Tag: Housing Market

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Buyer and seller expectations can affect real estate sales

by Dan Krell
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DanKrell.com
© 2013

Home SalesBuyer and seller expectations can affect the housing market

Recent positive housing news has raised expectations for many home sellers, but not for some home buyers who are looking for a great deal. This combination of seller and buyer expectations can make for an interesting spring market.

Expectations, much like beliefs, are influenced by your experiences as well as information to which you’re exposed. A combination of media reports and stories by relatives, friends, and co-workers could create an expectation about the home buying process that could be practical or unrealistic.

Regardless of your expectations, the home selling/buying process is full of pitfalls and surprises. If you’re not prepared, your expectations could set you up for disappointment. Of the many components of the sale/purchase process, the highest expectations are typically placed on pricing and the home inspection.

Home sellers obviously want to sell their home for the highest price. News of low inventory and increasing average home sale prices nationally and regionally would lead you to believe that your home could fetch a higher price. Of course, expectations of a higher price should be reality checked with factual neighborhood data.

Home buyers, on the other hand, want to buy a perfect home and feel as if they bought for a good price. For many buyers, stories of homes purchased at serious discounts are fresh in their memories and may set an unrealistic expectation. Once again, factual data can be a reality check; and depending on the neighborhood, savvy negotiation could be warranted. For example, buyers are encountering fierce competition (not unlike the market just before the financial crisis) in some neighborhoods. And although home buyers are rushing to see homes recently added to the inventory, many are not interested in paying the list price. And although some homes are getting multiple offers, many are not. And of those receiving multiple offers, many of those offers are below list price.

Additionally, appraisals can be an issue too; buyers and sellers alike typically expect that the home appraises for the contract price. If not properly prepared, some home sellers can react to low appraisals by initially finding fault with the appraiser’s comparables and methodology, as well as wanting the buyer to pay the balance; while home buyers may experience increased uncertainty and doubt about their purchase.

High expectations are typically had for the home inspection by all. Home sellers who put forth the effort to prepare their home for a sale, often spending money for updates and upgrades, expect the home inspection to reveal a perfect home. If not prepared, the seller can become headstrong when confronted with an inspection that is other than exemplary. Buyers wanting a perfect home may also be demanding of even inconsequential repairs to be made by the seller.

Buyers and sellers sometimes choose to work with agents who offer promise to meet their sometimes unrealistic expectations, only to be let down by the reality of the sale/purchase process.

Veteran real estate agents often appreciate the novelty of each real estate transaction, due to the ever changing market, circumstances of the transaction, as well as the personalities of the parties involved. Your real estate agent can help you set the tone of your expectations; an experienced and skillful real estate agent can prepare you for the ups and downs of the selling/buying process by reframing your expectations to fit the reality of your neighborhood housing market.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published the week of March 25, 2013. Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

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Pricing your home to sell 2013

by Dan Krell
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DanKrell.com
© 2013

home for saleIt has been a while since home sellers have felt optimism about the housing market. Although many would be home sellers continue to wait before jumping into the market; a combination of inventory shortages and reports of appreciating home prices are making some home sellers push the limits of home pricing.

Consideration for an appropriate list price is vital in any market. However, regardless of current market conditions, setting the right list price today could prove challenging. If your home sells quickly, you might feel as if you priced the home too low; while setting the price to high could make your home languish in an otherwise active real estate market.

Since the home seller decides on the list price, you might be tempted to use the most recent neighborhood sale or list price as a guide for your home sale. However, without deeply examining these comparables, this methodology may result in over or under pricing your home.

As public information is widely available on the internet, you might find yourself searching the ‘net for recent neighborhood sales to assist you in making a decision on a list/sale price. However, public records usually post dates of deed transfers as recorded in the courthouse, which are usually after the actual closing (sometimes several months or more).  Additionally, public record home descriptions can sometimes contain incorrect or outdated data on home interiors and living area. Relying solely on data found on the internet could make you miss out on more recent and significant sale comps –again possibly leading you to under/over price your home.

For relevant comparables, ask your real estate agent to prepare a market analysis based on comps found in the local MLS (which contains real-time data). Although the market analysis is not an appraisal, its purpose is to assist home buyers and sellers in deciding on a list/sale price. An experienced agent preparing a market analysis will search for comparables that are most similar to your home by considering home factors such as: location, type, style, size, age, condition, interior amenities, exterior amenities, room count, basement, updates, etc.

Additionally, since the comparables used in the market analysis are as analogous to your home as possible, finding recent comps within your neighborhood are ideal not only because of the proximity to your home, but also because homes within the same subdivisions usually have many similarities (including age, style, lot size, upgrades, additions, as well as functional obsolescence).

