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| Ann Arbor Area Real Estate |
"Where Buyers and Sellers Meet" |
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Insights from The Real Estate Doctor
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After an extended review and analysis of the data, I must conclude that the patient (real estate in southeast Michigan) has fallen on hard times!
Data from the past three years in Washtenaw County appears to suggest that while the real-estate bubble has not burst it has at least sustained some "seepage" and flattened for the time being. Rather than a continuing pattern of marked appreciation, we observed only a slight increase in pricing when comparing year-to-date sales figures for 2004 and 2005, which were unfortunately followed by declines in 2006 and 2007.
An analysis of data from 2005 indicated trouble brewing on the horizon. Median residential sale prices increased from $225,500 to only $226,000, and average sale prices increased by less than 1 and 1/2 percent, from $262,822 to $266,633. The number of residential listings, on the other hand, increased more than 20%, from 9,100 to 11,139 during that same time period, presenting buyers with a luxury of purchasing options. Only 33% of the listings that sold in 2005 managed to reach list price, and actual residential sales declined from 3,876 in 2004 to 3,710 in 2005, further suggesting that 2005 was truly a "buyers' market."
An analysis of sales during 2006 gave further indication that final recovery may still be some time in the future. The median sale price fell to $219,000, the average sale price came down to $258,934, and the number of sales declined by 10%. Meanwhile the number of residential listings increased to 11,987. This excess in inventory left many sellers at a loss in the struggle to compete for the declining number of buyers. As a result, only 26% managed to sell at list price.
Data from 2007, clearly affected locally by the closing of Pfizer and nationally by the crisis in the subprime mortgage market, has reinforced the trends observed in 2005 and 2006. A comparison figures from 2004 and 2007 shows the following: Total listings of houses increased from 9,100 to 11,131 indicating a 22% increase in inventory. Meanwhile, total sales decreased from 3,876 to 3,062, a decline of 21%. As a consequence of this excess inventory of houses for sale, the median sale price slipped from $229,000 to $215,000 for a decline of 6%, and the average sale price decreased from $266,582 to $250,286 for a decline of 6%.
Do I expect the real-estate "patient" to be restored to health in the foreseeable future? Yes! I'm an optimist! Although the first three months of 2008 show a 7% drop in the number of homes sold (534 as opposed to 572 for the same period in 2007), the number of new listings declined by 20%, helping to stabilize the market. As a result, the average sale price declined only slightly, from $217,012 in 2007 to $214,911 in the same period in 2008.
There are several positive developments locally, including Google's decision to expand here and the new Toyota plant's being built in Washtenaw County, that will continue to have an impact on the marketplace during 2008. These positive developments should be enhanced by the federal government's efforts to alleviate the crisis in the subprime mortgage market. However, the "patient" will require a lengthy convalescence, lasting through the first six months of 2008 and affected in part by the health of the auto industry.
Stay tuned! |
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The Here and Now
It’s tempting to think of “Pie in the Sky By and By,” even when it comes to real estate. The investor imagines a substantial increase in wealth as his investments mature. The first-time homebuyer imagines a steady increase in value through uninterrupted appreciation. And the seller anticipates better times coming while suffering through a sales drought.
But then reality breaks in. The investor finds that real-estate investing has its pitfalls and pratfalls and that the silver lining on the cloud was a mirage. The first-time homebuyer is discouraged to find that occasionally depreciation can wipe out five years of appreciation in a single year. And the seller who felt that the next year would bring a bonanza of offers on his house discovers that a depressed economic outlook can have more staying power than his original optimism.
So, what to do? No one has an infallible crystal ball. However, there are professionals able to guide individuals through troubled times. Asking a trusted professional for objective data is a good first step. Reviewing that data carefully should provide direction for additional steps. For sellers, that may mean setting aside unrealistic expectations and pricing their home where the market is rather than where they want it to be. For buyers, that may mean recognizing the ongoing benefits of home ownership irrespective of future value. For investors, it means keeping long-term trends in mind.
No matter what your situation, while it’s tempting to think far into the future, you will want to make sure that your next step is well grounded!
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Can you imagine a speaker about to address an audience and then having the hiccups?
With such a beginning, it will be difficult for the audience to focus on what the speaker has to say!
