Home buyer preferences

home buyer preferences
Trendy renovations (infographic from nar.realtor)

Homes can vary along a spectrum of many factors.  Size, style, location, are just the basic differences and are generally used by home buyers in their home search.  However, even similar homes in the same neighborhood can differ depending on the homes’ features.  Home buyer preferences and trends toward home features is usually the reason for price differences on similar neighborhood homes. This truth was validated by a study conducted by the National Association of Home Builders (How Features of a Home Impact Its Price; nahb.org; November 30, 2004).  If you’re selling this spring, consider home buyers preferences and current home buyer trends.

In past columns, I talked about how most home buyers in the current housing market want a turn-key home.  And that still holds true.  Home buyers still prefer to buy a new home.  However, buying a recently updated/renovated home is the next best thing.  Generally, homes with new kitchens, bathrooms, and flooring get multiple offers and sell very quickly.  Alas, updating and renovating a home takes time and money.  Discuss with your listing agent how making (or not making) updates and renovations affect your sale price. You may have to adjust your pricing expectations accordingly.

So, what tops the list of home buyer preferences? The National Association of Home Builders latest “Trends in Home Buyer Preferences” (nahb.org) indicates that the kitchen is a prime area of focus.  Current kitchen trends include a strong preference to either “traditional” or contemporary style cabinets.  The styling would depend on the kitchen overall (consulting with a design center would be helpful).  Additionally, water filtration has also become a desirable feature.  If not already installed, water filtration can be added when replacing a refrigerator, as it is now a common function of modern refrigerators.

In today’s growing awareness of environment and sustainability, it’s a given that home buyer preferences show a strong preference toward energy efficiency.  When updating, consider Energy Star (energystar.gov) certified appliances.  Energy Star appliances typically use 50 percent less energy than standard models.  Additionally, consider having an energy audit prior to listing your home.  The energy audit will reveal the home’s energy efficiency.  It will also highlight where improvements are recommended.  The report itself is useful to the home buyer, even if you don’t follow all the recommendations. 

New flooring is also important to home buyers.  The preference towards wood flooring has always been strong.  However, be aware that there are differences in quality of flooring products, as well as workmanship of installers.  Even if you purchase top quality hardwood, poor installation can actually negatively impact the sale price.  If you’re installing wood, tile or similar flooring, hire an MHIC licensed flooring contractor.  Your flooring contractor can also help with trendy flooring options.

As a home seller, you certainly consider your home as being special.  And you probably spent a good amount of money on customizing your home over the years.  However, a problem many home sellers encounter is that over customization and personalization can negatively affect the home sale price.  The truth is that home buyers have preferences too, and their preferences may not reflect yours. 

Home buyer preferences and trends are constantly changing.  Your listing agent should be able to help understand how current home buyer preferences and trends impact your home sale.  Additionally, consulting with a home staging or interior design professional can assist you with deciding on making relevant updates to your home.

Original published at https://dankrell.com/blog/2019/04/27/home-buyer-preferences

By Dan Krell
Copyright © 2019.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home buyer fatigue

Home Buyer Fatigue or Housing Derangement Syndrome?

home buyer fatigue
June Housing Stats (infographic from nar.realtor)

Although home prices remain strong, the volume of home sales has dropped off during June.  This is causing some in the media to exhibit “housing derangement syndrome” by reporting a pending housing collapse.   However, there is a more sensible answer and that may be “home buyer fatigue.”  Buyer fatigue is not solely used in real estate, rather it’s a term to describe consumers who do not engage in a market sector for a short duration for various reasons.  Home buyer fatigue has occurred multiple times since 2013 after a period of sustained home price increases.

Let’s look at the facts.

The National Association Realtors (nar.realtor) reported in a July 23rd press release that the total existing home sales for June decreased 0.6 percent, and is down 2.2 percent from the same time last year.  Home sales in Montgomery County have also been retreating.  The Greater Capital Area Association of Realtors (gcaar.com) reported sales declines for single-family and condos during June (-3.4 percent and -13.9 percent respectively).  Year-to-date sales are also below last year’s transactions for the same time period.

NAR chief economist Lawrence Yun observed:

There continues to be a mismatch since the spring between the growing level of homebuyer demand in most of the country in relation to the actual pace of home sales, which are declining.

