Monday, May 22, 2017

Appraisals

We are starting to see properties "not appraising out" lately.  That's an early indicator that prices may be increasing, at least in submarkets or areas where supply is limited.  What we mean by that term is that the appraisal number is lower than the amount on the sales contract.  If the buyer needs a mortgage, it's an issue, because he/she may not be able to borrow the full amount that they expected.  In other cases, where the buyer is paying cash, it is not uncommon for the buyer to put in a clause that the sales price cannot exceed the appraised value. 

There are two ways to look at this issue, as with so many things.  One is that the buyer should be willing to pay what a property is worth to him/her, regardless of the appraisal.  The other side of the coin is that the practical value of a property--what it would resell for, and what you could borrow against it--is dependent upon the appraisals.

Appraisals tend to lag the market, because an appraiser can only use comps from within a narrow range of closing dates, and within a very small area around the subject property.  It can be very hard sometimes to find good comps, and adjustments must be made from properties that might not be exactly the same in quality or type.  Since the comps come from recent sales, those prices could be lower, in an increasing market, than the sales prices on contracts that haven't yet closed. 

What advice do I have after all of this discussion?  Appraisal is as much an art as it is a science, and both buyers and sellers should be reasonably skeptical about exactitude.  Given the restrictions on bank lending these days, it is harder for a bank to take the same attitude, so just be prepared to make an independent decision in any given instance.

Sunday, May 7, 2017

Stark Company Realtors : Timing is Everything

The following is from Stark Company Realtors.  For more information about the following newsletter or to view properties in South Central Wisconsin, please visit their website by clicking here





Monday, May 1, 2017

Now is the Time to Invest in Connecticut

We have had so much bad economic news in Connecticut recently--and well-deserved, as we definitely made bad choices over many years--that we have forgotten one basic tenet of real estate:  It comes down to location, location, location.  Although businesses are up in arms all over the State, and many are leaving or considering doing so, they may be discounting the location we have here.

One of our agents believes that, in the future, Connecticut's commercial sector will all be about distribution.  I think that could well be true.  As New York and Boston soar to greater and greater heights, and lure young people from all over the country to settle in those two areas, here we sit--right between the two cities.  While we certainly have not invested in infrastructure in the way we should have, we still have a proximate location that will make our land and buildings valuable for distributing goods.  As one of the articles I read recently pointed out, whatever you can do with planes and ships, you need roads and trucks for at least the last few miles of any delivery. 

So, while factories and malls may be repurposed over time, there will always, in our lifetimes, be a need for space in Southern New England, and that's what we have.  Before others figure that out, and bid up the prices, those of us already here should take a second look at what is available.  It may be that location trumps all those bad decisions.  Let's hope so. 

Thursday, April 27, 2017

Signs of a Changing Market

Finally, finally, Connecticut is beginning to see the indicators of at least a balanced real estate market! This comes so long after other places in the country that some of them have already passed their peaks, and have stalled or declined (e.g., San Francisco).  We are most likely entering a mixed market, as we have some positive signs and some negative signs.

The "seller's market" side of the equation is showing, for the first time, absorption rates just under 6 months for the region as a whole.  Healthy markets have between 3 and 6 months' supply.  Our region varies, with some towns higher, and some around the 3-month mark, but the overall picture shows that demand and supply are in reasonable synchronicity.  If the time gets too long (Denver at 48 hours!), buyers can't find homes and prices start to spike.  If the supply increases to over a year (where we still are in the highest price ranges), sellers can't find buyers for their homes.

Lower supply leads to higher prices, and then to multiple offers, which we are seeing in some neighborhoods and price ranges.  While it's not uncommon to have some variation, we do have a very bifurcated market, since we have slow price ranges and overheated ones.  In other words, either your home is going to sell right away, or maybe not at all, at least at its current price. 

Multiple offers also lead to the problem of sales not "appraising out", meaning that lenders cannot support in some cases the prices buyers are agreeing to pay.  This issue, stemming from the fact that appraisers can't talk to the brokers, and must use recent sales within a very tight radius of the given property, so that their valuations tend to lag market forces, usually only occurs as prices start to rise.  What's odd about our current situation is that we still, on a statewide basis, have declining prices overall, for the most recent periods reported.  That indicates a very quickly changing scenario.

On the other hand, we are still seeing sales falling apart over inspection issues, prices being renegotiated after the initial contract, and buyers looking at many, many homes over a long period of time, all signs of a typical "buyer's market".  So what's the consensus?  We'll know more when the spring market wraps up, but that may not be at the traditional Fourth of July time. It looks as though we'll see surging sales through the summer, pointing to an improving forecast for the year.  We certainly hope so!

Friday, April 14, 2017

Multiple Offers

With supply down and interest up, there are many more multiple offers on houses being seen this spring.  They are, obviously, more complicated for both buyers and sellers (not to mention agents!).  Sometimes, they can lead to a feeding frenzy on a property; other times, buyers can all walk away, not wanting to get drawn in.  So what's a seller to do?

If you price your home correctly, that price will be a call to action.  In other words, buyers, who are very sophisticated about the market in the Internet age, will know that it won't be on the market long.  If they are interested, they will need to act quickly.  They also know that they can withdraw during the inspection process, so they may act, even when they haven't fully committed(sellers should take note of this!).  They also know, pretty well, what the house is worth, so they will bid at least full price, figuring that other people will as well.  In fact, we often tell them to make their "highest and best" offer--I say that people should offer what they would be upset to learn that someone else bought the property for.  This often takes place in a second round of offers, where everyone who has expressed interest has a chance to put in one last contract.

The seller should set a date to consider all offers, and make that soon; most offers are only good for a period of hours or a few days.  With multiple offers, sellers should assume that buyers are continuing to look at other properties, and should not feel that they are in the driver's seat, and can think about things too long.  S/he should choose one offer, using price and terms to pick the best one for them, and negotiate it through to a signed contract.

 Then the inspections begin.  That's where it might be good to have a back-up offer, which often makes buyers less insistent during the inspection negotiation.  Sometimes, if a buyer plans to do enough work to the property, s/he might even waive the inspections.  Often, buyers waive the mortgage contingency, although that doesn't always mean that they don't plan to get a mortgage.  If they don't, they often ask that the house "appraise out", meaning that there is an appraisal anyway, to make sure that they don't overpay, although that's a subjective term.  If they are getting a mortgage, the bank will do an appraisal, so the same vetting process on value will occur.  We don't consider the home sold until the contingencies are satisfied, so keep your fingers crossed both as buyer or seller, and don't let up on the timeline.

This explanation assumes that the sellers proceed with one contract at a time.  While it is legal to ask for all offers, and then sign one, or to negotiate (but not sign!) with more than one buyer at a time, it gets confusing and frustrating for everyone.  Final advice:  Don't be greedy.  If you have an offer at or above what you would have sold for, take it.  Those last dollars aren't guaranteed, especially if it doesn't appraise at that higher amount.  Take the money and run to your new home!