Return to Transcripts main page

Open House

Focussing on the Economy; Perfect Time to Buy a House?; Building a Budget

Aired April 04, 2008 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

GERRI WILLIS, CNN NEWS ANCHOR: Hello, I'm Gerri Willis and this is OPEN HOUSE. We're focusing on "Issue No. 1," America's economy. We'll explain why it just might be the perfect time to buy a house in this down and out housing market.
Then, build a budget, right now, that will work for you and save you money, immediately.

And we've actually found somewhat of a silver lining to the mortgage meltdown.

But first, the state of the housing market, time for a check up and for that we turn to Brad Inman of "Inman News," he's joining us from San Francisco.

Brad, good to see you.

BRAD INMAN, INMAN NEWS: Good to see you, Gerri.

WILLIS: All right, so let's just get down to the advice. If you are a seller in this market, it may not be by choice right now. What is the first thing to think about?

INMAN: Well Gerri, right now there are three things: Price it right, first offer is the best offer and don't nickel and dime an offer when you get one. And let's start with pricing it right. There's an economic principal called "stickiness" and this is when prices are stuck above what the real market is. And we're starting to see what the real market is when look at some of these auctions of new home developments, where people are buying them and buying them in a day, selling 40, 50, 100 units in a day. But, why are those homes selling? Those homes are selling because they are priced right. The bad news is they're 25 to 35 percent below what prices are in other developments.

WILLIS: Brad, this could be more complicated than you think, because prices are falling so quickly in some markets. You may set a price that you think is attractive and makes sense, but by the time you get to the close, it could be too high.

INMAN: Absolutely, it's like catching a falling knife. But this is what sellers need to do, when you are about ready to put it on the market, you look at the MLS, or your realtor does, and they say the price are X, and you go, well, my house is worth a little more so you price it a little higher because it's a special house. What happens in a declining market, for the time you sign a contract, improve the house, get it ready for showing, and put it on the MLS, a month or two months later the prices have come down further, which means your house is going to sit on the market, you got have to lower the price. So, the key is, anticipate that decline, price it low, try to sell it in 30 days. That's the key in the market.

WILLIS: Time is your enemy in this market if you are trying to sell. Is this a market where I can negotiate a broker commission? Can I get my real estate agent to cut their commission?

INMAN: You know, you should always negotiate your commission. By law realtors have to negotiate their commission, so you should always do that. Unfortunately right now, because there are so many listings, the good realtors are turning away listings. So, this -- in a buyers' market, the seller doesn't have as much leverage, oddly enough, as they might in a seller's market. But yes, always negotiate your commission, it's the best thing you should always do to cut those costs.

WILLIS: All right, what about incentives. What are good incentives right now?

INMAN: Well, sellers, one thing they have to accept is you're going to pay all the closing costs. Buyers are not paying closing costs. And that gets me to this, if you get an offer, do not nickel and dime that offer. Realize that the big prize here is selling your house fast at a price that's not going to be what you wanted or what you thought you could get a year ago, but the key is to get it off the market and get that money in your bank account. So, don't start negotiating those little things.

WILLIS: Does curb appeal make any difference right now? I mean, do the niceties count?

INMAN: I think price is everything in this market. And again, I'll go back to these auctions, they're telling us what the real prices is. There is a market, there are buyers out there, but it's got to be priced right.

WILLIS: All right, well great advice. Let's go to the flip side. Let's go to people who are buying in the marketplace. Hey, the world is their oyster, isn't inventories are double what there were, say, three years ago?

INMAN: Yeah, this is like one of those Las Vegas buffets, an unlimited supply of food out there for $5.99. You can negotiate such a good deal now, as a buyer and there is so much inventory. In fact, I think the challenge for a qualified buyer is exactly how to sort all the inventory. But once you are out there in the market and find a house, remember, this is the time to offer something lower than the seller is asking. Some houses are priced right and they'll move very quickly and move on those, but the ones that aren't priced right, that are too high, where we have this stickiness problem by sellers, you know, just lowball, that's the key, here. There's plenty of sellers that are anxious to sell.

