Prices Are Officially Flat

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As we near Fall in the Twin Cities, we’ve now entered a new stage in the housing market we have not seen for many years: the Average Selling Price is now unchanged from last year at this time.

In recent years we have seen a large runup in Average Sales Price during the spring and summer months.  This year was marked by much smaller gains, which has lead to us “catching up” with last year’s price.  While this means that sellers cannot expect any appreciation in their home over last year, it also means for sellers that are moving up that their future home will not cost as much as they expected.

This is not a sign of a bursting bubble, this is only a continued ease in the housing market that is bringing more historically common market times and appreciation back into the market.  We’ve been cooling off for several years now and this has sharply reduce the chances for a dramatic price drop.

   RMLS Average Sales Price Year of Year July 2006

Mortgage Rates Take a Dip

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Over the last several weeks the rates I’ve seen quoted from my loan officers have dropped from 6.75% to 6.375%.  On a loan of $200,000 that can save about $60 per month, or give you approximately $8000 more buying power for the same monthly payment.

While this rate drop is a pleasant surprise, buyers should not expect it to continue to drop or to stay this low for very long.  Most professionals in the industry expect rates to resume their slowly upward climb and reach 7% near the end of the year.  Think of this as a great reason to get out and buy a house this week!

Golden Valley Proposes Property Maintenance Code

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At its August 15, 2006 meeting, the City Council will formally consider adopting exterior property maintenance standards for one- and two-family homes (eg, roofs, walls, and windows would be required to be in good repair).

Property maintenance issues are high on the list of City Council goals for the community. City staff takes about 40 property maintenance complaints each month, and due to the age of Golden Valley’s housing stock, that number is expected to escalate.

Click here to read more about the proposal from the city’s web site.

Open Houses – Buyers Beware

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Many buyers start off their home search alone by finding homes on the Internet and then visiting the home at an Open House. When you do go to an Open House, the real estate agent you meet at the house will be kind, courteous and answer all your questions. What you may or may not understand is that this agent is there representing the seller’s best interests, not yours. Anything you say to that agent may be relayed to the seller, so be careful what you reveal if you are seriously interested in the home.

State of Minnesota statute requires agents to disclose Agency at first substantive contact, like when discussing your price, terms and motivation, but it can be difficult for many agents to explain Agency before you discuss personal items. See here for the Minnesota Agency Relationships in Real Estate Disclosure Form.

Walking through an Open House without an agent has another potential pitfall. If you decide that you want to purchase the home you see at the Open House and have a different agent write the offer for you, that agent may have trouble collecting their commission from the listing agent, due to a term called Procuring Cause.

Members of the National Association of Realtors participate in a local Multiple Listing Service affiliation, known generally as the MLS. In the MLS there is a published commission offered to Realtors who bring forward a buyer to purchase the listing. So when a buyer’s agent shows a home listed on the MLS to their client, they are assured of receiving a commission if the transaction closes successfully.

Where the problem of Procuring Cause comes in is when a buyer is first introduced to the property without their agent present, as in when a buyer walks through an Open House or calls the listing agent directly to schedule a private appointment. In that situation the listing agent may argue that they were responsible for the buyer making an offer on the home and that the agent that wrote the offer for the buyer had no direct influence on the resulting sale. In these cases, a buyer’s agent may receive only part of the commission normally offered, or may receive no commission at all.

The third reason to be represented by an agent when visiting homes is that an agent working in your best interests will likely point out positives and negatives of each property that you may not have noticed yourself, and can provide valuable insight into specific things to consider when evaluating each home. That consultation may help prevent you from purchasing a home that you may later regret or give you further assurance that the home you picked was the right one for you.

Selling a Home in 2006

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There’s been a host of articles, TV shows and books that have come out recently to educate sellers on how to stage their home for sale, but little focus on how sellers should cope with the changing reality of the housing market.

Appraisals are not necessarily an indicator of market value
Over the last few years many sellers have refinanced their homes to lock in lower rates or to take cash out for remodeling, a 2nd home, etc. I have seen some appraisals that showed significantly over-inflated values. If I turn my head sideways, squint out of one eye and hold the comparables far enough away, I could have come to that same number! Likewise, some appraisals can be lower than true value since unless otherwise instructed, many appraisers will stop counting once they’ve hit the value necessary for the transaction. While appraisals are helpful, I rarely see them as the definitive answer of true value.

Taxable values can vary greatly
Many people look to the Taxable Market Value in county records as a benchmark for value. Considering that most assessors are in the subject property for just a few minutes, and maybe see the home every 4-5 years, it is easy to see how the taxable market value can be off by 10% or more. I’ve seen many cases where two nearly identical properties that are just blocks from each other have market values that are more than $15,000 apart.

Homes currently listed for sale (and have not sold) are not your basis for value
Though a house like yours just down the street may be listed for $255,000, if one just like yours sold last month for $240,000, you should expect that your house will sell closer to the $240,000 price point. Just because the sellers are asking $15,000 more for a similar property does not mean they will get it. Price yours at $245,000 and interested buyers will come and negotiate with you instead of them.

