Real Estate News and Commentary

November 13, 2020November 13, 2020

Home Buying Persistence

Before the health lockdowns, home sale inventory was already well below the volume to maintain a healthy housing market. Many home owners decided to put off their spring and summer home sales this year as a result of health concerns, further reducing the available home sale inventory. The result was that the number of home buyers competing for one home increased. Low home sale inventory continues to be an issue, and there is still a high probability of competing with other buyer offers on a home. As a home buyer, you are probably wondering how to win the multiple offer scenario. It comes down to home buying persistence.

The obvious way to win a bidding war is to make the most attractive offer to the seller. But that’s easier said than done. The reality is that beating out multiple home buyer offers means you need to be organized, and go in with your best offer. And if you lose out on the home, don’t give up.

Get organized.

First, talk to a mortgage lender before looking at homes. Have the loan officer review your credit and income to determine what mortgage program is best for you, and get pre-approved. Once you’re pre-approved, you can be confident about making an offer on a home. Your mortgage application should also be easier because you’ve already given documents to the loan officer. But the most important reason for a pre-approval is for the seller to feel confident with your offer.

When the seller reviews multiple offers, they usually rank offers with contingencies lower than the non-contingent offers. Rather than foregoing the home inspection, consider having a pre-offer home inspection. The pre-offer inspection will allow you to determine the condition of the home so your offer will be more attractive to the seller.

As a home buyer, you should try to gain some insight into what the seller wants . You may think that the seller just wants the highest price. But that’s not always true. In multiple offer situations, the home seller looks at all factors, including price AND terms (including deposit, closing date, contingencies, etc.).

Should you use an escalation clause? Maybe. In a multiple offer situation, a clean offer is usually best. This means making your best offer. But if you decide to use an escalation clause, make sure you are aware of the cap (limit to price), and your escalation factor. Make your escalation factor is worthwhile for the seller; meaning if you’re the highest price by $500 or $1,000, the seller may consider other factors in their decision. Also make sure that your escalation is in line with the estimated appraised value.

Don’t get discouraged if you lose out in multiple offer scenarios. Stick with it and have home buying persistence. Sometimes, reassessing your home buying strategy may be warranted. And your home buying persistence may mean that you look at alternative sales.

If you’re feeling a little skittish about encountering a multiple offer scenario, or already have lost a bidding war, look for homes that have little or no home buyer competition. Besides looking at “ugly” or fixer-upper homes, you may also consider FSBO (sale by owner), bank owned homes, and auctions. Ask your agent to canvas the neighborhood asking homeowners if they want to sell, as well as calling expired listings.

Fixer-upper homes have potential and the price can usually be negotiated. If you’re worried about the cost of renovations on fixer-uppers, talk to your loan officer about renovation loans, such as the FHA 203k. Renovation loans provide you the funding to acquire the property, and the funds to rehab the property.

By Dan Krell
Copyright © 2020

Original located at https://dankrell.com/blog/2020/11/13/home-buying-persistence/

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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.

November 6, 2020November 6, 2020

Housing and Elections

In the past, I have commented on the housing debate during the presidential election cycle. I deliberated on writing about it this year because of the uncommon circumstances the economy and housing market has been enduring since the beginning of pandemic-economics. Looking back, housing and elections is about the economic response to the policy implementation during a president’s tenure.

During the 2012 election cycle, David Cross, writing for the Movoto.com blog, analyzed housing data from the California Association of Realtors and concluded that the housing market did not fare well during the election year of a president (David Cross; Election Years Are Bad for Home Prices; movoto.com; May 12, 2012). There is typically election uncertainty and stress that affect the decisions of home buyers and sellers. The analysis looked at home sale prices the three years prior to the 2012 election and concluded that home sale prices did indeed recede significantly (average of 5 percent appreciation the three years prior to 2012 election, while only 1.5 percent appreciation during 2012).

Unfortunately, Cross’ assessment was flawed for many reasons. First the time period that the analysis occurred was during a time when home prices fluctuated because housing was still emerging from the Great Recession. Second, the data is limited to California. Third, the data was limited to a three-year period. Fourth and most important, economic cycles were atypical during that time period because of the continued recovery from the Great Recession.

Even the NAR was said to have commented on this analysis, stating that the housing market responds to many factors. Economic factors typically include employment, interest rates, and consumer confidence. Rather than the elections having an impact on the housing market, it’s more likely that economic and social policy effects real estate at any given time.

Additionally, other factors that we have seen play out over the last decade is the shift in lifestyle. Notwithstanding this year’s pandemic, people are increasingly working from home. Prior to the pandemic, there was an abundant of research pointing to telecommuting’s effect on the commercial real estate market. The analysis of increased office space vacancies points to telecommuting. As more employees are working from their home office spaces, companies are reducing their office footprint.

A major factor that has impacted home re-sale inventory is “aging in place.” After the Great Recession, many Boomers have decided to stay in their homes. The post-recession attitude about housing changed. Many seniors decided not to downsize, but rathe stay in their family homes much longer. Additionally, multi-generational households increased and remain popular.