WILLIS: Well, Brad, great advice. Thanks for join us, today. Appreciate it. INMAN: Thank you, Gerri.

WILLIS: All right, home buying, why the current state of the market may have just created the perfect time for you to buy that house you've been eyeing.

Then starting a budget, we'll tell you how to figure out where all that money is going and how to hold on to more of it.

And the silver lining to the foreclosure epidemic. It's a dark cloud, this mortgage meltdown, but we're going to tell you how to make the very best of it.

(COMMERCIAL BREAK)

WILLIS: Believe it or not, the current state of the housing market may have created the perfect storm for you, the perfect conditions for you to buy your dream home. Pat Lashinsky is the CEO of ZipReality, it's an online residential real estate brokerage site and he is joining us from San Francisco.

Pat, hi. How are you?

PAT LASHINSKY, CEO, ZIPREALTY: Doing great, thanks. How are you?

WILLIS: I'm great. Now, you've got this study you want to talk about. About men and women and what they look for in shopping for a home and the lists are kind of different. Let's start with the men. What do men look for when they are out there shopping?

LASHINSKY: Well, as we were doing our study, we were actually surprised on the differences between men and women and what was important to them. We found that men were interested in some, what we call, specialty rooms, more than women. They liked entertainment rooms, they liked specialty rooms that could be kind of off the norm. And they were more interested in rooms that weren't part of the every day activities, they were looking for different activities.

WILLIS: They're just looking for a place for the flat panel TV, I think.

LASHINSKY: That's exactly right.

WILLIS: OK, but what do women want?

LASHINSKY: Women were looking for rooms that were more family oriented. In this day in age, we were surprised. It might sound a little sexist, but they wanted updated kitchens, they wanted dining rooms significantly more then men did. They wanted family areas for them to be able to get together and to have kind of a central entertainment area. So, they were much more oriented towards a family environment than the specialty flat-screen rooms.

WILLIS: All right, OK, of course, we know the women were making all the smart choices. That would be just my guess. I don't see all the results of your poll, but were there any big differences, Pat? I mean, anything that really set the two sexes apart from each other?

LASHINSKY: You know, not really huge differences, but what it was is when there were looking at the houses, the things most important to men and women were different and so, if you are a seller getting ready to sell a house, it's important that you understand that if you're putting out something that's really going to be interesting to men, for example, you may be turning off the women who are very involved in the process. And so, it's important that you try and find a way to accentuate the positives for both sexes, the advantages of what's going on in the house. Men tended to like smaller yards. Women definitely wanted larger backyards, particularly if they had kids.

WILLIS: Now, you said you could tell the difference between an ad written by a woman and an ad written by a man. I mean, if I'm selling my house, do I want to try to address both markets? Is that the key to really having success in the marketplace?

LASHINSKY: I think that that it is a key to being able to have more people see your home and be interested in it. As I've been looking at what real estate agents are writing, I'm finding that I can tell whether it was a woman agent or a male agent by reading the text and what they've put in there, because they're putting in what's important to them, which is not always the same. If you can get someone -- if you have a woman agent and can add one or two of the features that are important to men, it could really help you get more interest in your house and be able to help you sell it.

WILLIS: What are the differences in those ads? I mean, all right, you know, are the women's ads about light and -- you know, I mean, how do they sound different to your ear?

LASHINSKY: That's a great example. For example, I will read an ad and I'll read about it being light and airy and a great updated kitchen, a big backyard, and a lot of statement that is are more oriented towards the family unit and I'll see that there will be takeaways verses the ads that are run by men are talking about updated technology, it's got, you know, new electrical system, plumbing has been updated, and more mechanical units of the house that they talk about. And the ones that talk about mechanical aren't going to be very interesting to a lot of the women, I think, who are out looking, who are looking for those units.