Now imagine your house "on stage" as the speaker. Upon first impression, your house should appear flawless to its "audience" (your buyer). No peeling paint or decaying wood. No debris in the yard. And no clutter once the buyer enters the house. (Even the closets and cupboards should be orderly and neat.)
Remember: your house is "on stage," and the "audience" is looking forward to a quality presentation. Any initial distraction will alter the buyer's focus and create concern in the buyer's mind, thus diminishing the prospect of a ready sale! Capture and hold the audience's attention with your very best first impression.
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Buying Your First Home
A person learning how to swim doesn't usually dive headfirst into the pool before learning something about the depth of the water and what safety procedures are in place. Purchasing your first home should be approached cautiously as well. In fact, there are a number of standard steps that you should take into account.
First of all, recognize that "money is power." To achieve maximum leverage in negotiating the price on the home you select, contact a lender to obtain a "pre-approval letter." (This is much stronger than a pre-qualification letter and includes a review of your credit record.) This, in effect, assures the seller that you will have the cash to buy the property when the closing time arrives.
Second, plan to spend a good deal of time with a real estate agent that you trust to become familiar with the types of homes then on the market. It's not uncommon to see in excess of 15 homes before you get the "feel" of the market. It's important that you are able to make mature judgments about when a good buy is presented to you. The agent should be able to support such judgments by providing you with statistics of comparable homes that sold recently.
Once these two matters are addressed, you will be able to proceed with the buying process by making an offer on the home you feel best meets your housing needs. If the market is fast and many homes are selling at list price, you may have to move quickly yourself to compete with other buyers.
If the market is slow, you will have the luxury of negotiating at a more leisurely pace by offering less than list price.
Be sure that your agent includes a number of contingencies in your offer to purchase, including having an attorney review such matters as the title work and any other part of the transaction you feel unsure about. Remember also to make the contract subject to such things as a contractor's inspection, radon test, termite inspection, etc. (Country properties will also need to have Health Department approval of well and septic.)
Your agent should be able to offer you the names of several qualified contractors who specialize in helping buyers learn what problems a house may have. It's best to interview these contractors to ensure that the one you select will be able to protect your interests in the purchase. (A favorite uncle may have some building experience but may not be familiar with all the systems that need review.)
After you've made an application for your mortgage, your agent will be able to follow up for you. This may include meeting with the bank appraiser and checking that the lender is processing your application in a timely manner.
Before you remove the financing contingency, be sure you have written notification from the lender that your loan has been approved.
After all contingencies have been removed, your agent will set up a closing time. The day before the closing, your agent should review closing paperwork with you so that you will not have any unpleasant "surprises" at the closing! The closing often occurs at the office of the title company that issues the title commitment and is likely to take an hour. Your agent should accompany you to the closing although an officer of the title company will take responsibility for making sure all the paperwork is properly handled.
Having a good agent by your side in this complex process makes it much easier (and much safer) to dive into the pool! |
Chasing the Rainbow
We're told there's a "pot of gold" at the end of the rainbow, and we're sometimes tempted to chase after it.
However, no matter how fast we move, the rainbow keeps its distance and eventually vanishes. And the proverbial pot of gold often remains elusive and one step beyond our reach. So after a while we learn to adjust our pace and our expectations.
Buying and selling real estate similarly involves being "in step" and at times adjusting to the market place. In selling, for example, a realistic initial price allows the seller to meet the broadest range of prospective buyers and achieve a quicker sale. By contrast, the seller who holds out too long at too high a price may face a series of downward steps in an effort to capture a vanishing market.
Being "out of step" can be detrimental to buyers as well. Many first-time buyers will take too long to recognize true value and will let genuine opportunities pass them by. A good first step to ensure a realistic sense of value involves going on a "tour of homes" with a trusted agent. With that background experience, buyers stand a better chance of obtaining their personal "pot of gold."
"Enjoy the rainbow but don't get left standing in the rain." |
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Bargain Interest Rates
For buyers in Michigan who have been sitting on the sidelines waiting for the best time to purchase their first home, that time has definitely arrived!
The prospect of even a modest increase in rates should serve as a catalyst for hesitant buyers. Not only have housing prices declined during 2006 and 2007 but the excess inventory of available housing and the recent crisis in the subprime mortgage market have resulted in considerable price flexibility on the part of sellers and increased the probability of successful negotiation by buyers. This is especially noticeable in data from Southeast Michigan.