Also during the 2012 presidential election cycle, the Mortgage Interest Deduction was scrutinized. It wasn’t only on a national level, but the debate also occurred at the state level. The MID debate continues to today. Some argue that the MID artificially inflates home prices, because the MID is somewhat of a home owner subsidy. Others argue that the MID is necessary to make housing affordable.

Housing and elections during 2016 was front and center. At least for its fifteen minutes of fame. The Housing Party threw its hat in the ring to “Make Housing Great Again” (As President, I’ll Make American Housing Great Again—Really; realtor.com; October 21, 2015). The Housing Party’s platform had a focus on middle-class America and affordable housing by working toward getting a home for every family.

How will the housing market react to this year’s election? As the idiom states, “the proof is in the pudding.” Which means that we’ll only see the effect after policy implementation and economic response.

By Dan Krell
Copyright © 2020

Original located at https://dankrell.com/blog/2020/11/06/housing-and-elections/

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October 27, 2020November 23, 2021

Housing Pandemic Special

pandemic housing market — Existing-Home Sales Housing Snapshot (infographic from nar.realtor)

Who would have thought that housing and real estate would flourish when the economy went into a pandemic lockdown? Back in April, a NAR news release prepared the industry for a devastating spring. NAR chief economist, Lawrence Yun stated: “Home sales will decline this spring season because of unique economic and social consequences resulting from the coronavirus outbreak, but much of the activity looks to reappear later in the year…Home prices will remain stable because of a pandemic-induced reduction in inventory coupled with less immediate concerns over foreclosures.”

A NAR Economic Pulse Flash Survey, that was conducted April 5-6, indicated that agents were expecting the housing market to all but grind to a halt. The survey asked NAR members their views about the effects of the outbreak on the real estate market. members questions about how the coronavirus outbreak has impacted the residential and commercial real estate markets. 90 percent of respondents indicated a decline in buyer interest, while 80 percent of respondents described a decrease in homes listed for sale. Of course, you probably would have achieved the same result by asking anyone during the beginning of the lockdown.

And the stats confirmed what people were reporting when the economy began to shut down. Montgomery County housing stats for April indicated decreases across the board compared to the previous year: new listings decreased about 46 percent, new contracts decreased about 45 percent, and closed sales decreased about 11 percent.

But the housing market is resilient. The pandemic and lockdown would not keep away determined home buyers and renters, as activity could be seen to increase just one month later (during May). Although significantly down from the previous year, Montgomery County May stats compared to April indicated a 15 percent increase in home listings, and a 44 percent increase in new contracts!

Fast forward to September, when one month’s activity seemed to blow away anything that occurred in the past saw a 44 percent increase in home sales compared to last September! Except for new home listings, year-to-date home sales and new contracts (pending sales) stats are about par compared to last year for the same period.

Home sale inventory continues to be an issue for the housing market. Home sale inventory has been significantly low and lagging behind buyer demand since 2013. Unfortunately, the low home sale inventory is becoming political fodder, as some are blaming zoning without evidence. However, the real reason for low home sale inventory is likely due to seniors aging in place, an increasing number of people telecommuting, and changes in cultural housing norms (e.g., staying in a home for longer periods).

Even though home sale inventory continues to be a drag on the housing market, home buyers are motivated, making the housing market very competitive. Historically low mortgage rates is one catalyst for the overwhelming home buyer demand. Consider that during the go-go market of 2005-2006, mortgage rates bounced between 6 to 7 percent. However, Freddie Mac reported on October 22^nd that the average US mortgage rate for a 30 year-fixed-rate-was 2.8 percent!

What can should you take away from these stats? There is likely no better time to sell a home, while housing affordability is high. The low home sale inventory has reduced seller competition, resulting in bidding wars for many properties. And those who are buying homes are taking advantage of low mortgage rates, making their housing payments more affordable than renting.

By Dan Krell
Copyright © 2020

Original located at https://dankrell.com/blog/2020/10/27/housing-pandemic-special/

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February 14, 2020February 14, 2020

About Your List Price

When you’re selling a home, a consequential decision is your list price and pricing strategy. Deciding on your price can be confusing because, sometimes, what you hear from the media is not exactly what your real estate agent is telling you. Additionally, making matters worse is hearing disparate information from different real estate agents.

For example, your home’s market value is not the same as a list or sale price. It’s a common mistake to assume that your home will sell for “market value.” However, market value is an appraisal term that describes a probable price that a home buyer would pay in any given market. Market value can vary depending on the scope and purpose of the appraisal. Knowing the “market value” for your home can build up expectations for your sale that may not be realized. However, until you do an analysis of comparables and market conditions, you won’t have a realistic list price.

Adding to the confusion is hearing that your list price may not necessarily be the sale price. In a buyer’s market, your sale price could be less than list price. In a seller’s market, your sale price could be more than list price.

