When a realtor advertised “experience” I used to discount the claim. Not any longer. Recent market events require the guidance of a knowledgeable agent. One area is the recommended amount of earnest money offered by a buyer. Last year I would recommend a substantial amount of earnest money. The market was competitive. Often times there were multiple buyers for almost every home. The higher the earnest money the more confidence the seller had in the buyer. There was also an underlying motive. If I suspected sellers would get multiple offers, the earnest money was a guarantee they would continue with the contract. For example, I had one buyer who had an accepted offer on a $300,000 home. It was a great deal verified by the appraisal which came in at $335,000. The seller had another offer for more money. Had we only agreed to $1,000 earnest money (liquidated damages for a broken contract) the seller could have paid the $1,000 to the buyer and accepted the $10,000 higher offer for a $9,000 profit. But we agreed to $15,000 earnest money so breaking the contract wasn’t attractive to the seller.
But as you have no doubt heard, the market has changed. There are substantially more homes on the market and sales have substantially decreased. Additionally, lenders have fewer funds to lend. They have severely tightened lending requirements rejecting even some qualified buyers. But more alarmingly, some have failed to fund after documents have been signed at the title company. While that might seem like an inconvenience it can risk the earnest money. There is no provision in the Real Estate Purchase Contract for a bank failing to fund at closing. This isn’t just hypothetical. It actually happened three times in our office alone. Conversations with title agents have confirmed our experience wasn’t unique.
Now if you had $1,000 earnest money the seller might be willing to work with you, but now that $15,000 earnest money encourages the seller to take the earnest money because the buyer failed to fund. The seller can lower the price of the home slightly to encourage new buyers and pocket the difference. The loss of the money can be challenged but that involves a fight no one wants to have.
The moral of the story is to hire a buyer’s agent that has seen both sides. They can help avoid the problem all together. Part-time agents, new agents and those with few transactions most likely won’t see the train wreck coming. Make sure you have an experience requirement when selecting a realtor!
Gary B. Howard
18 September 2007
10 July 2007
Endangered Species: Buyers
The Bald Eagle was recently removed from the endangered species list, a notable achievement for those of us who remember the days of the pesticide DDT. But Salt Lake County real estate agents are finding buyers endangered too and the culprit is not as easy to directly link as the eagle’s chemical nemesis.
On July 6, 2007 the WFRMLS showed 5,913 active listings. That’s up over 1,500 from March 20, 2007. Last year there were around 4,700 active listings in July. What’s startling is the fact that the number of June sales was only 1,307. That’s 624 fewer closings than the June 2006 number of 1,931. February, March, April and May had noticeably lower sales as well. More inventory and fewer closings puts what we’ve all been noticing this year into perspective. It’s become a buyer’s market.
The cause of this market change is as hard to pinpoint as the cause of the Bald Eagle’s soft eggshells. Some of the disparity can be discounted as a result of a trick employed by many real estate agents. After 90 days most agents will withdraw a listing only to have it appear again a couple of days later. This will then show both on the MLS and statistically as a new listing. Most agents narrow their searches to those listed within the last 30 days. If a property is listed for a long time, savvy buyers are suspicious, and might question the pricing or the quality of the listing. Current statistics have been somewhat skewed as a result, but the fact that agents have to employ this trick indicates something is wrong.
Interest rates are one of the culprits. People are quick to get spoiled. Rates below 6 percent, although historically rare, are today’s expectation. Now that rates are hovering around 6 5/8 percent, buyers have become hesitant. Two sizeable markets have also dried. Sub-prime and no-document loans have all but evaporated leaving those with marginal credit out of the buying market. What’s more, price stabilization has all but eliminated the investor market.
But the DDT of this story is the national press’ coverage of the housing bubble. Although national conditions have little bearing on the Salt Lake County market (like politics, all real estate is local), buyers have suddenly gotten shy. Certainly the greed factor encouraged by rapid appreciation is gone. Some even think prices here will drop. However, given the parity between the Salt Lake County market and surrounding metropolitan areas, our influx of outsiders, and our strong economy, that is highly unlikely.