Any positive news coming over the economic horizon is likely to have an impact on today's bargain interest rates. Buyers who wait too long are likely to miss out not only on low interest rates but also on unusually well-priced housing. |
One Size Fits All
Some people make the claim that "One size fits all."
When it comes to shoes, we know it's not true! We've all scrunched our toes at one time or another trying to convince ourselves that the shoes that caught our eyes will somehow adapt to fit our feet, but then reality nudges us, and we put the shoes back on the shelf and go back to shopping.
When it comes to purchasing real estate, there's obviously much more flexibility, but even here we need to make sure the house fits our finances, family size, and personal style. Not everyone can afford a McMansion, and not everyone can scrunch to fit into a 20 foot by 24 foot log cabin, but most of us can comfortably adapt to the broad spectrum of housing options between these extremes.
When it comes to selecting agents, it's even more important to get the right "fit." Although some of us may appear to need a bit of encouragement to write the offer in purchasing our first home (I did!), we don't usually feel comfortable being hustled to buy out of our price range.
Fortunately, the "hustler" is a diminishing breed, and most Realtors are respectful of their clients' needs and preferences. It does pay, however, to make sure the"fit" is a good one before you hit the pavement on that hunt for the ideal home.
Happy hunting!
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Negotiation: Avoiding the Breaking Point
Most people, whether selling real estate or buying real estate, believe they have a strong bargaining point.
Sellers may argue that their property is in a prime location. They may be especially pleased with aesthetic components in their home: a new kitchen, new baths, beautiful hardwood flooring, a professionally finished lower level, custom window treatments, a lovely sunroom, etc.
Buyers, on the other hand, may be able to offer a pre-approval from a lender, a flexible closing schedule, and even a willingness to close early and to rent back to the sellers for an extended time period if the seller should desire this feature.
With this much going for the parties who are committed to the sale or purchase of a given piece of real estate, what could go wrong? The seller has listed the property for sale, and the buyer has entered the market place anticipating the purchase of a property.
Although both parties expect that there will be some negotiation to reach an acceptable sales contract, there are risks involved. The sellers may be too heavily invested emotionally in their home and unable to recognize that aesthetics are subjective and that "Beauty is in the eye of the beholder." Purchasers may be too preoccupied with the concept that the seller has shown his hand and is committed to selling and the idea that "Cash is king."
The key to an acceptable transaction is becoming aware of these blind spots so as to avoid an irreversible "breaking point." The broker's task is to honor the bargaining points of both buyer and seller while illuminating the blind spots, thereby avoiding the breaking point.
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Removing ImpedimentsRunners who train for a track meet are not likely to enter the race burdened with needless weight. In fact, they will try to remove any potential obstacles before getting into the starting blocks. Homeowners interested in selling their homes, on the other hand, may overlook a number of impediments to success in this endeavor.
A home owner recently asked me: "What would it take to make my house salable?" I lightly replied: "Your house is salable right now!" "No, really," she said. "Suppose I wanted to get a good price for it. What would I have to do?"
Calling to mind the many experiences I'd had selling homes in over 25 years as a real estate broker, I walked carefully through her home and made the following observations. Some of the bedrooms had old shag carpeting; several rooms were cluttered; one of the upstairs bathrooms had out-of-date wallpaper and appeared to have a plumbing problem; the kitchen cabinetry was somewhat dated but appeared passable because of newer countertops; and there were slight wear patterns in some of the stairway carpeting.
On the positive side, the house was located in a desirable neighborhood, had new vinyl-clad thermopane windows, a new roof, and new gutters and downspouts.
"OK," I said. "You've got to reduce the clutter in several rooms and remove the wallpaper from the upstairs bathroom. If you have hardwood floors under the shag carpet, I recommend removing the carpet. Those changes can be made without an outlay of cash. The plumbing should obviously be repaired as well. Your house should then sell within a reasonable time at a reasonable price because you will have removed the obvious impediments or stumbling blocks to the sale of your home."
Any propery can be sold. However, a property with obvious impediments will not only take longer to sell but will usually sell at a lower price! |
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