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Aired July 23, 2005 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
GERRI WILLIS, HOST: Planning on cashing in your biggest investment? You can make more on your home if you sell it on your own.
ANNOUNCER: Today on OPEN HOUSE, this man refused to pay a real estate commission, and still reeled in plenty of buyers and big bucks. Find out the unusual secret of his success.
Then, the median price of a home in the U.S. now tops $200,000. What can you really get for that, and where?
And our weekend project, the dog days of summer are upon us. So we'll show you how to have it made in the shade, literally, next on OPEN HOUSE.
WILLIS: Hello, and welcome to CNN OPEN HOUSE. I'm Gerri Willis.
The math is easy. If you sell your house and avoid the agent's commission, you keep more money for yourself. But how do you bring in buyers? We met up with one man who found a unique solution.
UNIDENTIFIED MALE: The next step was, they came in, and they were greeted by a mortgage broker.
WILLIS (voice-over): Larry Kagan (ph) is a lot like every other seller. He wanted to get the most for his home, didn't want to share profits with a real estate agent, and wanted it sold fast. But unlike many other sellers, he got his wish, finding the idea at a bookstore.
LARRY KAGAN, HOMESELLER: Well, I was in Barnes and Noble, and I was hanging out, drinking coffee with my wife, and we were looking through books, and we came across a book called, "How to Sell Your Home in Five Days."
WILLIS: The book and its companion Web site walks the reader through the process of selling a house by auction.
GEORGE CAPPONY, WWW.5-DAYSALE.COM: You can read it in about two and a half hours, and if you bought it on a Friday, you could sell your home effectively next weekend, if you so desired.
WILLIS: Kagan spent a week and about $2,500 prepping for the auction. He staged his home, as you would for any open house, created an 18-page brochure on his computer for potential buyers, took out ads in the local newspaper and on the Internet, and plastered signs around town.
Then, he opened bidding at just under $200,000.
KAGAN: I chose a low number to attract activity, because I wanted to have activity. And, you know, so somebody truly did have the opportunity to purchase this condo for below the market value. And the market ultimately would determine the final price.
WILLIS: He let people into his home from first thing Saturday morning through 5:00 p.m. Sunday. Throughout the weekend, potential buyers toured the condo and made bids in writing, which other bidders could see. To speed the process, he had a mortgage broker on hand, but no real estate agents in sight.
Kagan promised all bidders phone calls after 8:00 Sunday night for an update on their status.
KAGAN: Initially, I had 74 bids on my bidding sheets. So in the first round, I would call 74 people, and I would tell them something like this, "Hi, this is Larry, calling from the condo in Plainview. The current high bid right now is $351,500. In order for you to advance in the next round, you have to move the bid up by at least $500. Where would you like me to place your bid?"
WILLIS: The round-robin bidding took eight rounds, 100 phone calls, and a few hours to complete. The winning bid, $366,000, more than $166,000 from where it began.
KAGAN: I chose to sell my home this way because it's a win-win. It's a win for the buyer, and it's a win for the seller. You know, basically what we're doing here is, I'm able to not pay any sort of brokerage commissions, no brokers' fees. There's no broker involved. So I can afford to accept the lower price.
WILLIS: But brokers normally bring in prospective buyers. That means an auction like Kagan's is only for those who have the savvy to get people in.
CAPPONY: Understand how the flow of traffic is going to be, understand different forms of marketing that you have to do in order to bring the people into your home, and then try to understand effectively how the bidding process works.
WILLIS: For Kagan, all that made sense.
KAGAN: I sold this condominium, ,really in two days. I sold it -- I showed it on Saturday. I showed it on Sunday, and sold it Sunday night to the highest bidder. And to me, that was the biggest benefit.
WILLIS: Now that was fast. Here to tell us more about selling your house on your own is Colby Sambratto. He's chief operating officer of ForSaleByOwner.com.
Colby, good to see you. COLBY SAMBRATTO, FORSALEBYOWNER.COM: Thanks for having me.
WILLIS: So this auctioning off a house, it sounds like it's so quick. But is it practical?
SAMBRATTO: I think the -- no, while I should say we don't offer options, I do know that it's been a staple in the real estate industry for a number of years. And I do just anecdotally know that there's a number of people who have been successful using that approach.
So I think the answer is yes.
WILLIS: Well, it sounds like a good idea, then. What are the advantages, though, to selling on your own, whether you do the auction or you do it a more conventional way?
SAMBRATTO: I think the vast majority of people are going to tell you the reason they leave the more traditional route, which is one with an agent, is because there's enormous cost savings involved.
WILLIS: Let's talk about those. How much do you save?
SAMBRATTO: I think, well, if you talk about the average commission charged by an agent in this country, it's between 5 and 6 percent. But you know, if talk, keep them as simple as 6 percent, you're selling a $200,000 home, obviously that's $12,000 you're going to fork over at the closing to that agent.
