The Market Forecast for 2007 and Beyond

by Dan Krell © 2007

The first quarter of 2007 is almost at an end. Tax returns are due in a few weeks. Spring Training has begun. And the spring real estate market is in full swing. Or is it?

Yes and no. Home buyers are looking. However, many of the homes that have languished on the market through the winter are still unsold, or have gone under contract at greatly reduced prices. If this is happening now, what are we to expect in the future?

Looking back to 2006 we all agree the market slowed down a bit and almost to a stand still by winter. Although it was a sluggish year, the National Association of Realtors considered 2006 to be a respectable year. Looking at the numbers nationwide, it was indeed a respectable year. Although existing home sales decreased 8.4% last year, it was the third best year on record for such sales. Additionally, new home sales decreased 17.3% and recorded the fourth best year on record for new home sales. Believe it or not, the NAR reports that homes prices increased nationally 1.1% for 2006, which is a record thirty-nine consecutive years of home price gains.

For 2007, the NAR forecasts a year much like last. Existing home sales will be consistent, but not as strong as last year, while there will be a slight increase in home prices. It is uncertain, however, how new home sales will manage (Realtor.org).

Fortune’s picture for the immediate area isn’t as rosy. Their December 21, 2006 forecast of home prices for the Washington area predicts a decrease of 3.8% in 2007 and 3.2% decrease in 2008. The forecast for the Bethesda-Gaithersburg region predicts a 2.7% decrease in 2007 and 4.3% decrease in 2008.

As a whole, economic forecasts point to a stable economy with stable employment and minimal to moderate growth. As you can imagine, many reports indicate that housing will continue to be a burden on the national economy. Reports predict that the burden will continue, however, through mid year 2007 and remain stable through 2008.

Prognosticators projected that the spring market for 2006 would be business as usual. Locally, the market preformed inconsistently. The spring market for 2007 will be inconsistent as well. As the local real estate market attempts to find its balance the market will continue to be slow through spring. Unless there is a major disaster, the sales pace will pick up in May as the market levels off.

Contributing to the continued lethargy is the fallout in the sub-prime mortgage industry. The tightening of credit guidelines due to over zealous speculators in the secondary mortgage markets has recently reduced the already shrunken pool of home buyers. Like most market commodities, investors will one day again find their appetite for sub-prime mortgages.

Home prices will continue to adjust, having an effect of tightening the available housing inventory. As many home sellers are already offering their homes at a break-even price, some home sellers will find that they cannot afford to sell as they would lose money on the sale effectively taking them out of the market.

By the end of the summer 2007, the effect of a tightening market will bring about the balance that we have been waiting for – hopefully.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 19, 2007. Copyright (c) 2007 Dan Krell.

The Future of Real Estate Brokerage

by Dan Krell © 2007
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I am going to share my feelings about a recent article that appeared in the March issue of Realtor® Magazine. The article is one of a series of interviews with the innovators in the field. This article was a synopsis of a round table to discuss the future of real estate brokerage with some of the top Brokers in the field.

Although many responses made sense, other responses were disappointing. Reading about future developments such as one stop shopping, discount services, and internet leads sounded more like a rehash of the recent past rather than ground breaking innovations.

Where is the future of real estate headed? In an interview on National Public Radio (March 3, 2006), Economist Steven Levitt discussed the idea that the real estate agent is an endangered species and at that traditional six percent real estate commission may become a thing of the past because of the pressures of the internet and the economics of a housing boom. At the time, it made perfect sense. However, as the market has slowed this past year, home sellers are now offering higher commissions, and sometimes even a bonus, to sell their homes.

Ok, so what about the future? Like the Amazing Criswell, I may make some wild claims. However, the difference is that I look to history to help define where we are going.

Real estate brokerage started out as a means to bring buyers and sellers together while playing gatekeeper and controlling information. Over time, legislation and legal challenges have transformed the nature of agency and representation to become the present practice of real estate. Additionally, technology and the internet have forced changes in the type and amount of information available as well as how it is disseminated.

Generally, the core of real estate profession of tomorrow will be much like yesterday and today-people. Real estate contracts will continue to grow as brokers will continue to try to limit liability. Agency and representation may change from a transactional management model to a consultant or case management model, where the client can get assistance and direction in the buying or selling process.

