Ever since the housing crisis of 2008, economists, investors and everyday consumers have been waiting on the sidelines, anticipating a rebound. And as of the last few of years, it appears that we may have finally reached that point. Sales are up while foreclosures and short sales are down, and in many fast-growing locations around the country, home values have increased rapidly, and demand has actually outpaced supply.
“There is the problem that builders do not seem to be building enough new homes to meet demand, partly because they are having trouble finding enough skilled labor and also, I would guess, because it is hard to ramp up enough financing for multiple starts in the current climate,” says Ron Rovtar of Cherry Creek Properties in Boulder, Colorado. “Additionally, owners seem to be staying in their current homes for longer periods.”
On top of these factors that will likely cause home inventories to remain low, Rovtar adds that low interest rates and energy prices, plus a solid economy and continued upward pressure on home prices, will contribute to a strong seller’s market through at least the first half of 2015.
Addressing new trends in the market, David Wolf, president of Chicago’s Related Realty, says that, with growing buyer confidence and decreasing lending restrictions, condo sales will be on the upswing in 2015. “There’s strong demand, but new construction has been nearly non-existent since the downturn, and condo inventory is at its lowest level since tracking began in 1997,” he explains. “That spells opportunity for developers, and we’re starting to see new projects announced.”
Developers are also aware of buyers’ increased interest in customizable home purchases. “Buyers can add virtually anything to our semi-custom home designs, but they also haven’t forgotten about the economic downturn, so they’re definitely discerning in their choices,” says Brian Brunhofer, president of Meritus Homes in the Chicago area. “We are seeing a lot more long-term convenience enhancements, like tricked-out mudrooms and home automation systems.”
But a seller’s market doesn’t necessarily mean that individual home owners will automatically have buyers lined up outside their doors, says Ryan Haslet, a real estate agent with Seattle-based Boardwalk Real Estate. He says that, in some cases, sellers are becoming “their own worst enemies.”
“During the hot spring and summer markets, sellers found themselves with multiple offers and prices being driven up above the listing price,” Haslet explains. “Fast forward to the slower winter months, and sellers see what the home down the street sold for over the summer—not taking into account that it was a competitive situation—and try to list [their home] above that sales price. The problem is that they are hearing crickets because they didn’t take market conditions into account. If they had priced with current buyer activity in mind, they could sell quickly for a fair market value. Unfortunately, some sellers going for top-dollar in a slower market can essentially create a buyer’s market for their own home.”
Glenn Phillips, CEO of Lake Homes Realty, a multi-state, full-service real estate brokerage, agrees that, for sellers looking to get the most value from their homes, the price has to be right. “As in prior years, the properties that sell best will be the properties that are initially priced to be the best value in their community,” he says. “This does not necessarily mean lowest price—just best value. Starting with an over-priced listing and dropping it gradually continues to be a strategy that often fails and typically extends the time the home is for sale, and also extends the homeowner’s costs of keeping the home longer.”
Based on his experience, Phillips advises sellers to price their homes just below every recent comparable home in the market, taking into account seasonal and other variables. And he adds that selling without an agent can be a smart strategy if the seller is realistic and aggressive with pricing. “Where this strategy often fails is when sellers believe the savings on agent commissions will go to their pockets, when, at the same time, buyers expect this amount to be discounted from the transaction,” he says. “The seller must be sure to understand that these buyers are expecting—and even demanding—an extra special deal with the agent commission removed.”
“For those planning to sell their home this year, do not use pricing of homes for sale as a firm guide,” Phillips adds. “The important numbers are the prices of comparable homes that recently sold. Too many sellers mistake listed price of homes as a reflection of the market, when it is really only a reflection of seller mindset, which may include a large number of over-priced homes that won’t sell.”
Phillips also has advice for buyers looking to navigate the current market and purchase a home—namely that they work with a reputable and successful agent, as opposed to a friend-of-the-family or someone just starting out. “Real estate is not just a recipe to be followed,” he explains. “Seasoned agents will be more aware of surprising pitfalls, recent industry changes, market fluctuations and other issues than the casual or part-time agents. You would prefer the surgeon with 100 successful surgeries over the one with five last year, even if the procedure is relatively simple. Most real estate transactions have some hiccup or two, and it is in that problem solving ability where experience pays off—in surgery or in real estate.”
Phillips’s other tips for buyers include carefully analyzing market comps by taking into account not just the value of the home, but also the time frame of when the house sold and how similar it is to the one they are actually considering. And because the not-too-distant downturn meant that many sellers were struggling financially, a home inspection and title insurance are non-negotiables. “Some homeowners in financial straits may have let issues with the property go—from minor to major,” he says. “Don’t inherit a mess just because you don’t know how to inspect a home yourself.”
Those financial challenges could also mean that there are unexpected liens or claims against the home that the seller may be aware of or just chooses not to disclose. In those cases, title insurance protects the buyer from liability. “Title insurance is a one-time insurance that guarantees the seller has the full legal right to sell the property,” Phillips says. “If, in the future, it is found that the seller did not have the right to sell the property, the title insurer has a claim and would pay the buyer, or lender, their money back. As title insurers protect themselves by researching legal records for the property for claims and liens, this in turn protects buyers from fraud and potential legal and financial losses.”
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