July 2010 Newsletter
The Traditional Real Estate Market – or is it?
Last year I wrote on the Real Estate Crystal Ball, and looking into the future. Now, I would like to write on what was once thought of as the traditional real estate market, and how that has evolved to both buyers and sellers today.
There used to be a time as we will all recall, that homes – if not viewed in the first few days of being listed, would be in contract and sold, and a buyer would lose his/her opportunity to purchase that home. Highest and best situations were the norm, and since there were not enough homes on the market to accommodate the amount of buyers, it was called a seller’s market. The term, seller’s market basically meant more buyers and not enough homes. Highest and Best basically meant the buyer submitting a (final) bid by a certain date and time, representing his/her best bid for that home with the best possible terms – many times meaning a no mortgage contingency/wavering the inspection/sellers choice in a closing date.
Then, between the war on terrorism, companies failing (AIG, Lehman Brothers), the economy failing, people losing their jobs, it wasn’t long before the housing market spiraled in a downward fashion and it became a buyer’s market – which meant more homes on the market and not enough buyers . It wasn’t enough to just list a home, it then had to be the home in the best condition in that price range in order to stand out from the other similarly priced homes, offering greater value. It just seemed logical that if there were 20 homes priced at $699,000, and 4 of those homes had new kitchens, bathrooms, new roofs and the gardens were nicely manicured – those were the 4 homes which would be sold first out of the 20 available…..Busy streets, no backyard, older kitchen, – could mean that a lovely home would be bypassed as there were so many other homes to choose from that had more to offer…. So, it came back to price. If a property is priced competitively – making up for any potential flaw such as an older kitchen, then that home would then stand out in price and value. Buyers are looking for value. They are also looking for foreclosures and short-sales.
The 2009 spring market was seemingly non-existent. Sales prices were at 2003 levels, and people – not knowing if they would still have a job – forgetting the lack of a bonus, were not taking the plunge into buying and or selling. However, you will always find a certain percentage of the population who must sell either because of financial difficulties, relocation, illness, downsizing, estate sales, and by that same standard there will always be buyers who need to buy, and so last year’s spring market materialized over the summer. July and August in the lower Westchester area was a busy time for Realtors. People were either taking the plunge realizing their jobs were still intact or they decided to take advantage of the home prices also realizing that real estate is still a good investment – especially when the stock market was a tad unstable, and the mortgage rates were still good, and expected to rise.
Unfortunately, there is too much information available on the internet, and so when a buyer reads that they should automatically bid 10% lower than any list-price, they do that and then cannot understand why they do not obtain an accepted offer. It could be that the sellers had already reduced their home for sale, and so it is important for the buyer to determine what has been sold in the area, the conditions of those homes – and how they compare to the home of interest.
Today, an accepted offer means a meeting of the minds between both buyer and seller. It is that price that is perhaps palatable to both parties – and not what the house down the street has sold for, for that house could have been a foreclosure a short sale, or someone just wishing to sell in short order. However, having stated that, it should be noted that any home must appraise, and if there has been a recent short sale or foreclosure on your street, and you decide to sell then that short sale/foreclosure will unfortunately affect the appraisal of your home. It is therefore important to make sure that any bid be contingent upon both the mortgage and appraisal, and it is also important for the seller to list their home reflective of the recent sales in the area….. Otherwise it will not appraise. Banks will allow up to 25% of adjustments of the sale price and square footage if there are no recent comparative sales for that property. However, many banks and lending institutions will also request additional monies as a down payment to offset any question they might have with regard to an appraisal issue. If you are obtaining a great buy – be happy but prepared to place down more cash!
The first 2 quarters of 2010 will reflect an upward trend in home sales which will perhaps give a false message/impression to home sellers, perhaps thinking that the real estate market has improved. However, as wonderful as those sales were, it was a reflection of the first-time home buyers tax credit and those foreclosure and short-sales, of home buyers obtaining their bonuses, and I think other agents will agree with me that as soon as April 30th (the deadline that buyers were required to be in contract to obtain the credit) home sales also decreased dramatically in certain price points. My web-sites still reflect many visitors viewing the homes, so the buyers are ‘out there’ but they are looking for that ‘special’ home offering great value and price.
I have visited various home-owners these past few weeks – perhaps reading about these wonderful sales figures, thinking that prices were rising – but not truly realizing the source of same. However, with the mortgage rates fluctuating every other week, it is still a great time in which to purchase a home, and of course, if you are both selling and then buying – hopefully any loss you might have to take on one end – will transcend into a savings in the buy end.
