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September 4, 2013June 30, 2019

Are home prices really rising as fast as reported; how accurate are the home price indices

All major home price indices point to rising home prices, and a few are reporting some very large percentage increases for a limited number of metro areas. But as home price indices are reporting price gains, why are some home sellers getting push back from buyers on price; are home prices really rising as fast as they are reported to be?

Home price data through June used in the S&P/Case-Shiller Home Price Index (spindices.com) released August 23^rd indicated a second quarter National Index increase of 7.1%, while a 2.2% increase was reported during June in the 10-City and 20-City Composites. Areas around the country that experienced the largest decreases in home prices have also experienced the highest price gains in the last 12 months. Take for example the Phoenix metro area, where home prices increased 37.1% from the low in 2011. Locally, however, the Washington DC metro area prices increased 1% in June (compared to a 2% rise in May).

Additionally, the House Price Index (HPI) published by Federal Housing Finance Agency (FHFA) indicated that home prices rose 2.1% nationally during the second quarter (fhfa.gov). And although the HPI is up 7.2% compared to the second quarter of last year, the seasonally adjusted monthly index was up 0.7% in June. Seasonally adjusted home prices for the Silver Spring-Frederick-Rockville, MD metro area indicate a decrease of 0.92% in the last quarter in light of the 4.63% one year increase; and a decrease of 1.1% in the last five years, compared to a 132.65% increase since 1991!

Something’s happening in the housing market, and experts are trying to explain what appears to be moderating home sale prices in an improving (and sometimes described as a “hot”) market. David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices stated that “Overall, the [recent] report shows that housing prices are rising but the pace may be slowing. Thirteen out of twenty cities saw their returns weaken from May to June. As we are in the middle of a seasonal buying period, we should expect to see the most gains. With interest rates rising to almost 4.6%, home buyers may be discouraged and sharp increases may be dampened.”…“Other housing news is positive, but not as robust as last spring. Starts and sales of new homes continue to lag the stronger pace set by existing homes…”

Some explain the recent modest home sale price growth as an effect of distressed home sales. Some experts hypothesize that the deep discounts paid for distressed homes since the financial crises and housing market crash have skewed home price indices lower than they would have been if the indices only accounted for non-distressed home sales; while home price gains in the last year might be more modest using only non-distressed home sales. This has been an intuitive and viable explanation such that the FHFA published in August a Working Paper (Doerner & Leventis; Distressed Sales and the FHFA House Price Index) on the effects of distressed home sales on the HPI. Although the data in this study was limited to two cities, the results are nonetheless remarkable and revealing.

The moderation of recent home sale prices, along with the findings of the FHFA Working Paper, underscore the importance in consulting with a real estate professional to compile and review neighborhood comps before deciding on the sale price of your home.

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By Dan Krell
Copyright © 2013

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

August 30, 2013July 4, 2019

A glimpse into home buyer and seller behaviors

Buying and selling a home can be one of the most expensive and complex transactions you may undertake in your lifetime. Many are increasingly seeking assistance from real estate agents; according to the Highlights of the 2012 National Association of Realtors® Profile of Home Buyers and Sellers (realtor.org), eighty-nine percent of home buyers purchased their home through a real estate agent (a substantial increase from the sixty-one percent who indicated they purchased through an agent in 2001), while eighty-eight percent of sellers listed with an agent.

If you plan to hire a real estate agent, conventional wisdom dictates that you should interview several before choosing an agent. However, the logic is countered by the survey results. Approximately two-thirds of home buyers and sellers only contacted one agent. Additionally, a majority of buyers and sellers reported that the top means of finding their real estate agent was through a referral from a friend or family member. Forty percent of home buyers and thirty-eight percent of sellers found their agent through a referral from a family member or friend. First time home buyers were most reliant on their friends’ and family members’ referrals.

Repeat business was also a frequent way indicated in choosing a real estate agent. Although ninety percent of home buyers and eight-four percent of sellers reported that they would work with their agent again in the future; only twenty-three percent of home sellers and ten percent of buyers reported that they had worked with their agent in the past.

The internet is increasingly viewed as an important source of information for home buyers. Ninety percent of buyers surveyed indicated that they used the internet for their home search; the percentage rose to ninety-six for buyers under the age of 44.

Ultimately, your home purchase or sale falls upon the experience and skill of the agent you hire. Because of the increase in specialized transactions (such as short sales, 1031 exchanges, etc), it is probably a good idea to find out if the agent has the experience if your purchase or sale falls in this category.