Sales activity is changing quickly
Because the housing market is changing quickly, your best comparables will be those that have sold in the last 90-120 days. Sales longer than 6 months ago are ancient history.

Each week, look to see what has just been listed for sale, what has received an acceptable offer (pended) and what has closed. Take a look at how your competition is doing; if many homes are selling in 3-4 weeks and you’re already at 5 weeks on the market, it’s definitely time to reevaluate your strategy.

Price it right from Day One
There are probably 2-3 (or more) houses very similar to yours for sale within a mile or two of your house. If you’re priced even $5000 higher than the other comparables for sale, buyers will likely go and negotiate with them and not with you. If you’re priced considerably higher than you should be, many buyers will not even schedule a showing to see your house!

Many sellers decide to “try it at this price and we can drop it later if we need to.” The problem with that is that most buyers will notice that your home has been on the market for a long time and will perceive your home as being overpriced or having some kind of problem even after you bring the price down to the correct level. In addition, the greatest amount on interest in your house will come in the first 30 days on the market… not the best time to be “testing” a price!

Provide a pre-inspection
If you complete an inspection of the house at the time you list it for sale, you get the benefit of being able to fix some of the problems before a buyer sees them. Additionally, this is a great way to stand out from the competition since your house has already been through a thorough examination, buyers will feel more confident about its condition. It may also speed closing as it eliminates one of the steps in the after-offer process.

I think the biggest benefit for sellers is that it eliminates a 2nd round of negotiation after the offer has been accepted. What would be worse than thinking you’re going to walk away with a certain amount of money at closing… only to find out a week after you’ve accepted the offer that there’s a list of items that are in disrepair and the buyer expects you to fix them? In some cases the inspection turns up such large unexpected problems that the buyer will decide to cancel the contract. Talk about a huge, and expensive, disappointment.

Any offer should be taken seriously
Some buyers are submitting lowball offers. While it may be upsetting to see an offer that is considerably below your asking price, remember that this is a negotiation and that you have a ready, willing and able buyer interested in the home. Talk with your agent about presenting a fair and well thought out counteroffer. An effective agent will work hard with both parties to find a solution that works for everyone.

When an offer does come in
Make sure that the earnest money is enough to motivate the buyer to follow through on the deal; 1% of the purchase price is typically appropriate. If a buyer only gives you $500 earnest money and then does not show up at the closing table, you only get $500 for your troubles.

Ask for the lender to provide a final underwriting commitment well before closing. Without a final commitment from the lender, the day of closing may come before you learn that the buyer can’t secure the financing to buy the home.

Check the loan officer/lender’s credentials. A quick call to the loan officer by your agent to verify the information in the pre-approval letter can sometimes uncover problems that you were not aware of. The pre-approval letter itself provides no guarantees whatsoever that the lender will fund the loan.

Price Competition Heating Up

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As the inventory and days on market in the Twin Cities increase, smart agents and sellers are reassessing their price every 15-30 days.  I’ve seen in two different townhome developments that new listings are being priced at or below the others currently for sale.  This is smart pricing on the part of the new listing but has a negative effect on the other homes listed for sale.

For sellers that listed their home previously, they are now forced to reevaluate their pricing in the face of the new competition.  If they do not adjust their price accordingly, any potential buyer is likely negotiate an offer with the better-priced seller.

Moral of the story: stay informed on your competition.

Edina Realty Top Broker in Downtown Minneapolis

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Barely a year after opening the Downtown Office, Edina Realty has doubled their market share in downtown and now the market leader for the burgeoning new residential market in that area.

In today’s changing real estate market, strength and leadership is key to success.  Edina Realty has been a leader in the Twin Cities market for years and continues to show its leadership today.  There’s a reason we’re #1!

Sell Now or Wait?

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There have been many recent stories on television and in the paper talking about how many homes are for sale now, how it is taking longer to sell, and how some sellers are giving concessions to get the deal closed.

Some sellers are considering waiting to sell their homes in belief that the housing market will improve.  Yes, the market is definitely in the buyer’s favor right now but this is the beginning of a multiyear trend.  The number of houses for sale has increased each year for the last four or five years, and will probably continue to rise for at least another year.  Houses that are priced correctly do sell relatively quickly.  As interest rates slowly rise, this will put further chill on the market.  Many of the homes that have had to reduce their prices were priced based on 6%, 8% or more appreciation over last year.  In fact, appreciation is 1%-4% and will likely average 2%-3% each year for the next several years. So on $250,000, some of the houses listed are $10,000 or $20,000 high because the sellers think there should be higher appreciation than there really is.  Prices may decline slightly but we are not seeing signs of any dramatic price depreciation… just flat or slight appreciation.
 
The competition that’s in the market means you do need to be competitive with others for sale, and that includes price, location, style, amenities and condition.  So if you price the house with others that have newer appliances, roof, windows, furnace, flooring, etc then you would also need to have those features to be competitive.
 