Three markets will remain strong. The first is the entry-level market. Condos priced around $150,000 still have plenty of demand. Single family housing below $300,000 should also continue to thrive. There is still plenty of local demand and the economy here is one of the strongest in the nation. First-time buyers are looking to get away from the highest rents we’ve ever seen. The third market is homes with unique appeal. People are buying homes as places to actually live in again, not just as investments. However these homes will stay on the market longer.
It will take a few months for buyers to make a comeback. The Fed is looking to provide a remedy for the ailing housing market so interest rates should remain stable or even drop slightly and all indicators point to a continued aggressive Salt Lake County economy. As more workers from other higher-priced markets enter the Salt Lake area, the number of new home buyers should also grow.
So with a little care and patience the number of buyers should eventually rebound. I’ll let you know when, like the Bald Eagle, we can confidently remove buyers from the housing market’s endangered species list.
Gary B. Howard
On July 6, 2007 the WFRMLS showed 5,913 active listings. That’s up over 1,500 from March 20, 2007. Last year there were around 4,700 active listings in July. What’s startling is the fact that the number of June sales was only 1,307. That’s 624 fewer closings than the June 2006 number of 1,931. February, March, April and May had noticeably lower sales as well. More inventory and fewer closings puts what we’ve all been noticing this year into perspective. It’s become a buyer’s market.
The cause of this market change is as hard to pinpoint as the cause of the Bald Eagle’s soft eggshells. Some of the disparity can be discounted as a result of a trick employed by many real estate agents. After 90 days most agents will withdraw a listing only to have it appear again a couple of days later. This will then show both on the MLS and statistically as a new listing. Most agents narrow their searches to those listed within the last 30 days. If a property is listed for a long time, savvy buyers are suspicious, and might question the pricing or the quality of the listing. Current statistics have been somewhat skewed as a result, but the fact that agents have to employ this trick indicates something is wrong.
Interest rates are one of the culprits. People are quick to get spoiled. Rates below 6 percent, although historically rare, are today’s expectation. Now that rates are hovering around 6 5/8 percent, buyers have become hesitant. Two sizeable markets have also dried. Sub-prime and no-document loans have all but evaporated leaving those with marginal credit out of the buying market. What’s more, price stabilization has all but eliminated the investor market.
But the DDT of this story is the national press’ coverage of the housing bubble. Although national conditions have little bearing on the Salt Lake County market (like politics, all real estate is local), buyers have suddenly gotten shy. Certainly the greed factor encouraged by rapid appreciation is gone. Some even think prices here will drop. However, given the parity between the Salt Lake County market and surrounding metropolitan areas, our influx of outsiders, and our strong economy, that is highly unlikely.
Three markets will remain strong. The first is the entry-level market. Condos priced around $150,000 still have plenty of demand. Single family housing below $300,000 should also continue to thrive. There is still plenty of local demand and the economy here is one of the strongest in the nation. First-time buyers are looking to get away from the highest rents we’ve ever seen. The third market is homes with unique appeal. People are buying homes as places to actually live in again, not just as investments. However these homes will stay on the market longer.
It will take a few months for buyers to make a comeback. The Fed is looking to provide a remedy for the ailing housing market so interest rates should remain stable or even drop slightly and all indicators point to a continued aggressive Salt Lake County economy. As more workers from other higher-priced markets enter the Salt Lake area, the number of new home buyers should also grow.
So with a little care and patience the number of buyers should eventually rebound. I’ll let you know when, like the Bald Eagle, we can confidently remove buyers from the housing market’s endangered species list.
Gary B. Howard
27 June 2007
Downtown Theme Park
A friend of mine frequently says Utahns are quick to settle. We settle for over salted chain restaurant food, common chain store fashions and with few exceptions we settle for uninspiring architecture. No case demonstrates the later more than the City Creek Center development. Certainly the LDS Church has the right to develop their property as they see fit and yes it will be nice to get something developed downtown but you would think a religion that professes to be divinely inspired would choose a more inspired design. San Antonio has the Riverwalk, we’ll have a fake City Creek. Portland has a large thriving downtown and we’re about to repeat the mistake we made 30 years ago and limit ours to a few city blocks. Lehi gets Frank Gehry and Salt Lake gets Taubman Partners. If we’re going to make Salt Lake a chain store theme park, let’s not settle again. We should at least get a roller coaster to go with our Futureland sky bridge.
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