There’s definitely a science when deciding on a list price, where you can work with real numbers. Unfortunately, the “science” of home pricing is inexact. Determining a list price is much like baking cookies. The end result is similar, but expert bakers have their own recipe. So, although listing agents don’t always agree, there’s some commonality in determining a list price. And much like baking, some pricing “recipes” are better than others.

Part of the inexact science of home pricing is creating a market analysis. The market analysis will guide you in deciding a list price by providing a price range. Although there are basic guidelines for collecting data, agents don’t always agree on the process. However, once you pinned down a price range, then you can decide your pricing strategy by considering your selling motivation, the economy, and housing market conditions.

Basically, the market analysis is deciding which recent sales are most similar to your home. The best comparables are homes in your neighborhood that sold in the previous three to six months. The homes in your neighborhood are likely very similar to yours, and recent sales are an indicator of market conditions. However, it’s common to go outside your neighborhood when similar neighborhood sales are not available. These comparables provide a price range. The more adjustments made to comparable sales, the less exact your analysis.

Besides looking at recent sales, you should also look at neighborhood homes that are actively on the market. Active home sales are your competition. These sales can reveal additional market conditions by comparing price and days on market with your sale comparables. You should also consider recent withdrawn and expired sales because they provide insight about pricing strategies that may not work in the current market.

Your pricing strategy is how you decide to position your home in the market. Your goal is to sell for top dollar and least amount of time on market. In determining your pricing strategy, you need to consider your competition, as well as your motivation, economy, and housing market conditions. Also remember that the list price may have to be adjusted as days on market accrue, while keeping an eye on your competition.

Original article is published at https://dankrell.com/blog/2020/02/14/about-your-list-price/

By Dan Krell
Copyright© 2020

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February 3, 2020November 23, 2021

Is Upzoning the Solution?

Can zoning be the answer to solving housing shortages and increasing affordability? Many city planners and politicians think so. Although many localities are still considering upzoning ordinances, some have already implemented upzoning amendments that allow increased resident density. The immediate effect is likely to be felt by the addition of housing. However, it’s unclear how and if the additional units will relieve housing prices. Opponents voice concern over potential long-term effects of upzoning in single-family neighborhoods.

What is Upzoning?

A brief description of zoning is given by the National Association of Realtors (nar.realtor) as “laws that affect land use, lot size, building heights, density, setbacks, and other aspects of property use.” Zoning ordinances go back to the early twentieth century as a way to efficiently grow a city while protecting residential neighborhoods from industrial and commercial influences.

Research conducted by G. Donald Jud in 1980 suggests that the absence of zoning (or loose zoning) decreases property value (The Effects of Zoning on Single-Family Residential Property Values: Charlotte, North Carolina; Land Economics; vol.56, no.2, p. 142-154). His study concludes that residential property owners pay a premium for uniformly in land use. Jud writes “One of the principal purposes of municipal zoning ordinances is to protect property owners from the deleterious external effects that may arise when incompatible land uses exist within the same neighborhood.” However, he also states that in the absence of zoning protection, other mechanisms are created, such as neighborhood covenants (e.g. HOA, or civic association).

Herbert S. Swan wrote in 1949 (Economic and Social Aspects of Zoning and City Planning; The American Journal of Economics and Sociology; Vol.9, No.1, p.45-56) that efficient city planning and zoning ordinances can only be measured by their adaption to current conditions. He stated, “Only as they meet basic requirements of present population, and the emerging needs of prospective population, can they be said to serve a community in full measure.”

Swan’s words ring true today, as local governments look to zoning to address housing shortages and affordability. “Upzoning” is the current trend to “meet the emerging needs of the population” to alleviate housing issues. The city of Minneapolis and state of Oregon have already implemented new zoning that essentially eliminates single-family land use in turn for increased density. And the trend is spreading throughout the country. While some localities have gone to the extreme to essential ban single-family development, others are loosening zoning to allow auxiliary dwelling units (ADU). The Virginia legislature is currently considering statewide upzoning legislation.

Earlier this year, the Montgomery County Council loosened zoning requirements for ADUs. Zoning Text Amendment 19-01 becomes effective December 31^st2019. The passed amendment has additional background information, including a brief description of opposition views from residents. Some of the concerns of increased density in single-family neighborhoods included overcrowding in schools and decreased availability of parking. Additionally, there is concern that car-choked streets could impede emergency vehicles. Environmental concerns included uncontrolled water runoff from increased number and size of ADUs. Opponents to the amendment also voiced concern with “the inability of the County to enforce any regulations.”

Montgomery County’s “loosened” zoning amendment is meant to increased density in single-family zoned neighborhoods. In light of resident concerns, the Council allowed direct input from the Montgomery County Planning Board to increase the supply of accessory dwelling units in the county, “while also working to minimize any negative impacts on residential neighborhoods.”

Original article is published at https://dankrell.com/blog/2020/02/03/is-upzoning-the-solution/

By Dan Krell
Copyright© 2020

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