Drew Peterson

It's happened to more of our clients than we can count. They own an investment property, second home, or have moved out of their primary residence. Rather than deal with the hassle of property management themselves, they hire a licensed property management company. That company promises to lease the home to good tenants, address any maintenance issues, conduct periodic inspections, and collect the monthly rent.

After a year, two years, or even ten years, the homeowner contacts us to sell the property. It's time to cash out the equity. Through the property management company, we arrange a meeting with the tenants. At that meeting we will inspect the property and determine whether or not the tenants are likely to help or hinder the sale.

The day of the meeting we arrive at the property. Immediately, we notice the brown spots on the lawn and the dead or overgrown landscaping. Uh-oh, we know what's next. Sure enough, the minute the front door opens the smell smacks us in the face. Pet odor, stale cigarettes, or garbage that's long overdue for a trip to the curb. Take your pick.

It doesn't get any better as we step inside to conduct our tour of this monument to apathy and neglect. The carpet is worn and stretched. Stains are so common that clean carpet is the exception rather than the rule. The kitchen and bathrooms? Don't even get us started. The list of items that need to be addressed chews up page after page of notebook paper.

This must be an exaggeration, right? Nope. Not even close. Now, we will grant you that not every rental property is that bad. However, most are. We have encountered homes that needed anywhere from $5,000 to $50,000 in needed repairs.

The moral of this story? Choose your property management company wisely. Ask for quarterly updates on the status of the tenants and the property. Have the company take pictures before and after each tenant moves in or out. Demand to see the move-in and move-out checklists. If possible, schedule a surprise inspection of the property.

Oh, and put it all in writing. Don't let the company make promises without including them in the management agreement. It's that important to your ability to maximize your equity when you choose to sell.

While we highly recommend the Jay Myers Team, there are other great property management companies out there as well. If you would like Jay's contact information, or a list of questions to ask potential property managers, please contact us.

Florida's January 29th Presidential Primary offers residents the unique opportunity to approve much needed property tax reform. However, is Amendment 1, the so-called Save Our Homes amendment, the right piece of legislation for the job? That's for you to decide. Here is a quick rundown of the amendment's proposed reforms:

1.) Portability - Homeowners would be able to take their current Save Our Homes savings with them when they move. If upsizing, there is a $500,000 cap on the amount to be ported. If downsizing, the homeowner could port a pro-rata share based on the market value of the new home as a percentage of market value of the old home. This provision is applicable to school taxes.

2.) Homestead Exemption - The current homestead exemption of $25,000 would be doubled to $50,000. This would apply to the third $25,000 of value (e.g. exempt $1-25,000; tax $25,000 - $50,000; exempt $50,000 to $75,000). This does not apply to school taxes.

3.) Homestead Assessment Limit - The current Save Our Homes cap of the lesser of 3% or the Consumer Price Index (CPI) is maintained. This means that 3% would remain the largest increase possible in a home's assessed value year-over-year.

4.) Non-Homestead Assessment Cap - This would limit annual assessments on non-homestead real property to 10% annually. However, upon sale or transfer, these properties would be reset to full market value.

5.) Tangible Personal Property Exemption - Tangible personal property would be exempted at $25,000 per person per county.

We'd like to thank those of you who sent us responses to our last blog, "Finding The Bottom: An Open Discussion". As promised, we will present our alternate theory in this blog. First, however, a quick recap.

In "Finding The Bottom: An Open Discussion", we discussed a theory of when and how the real estate market in Orlando would bottom out. To simplify, investors will ultimately have to step in and purchase the excess inventory. In order for this to make financial sense, prices in Orlando need to decline to the point that these investors can cover their expenses by leasing the property.

The basis of the investor theory is essentially correct. Inventory will have to be absorbed before we can reasonably expect prices to bottom out. However, while the theory is intriguing, it ignores several other contributory market factors.

First, approximately 20% of the homes currently on the market are pre-foreclosure or foreclosure properties. As the government and the lending industry join forces to provide homeowners with other options, a good number of these properties should be withdrawn from the market.

Second, interest rates have been steadily declining over the last few months. Lower interest rates mean more buying power for both investors and primary homeowners. This trend should continue in the near future.

Third, the possibility of property tax reform is looming. Any measure that lowers a buyer's monthly payment also increases buying power.

Finally, there is still a surprising number of both investors and primary homeowners who currently have properties listed on the market, but who do not have to sell. Typically, these homes are overpriced. Therefore, many of them will ultimately be withdrawn.

Simple demographics dictate that, given the number of people moving into Orlando each month, we cannot deplete the current inventory without the help of investors. However, it is inaccurate to say that investors will be the sole, or even primary, factor in deciding when and how the market correction will end.

Each month, the Orlando Regional Realtor Association publishes its Market Pulse, a report containing essential market data. Here is our breakdown of the January edition (you can read the full report by clicking here).

We always start with the bad news:

1.) The average number of days a home is on the market continues to creep upward, from 114 in November to 116 in December.

2.) The number of sales closed is still low, with just over 1000 transactions closing last month. In comparison, there were almost twice as many sales last December.

3.) The number of properties withdrawn from the market dropped from 1849 in November to 1462 in December. Before we can return to a "normal" market, we need about 15,000 homes to either sell or be withdrawn.

Taken as a whole, the bad news is actually pretty mild. Let's go to the good news:

1.) For the first time since last December, total inventory dropped a significant amount (from 26,172 to 24,298). However, this is cautious good news, as total inventory typically declines each December regardless of the state of the market.

2.) The average mortgage rate continued its decline, decreasing from 6.08% to 5.93%.

3.) 3,157 properties expired last month, the largest number ever. Should these homes stay off the market in 2008, we should see inventory levels continue to decrease.

December's data is always the most difficult to interpret. Properties that expire or are withdrawn during that month are often re-listed in March or April, making declines in inventory levels temporary. In addition, many families choose to wait until the new year to move, skewing the median sales price downward for December (singles typically buy smaller, less expensive houses). Therefore, we are cautiously optimistic about the trends, but are waiting until January's numbers are released before we make any predictions for 2008.

Our first recommendation to sellers is to list before March/April. Get a jump on the buying season and avoid unnecessary competition. Second, we cannot stress enough the importance of having your property in excellent condition. It's almost hard to believe the items a buyer will use to argue for steep price concessions. Don't give buyers any reason NOT to purchase your home!

As far as potential buyers are concerned, our first recommendation is to buy now if your credit is less than perfect. Lenders are tightening standards daily, and the minimum credit score required to qualify for certain loans is rising (as of February 1, the state of Florida will raise its minimum requirement from 575 to 625). Our second piece of advice to buyers is to set specific buying criteria before viewing homes. With the large amount of inventory, it is easy to become overwhelmed with choices.

*If you are interested in market trends for your specific zip code, please contact us and we will be happy to provide you with the data.