers plenty of space for relaxation and entertaining, including this spacious 3-season porch...

And this brick patio overlooking an immaculately-landscaped yard.

This home is loaded with many other fine features, including: a formal dining room with tray ceiling; an office with cherry hardwood flooring; a huge lower level family room and workshop; generously-sized bedrooms; nine-foot ceilings; an abundance of warm colors and natural light; a new roof that was added in 2006; and more storage space than you could possibly need.

Swan Creek offers a quiet Fitchburg setting with plenty of green space and convenient access to Madison and the Beltline.

This home impresses online, and even more in person.

Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

Dane County home and condo sales will be down significantly from August of 2009, but not to the extent that they were down in July (sales were down by more than 50% last month). We expect August sales to be lower by 30 to 40 percent.

This will be a small step in the right direction. When home and condo sales begin a clear trend toward year-over-year increases, then we can expect sellers to gain some leverage. Until that time expect more downward pressure on prices.

Dan Miller, Keller Williams Realty and www.DaneCountyMarket.com

In February of 2009 I posted an article about the dangers of pricing behind the market. In the article I provided a real life example of a Madison home that at the time had been on the market for 39 months. The home originally went on the market for $429,900 in November of 2005. It finally sold last month for a price of $298,000. That amounts to 56 months on the market and over $130,000 off the original list price.

This is an example of a type two seller who had the means to price her home appropriately, but for nearly 5 years priced her home based on what she wanted to receive, not what the market would bear. Had she priced her home right from the very beginning she would have received at least $40,000 more for her home. She also would have avoided tens of thousands of dollars in mortgage payments and holding costs.

My original blog post is copied and pasted below:

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Saturday, February 21, 2009

The danger of pricing behind the market

Here's a real example of someone who needs to sell. Unfortunately this person needed to sell over 3 years ago, too. That's when she used a bridge loan on her existing home to help finance the purchase of her new and more expensive home.

As you'll see from the MLS and FSBO history below (working from the bottom up), this seller first put her home on the market in November of 2005 at a price of $429,900. Now it's still on the market - at a price of $329,900. With each price reduction her listing became more competitive, but her home remained over-priced. Meanwhile the value of her home decreased as the market softened.

The scenario above is a fairly common one in today's market. Quite often there's a big disconnect between what a seller wants and expects from his listing and what the market will bear. Accepting the market price can be a tough pill to swallow in some cases. But for someone with two mortgages in a downward trending market, time is money, too.

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Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

One of the reasons we have been emphasizing aggressive pricing is we expected a big increase in negative housing news with the July release of the National Association of Realtors existing home sales report. That happened yesterday. July existing home sales were down 25.5% from last July and down 27.2% from June. (The economics blog Calculated Risk does a great job of breaking down the numbers).

Now the headlines from CNBC, MarketWatch, CNN, MSNBC, Fox and every other major news outlet are reporting the biggest drop on record for monthly home sales.

Because of this we should expect more downward pressure on prices. The increase in negative news will cause some sellers to bite the bullet and drop their prices to levels that will guarantee a sale, while buyers will use their increased leverage to negotiate lower prices and better terms.

The stakes have never been higher for those sellers whose pricing remains above the market.

Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

We recently covered how the risk of pricing "too high" far outweighs the risk of pricing "too low" in a downward trending market.

The risk of pricing too high and having a home sit on the market can mean a market value loss of tens of thousands of dollars. For the seller who has already vacated his property you can add onto this the monthly holding costs for the mortgage, property taxes, insurance and upkeep.

The risk of pricing very aggressively and possibly pricing "too low" is the seller receiving a few thousand dollars less for his home than what he would have received had he priced his home "just right".

Aggressive pricing is about more than getting a home sold. It provides a level of insurance. When you price your home to sell, you concede money now to protect your future financial interests. Once you do sell your house you no longer need to worry about what the future market brings.

On the other hand pricing on the high side in a downward trending market is a lot like not walking away from the blackjack table when you've suffered your losses. Sure, you may get the right hand (or buyer) that will bring you closer to being in the black. On the other hand the more you play, the more you stand to lose.

Dan Miller, Keller Williams Realty and www.DaneCountyMarket.com

Demand has dropped with the expiration of the tax credit, and with that has come more downward pressure on prices. But the reality is only a minority of today's sellers are pricing to sell in today's market.

There are 3 types of sellers, and only one type is getting homes sold. Here are the 3 seller types:

#1: Those who can't price their home to sell because they are under water on their mortgage and they don't have the cash to cover their losses at the closing table. Some of these sellers will ride out the market and try to sell again when the market is better. Others will unfortunately need to choose between a short sale and letting their lender take over their home.