Even though many home sellers are optimistic about home prices, you could still encounter appraisal issues. Appraisals are opinions of value by an independent party typically requested by lenders to verify the home’s market value in underwriting a home buyer’s mortgage application. And although appraisers use a standard methodology to derive a market value, some appraisers may exercise caution and seek the conservative value in ensuring the appraisal meets the loan guidelines. Issues can also arise when the assigned appraiser is unfamiliar with your neighborhood and surrounding area.

Pricing a home to sell has been described as a skill by some and an art form by others. Deciding on an appropriate list price not only establishes buyers’ expectations for an offer, it can also set the tone for a smooth sale or a bumpy protracted ride in the marketplace.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published the week of March 11, 2013. Using this article without permission is a violation of copyright laws. Copyright © 2013 Dan Krell.

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Is recent housing bubble news cause for alarm

by Dan Krell

DanKrell.com
© 2013

real estate bubbleIf I said that we could experience another housing bubble, you might be concerned for my mental health.  But a couple of years ago I wrote about an impending housing shortage, which could spark another bubble similar to what occurred during 2004-2005.  The market-conditions similarities between 2004 and today are foreboding, if not intriguing. (Dan Krell © 2013)

There hasn’t been talk of a housing shortage since 2004; but looking at Montgomery County MD as an example, you might begin to see similarities between the housing bubble of 2005-2006 and today’s real estate market.

Monthly peek single family inventory in Montgomery County did not exceed 2,000 total active units in 2004; while the absorption rate was reported by the Greater Capital Area Association of Realtors® (GCAAR.com) to be about 80% during the winter of 2004.  During the following year, the winter active inventory greatly increased and the absorption rates dropped to about 40%.  The result was a housing market that reached critical mass, and a one year appreciation rate of about 18% for Montgomery County single family homes; which played a key role in the rampant real estate speculation in 2005-2006.

Active housing inventory has been declining since 2010; the greatest decrease occurring during 2012.  According to the monthly home sale statistics posted on the GCAAR website (GCAAR.com), there were 1813 active single family inventory units for sale in Montgomery County during January 2012.  And although active single family units peaked for the year during the spring of 2012, active inventory dwindled to a low of 1198 active units for sale during January 2013 – a year over year decrease of about 40%. Additionally, the absorption rate of listed homes for sale is rapidly approaching 60%

Add the home price facet – on March 5th, CoreLogic (corelogic.com) reported that national home prices increased 9.7% during January 2013, as compared to January 2012.  This was reported to be the greatest year of year home price increase since 2006.

An additional and telling similarity between the pre-bubble years and present is the number of real estate investors jumping in to cash in on distressed properties.  Of course at the height of the real estate bubble of 2004-2006, real estate investing was transformed from the traditional “rehab and flip” to no rehab and flipping properties as quickly as possible.   A great number of homes sold today are to investors, either to rehab or to rent.

In 2004, like today, we were about three years post recession; albeit the recession of 2001 was not as protracted as the “Great Recession.”  At that time, like today, the Federal Reserve funds rate was historically low.

Although an “easy money” monetary policy is another similarity between the periods, a major difference is the availability of mortgage money.  Getting a mortgage is much more difficult today than it was in 2004-2005.  Buying a home without a down payment as well as qualifying for a mortgage without documenting income could have been a factor of the wide spread real estate speculation of 2005-2006.  Today, as a result of the bursting of the 2005-2006 housing bubble, underwriting qualifications are more demanding as are down payment requirements.

The housing bubble phenomenon is not a new or a recent experience; housing bubbles have occurred in the past and most likely will occur in the future.  When they occur, housing bubbles seem to coincide with a recessionary cycle.  And just like recessions, housing bubbles vary in duration and severity.  Sure, another housing bubble may be looming; but the next bubble may be confined to specific regions of the country, and possibly some local neighborhoods.

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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. Copyright © 2013 Dan Krell.

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Don’t buy into a false economy

by Dan Krell
DanKrell.com
© 2012

Auction Stories about housing and real estate often reported in local media are entertaining and sometimes informative. However, some stories can create an erroneous impression about what’s happening in the marketplace. If you are not careful, you may be lead to buy into a false economy; using a Realtor® in today’s market is vital to get real time neighborhood information to make the best decisions.

A recent story highlighted a DC foreclosure that reportedly received over one hundred offers, and the accepted offer was more than double the list price. The story appeared to use this home sale as an example of a hot DC market. And make no mistake – that neighborhood is a hot market for various reasons (including the limited number of active homes for sale); but there’s missing information that could distort your perspective.