WILLIS: You never know out there. We just showed tips on selling online. I want you to talk about that for a second here, because there's an art to it, right? I mean, you can't just throw something online.

LASHINSKY: No, there's absolutely an art. One of the most important things is the quality and the number of photos that you have available. Photos are probably the easiest way to differentiate your property online than anything else. And then, the second thing is to get the key features that you know that buyers and sellers are looking for, and to make those visible in the ads and put them right up front, talk about the fact that you've got an updated kitchen, for example.

WILLIS: Well, Pat, this was great information. Thank you so much for helping us out. We appreciate it.

LASHINSKY: Thanks for having me.

WILLIS: Starting a budget. We have a way to make it work for you. Plus, a silver ling in the dark cloud that is the foreclosure epidemic. One family's story of finding treasure in unlikely places, ahead.

(COMMERCIAL BREAK)

WILLIS: In these tough economic times, it may be smart for many of us to cut back on our spending, to budget ourselves, but where to begin? CNN's senior correspondent, Allen Chernoff has some advice.

(BEGIN VIDEOTAPE)

ALLEN CHERNOFF, CNN NEWS CORRESPONDENT (voice over): Twenty-three- year-old actor, Ryan Watkinson, has a couple of things that very few young adults have, a part in a Broadway show, "Xanadu," and an aunt who's a certified financial planner.

ERIKA SAFRAN, CERTIFIED FINANCIAL PLANNER: And the objective is for you to be saving at least 10 percent.

CHERNOFF: Aunt, Erika Safran, worked out a budget with Ryan so he would have something else few people his age have -- savings.

(on camera): Do you like being on a budget?

RYAN WATKINSON, ACTOR: I enjoy having the freedom to know exactly where my money is going at all times. I walk around knowing exactly how much I have, not wondering, not worried about my financial situation.

CHERNOFF (voice over): How do you make a budget? Start with income. Ryan is earning about $7,500 a month. Then identify spending, fixed expenses like rent, taxes withheld, phone and utilities, transportation, and insurance. Then add variable expenses. Ryan tracked all his spending for a month.

WATKINSON: Whenever I made a purchase, I wrote it down. At the end of the day, I typed it up on my computer and at the end of that month, I knew exactly where my money went.

CHERNOFF: Food, entertain, clothing, gifts, all variable expenses.

SAFRAN: Take your income, subtract your expenses and see what happens. Now, if you have a deficit, and that's not unlikely, now you want to identify which are the areas that I can improve on.

CHERNOFF: Erika had targeted saving nearly 20 percent of Ryan's salary. It turned out to be too tight of a squeeze on Ryan's wallet, especially with the recent rise in food prices. So, Erika and Ryan adjusted the budget. Now Ryan is still saving $640 a month in addition to the 10 percent he automatically contributes to a 401k plan.

SAFRAN: The purpose of the budget is to meet a goal. The purpose of a budget is to create. Create wealth.

CHERNOFF: Safran says a budget has to be livable, or else you won't stick by it. Don't you wish you had your own Aunt Erika? Well, you do have our Web site, cnnmoney.com. Go to the personal finance tab to you'll find a template for making your own budget.

Allen Chernoff, CNN, New York.

(END VIDEOTAPE)

WILLIS: Manisha Thankor is personal finance author and she joins us from Houston, Texas.

Good to see you, Manisha.

MANISHA THAKOR, CO-AUTHOR, ON MY OWN TWO FEET: Great to be here, Gerri.

WILLIS: All right, let's talk about budgeting. You say people make lots of mistakes when it comes to budgeting. The first one has to be that you just don't do it in time.

THAKOR: It's so true, Gerri. People look at budgeting and they think it's about being constrained in a straight jacket. What they don't understand is that budgets are actually, as Ryan found out, all about freedom. The point of a budget is to make sure that your hard-earned money goes towards the things in life that bring you the greatest amount of joy. That's what it is all about.