A recent research study by Bennie Waller and Ali Jubran (“The Impact of Agent Experience on the Real Estate Transaction.” Journal of Housing Research 21, no. 1 (2012): 67-82) highlights the notion that an experienced agent can yield a better result than an inexperienced agent. They concluded that hiring a “veteran” agent will have a positive effect on your home sale. The data indicates that “rookie” agents, those who have had their real estate license two years or less, sell homes for less, take longer to sell homes, and are less efficient during the process.

Asking friends and family for referrals as well as calling the agent you previously worked with is a good way to find a real estate agent. However, vetting out potential issues can be achieved by asking the right questions before you hire them.

Regardless of how you find your real estate agent, it is probably a good idea to find out more about them. A conversation about their experience, knowledge, and expertise is probably a good way to start. Additionally, knowledge about the local market is extremely important these days as market trends have become hyper-local. Not understanding the neighborhood market can lead an agent to over or under price a home.

by Dan Krell
© 2013

August 21, 2013November 23, 2021

Home buyer’s privacy

In a time when there is increasing concerned about personal privacy, maybe it’s time for local Realtor® associations (such as the Greater Capital Area Association of Realtors®) to retire the Buyer’s Financial Information Sheet, or at least make major revisions to the form. The Buyer’s Financial Information Sheet is an invitation for abuse and misuse by those who may otherwise be well intentioned.

Sure, privacy laws have been recently enacted that prescribe protocols on the handling and disposal of sensitive personal information. However, there are no provisions to ensure that real estate brokers, agents, and those who have access to the personal data follow such precautions.

If you ask a real estate broker about the origination of the Buyer’s Financial Information Sheet, they might explain how agents needed a means to pre-qualify buyers in a time when loan officers’ pre-qualification letters had little meaning on their own. The tradition of a completed form portrays the buyer’s ability to purchase a home. Legal minds might go further to explain that the form may provide additional recourse for the home seller in case the buyer provides misleading and/or false information, and/or omits relevant information about their financial standing.

Today, many home buyers are pushing back (and rightly so) at the request to provide an abundance of specific financial and personal information to their agents, listing agents and sellers. For many home buyers, the resistance to sharing personal and financial information is not only because of discretion, but mainly because they feel the sharing of the information is redundant and ineffectual. Many home buyers have already provided similar (if not more) information to their loan officer so as to be issued a pre-qualification letter. Additional concerns include the use of buyer financial information to during contract negotiations.

Times change, and it’s time to take home buyer financial information out of the hands of real estate agents. The argument that sellers want to see the buyer’s ability to purchase is antiquated. Today, mortgage originators are licensed and take seriously approvals that are issued because consumers may have recourse; the loan officer usually performs a minimal level of due diligence.

Mortgage originators are required to undergo a federal and state criminal background checks for licensing. Additionally, lenders offer training on managing and disposing sensitive personal information; many lenders offer secure means of electronic transmission of sensitive data. Chances are that the agents involved in your transaction did not undergo a recent background check, much less the seller. But if you are asked to complete said form, you are expected to trust those who may handle and view it.

Additional problems that can occur when presented with the Buyer’s Financial Information Sheet include the compulsion by listing agents and home sellers to underwrite the buyer’s mortgage; they may indulge in deciding whether or not the buyer is mortgage worthy when they may be unqualified to do so. Additionally, listing agents and sellers are tempted to use the buyer’s financial information in negotiations; misguided sellers may regrettably lose a deal when they are told to hold out for a higher price from a buyer who may walk away from negotiation.

Protect home buyers and sellers: retire or change the Buyer’s Financial Information Sheet. Cash buyers can still provide proof of funds to purchase, while other buyers can provide a lender’s letter along with a “Buyer’s Financial Affidavit” that certifies that all information provided to their lender is accurate.

Original published at https://dankrell.com/blog/2013/08/21/home-buyers-privacy-an-argument-to-retire-the-financial-information-sheet/

By Dan Krell
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August 16, 2013July 3, 2019

Challenges of selling a home during the summer

If you were selling your home several years ago, you might have been thinking of ideas how to attract home buyers to your home. Even though the feeling today is such that you don’t have to do much to sell your home, some home sellers are shocked to find out that there is more to selling today than just putting a sign up in the yard – and summertime selling poses additional challenges.

First, get the price right. As I wrote earlier this year, pricing a home is extremely important even when there appears to be a positive selling cycle. Even though you decide on the list price, you have to be realistic about your home’s value; your real estate agent can assist you in deciding on a list price by preparing a market analysis with recent (within the last six months) neighborhood homes that are comparable to yours.

