Bob Tunkel, Your Amelia Island REALTOR®

Homebuyers are unexpectedly finding more competition this spring in landing their dream home. Bidding wars are increasingly being reported in markets across the country, from California to Florida, The Wall Street Journal reports.

“It’s a little surprising because we thought bidding wars were done with,” Andy Aley, a home shopper in Seattle said. Aley says he was outbid on a home earlier this year, even though he offered to pay $23,000 above the listing price and also waive inspections and other closing conditions.

Homebuyers are frustrated and caught off-guard about the bidding wars re-emerging, real estate professionals report.

“We’re writing a record number of offers, but we’re not seeing a record number of closings and that’s because it’s so competitive,” Glenn Kelman, chief executive of Redfin Corp., told The Wall Street Journal.

Why are things getting so competitive? Many housing markets are seeing a drastic decrease in the number of homes listed for sale, leaving homebuyers with fewer options and more bidding on the same house. Housing analysts say the shortage in supply is from sellers unwilling to take much less for their home than what they originally paid for it and pulling homes off the market. Also, a surge in investors who snatch up homes in bulk in all-cash deals has made the market competitive.

“The bidding wars caused by tight inventory provide the latest evidence that housing demand is starting to pick up after a six-year-long slump,” The Wall Street Journal reports.

National Association of Realtors® latest pending sales report seems to confirm the trend. Pending sales in March reached their highest level in nearly two years and are up 12.8 percent from one year earlier.

Source: “Stunned Home Buyers Find the Bidding Wars Are Back,” The Wall Street Journal (April 27, 2012)

Is Fla.’s shadow inventory a rebound threat?
The full report – The Distressed Property Market and Shadow Inventory in Florida: Estimates and Analysis – is available online.
ORLANDO, Fla. – May 1, 2012 – The term “shadow inventory” hangs over the real estate market, suggesting a thinly veiled catastrophe seen through the mist, just as the passengers of the Titanic watched an iceberg draw closer. However, a white paper written by Florida Realtors Chief Economist Dr. John Tuccillo finds the fear of a shadow inventory overrated.

“The fear … is that the inventory of delinquent and foreclosed loans (will be released onto) an already weakened market,” says Tuccillo. “(But) the reality, even in Florida where distressed properties make up a significant portion of the market, appears to be different.”

Tuccillo says lenders have no reason to flood the real estate market with more homes if doing so would drive prices down and impact the lender’s profit. While some observers worry that lenders were holding back on purpose, Tuccillo says that’s not so – that the large number of distressed properties on hold was “largely the result of confusion over the rules of the game, and thus missteps by the lenders.”

In conducting an analysis, Florida Realtors Research looked at data from MLSs around the state and data provided by CoreLogic, a statistical analysis company.

“We looked at the recent history of distressed property listings and transactions relative to normal market data, as well as estimates for the shadow inventory, and came to some conclusions about the likely course (for the) future,” says Tuccillo.

Conclusions

• Florida remains one of the nation’s hardest hit states for distressed property sales.

• Distressed property sales and listings have declined since late 2010, except for single-family-home short sales.

• Average prices for distressed and normal property sales have been stabilizing.

• In general, Realtors and lenders have learned how to cope with distressed properties in a way that stabilizes the market.

• Florida’s highest percentage of distressed property (compared to total listings) occurs in the I-4 corridor and Southeast Florida; the lowest percentages occur in Northwest Florida.

• Currently, Florida’s shadow inventory was 550,000 units at the end of 2011, a decline of about 9 percent from its peak in the first quarter of 2010.

• Currently, the flow of new seriously delinquent (90 days or more) loans moving into the shadow inventory is offset by the roughly equal flow of distressed sales (short sales and REOs).

• The number of foreclosures and REOs was significantly lower in February of 2012 than one year earlier, suggesting slower shadow inventory growth.

Tuccillo predicts that distressed properties will be a significant feature of the Florida real estate market over the next ten years, but it will be considered just one property type a buyer can consider – one that has its own unique sales techniques and documentation.

© 2012 Florida Realtors®

With low home prices and ultra-low interest rates, the housing market now offers “perhaps the best deals of a generation,” notes a recent article by Bloomberg Businessweek.

Since the housing boom of 2006, home prices have fallen about 31 percent. Also, mortgage rates have been hovering at record lows for the past few weeks – in the 4 percent range or even lower on 30-year fixed-rate mortgages, according to Freddie Mac’s mortgage market survey.