So that's considerable savings for most Americans. And what we hear time and time again is, people look at an alternative approach to selling a house because the savings are so great, they could put that money towards, you know, a child's education or their own retirement.
WILLIS: Sounds like a good idea. You say, though, that people underestimate the amount of work it takes. Specifically, what is it they mistime?
SAMBRATTO: I think there's a number of things they underestimate. I think they underestimate the importance of doing the proper research and spending the time to price that home appropriately, and I think they underestimate the effort that's going to -- that could be entailed by casting the widest net possible in your marketing effort.
So those are the two big stumbling blocks that we see most often.
WILLIS: And you've talked a lot about how marketing is really hard. What is the best way to advertise your house when you're selling it by yourself?
SAMBRATTO: Well, obviously, we're Internet guys. You know, 75 percent of all people in this country who are looking for a home start their search on the Internet. So it's really revolutionized the way that Internet, or that real estate is bought and sold. Obviously, we think you have to use the Internet. But on top of that, in certain regions, in certain localities, you can certainly use a classified ad in conjunction with that, if you know that there's a paper that has an especially strong classified ad section.
WILLIS: But when you talk about going on the Internet, there are lots of ways to do it. You know, you can go and be on some local Realtor's Web site, you can be on one of the Fisbo (ph) sites. What should do you? Should you create your own site for your own house?
SAMBRATTO: I, you know, it's possible. I think that if you are one of those people who's very Web-savvy, who believes that they can go out and do keyword advertising and do a proper marketing effort on the Internet, then certainly that might be something that you can pursue.
I think it's easier, probably, more realistic for most people to engage the services of professionals who are out there who do this on a daily basis. But you're right, there's a multitude of models that are available to the consumer now, most of which revolve around the Internet, and they range from good, old-fashioned traditional Realtors all the way down to the for-sale-by-owner guys and everything in between.
WILLIS: Now, there's one shortcut your Web site has that I think you should talk about. The biggest tool for marketing, the MLS listing, that's the marketing tool that most real estate agents use. But you can get people a listing on the MLS. Right, Colby?
SAMBRATTO: That's right. And it's pretty popular in our site. Now, obviously, our core competency is just straight up for (INAUDIBLE) listings. But about 15 percent of our users do take what we call our MLS package, and that allows a seller to place their home in their local MLS and market their home to Realtors and the buyers that those Realtors represent, and at the same time market their home on ForSaleByOwner.com. If it sells through ForSaleByOwner, you pay zero percent commission. If it sells through the MLS, you pay between 2.5 percent and 3 percent.
So you've reduced your traditional commission by about half.
WILLIS: To find a qualified buyer, if you're selling on your own, what's the best way to do it?
SAMBRATTO: You know, I, you should look for a company that provides that service for you. I think it can be pretty sticky for the average consumer to collect the Social Security numbers and to do a credit check and to establish whether or not that person's in a position to buy the house.
Sending them to a mortgage broker is usually a good idea, having them get prequalified or, even better yet, pre-approved for a mortgage that's roughly in the range of your asking price is a good idea, to get a feel for whether or not they're a serious buyer.
WILLIS: Colby Sambratto, great advice.
His Web site is called ForSaleByOwner.com.
Coming up on OPEN HOUSE, the median home price now tops $200,000. So that begs the question, just what does median mean?
And later, our weekend project. It's pretty shady, literally. We'll take a look at a beautiful way to keep the sun out.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
ANNOUNCER: Planning a remodeling project?
When working out your budget, set aside 10 to 20 percent of the total cost for any unexpected expenses.
Know the retail prices of items like lighting fixtures, faucets, and knobs. And if you can buy them on your own for less, the contractor will often agree to do just the installation.
And no last-minute changes or additions. That will add to the total cost and put your project behind schedule.
Plan wisely, educate yourself, and stick to your original plan.
That's your tip of the day.
(END VIDEO CLIP)
WILLIS: In high-priced markets, this may sound cheap. In lower- priced markets, it may sound out of control. The median price of a home in the U.S. now tops $200,000. More specifically, it stands at $207,000.
That means half the house costs more, half the house costs less.
So what does 200 grand get you? We went and searched to find out.
WILLIS (voice-over): Three families with three new homes.
ANTHONY PRUDENCIO, VIRGINIA HOMEOWNER: My name's Anthony Prudencio. This is my wife, Kristina (ph). Welcome to our house.
WILLIS: Each purchased recently for a price very close to the current national median price of $207,000. That's more than a 12 percent jump in one year for buyers in the middle of the U.S. housing market.
So we looked around the country. What do you get, and what do you give up, for a couple hundred thousand?
