A Cold Look At The Hot Housing Market
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Housing markets in parts of the U.S. are rife with volatility, as sellers push prices up and buyers throw caution to the wind in trying to win bidding wars.
“It’s fast, it’s hot … but the sales always have complications,” said Barb Jandric, president of Berkshire Hathaway (BRK-A) affiliate Edina Realty.
Sellers and buyers must understand financing shifts, new appraisal rules and how marketing choices can affect a sale. And if your market is one of the hottest, you’ll also need to learn the ins and outs of managing multiple offers.
How frothy is the market? According to the National Association of Realtors, sales of existing homes rose in June to their highest rate in eight years, and their median price hit $236,400, which is 6.5% higher than in June 2014 and past the peak median price of $230,400 set in July 2006.
But Realtor.com chief economist Jonathan Smoke said he sees “no evidence at this time” of the outlandish speculation that drove the last real estate boom and then bust. In this market, “increases in home prices have been driven by tight supply and high demand,” Smoke said, with financing remaining conservative.
However, “individuals’ equity position is improving — so more people will be able to sell their homes and that will free up existing inventory,” said Bruce Zipf, president and CEO of NRT, a Realogy Holdings (RLGY) subsidiary.
Lending Lag, Appraisal Anxiety
Experts say that along with a boost in first-time buyers — who make up 30% of the market after falling to 28% in 2014 — tight credit markets have made FHA financing a bigger factor.
In the first half of 2015, FHA loans accounted for 22% of all condo and home purchases made with financing, up from 19% in 2014, according to real estate data provider RealtyTrac .
In those markets where the number of FHA loans are higher than average, patience is required.
“Government loans take longer,” said Dave Liniger, CEO of Re/Max (RMAX). Experts say to plan on a 60-day escrow for a buyer with FHA financing, as opposed to 45 or 30 days.
Once an offer has been made and accepted, the lending bank will require an appraisal. This process also has changed in the wake of the last real estate boom and bust. To avoid undue influence, appraisers now are randomly assigned from a lenders’ approved pool.
However, the new process hasn’t been without its challenges. Real estate agents complain that sometimes an assigned appraiser from outside of an area is “appraising outside his or her range of knowledge,” said Liniger.
Appraisals also can lag pricing trends, stalling deals. In Denver, “buyers are bidding up prices to a point to where they’re probably overpaying … and then we can’t get the houses to appraise,” said Realtor Kelly Moye, whose Kelly Moye Team is a Re/Max Alliance affiliate in Bloomfield, Colo.
Still No Easy Sell
Pricing, marketing and staging are still important in selling a home, even in a hot market. “It’s a sellers’ market, if you price appropriately,” said NRT’s Zipf.
“Managing that first week on the market is key,” said Brock Harris, a broker with Brock Real Estate in Los Angeles, explaining that “90% of the excitement is in the first week — so take great pictures and price it right.
Moye said she’s “marketing more and more to Realtors; they’re the ones that need to be kept apprised of what’s coming on the market,” so they can alert eager buyers.
Some sellers in hot markets are even paying for home inspections themselves. “We’re seeing way more pre-listing inspections,” said Harris. By doing this, he said, sellers can “neutralize any potential renegotiating of the price after the inspection.
The process of listing a property, on the local MLS and on the listing portals — Zillow (NASDAQ:Z), Trulia, Realtor.com, etc. — is also undergoing some changes. Some real estate agencies and agents are unhappy with how portals have been treating them. So in some cases they’re choosing not to syndicate a listing, selecting to only list on certain portals, or delaying listing syndication.
The rub: Agents say that portals take their listings — which they’ve spent time and money to put together — then post them and try to sell advertising back to them. They also complain that portals can be slow to update changes to listings — such as new photos and prices, and when properties have pending offers.
Moye estimates that about 20% of agents in the Denver area are opting out of syndication — in a hot market they don’t need to syndicate. Others list on just some portals. Moye leaves the choice of syndication up to her sellers, some of whom might be reluctant to widely circulate photos of their homes. Portals like Zillow, with its “Zestimate,” also have drawn criticism from homeowners for the estimated market values they put on properties. Moye says her MLS now allows her to easily opt out of syndication if that’s what her seller chooses.
Edina pulled completely out of syndication from 2011 until October 2014. Jandric says that Edina felt the portals weren’t “respecting our inventory and we weren’t getting the identification we wanted.” But she says Zillow, Trulia and Realtor.com are “doing it differently now — the broker is identified with each listing and there are links back to our site. The objections we had were resolved.
Harris said California Realtors are also grumbling about the portals: “The tech guys got between us and our customers. Our MLS just introduced a three-day delay before listings go out to syndication. The idea behind the delay is we can tell our clients that we’re still the first source for the newest and best listings.
‘Coming Soon’; Bidding Wars
In hot markets, some agents post “coming soon” signs on houses, trying to spur interest before the home is listed. It can also be “code for double-ending the deal,” said Harris. That’s when a selling agent represents the buyer too, thus doing both sides of the deal and collecting the entire commission.
Multiple bids are now the norm in hot markets like Denver. Moye says that to win a bidding war, some buyers are dropping all contingencies. But nerves sometimes kick in, “and three days later the buyer gets cold feet,” she said. “Sometimes you go through several buyers.
Moye says that working with buyers who choose to remove all contingencies, in order to win a bidding war, is “very scary” and she doesn’t like to leave them “exposed like that.
Harris used the same word, “scary,” to describe deals in which L.A. homebuyers cut out all contingencies to win a bidding war. And, he said, “it’s exhausting because you have to put yourself in that precarious position multiple times. I tell my buyers to be ready to write at least five to 10 offers.”