“It’s hard to see the possibility of losing on a home purchase right now, with these mortgage rates,” says economist Dean Baker. “Prices may go lower, but not by much.”

The article notes the following scenario: Buying a $300,000 home with a 4 percent mortgage rate and a 20 percent down payment would mean a $1,145 monthly payment. The Mortgage Bankers Association recently predicted that home prices may fall another 3.5 percent by mid-2012, but mortgage rates will increase by a half-point. Under that same loan scenario, a home would sell for $289,000 while the monthly mortgage bill would be $1,171 – only a $26 difference.

For those who can qualify for a mortgage, “playing the waiting game” won’t result in much gain, Nariman Behravesh, chief economist at IHS in Englewood, Colo., told Bloomberg Businessweek.

Source: “Crazy Home Deals Await the Creditworthy,” Bloomberg Businessweek (Oct. 24, 2011)

Home prices are low, interest rates are low – real estate is basically having a summer clearance sale! Making the wrong move in this real estate ‘sale’ can have disastrous effects, from losing your dream home due to a bad bid to ending up with a money pit of a property.

Here are a few money-saving, pitfall-avoiding tips and tricks for buyers who want to do some smart home shopping this summer.

1. Have a vision in place, before you start your house hunt. Actually, have several visions in place. Have a financial vision, complete with a clear picture of what your total income and expenses look like, in the “after homebuying” view, including what you pay out for your home and related expenses, like HOA dues and homeowners’ insurance. Have a vision of your life in your new home, including what you want to do, with whom and where you want and need to go – in the work, family and recreation areas of your life.

2. Don’t let affordability get between you and reality. High affordability doesn’t necessarily mean you can get every single thing you want – and name your price. The fact is, even people who are spending millions for their homes don’t get everything they want!
Take a step back, revisit your vision, and remind yourself what’s really important. It’s okay to save some “must-haves” and “deal-breakers” for your next home purchase!

3. Get a local expert to brief you on the local market, then screen out the noise. Now more than ever, it’s essential to have laser beam focus on the information and strategies that will get you what you want – whether it’s an amazing deal on the home you’ve always wanted or simply success at becoming the owner of your first home at a price you never thought would ever be possible. Otherwise, you’ll end up all over the place, spending your time, money and sanity attending auctions, getting worked up over distressed properties that aren’t yet for sale, trying to negotiate deals with sellers who are in no position to cut them and having your lowball offers on bank-owned properties rejected time after time.

Once you have a strategy in place, work it – Many would-be buyers lose out on great homes because they take negotiating advice from their neighbor over that being offered by their broker or agent.

4. Read everything. Good faith estimates. Contracts. Disclosures. Inspection reports. Read them when you get them, ask questions, and keep asking until you understand the documents.

Many buyers this summer will make offers on more than one home before they get into contract on “the one,” and many of those properties will be short sales or foreclosures. With distressed properties, every contract is different, so it behooves you not to go on autopilot, just skimming the papers as you might otherwise. Also, inspection reports might reveal red flags and condition issues that you’d normally expect to see in the seller’s disclosures. It’s especially critical, in these situations, to fully understand as much as you can about the property, your loan, and your obligations and due dates under the contracts.

5. Stop your mental accounting and do the actual math – on paper. In the field of behavioral economics, mental accounting refers to the tendency we humans have of doing math in our heads, separating things like easy money (e.g., the so-called “instant equity” from buying a home for less than it’s supposedly worth) from hard-earned wages and salary, and making spending decisions differently from these different mental accounts.

On the scent of a good deal, and in the heat of the hunt, even the most meticulous homebuyer can go up a few thousand in offer price to beat out other buyers. No problem, right? Well, but then when the inspector uncovers a few needed repairs, they make a mental guess as to what they’ll cost, and add that in – again, mentally. Then, when the lender requires a few extra thousand bucks than expected to close, that goes on top, but again, only mentally. And mental money tends to stretch a bit longer than real money does!

Even if you hate budgets with every iota of your being, buck up on this one project, pull out the calculator or open up a spreadsheet and keep track of every line item. Get actual repair bids during your inspection period, to the extent possible, and get your math mojo on.

Keeping a strict tab on the expenses you incur during the transaction – or will need to incur afterwards — will save you so much drama later.

There is a very famous saying which asserts “Sell High, Buy Low”. It is obviously great advice no matter what the investment. Below is a graph showing the cycle of investments. It shows the points of maximum risk and maximum opportunity when purchasing. We want to sell high (point of maximum risk) and buy low (point of maximum opportunity).