However, his explanation for the home sales retreat sounds like home buyer fatigue:

“The root cause is without a doubt the severe housing shortage that is not releasing its grip on the nation’s housing market. What is for sale in most areas is going under contract very fast and in many cases, has multiple offers. This dynamic is keeping home price growth elevated, pricing out would-be buyers and ultimately slowing sales.”

Although national home prices are increasing, the gains remain steady.  The latest S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index reported on July 31st (spice-indices.com) indicated a 6.4 percent annual gain during May, which is the same as the previous month.  However, the 20 City Index showed a slight decline to 6.5 percent (from 6.7 percent).  Seattle, Las Vegas and San Francisco continue to lead the nation with double digit gains (13.6, 12.6 and 10.9 percent respectively). The Washington DC region, however, showed a modest annual home price growth of 3.06 percent.

As home sales decline, many contribute home buyer fatigue to increasing home prices and mortgage interest rates.  A few have already begun to ring the warning bells of bubble popping home price deflation citing Seattle and San Francisco’s housing woes.

However, those exhibiting housing derangement syndrome need to take a deep breath and look at the facts.  Most of the country’s home values are increasing at a sustainable rate.  Additionally, contrary to reports of inventory surpluses, home sale inventory continues to be low in most of the country (Montgomery County single-family and condo listings are below last year’s level by -9.3 and -12.8 percent respectively).

It’s also important to look deeper into what may be driving those overheated housing markets to experience the sharp price spikes and recent sale declines.  For example, Seattle’s housing juggernaut may be tied to Amazon’s nine years of a seemingly hiring frenzy.  According to reporting by Matt Day for The Seattle Times (Amazon’s employee count declines for first time since 2009; seattletimes.com; April 26, 2018), Amazon begun corporate layoffs, as well as a possible hiring freeze, earlier this year.

By Dan Krell.
Copyright © 2018.

Original published at https://dankrell.com/blog/2018/08/02/home-buyer-fatigue/

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New homes allure is neurological

new homes
New homes (infographic from candysdirt.com)

Last week I mentioned that new home sales jumped 18.7 percent year-over-year, which is a ten-year high.  It should come as no surprise that new homes are selling like hotcakes.  After all, existing home inventory has been and remains historically low, which doesn’t give many options to home buyers.  But there are other reasons for the allure of new construction.  Some of the home buyers’ motives are apparent and some are not so obvious.

The idea of buying new construction goes beyond the “new home feel.”  Buyers of new homes are attracted to modern designs and trends that are incorporated into new houses.  New home construction takes advantage of modern building techniques and materials that allow for the open floor-plan concept that many home buyers prefer.  Many of the materials used in new construction are “engineered” for efficiency and longevity.

Buyers of new homes like the feeling that there will be minimal maintenance for the first year.  Everything is brand new and there is sense of confidence that the home’s systems won’t need major repairs or replacement.  Being the first owner of a home also gives assurance that they won’t have to deal with the poor maintenance habits of the previous owner.  This is a plus for home buyers who don’t have a lot of financial reserves to address home maintenance emergencies.  Instead, they can begin to save and budget for future repairs and replacements that should be years down the road.

New home builders take advantage of current trends in green building practices.  Many new home builders tout their LEED certification, demonstrating their commitment to energy efficiency and sustainable resources.  Green building practices are not only used when the home is built, but is actually built into the design.  Home owners seeking LEED certified builders believe they will have a smaller impact on the environment and save money on energy costs.

A new trend that buyers are pursuing is the “healthy home.”  The healthy home concept emphasizes the quality of the air inside the home.  Home buyers are becoming aware of the physical and environmental benefits of good indoor air quality, which can improve their emotional well-being and reduce the potential for respiratory distress.