Next, remember that de-cluttering is the foundation to your home’s presentation. Whether you are a pack rat or a neat freak, chances are that your home could use some de-cluttering. De-cluttering shouldn’t be thought of as getting rid of everything you don’t need in the home, but instead could be thought of as a way to neutralize and free up space to allow home buyers to imagine how they could live in the home.

Another factor to consider during a summer home sale is your home’s curb appeal. The basics of curb appeal include attending to the home’s landscaping and grading, siding, deck, driveway and sidewalks.

We tend to get lazy about tending to the yard during the hot and humid summer months; however, if you’re planning a summer sale, it is not the time to let the lawn and weeds overgrow. Simple landscaping can make your lawn appear manicured. Trees properly trimmed away from the home will allow your home to be seen from the street as well as not be “crowded” by overhanging limbs. Neatly trimmed and properly placed shrubs and flower beds will not only look beautiful, it will enhance your home’s façade. Also, check that the grading around your home diverts storm water away from the foundation. Hiring a professional landscaping company to tend to your yard is the way to go if the heat and/or activity pose a health hazard.

Take a close look at the exterior of the home. If the exterior does not need painting, look for areas that may be peeling or bare. Decks, fascia boards and window trim are often made of wood and typically need more attention (even if your siding is made of brick or artificial materials). Consider having the deck and siding power washed to remove dirt, algae or mold. Additionally, resealing the deck and other exterior wood trim enhances the home’s curb appeal.

Sidewalks and driveways are often given the short shrift. Cracked sidewalks and driveway are not only unsightly, they can also be a trip hazard. Repairing and/or sealing the walkways and driveway can not only increase safety – it can improve the appearance of your home.

Finally, how cool is your home? An air conditioning system that does not keep your home cool is a buyer deterrent – especially in the hot summer months. If you don’t have the air conditioning system serviced on a regular basis, you should consider doing so before listing your home this summer.

by Dan Krell
Copyright © 2013

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

August 8, 2013July 2, 2019

Amazon and real estate – will Bezos’ vision change marketing of home listings

The big news this week is of course Jeff Bezos’ purchase of the Washington Post. Why would the man who predicted the demise print media pay $250 million for a regional newspaper and a handful of associated local papers?

If the real estate business is a window into how media plays a role in the daily lives of the average American, then Bezos’ purchase might be a head scratcher. Over the last five years, the National Association of Realtors® annual Profile of Home Buyers and Sellers (realtor.org) has demonstrated how the internet has increasingly played a role in how home buyers actively searched for homes. In 2007, the Profile of Home Buyers and Sellers indicated that about 60% of home buyers completely relied on the internet to search for their home, while about 21% did not use the internet at all in their search. Compare those statistics to the 2012 Profile, which reported that 90% of home buyers used the internet to search for homes; and home buyers who were younger than 44 years of age, the use of the internet is reported to be 96%!

It seems as if home buyers relied on the weekend real estate sections of the paper for a leg up on new home listings and open houses. Real estate agents and brokers happily paid to have their listings included in what seemed to be the weekly catalog of homes for sale. In addition to the home listings, print real estate sections also included other related information (such as decorating, renovation, and buying/selling tips).

However, as the NAR’s Profile of Home Buyers and Sellers indicated, there was a sharp increase in the reliance of the internet to search for homes from 2007 -2012. The time frame is no coincidence; besides the exponential increase in technology and computing power during this period, it also covers the housing bust and subsequent foreclosure crisis. This was a time of tight advertising budgets and the search for efficient advertising modes; the internet offered a bigger bang for the advertising dollar, offering a more robust real estate platform than print could ever offer.

And although there was a colossal increase in the reliance of the internet for real estate listing information in the last five years, there was a consolidation and reorganization of online real estate content during that time frame as well. As the housing market declined in 2007, many sites stopped syndicating their own content and instead partnered with one of the high profile, well organized real estate portals.

It might seem as if the purchase of the Washington Post by an internet visionary who had once foretold the death of printed news might be confusing. But if you understand the Amazon.com business model and how it revolutionized the purchase and delivery of print and recorded media, you would not speculate that the purchase of the venerable news organization was to expand an internet empire to the newsstand – but rather you might believe that the purchase was to acquire a widely recognized brand that generates a considerable amount of content that can be packaged and sold through Bezos’ established model.

Just as the internet revolutionized real estate content and home listings, you might imagine how Bezos’ novel news paradigm could increase the robustness of content and distribution of home and open house listings.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.