We looked in places where the median price tag matches the national figure, places like Hampton Roads, Virginia, Madison, Wisconsin, and Portland, Oregon. BEN FULLERTON, OREGON HOMEOWNER: This is our first house that we purchased, and it's really great. It fits all our needs. It's not exactly what we were looking for, but it's a cozy house for just the two of us.
You have a towel?
WILLIS: Ben and Amanda Fullerton's house is in Hillsboro, just outside Portland. In February, they were able to buy below the local median price, but it wasn't their first choice.
BEN FULLERTON: This was actually our sixth offer that we placed on a house.
WILLIS: What the Fullertons got, three bedrooms, two baths, a kitchen for her.
AMANDA FULLERTON, OREGON HOMEBUYER: Tons of counter space.
WILLIS: A garage for him.
BEN FULLERTON: A little work area back here.
WILLIS: But for their money, they also got a lot of background noise.
In Hampton Roads, Virginia, naval Petty Officer Anthony Prudencio also bought his house in February. He deals with its biggest tradeoff every day.
PRUDENCIO: The commute. The commute. It's a longer commute for me. It takes me about 40 minutes to get to work in the morning, an hour at least to get home.
WILLIS: For their four-bedroom house, the Prudencios paid almost $5,000 above the area's median price. They and their son, Jonathan, like having a separate family room and a second story, but they spent more than they planned.
KRISTINA PRUDENCIO, VIRGINIA HOMEOWNER: We started looking in the price range of around $150,000 to $175,000, and quickly found out that those homes were a lot smaller than what we wanted that were at that price range, so we upped is to around $200,000.
GINA GILLIS, VIRGINIA REAL ESTATE AGENT: They spent $207,500 on this particular home, and I really think that they could have probably five years gotten a house twice this big.
WILLIS: Like the Fullertons in Oregon, the Prudencios spend about 40 percent of their take-home pay on the mortgage. It's that trend, people paying a larger and larger share of their incomes on housing, that some see as a danger.
NICHOLAS RETSINAS, HARVARD'S JOINT CENTER FOR HOUSING: In order to afford a $200,000 home, clearly a function of what you put down, but generally speaking, you have to make about $60,000 to $70,000 a year. The reality is, in today's economy, one-third of all jobs pay less than $25,000 a year.
WILLIS: It used to be that not being able to afford a house was a problem limited mostly to the poor. Not any more. Now that the median sales price has pushed through the $200,000 level, even solidly middle-class Americans are struggling to achieve the dream of home ownership.
RETSINAS: Back in the 1950s, a rule of thumb was that the -- a home was about twice your salary. That stayed the same for many years. Today, it's more likely to be four-to-one, and in some markets, particularly the superheated markets of the West Coast, it approaches nine to one.
UNIDENTIFIED MALE: Here, you can hold onto to my (INAUDIBLE).
UNIDENTIFIED MALE: Oh, I'd love to, thank you.
WILLIS: Of course, some people get a house they can afford without having to make a lot of tradeoffs. Like this family in the Madison, Wisconsin, area. They just got lucky.
GERALD WRIGHT, WISCONSIN HOMEOWNER: We were in the neighborhood and we said, Let's stop by and see it. And we just came here and looked at it, immediately called the Realtor. It was, you know, it was listed (INAUDIBLE), and it went like that from there.
WILLIS: Jessica Ace and Gerald Wright, a self-employed wine salesman, got the house they wanted for $7,000 less than it was appraised for. A good deal, considering the style and the details and the neighborhood, but their new home held some surprises, like the furnace.
GERALD WRIGHT: It was a nightmare, an absolute nightmare. It kept breaking down.
JESSICA ACE, WISCONSIN HOMEOWNER: Unfortunately, our hot water heaters run through our furnace, because we have an oil furnace. And so when the furnace went down, then that also meant that we had no hot water (INAUDIBLE).
GERALD WRIGHT: (INAUDIBLE).
WILLIS: In the end, despite broken furnaces and stretched finances, all three families feel their $200,000 was well spent.
UNIDENTIFIED MALE: We got a fair price, considering the amount of house that we got.
UNIDENTIFIED FEMALE: Got a lot more living space. We have, we actually have closets.
UNIDENTIFIED FEMALE: It's ours.
UNIDENTIFIED MALE: I think just that we could do whatever we want with it, it's ours. WILLIS: That's life in today's housing market. It may cost you more than you'd like, maybe more than you should pay. But once you own it, it's home.
WILLIS: With prices going through the roof, it's all too easy to overpay for your new home. But there are ways to make sure you're not overspending.
First, compare the price per square foot paid by recent buyers in your target neighborhood with the price per square foot you're offering for your dream home. Now, this gives you an apples-to-apples comparison. Don't stray too much from the norm.
