The Strongest Offer isn't Always the Highest Offer

This was posted last week on another blog, by Rod Sager

Sometimes a seller is faced with the desirable dilemma of having multiple offers on their home. Initially the tendency is to think the highest offer is the best. Generally that would be true, but not always. If the seller is trying to move to a new house they are purchasing they have to think about the big picture. If the sale fails, then that could cost them money on the house they are moving into or even cause that sale to fail. Sometimes the best offer is the one with the least obstructions. That all cash offer with a five day inspection period and two week close might work better for the seller than a USDA financed offer with a ten day inspection and a 60 day close that's $5,000 higher and right up against the buyer's maximum approval.

Usually the highest offer is the one the seller takes but there are times when a "cleaner" offer that is a little less money is the better route for the seller. In this seller's market, buyers should try to structure their offer to suit the seller's needs. The buyer's agent is well advised to talk to the seller's agent a try to figure out what the seller is looking for in an offer. Not so much the dollar amount but the terms. Sometimes sellers have a natural inclination to refuse to pay closing costs for a buyer. Even though an offer can be structured to net the seller the same amount he wants, some sellers have illogical or emotional reasons for not taking a particular offer that is otherwise very strong. In a multiple offer scenario the buyer may not get a second chance to present the best offer possible or to modify terms to suit the seller's idiosyncrasies.

In this fast selling market buyers need to be thoughtful about their approach to an offer.

Why Listing a Home in March Works

by Rod Sager; originally posted February, 2014, Real Estate News

In most real estate markets there is a sales curve that peaks in the summer months and bottoms out in the dead dark of winter. I believe that this cycle is as mental as it is anything else. People tend to be less active in the winter, especially in northern latitudes with cold and miserable weather. It is no surprise that e-commerce performs well in the winter and bricks and mortar retail does not with the notable exception of December holidays.

Information data and chart sourced from RMLS

Our real estate market locally has a modest sales spike in the summer months of roughly 10% above the annual monthly average and about 10% under in the middle of winter. That represents a total swing of roughly 20%. In some markets where winter weather is truly brutal, I would imagine the spread is significantly greater and in sunny SoCal it is probably a flatter curve. The chart above shows this annual trend with a notable exception in 2010 where the fall off came early. The 2013 curve was a more dramatic seasonal curve than the statistical average I compiled since 2001.  The 2011 curve is very typical when compared to most of the years since 2001. The 2013 curve is more like one I would expect to see in severe winter climates like the upper Midwest.

I think the best way to wrap your arms around this is to break the home buyers into two very broad classes. Those highly motivated to buy with external pressure and those buying because they can. So the first group is motivated by things such as a job transfer, loss of job, a new baby on the way, divorce, etc. This is external pressure and that makes someone willing to trudge through a foot of snow in the cold misery of January to look at houses or deal with the inconvenience of listing at a time they would rather stay indoors and visit with family.

The latter category is someone with a new job with higher income and maybe they think, "Hey, we can finally afford that dream house on five acres". Or perhaps they are empty-nesters looking to downsize. These buyers and sellers are much more likely to list or start the buying process when it is convenient. They are less likely to brave the wild elements of January looking at houses.

Anther reason there is a spike in sales in the summer is that families with school age children prefer to move over summer vacation when the kids are out school. This is especially true if the children will be changing schools after the move.

In a real estate market like this one; the biggest driver has been lack of inventory in that under median price range. When inventory increases that will relieve some of the pressure and could stabilize prices. If a seller has a home that is a little less than ideal; this is the time to list. This market is driven right now by move in ready, clean condition, updated properties. If a listing is a little outside those ideal parameters, the best way to sell it is in a market with less competition. As more listings come on the market toward May, the house can lose value and or position against superior properties that become available. March is a great way to tap into the "spring fever" of home buying a little ahead of the market. This is the time to get that slightly out of favor listing in front of buyers before a wave of potentially more desirable properties arrive on the scene.

If a seller has that perfect updated, move in ready median priced listing, then sometimes waiting till April can be a smart move so as to tap the increase in buyers actively looking that occurs in mid to late spring. Of course one way to get it both ways is to list in March at a slightly high price, gauge activity, get feedback and either sell at a high price or build a strategy based on the feedback and activity in March and April to position the listing ideally for May and June.

March Madness is amazing for college basketball and can be equally so for real estate.

The Gap Between the Bottom and Middle is Tight, For Now

By Rod Sager, originally posted on Rod's Real Estate News.

Have you felt trapped in your house over the last few years? Biding your time waiting for the real estate market to correct so you can sell? 2015 may be the year for you. Over the last two years here in Clark County we have seen a roughly 20% increase in the median sale price. Many people that were not able to sell now may find themselves in a positive situation. We very well could be at a turning point of opportunity. For people that are making a move up in price, selling their less expensive house now for a slightly lower amount than they might get next year could prove advantageous. The more expensive house they want will also likely be more expensive. So selling a small house for less to get a big house for less sometimes makes sense.