But there is another reason why home buyers are attracted to new homes, and it lies within the brain.  Research has demonstrated time and again that consumers respond to novelty.  This means that home buyers have a tendency to want “new.”  This can be interpreted into making an old home new by renovating a kitchen, bathroom, etc.  Or it can mean buying a newly built home.

new homes
the desire for new homes may start with the limbic system (infographic from success-mohawk.com)

The novelty seeking behavior of the home buyer isn’t just a choice, as some may argue, it’s neurological.  Basically, the desire for a new home lies within the brain.  A study conducted by Nico Bunzeck and Emrah Düzel (Absolute Coding of Stimulus Novelty in the Human Substantia Nigra/VTA; 2006; Neuron 51, 369-379) demonstrated that the hippocampal region of the brain responds to novel (new) stimuli.  The hippocampal region is part of the limbic system, which is noted for being responsible for memory and emotions.  It has also been associated with motivation.

The study also discusses the idea that novelty seeking behavior isn’t just emotional, but it is also rewarding.  This means that there is a behavioral loop for seeking new things, including buying a new home.

Home sellers need to take note of these findings.  Translating this study to home buyers may mean that a home’s feeling of “newness” is important, regardless if it’s construction, renovation, or even how the home is decorated.  Understanding what attracts and motivates home buyers can be the tipping point to get a home sold.

Original published at https://dankrell.com/blog/2017/12/08/new-homes-allure-neurological/

Copyright© Dan Krell
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Move-up home buyers still absent

move-up home buyers
Home sale prices July 2017 (Infographic from NAR.Realtor)

Could it be that the housing market is still recovering from the great recession?  Maybe, considering that the housing market has not fully returned to a stable cycle.  Consider the inconsistency of annual home sales that seem to surge every three years, the steep home price increases over the last four years, and the lack of move-up home buyers in the market.

Summer is typically the strongest time of year for the market.  However, the National Association of Realtors reported that existing home sales decreased during June and July of this year (a decrease of 1.8 percent and 1.3 percent respectively).  And July’s Pending Home Sale Index (projecting future sales) decreased 0.8 percent (nar.realtor).

Of course, the NAR’s take on this bump in the road is provided by their Chief Economist Lawrence Yun.  Yun described the discrepancy of wage growth to home price gains as a reason for this summer’s home sale slide.  He explained that the median home sale price increased 38 percent in the last five years, while hourly earnings only increase 12 percent.  He points out the obvious, that sharply increasing home prices are creating an affordability gap, which is pricing many home buyers out of the market.

Yet, according to the NAR, “Home buyer” traffic continues to grow, while the housing inventory continues to shrink (the national home sale inventory during July decreased 9.0 percent from the same time last year).

Yun stated:

The reality, therefore, is that sales in coming months will not break out unless supply miraculously improves. This seems unlikely given the inadequate pace of housing starts in recent months and the lack of interest from real estate investors looking to sell.

Home sale inventory has been an issue for the housing market since its slow recovery began four years ago.  Although many will explain away the dearth of homes for sale as a result of strong demand and quick home sales.  However, they do not take into consideration that currently for every three homes that sell, there is one that does not.  The 1 in 3 fallout is the expectation in a typical market, while there is only a 1 in 10 fallout in a market with strong demand (such as in 2005), so home buyer demand is not exceedingly strong.

Of course, the main reason for the low housing inventory is that home owners are staying in their homes much longer than in the past.

According to the NAR, between 1987 to 2008 home owners stayed in their home an average of six years before buying their next home.  However, since 2010, the average time grew to fifteen years!  The result is a lower number of move-up home buyers in the market, and a reduced number of homes to sell.

One of missing pieces to a stable housing market has been the move-up home buyer.  The move-up home buyer is the buyer who will sell their current house to move into another home.  The necessity of move-up home buyers was acknowledged as part of a healthy housing market way back in 1985, when the economy was recovering from the deepest modern recession at that time (Move-up Buyer Provides The Base For A Recovering Housing Market. chicagotribune.com. August 17, 1985). Part of the housing recovery of 1985 was the increased participation of the move-up home buyer. As move-up home buyers “upgraded” to larger home, more affordable modest homes become available to first time home buyers.

Low housing inventory combined with elevated first time home buyer activity has fueled home prices over the last four years.  Until move-up home buyers are fully participating in the market, we will continue to see continued lack of inventory, steeper home sale price increases, and unpredictable market cycles.