First, understand that the story referred to the sale of a HUD owned property, which was most likely a FHA foreclosure. The fact that there were reportedly 168 offers on the property is not unusual for a HUD owned property located in a neighborhood with very active buyers; although some HUD properties don’t get much attention, it is not unusual for many such homes to attract a lot of attention, as well as many offers.

Most offers on HUD homes are usually at list price or below, not only because savvy buyers are seeking a foreclosure bargain; but because of financing limitations. HUD appraises these properties so as to know the market value, and usually lists the home at that price. HUD foreclosures that are eligible for FHA financing use that appraisal, and are therefore limited to that price.

The MLS listing for this home indicated that it was listed “Insured with Escrow,” which means that the home was eligible for FHA financing. And looking at recent neighborhood comps, it looks as if the home was priced competitively. Additionally, the repair escrow indicates that the home requires repairs to meet FHA guidelines.

AuctionAlthough there are some buyers who pay over list price for an “Insured” HUD foreclosure, they know they need to pay cash or find alternate financing; so unless the buyer of this home has cash, the buyer could encounter issues obtaining alternate financing. Furthermore, although the story reported that the home sold, the MLS listing indicates that the home is under contract with contingencies (home inspection). So, the home is far from settled, and it remains to be seen if this contract falls through (or remains owner-occupied as required for this sale).

Although the story about this home sale was interesting, it is not typical for the housing market. The story does not indicate that the reported 14% DC median home sale price increase compares November 2012 sales to November 2011. There is also no mention that “luxury” home sales could have impacted November’s home sale price figures; GCAAR (gcaar.com) reported that DC single family home sales priced at $1.5M and above increased about 111%! Also, according Realestate Business Intelligence (rbintel.com), the November 2012 average DC sale price is about 97% of list; the average sale price is not over list.

Don’t get me wrong, this was a good story. But the story may be about buying into a false economy and buyer’s remorse; the real story may ultimately be how you should consult with your Realtor® before making a purchase or sale.

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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. Copyright © 2012 Dan Krell.

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This is Chaos – anything can happen

by Dan Krell
DanKrell.com
© 2012

housing developmentThere has been a lot that has been written about chaos theory, and some have even tried to apply it to real estate. More specifically, many have discussed the application of chaos theory to real estate investing. And even more recently there have been attempts to applying chaos theory in figuring out where housing is headed; or to be succinct – when will housing once again begin to realize consistent appreciation?

I’m not one to disappoint, but I can’t predict the future. However, my attempt to explain chaos theory may reveal how its application to the housing market is difficult at best (at least in today’s environment), yet while simultaneously is an exceptional exercise in understanding the underlying dynamics.

Chaos theory is somewhat of a misnomer; a more apt name might have been “pattern to equilibrium theory” as it’s not so much about chaos as it is about predicting natural patterns that seek equilibrium; or put another way – predicting results by looking at dynamic patterns. Equilibrium could be what we typically think it is – a pattern of a self sustaining system; or it could also mean a pattern of inertia to the system’s inevitable demise.

Simplified, chaos theory investigates the relationships and patterns of a system’s trend toward stability. The theory delves into the natural patterns of subsystems so as to predict how patterns develop and unfold to manifest themselves.

housing developmentAlthough mathematicians have been investigating the precursors for chaos theory for many years, one of its first practical applications was in trying to predict the natural patterns of the weather. So it makes sense that you might want to apply the theory to the housing market so you could figure out the best time to buy and sell. The problem in the theory’s application to the housing market is that unlike the weather, housing is not an “organic” system; housing does not follow the natural unfettered patterns of market forces. Rather, decades of intervention and policy have influenced the expressed patterns of the housing market.

But don’t get discouraged, an aspect of chaos theory termed “the butterfly effect” explains that any action, no matter how small and insignificant, can influence a larger system. So, although the housing market is not an organic system, you could theoretically investigate its related influences to work out a market trajectory. So, rather than solely considering supply and demand, you might take into account more wide ranging and complex influences, such as Greek economic policies, German parliamentary elections, EU monetary policy, etc.

By looking at observable influences on the housing market, housing contrarians have been muttering their mantra of “the sky is falling” for years. And when the housing bubble burst, they of course claimed they had it right all along, and many are still waiting for the worst. Was it a coincidence? Of course, in the early 2000’s there were influences on housing and the economy that were inconceivable (such as mortgage CDO schemes).

Chaos theory is as complex as the systems involved. We can also apply it to come up with alternate trajectories and think about what could have been. If for not some small event, someone’s seemingly insignificant decision in the past, there might not have been a housing bubble burst or great recession. But as they say hindsight is 20/20 – but that’s an entirely different theory.

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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. Copyright © 2012 Dan Krell.

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