As a seller it is tougher, but as a buyer you are more in the driver’s seat.  Though you may not get quite a much for your current home, your next home will also be priced lower than it would be otherwise.  If you’re planning a move to a higher price range, it should actually be in your favor.  Additionally, interest rates are expected to rise .5% to 1% over the next 6-12 months, which can take 7%-15% of your buying power away because of the higher monthly payments.
 
So my suggestion would be that if you are planning to move in the next 18 months, then I would strongly consider moving now to take advantage of the good interest rates.  If you’re comfortable for another couple years or more, then I wouldn’t worry about trying to time the market and just move when you’re ready to.

Buyers: How the "Tone" of Your Offer Can Make the Difference

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With the Twin Cities housing market moving in favor of buyers, many buyers are negotiating more with sellers.  Houses that are in good condition and priced correctly are still selling quickly, but the average home is for sale approximately 60 days before receiving an acceptable offer.  While the current market does dictate that sellers be more accommodating to a prospective buyer, the market is not so bad that sellers are willing to “give away” their home.

While the change in the market has been easy to see as a buyer, many sellers are slower to understand the new market dynamics. Almost every seller I talk to says they have “the best house in the neighborhood and it will sell quickly because everyone will want to live here.” While agents do their best to educate their sellers about the market realities, many sellers are still not wholly convinced.

So when you see the seller’s home and you decide to make an offer, most buyers focus on the offer price and closing date. While those certainly are critical components, there are many other terms in a Purchase Agreement that are important, especially to sellers.

In today’s housing market you are likely inclined to make an offer below asking price… maybe substantially below asking price. While a low offer may not be what a seller is looking for, choosing the other terms of the contract carefully can help the seller see past the low offer price.

Closing Date. If at all possible, know the closing date that the sellers want and give it to them! Also find out if they need/want several hours, or a day, to get moved out of the house. If you feel comfortable allowing it and have the flexibility to do so, this is an easy way to reduce the seller’s anxiety.

Inspection. When your offer is presented, it helps to already have the appointment for the inspection ready to go and to schedule it as soon as possible. Keep the negotiation timeframe long enough to take care of any issues that come up, but short enough that the seller sees a quick conclusion to the inspection. 2-3 business days to complete an inspection, 1 day to make an repair requests, and 1-2 days to negotiate repairs is typical and preferred. While you can ask the seller to not show the home to other prospective buyers during the inspection period, asking for that provision is likely to upset the seller.

Financing. Sellers will expect a pre-approval letter, but many will also look for the buyer to provide a final commitment from the lender to close the loan. Most lenders can review the title work and appraisal and get final approval from the underwriter in 3 weeks or less. By providing this commitment to the seller, the seller has further assurances that the home will close and close on time.

Personal Property. When making an offer, you are trying to buy a home. Sounds simple, right? The Purchase Agreement is usually not the best place to ask for things other than the appliances listed included in the sale on the MLS printout and Seller’s Disclosure Form. If you’d like to add a special mirror, furniture, additional appliances, grills, etc. it is best to negotiate those items separately after the Purchase Agreement is complete. If you ask for too much or ask for something they have a personal attachment to, you may upset the seller over something that is easily replaceable by you after closing.

Explaining What’s Wrong. If you’re coming in low because the recent sales in the neighborhood show a market value below list price, or because there is extensive repair work to be done, why not explain those things in an attachment or cover letter to the offer? If a house down the street that’s exactly the same sold for less a week ago, mention it.  If the house has old electrical, appliances and roof and all the other comparables had been updated, put in a reasonable estimate of what those upgrades would cost.  Tact is important here, you want to explain your reasoning to the seller without insulting them or their home in the process.

In today’s housing market, you as a buyer do have an advantage, but the seller still needs to want to sell to you. Ultimately the terms you choose to make in your offer will depend on your individual situation and how important it is to you to purchase the home you are offering on.

Week of May 22 Market Activity

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As you can see from the report below, the housing market is continuing to adjust.  We now have a 6.4 months supply of homes for sale today, and that number is likely to continue to increase.  Pending Sales, or homes that have accepted offers but have not yet closed, as still behind last year at this time while the inventory for sale today is up 40% over the same time last year: Weekly Market Activity Report – May 22, 2006

What does this mean to you as a consumer?

If you are selling your home, expect it to take 60-80 days to receive an acceptable offer.  If you price your home even a little high, buyers are likely to make an offer on the houses that are priced appropriately, rather than try and negotiate you down to the level of the correctly priced homes.

If you are a buyer, you now have more options available to you than this market has seen in many years.  There are likely 2, 3, or more houses that are in the price, location, style and condition you are looking for.  While this does provide you with many options, it may make it tougher to make a decision on just one.  If you’re having problems deciding, it may be easiest to do a side-by-side comparison between the two homes and weigh the pros and cons of each.