Information technologies will continue to develop and will deliver high quality and detailed information as well as increasing efficiency to all users. Possibly one day, you wouldn’t have to go to an open house as you can experience any home in full scale 3D. Although contracts are getting longer and thicker, the use of the internet and email to execute and deliver documents has been helpful such that one day settlements may be conducted in a similar manner.

As economics and legislation played a large role in the development of real estate brokerage, it is difficult to predict future economic cycles and future government regulation. Even with this uncertainty, it is clear that these influences will impact the future growth of the industry. For example, economic cycles dictate the number of Realtors entering or exiting the marketplace as well as contraction and mergers of large real estate brokerages. Additionally, future legislation may impact compensation structures.

Although technologies, laws, compensations, and business models may change, one thing will continue to remain the same- the human animal. Developments will certainly make the process easier, but ultimately home buying and selling is an emotional and subjective process that requires human interaction.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This comlumn was originally published in the Montgomery County Sentinel the week of March 12, 2007. Copyright (c) 2007 Dan Krell.

How to Make Your Property Tax Appealing

by Dan Krell © 2007

Many homeowners received their new tax assessments this past year. As they opened the official envelopes with much trepidation, many were in disbelief in the increase in property tax. As home values skyrocketed the last few years, so did tax bills. If you have recently received or are anticipating receiving a new assessment this year, you have the opportunity to exercise your rights by appealing the new assessment.

When you appeal your property tax assessment, you are challenging the value that is placed on your home by the State.

How does the government determine how much your home is worth? According to the Maryland Department of Assessments and Taxation (DAT) web site (www.dat.state.md.us), they oversee over two million property accounts. The state employs trained appraisers to evaluate and appraise every property. These appraisers use standard appraisal techniques to determine the value of your home.

Every property is re-evaluated every three years. If there is a change of value, there is three year phase in period for the value to be used as a tax base. To see how the assessor determined your home’s value, you can obtain a copy of the assessor’s worksheet at the local assessment office, which is located at 51 Monroe Street (4th Floor) Rockville, MD.

The appeal process begins by first receiving your new tax assessment. If you are satisfied with the value place on your home, there is nothing for you to do except pay the bill. However, if you are dissatisfied with the assessment, you have forty-five days to file an appeal.

The appeal is first heard at the Supervisor’s level, which allows you to discuss the assessment with an assessor. At this time, it is wise to obtain the assessment worksheet from the local assessment office (indicated above). You can obtain the worksheet for your home at no cost, and for a fee you can obtain the worksheets for the comparables used by the assessor. There will be an informal hearing to review all the information. After the hearing, a “final notice” is issued.

If you remained dissatisfied with the “final notice”, you have thirty days to appeal to the Property Tax Assessment Appeal Board (PTAAB). The board is not a part of the DAT; the board is comprised of local residents who have been appointed by the Governor. The PTAAB conducts an informal hearing to review all the relevant information. The board will issue a notice of decision to all parties involved.

If your dissatisfaction continues, you have thirty days to appeal to the Maryland Tax Court (MTC). In MTC, you are given the opportunity to present your case. The MTC will issue a decision based on the information presented.

Although MTC is the last administrative step in the appeal process, you can appeal the MTC decision to the Circuit Court. The Circuit Court reviews the case to determine if there were any legal errors in the process.

Hopefully, by following the process you will at least have the satisfaction of exercising your rights, and possibly being successful in appealing your property tax assessment. For more information about the appeal process, and to view the Property Owner’s Bill of Rights, visit the DAT website (www.dat.state.md.us/sdatweb/hog.html).

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 5, 2007. Copyright (c) 2007 Dan Krell.

Home prices, Zillow, and Formulating an Offer

by Dan Krell © 2007

Are you waiting for the bottom to drop out of the local real estate market? Although there has been a market correction, the Greater Capital Area Association of Realtors home statistics report shows that the average home price in Montgomery County increased to $611,443 from $593,801 the same time last year (GCAAR.com).

I hear some out there saying there is more correction to come, but in reality there not much more that the home seller can absorb. Those home sellers who are not in dire financial straights will either wait for the right buyer or take their homes off the market. As we are coming out of winter and the spring market has yet to go into full swing, it seems as if there is no end to the lethargic market. However, like the flowers that bloom every spring, so too do homebuyers.