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Home buyer multiple offer survival guide

Home buyer multiple offer survival guide
Home buyers survival guide to multiple offers (infographic from nar.realtor)

The real estate market is getting increasingly competitive for home buyers.  But it’s not true for all homes.  Neighborhood homes that have been selling the quickest and for most money are the homes that fill the discerning home buyers’ need for a turn-key home.  You can count on these homes attracting many home buyers, as well as multiple offers.  These situations can be frustrating, but being prepared can possibly increase your chances of winning the multiple offer scenario.  Many home buyers need not come up empty, confused, and frustrated when they encounter multiple offer situations. Here’s a home buyer multiple offer survival guide.

The Home buyer’s survival guide to multiple offers

When confronted with a multiple offer scenario, you must understand the seller is in the driver’s seat.  This is a hard pill to swallow for many expecting it to be a buyer’s market.  But for the homes that show the best and are priced the best, you should expect competition from other home buyers.  Giving up the expectation that you’ll be able to negotiate a contract on your terms will help you in formulating a competitive offer.

Although you may not realize it, your emotions guide much about your home buying decisions.  Formulating your offer for a multiple offer situation will be more sound if you stick to the facts. Focusing on the facts will help you stay focused on the larger picture of buying a home.  Using data and facts can also help you be more persuasive when you present your offer to the seller.

Home buyer multiple offer survival guide on the housing market

Understanding the local market can be a major plus when putting your offer together.  Housing trends can influence home buyer competition and price.  However, understanding your limitations can help your home buying strategy too.  You may be limited in the amount you are willing to spend, the type of mortgage for which you qualify, your closing date, and a number of other issues that may affect the terms of the contract.  Don’t be discouraged if you think your limitations may lessen your offer’s attractiveness when it’s compared to others.

Certainly, don’t get caught up in media reports on real estate. The housing market is a hyper-local phenomenon.  Regional markets are different and have different sales trends.  Locally, even neighborhoods may differ significantly.  Be prepared with local market information, as well as your limits.

Home buyer multiple offer survival guide on financing

The general consensus when competing with multiple offers is to put your best foot forward.  Decide on the best price you feel comfortable paying for the home.  Cash deals are difficult to compete against.  However, you can beat a cash deal if your offer has a higher price and your lender has provided you a very strong approval letter.  If you didn’t meet with your lender prior to looking at homes, make an effort to provide your lender with all necessary documents for them to provide you an approval letter that is only subject to underwriting and appraisal (or the equivalent).  The stronger the lender letter, the more confidence the seller will have in you to complete the transaction without delays or hiccups.

Haven’t met with a lender yet? Start your own mortgage file with basic items the lender will need from you. Your lender will need recent pay stubs, W-2 statements, bank statements, 401k statement, and any other financial information you think you may need (which may include child support or disability income). Self employed individuals will need whatever documentation they can muster (including tax returns) to support their declared income. Being organized will facilitate the mortgage process.

Home buyer multiple offer survival guide on contingencies

Try to keep your contingencies to a minimum.  There may be some contingencies you may be able to avoid, and some may be necessary.  You must consider contingencies carefully and soberly, as they offer some protections if you can’t (or don’t want to) move forward with the purchase.

Home buyer multiple offer survival guide on home inspections

Although some agents suggest skipping the home inspection contingency in a multiple offer situation, I do not recommend that.  Many homes have deferred maintenance that can lead to costly repairs.  Even renovated homes that appear to be in good condition can have major issues which can go unnoticed.  Instead of skipping the home inspection, try to have a short inspection period (have the inspection scheduled ahead of time).  Some home buyers have an opportunity to conduct a pre-offer home inspection.  This allows them to eliminate the contingency from their offer, as well as knowing the general condition of the home.

Home buyer multiple offer survival guide on finding homes

If you’re finding multiple offer situations too intense, try to find homes that have little or no home buyer competition.  Ask your agent about finding homes that are not listed in the MLS.  Some agents already seek out such homes.  Alternatives could be For Sale By Owner, bank owned, auctions, and even farming specific neighborhoods for owners ready to sell. Your agent can also search through expired and withdrawn MLS listings to find homes.

There are a couple of disadvantages to looking for homes not in the MLS.  Although you may reducing the home buyer competition, you may encounter competition from real estate agents looking for listings.  Additionally, finding a willing seller of home you desire may take some time.

Copyright© Dan Krell
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