#2: Those who can but don't price their home to sell. Some of these sellers may be under water on their mortgage, but they have the means to cover their losses at the closing table. Members of this group may not have received the proper pricing information. They may think their home is priced to sell when in reality it is not. Or they may have made the conscious decision to keep their price above market value.

#3: Those who can and do price their home to sell. Some of these sellers may be under water on their mortgage, but they have decided to do whatever it takes to get their home sold, including bringing cash to the closing table.

A seller can make the jump from one group to another. For example, a type 2 seller can become a type 3 seller after seeing his home sit on the market for an extended period of time. The type 2 may decide that enough is enough; it's time to bite the bullet and lower the price to a point that will generate a sale.

Some type 1 sellers can also make the jump to type 3. Fortunately for some type ones, they can borrow money from a friend or family member in order to cover their losses at the closing table and pay their way out of their mortgage.

Unfortunately there are also some sellers who slide backward from one group to another. These are the type twos, who after having their home sit on the market for a year or more, have seen the value of their home drop by tens of thousands of dollars. Suddenly these type twos can become type ones, where they no longer have the cash to cover their losses at the closing table.

For the type two seller, there is a very real risk associated with over-pricing, and unfortunately many type twos have learned this the hard way. The risk is tens of thousands of dollars, and sometimes more. For some the risk eventually means foreclosure.

The type 3 seller also has risk. The type 3 faces the risk of pricing "too low". The risk of pricing too low is the type 3 seller receives a few thousand dollars less than what he would have received had he priced his home "just right".

In a downward trending market, the type 2 seller takes on much more risk than the type 3.

If you are someone contemplating the sale of your home, you owe it to yourself to consider your risks carefully. Talk to several different real estate agents to obtain an assessment of your home's value. Ask each agent how he came to his price. Then remind yourself you are not looking for the highest price; you are looking for the price that will get your home sold.

Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

Now UW Credit Union members can search for real estate and access real estate information from the new UW Credit Union home loan page.

Click the graphic below to visit the new UWCU home loan page.

UWCU recently joined our web site, and now we're excited to be making our real estate information and real estate search tools available to UWCU's membership.

Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

Whirligig Online Marketing produces all of the photos, panoramic tours and video tours that we use in our marketing media. Why do we invest in professionally produced visual media? Because professionally produced photos, panoramic tours and video tours greatly improve our clients' odds for success.

For example, let's take a look at our new Fitchburg home for sale.

Here is a picture of the kitchen from a previous listing:

And here is a picture of the same kitchen from our new listing:

Both pictures were taken on sunny days, but the second picture clearly presents a better online image than the first. On top of that we have added panoramic and video tours to this listing's visual package, giving buyers a realistic view of this beautiful home. (The video tour is syndicated across a number of different video web sites, boosting this home's online presence).

The results have been impressive, as this listing has been averaging over a showing per day since it went live a week ago. One party has visited the home three times. Not bad for a buyer's market.

Surely the new price has a lot to do with the great showing traffic, but the online presentation has played a big role, too. For example we just received feedback from one buyer agent who said her buyer chose to schedule a showing specifically because of this listing's superb online photos.

Getting a home sold in this market is a numbers game. The better a home looks online, the more showings it will receive. And with more showings comes a better chance for a successful sale. Keep in mind the vast majority of buyers are shopping online, and quite often it is a home's online appearance that determines whether or not a buyer will schedule a showing.

For our full real estate marketing plan, please see our how we help you sell page at www.DaneCountyMarket.com.

Dan Miller, Realtor, Keller Williams Realty and www.DaneCountyMarket.com

Pricing is more important than ever due to the drop in demand since the tax credit expired. Here are two strategies for getting a home in sold in this environment.

The first and most obvious strategy is to price your home so it clearly offers the best value for the money in your neighborhood. Quite often this is what it takes to get a home sold in this market.

If the first strategy gets you plenty of showings and great feedback suggesting your pricing is on the mark, you can continue to drive buyers to your listing by dropping your price another $100 each of the next two weeks. The $100 price drops are largely symbolic, but with each price reduction an auto email notification will be sent to agents and buyers with saved MLS searches whose criteria match the criteria of your listing. This is a great way to keep your listing front and center for buyers and buyer agents who are in the market for a home like yours. However, this strategy is not effective for the listing that is not already priced very competitively. Symbolic price drops for an over-priced home will not get the job done.

Dan Miller, Keller Williams Realty and www.DaneCountyMarket.com