July has come and gone and now it’s time to wind down the Summer as we prepare to start up school again. How and where that happens is still up for debate. Regardless, this Summer and real estate sales have had their shares of ups and downs. Here are my personal observations. There are still plenty of first time buyers out there. That’s a great thing! What is proving to be a challenge, is the move up buyer. In other words, we are seeing a slow-down in activity of people who are selling one home to buy another. The sellers are staying put, which means the inventory is low for starter homes and there are limited buyers for the move up home sellers.
Let me give you an example. Most first time buyers look for homes around 250K or perhaps 300K or so. The homes they are hoping to buy are usually occupied by someone looking to move up to a slightly higher priced and bigger home. Since the move up buyers are feeling a bit anxious about the current environment, they tend to not want to list or move. Those that must move, find that there is a smaller pool of those buyers for their home. It’s a bit of a domino effect. Not the end of the world, just more challenging. Anyone in the higher price range should expect a longer time to sell. They should also do all they can to make their house available to potential buyers and ensure it’s looking a good as possible. The days of “Well they can just make me an offer” are not what they used to be. Todays buyers are paying a higher amount for homes, so their cash to update and renovate is more limited. That’s why we are also seeing buyers asking for concessions (closing costs) on these move up homes. We used to see it mainly on the first time buyers, but now, it’s becoming more common for a buyer to ask for help in closing costs. Some sellers don’t get the idea behind the concession and even get offended by the buyer asking. They think that the buyer doesn’t have enough money to pay their own way, but the truth is that the buyer is simply building the concession into the deal. By having the seller pay part of their out of pockets fees, the buyer can keep liquid assets available for the improvements they want to do on the home. For example, if a home needs 5K in carpet, a buyer may ask for a 5K closing concession towards closing costs, which allows them to keep that in their bank account instead of bringing it to closing. This allows them to then buy the carpet after closing and not having to put it on a high interest rate credit card. As a seller, you should just look at the bottom line. If you need to make “X” on the deal and are doing that, then you are golden. It is important to note that in some cases, a large amount of concession can add on extra taxes and commission and also affect your appraisal. When a home has a lot of activity, some agents will add onto the list price to try and absorb the closing concession. Problem is, the appraiser might not see the value in the home to cover the added dollars, in fact, a good agent will usually have the list price as high as possible to allow wiggle room. If you add on top of that, you could have a value problem. The appraiser sees the list price on the MLS as “X”. If your contract price is “X” plus 5K, chances are that your appraisal will still come in at list or less. This is sometimes used as a ploy by buyers agents to get you to see a higher amount, only to be forced into accepting the appraisal price and still providing the concession. I just went through it and knowing what I know, we opted to take the deal without the concession and more realistic appraisal value. Don’t let the dollar signs fool you! While I would love to think that a home would appraise way above list, it rarely happens and today, appraisers are cautious about overinflating values. They are under a microscope in many cases. That does NOT mean you can’t try! I have often been in this scenario and what I do is have a very direct and honest conversation with both parties and develop an understanding of what will happen if the home does not appraise. Miracles have happened before where an appraiser somehow manages to tweak the offer to get the value, but you all need to be prepared for when it doesn’t. I tell sellers that we can always try, providing they know the risk. Buyers need to be prepared for the situation as well. A buyer can do a home inspection and pay for appraisal only to find that the appraisal is low and the seller won’t budge. The key here is open communication. Make sure your agent knows the market and fully explains options and pitfalls. There are times this goes off without a hitch! There are also times when appraisal comes in wicked low. If you feel your appraisal is going to be an issue, sometimes it makes sense to do the appraisal first and then have a smaller window for inspections. Traditionally, the appraisal comes after the home inspection, but there is no rule that says you can’t change that. In my book, the key to all of this is having everyone on the same page. That can be hard if you are working with an agent on the other side that doesn’t communicate well or is more concerned about getting paid than doing the right thing for their client. More important is to get as much as you can in writing. Clearly stating expectations before agreeing to do anything. It’s also important to make sure that when you are a buyer and negotiating closing concessions, that you keep the lender in the loop. There are restrictions to how much you can ask for and limits on to how much you can actually use. Let’s say you ask for 15K in concessions. You must have 15K in closing costs to use the full amount. You CANNOT apply any of the 15K towards your down payment, only closing costs. If you negotiate too much and don’t have enough to charge off, you could find yourself losing the rest of the concession and having it go the seller. On average, closing costs are around 3.5 to 4% of the purchase price. Keep the lender involved! This is true on both sides, meaning the sellers agent should ensure with the lender that what is being proposed is workable. Some buyers agents don’t understand how it all works and when you get to the final closing statement, the deal can fall apart because someone else didn’t check things out in advance. COMMUNICATION IS KEY! It’s also a good idea to check out the agent on the other side of your deal. Do they have a good track record of sales? If they don’t you might find that they are skilled in how all of this works together and they are pushing for something not in the best interest of their client or you. Your agent should verify the other agent in the MLS to see where things stand. It will help them know how to deal with the other agent. Don’t get me wrong, most agents have good intentions but when they aren’t making enough in the real estate world, they can be compromised. This is important to note when hiring your next agent. Make sure they have a good book of business so that they can be objective and work to secure what is best for you! Curious about any of what I wrote? Give me a call! 407-948-8295. Enjoy the rest of your Summer!