Work with a top-flight real estate agent who's seen several business cycles in the area, who can help you understand pricing trends there so you don't overbid.
If you're hopeful prices will back off, check to see if double- digit price gains have been going on longer than three to five years. Now, that could send a signal an impending downturn.
And check out what the pros call days on market. That's the average number of days it takes to sell a home. If the place you're eying is taking a lot longer, the seller may be more willing to accept a lower price.
Pay the right price now, and you're more likely to make a bundle on your biggest investment.
Next on OPEN HOUSE, just keep cool. We've got a bright idea on bringing shade to your back yard.
But first, the weekly mortgage numbers.
WILLIS: If you're looking to cool off this summer, and who isn't, we found a creative way to bring shade to your back yard that can also boost your home's resale value.
This one might require some help from a pro. So just what is it? And how much will it cost?
Here's Allan Chernoff with our weekend project.
ALLAN CHERNOFF, CNN CORRESPONDENT: For my money, there's nothing like Mother Nature to provide some good shade on a hot, sunny day.
But perhaps you'd also like to have some manmade protection from the sun in your back yard, perhaps a pergola.
(voice-over): Our resident pergola expert is Joe Truini. He is a carpenter. He helped to build this masterpiece. He's also a contributing editor at "Popular Mechanics" magazine.
Joe, welcome. And beautiful work.
JOE TRUINI, "POPULAR MECHANICS" MAGAZINE: Thank you.
CHERNOFF: How long did it take to put this up?
TRUINI: Well, it took a day or so to cut the parts and then paint it, and then another day and a half to (INAUDIBLE) erect. So it's probably about a three- or four-day project.
CHERNOFF: So a long weekend project.
TRUINI: A long weekend project.
CHERNOFF: Let's talk about the word, pergola. Where does it come from?
TRUINI: Well, most people just call them shade arbors, but this is truly a pergola, because it's free-standing. And it's from the Latin term perg, P-E-R-G, which means stem or pole, which refers to the posts that hold up the pergola or shade arbor.
CHERNOFF: Joe, what sort of wood are we using here? You can't use just any type.
TRUINI: Right, absolutely, because it's outdoors. Especially here in New England, where you have pretty rough winters, it has to be a wood that'll survive outdoors. Now, a lot of times people use pressure-treated pine, which is fine, or redwood or cedar, which are naturally decay resistant.
So this is redwood. So if you use pine, it's -- you can save a lot of money, but it's not as dimensionally stable, meaning it warps a little bit.
So as you see, a lot of pressure-treated pine used.
If this was all built out of pine, it would probably be about $800 in materials alone. Redwood, it would be between $1,500 and $2,000.
CHERNOFF: Let's talk about what's above us now.
TRUINI: OK. Well, often what you'll see in a pergola is a lot more lattice going in closer together and going perpendicular to that, creating the surface for the growing vine and to block sun, of course. In this case, what they did is, they just put chicken wire. That's a great way to train the vines.
CHERNOFF: Looks like we've got some pretty fancy rafters here, Joe. Very nice.
TRUINI: Yes, do you like that?
CHERNOFF: Gorgeous.. TRUINI: You just cut a profile in the ends of the rafters and the beams. It's called a Roman oggi (ph) profile, which you may have actually seen before. You often see it on the ends of bookcases and counter tops.
CHERNOFF: Joe, to build a fancy rafter, we start with a piece of cardboard?
TRUINI: Piece of cardboard, typical cardboard you find on any box. And I made a template out of it to mark each rafter.
So the first thing you do is, you cut the cardboard to the width of the piece you're marking. You know, you put it down, all you have to is line up the edges top and bottom, and with the very end of the board. Then just using a marker, just trace it.
Now, since this is a curved cut, you can't just cut it with a portable circular saw, right? So what we're going to use is a saber saw.
There you go. It's a little rough.
TRUINI: Because this saw cuts on the upcuts, upstrokes. So it's a little rough, but a little sandpaper'll smooth that right off.
CHERNOFF: How much would it cost to put together a pergola like this? Depending on the type of wood, anywhere from $2,500 to $4,000?
TRUINI: About $4,000, right. But don't forget, that's adding value to the house. You have a great place to hang out with the family in the shade, (INAUDIBLE), regardless of how sunny it is. And if it's properly built and maintained, it'll last as long as the house itself.
CHERNOFF: Well, here's to enjoying the shade.
TRUINI: Thank you.
CHERNOFF: Joe, thank you very much.
TRUINI: My pleasure.
WILLIS: If you like the idea but want a cheaper alternative, try a shade sail. They're made from fabric hooked onto steel posts, and they're available for about 100 bucks.
We'll be back with a look at next week's show.
WILLIS: Coming up next week on OPEN HOUSE, can't fight City Hall? Don't be so sure. We'll look at ways you can lower your property taxes.
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