The challenge is how to determine when we have hit bottom if you are a purchaser. The only time you can guarantee a bottom is after you pass it.

However, there is more and more evidence that the COST of a home has in fact hit bottom. Notice we have used the word COST. Unless you are an all cash buyer, you must take into consideration the expense of financing a property to determine the true cost of purchasing the home. Interest rates have increased over the last quarter; and the rise in rates has counteracted any fall in prices.

Let’s look at an example:

Let’s say you were going to take out a $200,000 30-year-fixed-rate mortgage in November of 2010. At that time, interest rates were 4.17% (as per Freddie Mac). Your principle and interest payment would have come to $974.54. According to the most recent report from Case Shiller house prices fell 3.9% in the 4th quarter of 2010. The most recent report from the Federal Housing Finance Agency shows a 0.8% fall in prices. Let’s use the larger percentage decrease: 3.9%.

For the sake of keeping the math simple, we will now say you can get the same house with a $192,000 mortgage (4% discount from November price). Interest rates are now 4.95% (as per Freddie Mac).

Your principle and interest payment would now be $1,067.54.

By waiting to pay less for the PRICE of the house, the COST increased $93 a month. That adds up to $1,116 a year and over $33,000 over the life of the loan.

We realize that there are other things to consider (ex. the mortgage tax deduction, etc.). This example is just a simple way to show that there is a difference between COST and PRICE.

Bottom Line
If you want to buy low, buy now. It appears COST has hit its lowest point.

Reprinted from an article by the KCM Crew

At the beginning of the housing crisis, sellers turned to gimmicky tricks like YouTube love letters about their homes and burying St. Christopher’s figurines upside down in the front yard to try to move their homes off the market. These days, though, many sellers are getting smarter and more strategic, turning the transaction on its head to get buyers off the fence with a phenomenon called the reverse offer.

Usually, the buyer makes an offer for a certain price and on certain terms. A reverse offer goes in the opposite direction: from seller to buyer. In some cases, a seller whose home has been on the market for ages with lots of viewers, but no offers, may enlist their agent to go back and approach several or even all of the buyers who have come to see the property, and make an offer to the buyer. In other scenarios, the seller’s agent extends an offer to a particular buyer who has come to see the property multiple times and seems very interested, but has been hesitant to make an offer.

Reverse offers generally offer to sell the home at a price lower than the list price, and they often sweeten the pot by throwing in added incentives like paying some or all of the buyer’s closing costs, buying down the buyer’s interest rate, paying for HOA dues or fees or even throwing property like flat-screen TVs, cars or other valuables into the deal.

Here are 3 best practices for sellers making reverse offers:

• Give the buyers a short period of time to respond. The whole point of a reverse offer is to create urgency where the buyer currently feels none. Extend a reverse offer with the caveat that it is only good for a day or two, to push the buyers into moving quickly. Similarly, if you have extended the reverse offer to multiple buyers, let them all know that this is the case and that the first buyer to bite takes the house.

• Great candidates for reverse offers include sellers facing lots of competition. If your home is nearly identical to neighboring homes for sale at the same price, or you are struggling to position it competitively with foreclosures and short sales in the area, consider making a reverse offer. A proactive, reverse offer differentiates your house in the minds of home buyers and, again, creates urgency to act on the part of buyers who otherwise have so many homes to choose from that they feel they have all the time, choice and bargaining leverage in the world.

• If one buyer has viewed your home repeatedly, check in with their agent directly before making a reverse offer. Ask your listing agent to contact the broker for any buyers who have made more than one visit to your home, to inquire into what is keeping them on the fence. This will boost the likelihood of making a successful reverse offer by making sure the offer addresses the issues that have made buyers hesitant to pull the trigger.

Critics of the reverse offer express a concern that it may make a seller seem desperate. However, when you talk to home buyers on today’s market, their biggest beef is sellers who are unrealistic and inflexible, not sellers who seem overly motivated to sell.

No serious home buyer gets turned off by a seller who seems willing to go the extra mile to help them solve the problems that are stopping them from buying a home. Also, a reverse offer doesn’t have to chop tens of thousands off the home’s list price to work – a percentage point or two can often do the trick. In any event, sellers who extend a reverse offer don’t limit their options for responding to low-ball offers from the prospective buyer in any way; if the buyer senses desperation and comes back with a low ball offer, the seller can still take it, counter or leave it, just like they would have been able to do before making the reverse offer (but they end up with a buyer, which they didn’t have before the reverse offer).

Note: This post first appeared on WalletPop.com on 11.22.2010.