If you look at online valuation systems such as Zillow, it seems as if home values will continue to fall, because the values listed are higher than the list prices of homes for sale. Although web based valuation systems strive for accuracy, they will continue to offer imprecise data because these sites cannot account for real time fluctuations in the marketplace. If you are a home seller, please don’t solely rely on valuation websites to determine a sale price for your home, as the comps offered by such websites may not be the most recent or may not be directly comparable.

If you are a home buyer, you may want some tips on formulating an offer. Basing your offer on the price the home seller paid or the tax assessment is unreasonable. Many of my clients have told me that that they read somewhere or heard from someone that their offer should be based on the price paid when the home seller bought the home. Will someone please tell me whose idea this is? I neither have read this anywhere nor have I met the original source of this “wisdom.”

Additionally, using tax assessments to determine your offer can set you up for disappointment as well. Tax assessments are typically a fraction of the home value and are calculated by the locality for tax purposes. It is common for a home owner to appeal a tax assessment so as to lower the assessed value and subsequently his tax burden. The price the home seller paid and the tax assessment are mutually exclusive figures that have no bearing on market forces.

If you are ready to put an offer on a home, you should do your research and look at pertinent factors such as recent sales and market trends to assist in formulating your offer and terms. You should find the most recent sales prices for similar style and size homes in the neighborhood of the home you are considering. To determine a market trend, look at sales prices in six, three, and one month increments. Additionally, try to determine the home seller’s level of motivation, as the home seller may be open to lower offers if they are highly motivated to sell.

The real estate market is dynamic and cyclical. In determining list prices and offers, home sellers and home buyers should use the most recent and pertinent information to assist in their decisions.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of 2/26/2007. Copyright (c) 2007 Dan Krell.

How to buy a foreclosed home

by Dan Krell © 2007
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With changes in the market, we have seen an increase in the amount of bank owned homes on the market. What’s happening? Foreclosure rates for the entire country are up over forty percent since last year (MSN real estate). However, in the Bethesda-Rockville area the foreclosure rate only increased above four percent and decreased in the Baltimore area. If you live in Northern Virginia, the foreclosure rate increased over fifty percent since last year.

Putting the numbers in perspective, although the numbers seem high for our area, the home owner behavior relatively the same. The difference is that those who are in trouble do not have the parachute of the expanding real estate market.

In the last few years, when a home owner fell behind in their mortgage payments it was almost assured they would be able to sell the home quickly and realize a net gain in their sale. If they were not able to sell and the home went to auction, hungry home buyers and eager speculators were ready to purchase sight unseen.

Boy has the time changed! First of all, many home owners who are in trouble with their mortgage are not in the position to sell as the home value is less than what they may have purchased the home for. Additionally, if they have some exotic mortgage, there is a good chance that the interest has eaten into any equity they may have had, in addition to late fees as well as attorney fees (the mortgage company will charge the defaulting home owner for the cost of foreclosing).

If you have fallen behind in your mortgage recently, you know that banks are becoming more difficult to deal with. I have heard stories from home owners who have been told by a bank representative that because there is equity in the home, the bank is looking to foreclose and resell at a profit. Have the banks become greedy?

No. The banks are the same way they have always been, looking for ways to make money. What has changed is real estate market and technology.

A year ago, a bank owned home on the MLS was almost non existent in the Montgomery County area. Today, there are over 25 active bank owned homes on the market just in Montgomery County. Among the listings are a couple of good buys.

Bank owned homes used to be priced for quick sales. Today, bank owned homes are priced at full retail prices, even though the condition is less than perfect. Additionally, the banks may not entertain a lower offer until the home has been on the market for a while.

Technology has been a driving force in the real estate industry for over a decade. As technology changes and gets better, the valuation models the banks use will also get better. Presently, I believe the banks and REO disposition companies have fallen behind in the curve such that the valuations they are using are skewed to because of higher home prices from last year.

As the market stabilizes, we will see an increase of bank owned homes for sale. Eventually, bank owned home prices will also find their mark as market conditions and home condition are taken into account. If you are in the market for a bank owned home, talk to your Realtor and keep an eye on the bank owned inventory.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of 2/19/2007. 2007 © Dan Krell.