WILLIS: Well, let me ask you this question. I think one of your big insights here is that people budget thinking that they can spend like their friends and family do. No way, right?

THAKOR: You nailed it, Gerri. Seventy percent of Americans are essentially living paycheck to paycheck and you might think, not my friends. Yeah, it cuts across income spectrums. So, if you are wondering how other people are doing it, chances are, they are doing it by living beyond their means. So, that's a huge mistake. Don't budget by looking at what other people are doing.

WILLIS: OK, what other mistake does we make? Is it that we don't really understand what our priorities should be? How are we goofing this up so badly? Because clearly, if you look at the debt levels people have, we're not doing it right.

THAKOR: We are not doing it right. And one of the first reasons we are not doing it right is because we are not doing it. The Employee Benefit Institute shows that less than 40 percent of Americans have ever even tried to budget, let alone succeeded. And I think it is because we're making it too complicated. My advice, think of your budget, your income as a pie and the pie has four simple slices: taxes, savings, which I call future, future spending, foundation, and fun. And you do exactly what Ryan did, track your expenses for a month, divide them into those four categories and see what your pie pieces look like. WILLIS: Manisha, tell us what the foundation is, because that's really a different way of talking about some things we talk about everyday, like housing. What else is in there?

THAKOR: Foundation expenses include things that you genuinely have to have. So, other examples would be transportation, medical expenses, childcare, mandatory debt paydowns, as opposed to fun, which is everything that you want to have, but you could cut back on if you needed to.

WILLIS: I like the fun expenses. I think that's great. You know, one thing you talk about and I think you should really share this with us, the impulse tool you have. How do you curb your impulses? You're at the shopping mall, walking around, something practically jumps off the shelf and you have to buy it.

THAKOR: So, "On My Own Two Feet" co-author shrunk it, (INAUDIBLE) and I have a tool, we called "how bad do you want it?" and this is how it works: you take your annual income and translate it into an after tax hourly wage. The simple way to do it, the average tax rates -- effective tax rates are 25 percent. So, you take your income, multiply it by 75 percent, that's what left over, divide by 2,000 hours, which is the average amount of hours worked. Let's say you make $40,000 a year. That boils down into $15 an hour after tax. So, you're in the store, you see a $150 electronic gadget you've got to have, or a $150 pair of designer jeans that are just calling your name. Do the math -- $15 an hour, that means 10 hours slogging it out with your co-authors. Is it worth it? How bad do you want it? The answer may be a lot, it may be, well, I can pass up on this, but now you have a tool.

WILLIS: All right, Manisha, the upside of having a budget and sticking to it, what is it?

THAKOR: Freedom. You can leave a job you don't like. You can leave a relationship that doesn't work. You know how much it costs you to live, so you can plan accordingly to make sure that you have the life that makes your heart sing. That's what budgeting is all about.

WILLIS: The life that makes your heart sing. Manisha, thank you so much for being with us today.

THAKOR: Great to be here, Gerri.

WILLIS: As always, if you have an idea on how to save money, send us and e-mail to openhouse@cnn.com. And if you want to check out this project savings again, check out our Web site cnn.com/openhouse.

OK. Every cloud has a silver lining. We have been following a dark cloud, the foreclosure epidemic, but we have got just a light at the end of the tunnel. That's coming up next.

And, don't forget to tune into "Issue No. 1" all next week. Ali Velshi and I will bring you daily coverage of America's economy at noon Eastern, right here on CNN.

(COMMERCIAL BREAK) WILLIS: Stockton, California has consistently lead the nation in home foreclosures. According to the largest brokerage in Stockton, 70 percent of all the homes that have sold in the past three months are bank-owned. CNN's Selma Gutierrez reports on a silver lining to the foreclosure story.

(BEGIN VIDEOTAPE)

SELMA GUTIERREZ, CNN NEWS CORRESPONDENT: Three months ago we traveled to Stockton, California, because we heard about a local agent who had bought a bus and organized foreclosure tours. He says his business is "on fire," that many families are seizing the opportunity to buy bigger and better homes.