I saw prices on entry level houses flatten a bit in the second half of 2014. I believe that the market for the 40 year old 3 bed 2 bath home is just about as high as the economy will support right now. Barring any dramatic improvement in the overall economic condition 2015 is a great time to sell an entry level home. Where the market continues to see improving prices is that middle move up. Last summer I ran into situations where a simple 1400 foot ranch home would sell for $220k and a gorgeous 2100 foot home in the same area was fetching just 10% more. I believe that the gap in those market segments should widen this year as the entry level could be flat and the middle will continue to swell in values. Selling the little house to get a big one is prime for 2015. Some people may even find that their house payment is only marginally higher since rates are quite low right now.

Generally a real estate market rebound will begin at the bottom. The bottom of the market can drive the middle. If the bottom is soft so will the middle be. When the bottom begins to move up in value the middle is going to trail behind for at least six months. So that leaves a window to move from the bottom to the middle with the move up house feeling like a bargain. Once the bottom hits the high plateau then there is only a six month window of opportunity to capitalize on the middle lagging behind on growth. This is the gap between the market segments. As an example, entry level homes that were fetching $160,000 two years ago are now selling for $200,000. But the middle houses that were getting $220,000 two years ago are running about $260,000 now. The 25% gain at the bottom and a 16% at the middle translates into a relative deal for the move up buyer. This year there is a good chance the $200,000 house will only rise a little maybe to $210,000 but that middle market is showing signs of activity suggesting the 260,000 house will get to $285,000 this year. So holding out for an extra ten to buy a house that will cost an extra 25 may not be the best approach.

Keep an eye on the real estate trends. Have your favorite Realtor® send you listings so you can keep your finger on the pulse of the market. I can only see trends, I am no Nostradamus, so anything can happen. Real estate is however a very trend based market and it typically follows modestly predictable patterns.

The Holidays are a Serious Time for Real Estate

By Rod Sager, originally published on 12/5/2014

image from www.azcentral.com

I have said it before and I'll say it again; the holidays are a serious time for real estate. Anybody that is buying or selling during this time of year is very serious about real estate.

Buyers that are out in the weather during a time they could be at office parties, visiting with family, shopping for the elusive perfect gift, etc. is very committed to finding a house in a timely fashion. Otherwise why wouldn't they just put it off until the New Year?

Likewise for sellers. They would probably rather not have people tromping through their home during the holidays, when guests are over, the decorations are up, etc. Yet there they are doing just that. Maybe they just really want to sell their house?

This is a great time to buy or sell. All of the classic "looky-loos" are on hiatus while the serious contenders are still in the game. I will likely close four transactions this month and that is as many as I closed in the summer months. Don't take the holidays off, you might just get everything you want in the month of December!

As always, seller's should be mindful of the basics of presented their home to prospective buyers. This might be the year to keep half of your holiday decorations in the attic. Too much clutter can be a negative. Keep baking all those yummy holiday goodies because buyers love the smell of fresh baked cookies. Keep the walkways clear of tripping or slipping  hazards. Keep snow off the driveway and walkway.

Buyers are well advised to keep shopping during the holidays. Sellers are usually easier to negotiate with when they are busy with other aspects of their lives. At the point they have chosen to keep their home open during this month, they are motivated, whether they say so or not.

December is a win-win month for buyers and sellers so neither should shy away from the golden opportunity that December brings to real estate.

Real Estate is Like an Evergreen Tree

Was that a tree analogy in the headline? Yep, this is Washington after all. Real estate is more evergreen then deciduous. It does not drop its leaves and go dormant for the winter like many of the beautiful deciduous trees in the area. Rather, real estate is like an evergreen, it remains green and lush all year long. People continue to buy and sell homes year round. The volume of activity slows down but the sales remain just a little below the summer peak. There is roughly a 25% seasonal curve here in Southwest Washington and the Metro Portland, OR area.

I have found that the people who are out looking in the cooler months are "the real deal". These folks could be inside sipping on a latte by the fire, yet they are out in the cold rain, snow, and sleet to look at houses. They are serious buyers. Sellers looking to get a leg up on the spring market would do well to keep their home listed through the winter.

Should you decide to list in the winter, be certain keep your walkways free of leaves, debris and snow. When showing the home a warm fire in the fireplace if you have one adds to the charm. No fireplace? Light a candle with a vanilla or smokey aroma.  

Winter can be a good time to sell your home and is can be equally favorable for buyers. Don't let the clouds and cool air discourage you. Real estate is like an evergreen tree, it doesn't hibernate in the winter.

FHA Flip Rule

by Rod Sager (Originally posted on 10-17-2014)

Many people are using FHA loans these days. The FHA offers low government backed rates but has the problem of high mortgage insurance payments. FHA however offers guidelines that help people who have tighter budgets because they allow otherwise well qualified borrowers to exceed the standard debt to income ratios if other compensating factors exist.