Short Sales and Foreclosures
Real Estate markets are always local, and so when you are reading about short sales and foreclosures, remember that the figures given are usually national, and so it is important to ask your agent of choice for those figures on a local level. For example, RealtyTrac mentions that there were typically 300,000 foreclosure filings made each month in 2009 nation wide. That being stated, there are still many home-owners who are facing financial difficulty, and yet are too embarrassed to ask for help, waiting until perhaps it is too late for a solution. Any home-owner who is having difficulty paying their mortgage, taxes, should speak to their accountant/attorney, and perhaps also someone who is knowledgeable in short sales. You must be able to demonstrate hardship to your bank in order to be considered for a short-sale. That hardship could be a loss of a job, illness, relocation, etc., and a short-sale basically means that if you were to sell your home, you would not have enough money at the closing to pay for all of the closing costs and liens. You would be ‘short‘.
For a buyer, there is no guarantee that a short-sale will be approved, and so it is important that you ask the right questions, have the right agent, and make sure that follow-through is constant. The banks have thousands of short-sales, and people makes errors! They usually will not consider a short sale until all of the paperwork “ the package” has been delivered, so if you are a buyer then proof of funds is a must, current pre-approval (no later than 30 days) a must….and in truth, I have found that the banks will only respond to the short sale request when the buyer has his/her mortgage, and all of the necessary paperwork from both buyers and sellers have been received. In the past, I have asked a bank to forego a pre-payment penalty – which then allowed the seller to close in a normal fashion without submitting the short-sale documentation. Communication with the bank is important, and if you feel uncomfortable then a third party – like a trusted realtor -with written permission from you to the bank in question, can speak on your behalf. It is a traumatic time, but realize there are people are willing to assist and make the process an easier one.
In a bank owned property (REO) – once the bank has accepted a bid, they usually do not move to another buyer who perhaps offers a higher price. If you are submitting a bid for a REO, then proof of funds is very important. If all cash, then proof of where that cash is/bank statement, etc. If it is a derelict property, the buyer would need a 203K rehabilitation mortgage. Many buyers do not have the patience for the process or perhaps do not understand the process.
It used to be that a buyer must allow at least 120 days for the bank to review everything.
However, as of April 5th, 2010, new guidelines were put into effect. A borrower will be allowed 120 days in which to find a buyer, and once the lender has established an acceptable short-sale price, then the bank will approve the potential buyer in ten business days – after a contract of sale has been signed.
However, Sellers must be unqualified for a loan modification under the Home Affordable Mortgage Program ( http://Makinghomesaffordable.gov ) or be unable to afford the modification.
1)The bank will set an acceptable value of the home upfront, based on an appraisal or broker’s price opinion.
2) Lenders must approve or deny a purchase offer within 10 days of it being submitted.
3) Once the bank approves a home for short sale, sellers may stop paying all related mortgage payments, and unpaid mortgage debt will be forgiven.
4) These mortgage payments will not be shown as late on credit reports.
5) At closing, sellers are entitled to as much as $1,500 from the government to cover relocation expenses.
I would still advise any potential buyer to be patient and to be prepared for delays in the process.
Terms
Pre-Foreclosure
When a property is 30 days late (in default of the mortgage) a bank can take steps to foreclose which ends when the property is either sold, or the home-owners pay the arrears to the lender with matters being resolved. No bank wants to foreclose on a property, and it is always a good idea to speak to your bank in advance if you are having difficulty.
Foreclosure Sale
When the property in question is auctioned to the highest bidder – someone acceptable and meeting the bank’s terms for the sale. Buyers usually pay the transfer taxes.
Short Sale
When the seller owes more on their loan than a sale will produce including the closing costs, and they are unwilling or unable to make up that differential. A bank usually incurs more costs with a foreclosure, and so it is in the bank’s interests to approve a short-sale but there is never a guarantee.
REO’s
This simply means a Real Estate Owned – if a foreclosure sale is not successful, then the lender owns the property .
In REO’s , and you are the buyer, it is also important to keep the time-honored closing date with a bank. If a buyer does not perform by the bank’s closing date, then a per diem fee could be imposed upon the buyer.