ALICIA SERRANO, NEW HOMEOWNER: A house like this was always out of our reach. This is our house.

GUTIERREZ (voice over): Alicia and Carlos Serrano say they still cannot believe this four-bedroom, 2,300 square foot home is actually theirs.

A. SERRANO: This is our kitchen here and our family room/den.

GUTIERREZ: Built in 2006, their home is in a new subdivision in desirable North Stockton, far away from the much smaller 60-year-old home they once lived in across town.

CARLOS SERRANO, NEW HOMEOWNER: Start unpacking.

A. SERRANO: I do my stuff, you do your stuff.

GUTIERREZ: They moved into their dream home just a week ago. The original selling price? About $500,000, but after it went into foreclosure, the Serrano's bought it for $257,000, nearly half of what it was once worth.

A. SERRANO: We wouldn't have been able to buy a home if the values would not have gone down so much.

GUTIERREZ (on camera): You would never have been able to afford this house?

A. SERRANO: I don't think so.

UNIDENTIFIED MALE: All right. Welcome to the repo home tour.

GUTIERREZ (voice over): The Serrano's found their house on a repo home tour. It's the brainchild of agent Cesar Diaz, who says he got the idea from a tour he had taken of the Hollywood Hills. The concept, bring buyers to the foreclosures. So far, business is booming. He has four tour buses running.

CESAR DIAZ, REALTOR: The price started at 240, it's going into escrow at $216,000. Our agent just closed this one today. Yesterday, $300,000.

GUTIERREZ: Diaz says some of the bank-owned properties his buyers have bid on are actually getting multiple offers.

(on camera): How many offers?

DIAZ: Fifteen offers.

GUTIERREZ: Fifteen offers?

DIAZ: Yes.

GUTIERREZ: $259,000 is what the asking price is?

DIAZ: Yes.

GUTIERREZ (voice over): Diaz says there are plenty of buyers out there waiting for a bargain. He says since August, he's closing about 12 deals a month.

(on camera): Your top month?

DIAZ: I mean, gross sales, $25,000, $30,000 in commissions. Obviously we have expenses.

GUTIERREZ: In one month?

DIAZ: Yes.

GUTIERREZ: For you?

DIAZ: Yes.

GUTIERREZ (voice over): Alicia says there's a downside to it. She's keenly aware her fortune is someone else's heartache. She often thinks about the family who lived in this house and the child whose drawings are all over her walls.

A. SERRANO: Even my son's room, it was Spider-man wallpaper, and you think, this kid must have loved his room. Everyone who's moved into a home that it has been foreclosed on, they're ecstatic, you know? The dream come true, brand new home at affordable prices, whereas everyone who left, where are they now? You can't help but think about those things.

GUTIERREZ: Ironically, the Serrano's have rented out their old home to a family who went into foreclosure. As for this house, they plan to grow old here over the next 30 years with a low fixed rate that's affordable for them.

(on camera): Many of the bank-owned properties that were once vacant in the Serrano's neighborhood are now marked "Sold." Some are first- time buyers and families who are moving up, others who are investors who are jumping on the discounted homes. In the majority of the cases, they're going into multiple offers, but one agent cautioned, if the properties aren't priced right by the bank, they'll continue to sit empty.

Thelma Gutierrez, CNN, Los Angeles. (END VIDEOTAPE)

WILLIS: You can hear much more about the impact of this week's news on your money on YOUR MONEY with Christine Romans and Ali Velshi, Saturdays at 1:00 p.m. Eastern and Sundays here at 3:00 right here on CNN. As always, we thank you for spending part of your Saturday with us. OPEN HOUSE will be back next week right here on CNN. And you can catch us on HEADLINE NEWS every Saturday and Sunday at 3:30 p.m. Eastern Time. Don't go anywhere, your top stories are next on the CNN NEWSROOM, have a great weekend.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.voxantshop.com