This market has brought many home flippers into the fold.The large quantity of foreclosures that followed the market crash led to an abundance of investors flipping homes. The FHA has a rule loosely called the "Flip Rule" that requires at least 90 days of ownership before the sales contract is written. I think this is a stupid rule. Most of the homes that investors buy are houses that are too rough to be financed. They buy them for all cash and then make the improvements and repairs to bring the home up to market value. The FHA doesn't like to see a rapid price increase out of character with the rest of the market.

Many of these home flippers are professional companies that do a great job. There are probably some hacks out there as well, but for the most part, these companies provide a service to the community by rehabilitating otherwise dilapidated houses. My experience has been mostly positive when confronting these sellers with repairs after a home inspection. They tend to fix all the reasonable problems on an inspection report. Traditional sellers are often obstinate regarding repairs.

I think the FHA needs to re-visit this rule. The FHA is a loan program specifically designed to help entry level buyers and families get into homes and these "flipper" properties are often ideally suited for them.

Buyers looking at entry level homes may find a flipped property. Be sure to have your Real Estate professional check the closing date and write the offer after 90 days has passed. Your local agent should be aware of the better home flipping companies that operate and offer some guidance in this area.

P.S. There is a way to get an FHA loan approved on a less than 90 day old flipper. It requires a second appraisal and may require to seller to identify repairs that brought the house up in value. This can be tedious but a cooperative seller can make it happen. - Rod

Economic Indicators are Trending Up; "Op Window" is Closing

by Rod Sager, originally published on Realtor Rod Blog

Many market analysts are mildly bullish on the numbers coming out of the marketplace as we enter the final quarter of 2014. For me personally as a Realtor®, this was my strongest year ever. I enjoyed sales that were even better than the pre-crash heyday of the mid-2000s. Low interest rates and improving consumer confidence has made conditions for real estate ripe over the last two years. In 2011 through the middle of 2013 the first time home buyer segment was roaring. Prices were still a little depressed and rates were low so people that had been long priced out of the market saw a rare opportunity to own real estate. Economic recovery and confidence has led to a spill over into the middle and upper end markets.

Looking forward; the strong potential for the economy to swing into a more robust growth could lead to rising interest rates. If the rates get too high, they can have a negative effect on real estate sales and appreciation can slow. The "op window" for many buyers may be closing. Prices have swollen over the last two years by nearly 20%. If rates were to get closer to the 30 year average and settle in at 6%-6.5%, many entry level buyers will find themselves priced out. A strong economy is a good thing and even higher interest rates are worth having when strong job growth and higher incomes are part of the equation. Right now, buyers are in the open window of opportunity. They can lock in a low interest rate that can save them tens of thousands of dollars over the life of the loan before the improving economy drives prices and rates up.

Fear and uncertainty are what keep people from buying real estate. But no matter what, people need a place to live and buying right now for many people is just as affordable as renting. As the economic conditions improve the cost to own will rise faster than the cost of rent and that window will close as well. It is a good time to buy and a good time to sell.

This was published by Kiplinger this month:

By David Payne

The economy looks better than was previously thought: Look for about 3.5% growth at an annual rate in the third quarter, driven by motor vehicle sales,business equipment, exports and nonresidential construction. A likely upward revision of second-quarter growth to near 5.0% after a dismal first quarter (a -2.1% growth rate) is also likely. In the fourth quarter and into 2015, growth should settle down to a 3.0% rate. That would mean average GDP this year would be about 2.2% over the average for 2013.

Setting the stage for more sustained growth in coming months: After wringing out inflation, disposable income grew at a strong 4.0% annualized rate from December 2013 through July 2014. Consumer confidence is at its highest level since before the recession. Motor vehicle sales in July hit their highest level in over eight years. An index of manufacturing activity points to strongly expanding output. New orders for business equipment have climbed 13 percent at an annual rate since May, indicating strength in business investment spending. Plus, hiring is on the rise, layoffs are scarce (indicated by a very low rate of initial unemployment claims since May), and retail sales have rebounded.

And growth may accelerate more dramatically through 2015. Improving business confidence could push investment growth back up. Consumer spending and confidence remain below what would be considered normal levels by the standards of past economic expansions. As job growth returns and consumers feel more secure, more robust income and spending increases may well be triggered, pushing second-half growth over the expected 3% pace. While that happening in what remains of this year is an outside chance, it’s a good bet that in 2015 such a virtuous cycle will kick in.

There is a slight possibility that rising interest rates next year could have a mild depressive effect, knocking growth down from an above-average (better than a 3%) rate to a simply average (2.5%) pace. For now, however, we expect that the likely small increase of a quarter- or half-percentage point in rates won’t have much impact on GDP growth.