Title Companies
Houlihan Lawrence is affiliated with Thoroughbred Title Services. If a buyer makes a request for this Title Co when they first speak with their real estate attorney (before the attorney initiates the Title search), then the buyer can save money – as Thoroughbred Title offers a reduced fee to buyers. The amount varies from property to property based on sales price, but it could be substantial and if even only $500 – well worth the request and effort. But it could save you thousands.
Absorption Rates
What is Absorption rate and how can it assist a seller?
Example:
If you have 12 homes sold last year .… 12 divided by 12 = 1 a month. If there are 10 homes on the market then it would seem to be a 10 month supply. If there is a 4-6 months then we call it a balanced market… – seller’s market. If you have anything over a 6 months supply then we call it a buyer’s market.
A metro area has for example 38,529 homes sold the previous year divided by 12 = 3211
There are currently 18,716 homes on the market – divided by 3211 = 5.83 – a balanced market.
Last 6 months 17412 homes sold = 2902 – monthly absorption rate
SO, 18,716 homes on the market – based on the absorption rate = 6.44 months supply on the market…. The market is changing… and is becoming a buyer’s market..
To take a step further..
The home-owner wants to sell his house for $600,000. In the last 12 months, 8 properties sold in this price range (8 divided by 12= 6.67 ) with an additional 17 properties currently on the market at that price. 17 divided by 6.67 = 25 month supply of homes.
However, 27 properties sold at $550,000 – (27 divided by 12 = 2.25 absorption rate) . SO, if there are currently 6 properties on the market at $ 550,000, and it takes 2.25 months to sell each one and 25 months to sell a home priced at $60,000.… wouldn’t it seem logical to list the home at the $550,000?
Also remembering that out of those homes sold, the home that is best presented will be the home that will be sold…..
Facts
Foreclosures are still very much in play, and the proceedings have been stalled in many cases with lenders endeavoring to offer loan modifications, etc. so the numbers given aren’t a true reflection of people being in default of their loans.
According to the Fitch Rating in September 2009, there are some 189 Billion Dollars in option ARM’s (adjustable rate mortgages) which will be recast over the next 2 years. 90 day delinquent loans have risen from 16% to 37% with approximately 46% being 30 days delinquent. The past loan to value of 79% has now become 126% (with banks requesting larger cash down payments as I mentioned earlier). Once again, these are nation wide figures, and real estate is local , but my point is, we are not over any hump.
Various parts of the country have seen home price increases but once again real estate is local, and that is why you should always consult with your local realtor for the correct local information.
People will always need to buy and sell, but be realistic.
So, final words – if you are the seller then price your home well, de-clutter, fix those items in the house that need to be fixed, make your home easy to show, and choose your agent wisely! To set your self apart from other home sellers, you can easily have a seller’s inspection which can be as little as $250. This way, a potential buyer can see that you have no issues at hand – or should you find anything, you can fix same before a buyer has their inspection and it will not hinder a sale. Mold is still a very big issue with buyers, and even in very dry weather, it is important to have a dehumidifier in your basement. You will be surprised at the amount of moisture the dehumidifier will collect. List your home comparable to other sold properties as your home must appraise…. And if you ‘need’ a certain amount to close based on what you owe… please realize that a buyer will only bid what comparable homes are selling for and not what you ‘need.’ Staging is also another way to present your home in its best light. You might well obtain more for your home when it is staged correctly so it is worth the consultation and possible investment. There are also companies that will only charge for a few months giving you several months ‘free.’
If you are the buyer, then choose the right agent, one who will be patient. I have associates who will only show 3 properties and then expect the buyer to make a decision. I tend to be more understanding, and if they need to see 20 or 50 properties before they make their decision (I cringe) but I understand. However, I do change hats when that decision is finally made, and it is important to move expeditiously to having the inspection as soon as possible and the contract signed. Sellers do not like the dragging of feet, and should there be another buyer in the picture, it is a easy way of losing the accepted offer. Remember that until the contracts are signed by both parties (fully executed) a seller (and or buyer) can change their minds.
Respectfully submitted,
Gay E. Rosen, ABR, CBR, CRS, GRI, SRES, CDPE
Licensed Real Estate Associate Broker
#1 Agent New Rochelle 2008 (per the WPMLS)
#1 Agent Houlihan Lawrence New Rochelle Brokerage 2008
One of 7% of Westchester Agents chosen in customer satisfaction 2010 – to be published in the October 2010 edition of Westchester Magazine
Houlihan Lawrence
2070 Boston Post Road
Larchmont, New York 10538
(914) 833-0420 Ext. 307
(914) 833-0451
