Hard to believe we're half way through 2021

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Real Estate

Hard to believe we’re half way through 2021

For those who are paying attention to the real estate market, either as sideline viewers or active participants, you’ve seen a wild ride in the first six months of this year. Prices continue to climb, up 26.6% in our four-county region over the past year. That’s right -- if you purchased a home this time last year for $400K, today it may be valued at $506,400. Seems impossible but the numbers don’t lie. When priced right, sellers are still seeing a feeding frenzy with multiple offers and tens of thousands of dollars being thrown at them over their original asking price. Is it slowing down? Yes - a little bit… We are starting to see homes come on the market that are not ready for the market sitting, unloved by the buyers and then the price drop begins, or homes that come on the market priced too high and those sellers are missing the boat entirely. It’s not an ‘anything goes’ market, but there is still plenty of buyer activity, coupled with the lack of available homes for sale. Inventory shortage continues to be the main challenge.

At a time when we would typically see a slow down of homes coming on the market, there is actually a slight increase. Now that the pandemic appears to be in our rear-view mirror and people are feeling more comfortable about hosting buyers in their homes, we are seeing numbers rise. However, it will take more than what we’ve seen thus far to put a dent in what’s needed to fulfill the demand, so until that levels off, we’re still going to see increased prices. Will they continue at the pace of the past 12 months? Doubtful, but we should see moderate increases in values through 2022.

One bit of interesting news is that Ginnie Mae may soon be offering a 40-year mortgage to buyers.  If that happens, buyer fatigue may be refueled in the fall with this new option, as it would lower the monthly payment for buyers and ease qualifying a bit. It may also be offered to those homeowners exiting forbearance, but the final decision of whether to offer this option to that pool of homeowners lies with the Federal Housing Administration, Department of Veterans Affairs, the U.S. Department of Agriculture, the Department of Housing and Urban Development and the Office of Public and Indian Housing, which make the loans that Ginnie Mae pools together to sell in the secondary markets. Stay tuned.

As is the case most times when a real estate market gets heated (or overheated), we see new and revisited types of negotiations taking place. Buyers desperate to get their offers accepted and sellers enthused by the ‘how much can I get’ mentality go head to head. When this happens, creativity begins to become the norm. Things that you never thought of are now being used to help the offer stand out from the rest. Here are just a few tactics we’re seeing and what to be careful of if you’re going down this path:

Escalation Clauses…  What are they and what do you need to be careful of? An escalation clause is the concept of saying you’ll pay a certain amount over another buyer’s offer. The way this is written, however, can be extremely dangerous if it’s not clarified that there is a maximum that the buyer is willing to pay. You also need to be cautious regarding the appraisal issues, if you’re the seller. Escalation clauses don’t eliminate the other contingencies in the contract and therefore, could be all smoke and mirrors when it comes to the lender. Proceed with caution and be sure you know what your contract is really committing you to.

What has become negotiable in this crazy market? The short answer is… Everything! Concessions are benefits or discounted offers by the buyer to the seller to help get their offer accepted. Usually specified in the original offer during negotiations, concessions can include covering the normal negotiable closing costs, moving expenses and any repairs needed. Buyers are getting very creative when it comes to what they’re willing to do, offering to allow the seller to remain in the home for months after the close of escrow, sometimes for free. To sweeten the deal, they can throw in a free vacation to their time-share, dinners and lavish gifts - but most times it’s all about the bottom dollar. What these extras may do is set you apart if all things are equal.

Removing contingencies in your offer…  One thing that’s always been part of the home buying process are your contingencies. The most common are the loan contingency, appraisal contingency and your inspection contingency. During this market we’ve seen buyers willing to write their offer and remove these from the contract. Is that recommended? It depends. If you’re 100% certain that you qualify for your loan, then having that contingency in place is probably a non-issue. If you have enough cash to cover the difference in the event you pay over the appraised value, that’s not an issue either. The one contingency that I cringe at removing typically is the inspection contingency. There’s a reason you have a home inspected before you close. Even the best looking homes could have hidden issues that will cost you a lot of money to fix. Yes, the seller must disclose any known facts about the home to you and if they do, you can cancel without penalty; however, a seller doesn’t always know about things that are going on and perhaps could have been discovered during the inspection. Shortening the time for inspections is certainly an option, but not having any inspections all at or not caring about the outcome of those inspections might not be the best advice.

What is the right price to offer?

That’s really the million dollar question and one that differs based on the home and your needs. If you’re looking for a unique property that doesn’t come on the market often or perhaps in a neighborhood that doesn’t see much turn-over, that seller is probably going to be rewarded by this market. Most times it’s going to come down to price, but terms are important, too. Finding out what the seller needs and wants before writing your offer is the best suggestion. Your Realtor should be doing some detective work for you prior to putting pen to paper. Odds are, if the home is priced according to the most recent sales in the area, they’re going to get multiple offers and hence will get more than asking. On average, sellers are getting 104% of the original asking price, which equates to tens of thousands of dollars. Putting your best foot forward from the beginning is recommended. You may not get a second chance to make a first impression!

Ultimately, someday we'll look back on this market and be amazed by what’s happened. The pandemic has truly been what’s accelerated our market to where we are today. People being able to work from home. Homeowners wanting something different from the place they call home; perhaps more space or a different neighborhood. Our region is the city of trees with beauty all around us. We’re able to travel to the city or Tahoe within 90-minutes. Personally I just think... “Our best kept secret is no longer a secret.”

If you or someone you know needs assistance, call me. I’m happy to be of service.

Carol Kellogg