CHANGE IS IN THE AIR

Pending sales dropped for the second straight month, according to data. One more drop and we can officially call it a trend. But does this surprise ANYBODY? It shouldn’t. I currently have seven buyers…SEVEN…and cannot find anything for any of them, though prices range from $150,000 to $685,000. Data published during the first quarter indicated that our existing home inventory declined by 60% over last year. I think it was higher than that.

I complained loudly last year about investors buying up inventory that would otherwise be there for first time buyers, a trend that effectively pushed that group of buyers firmly out of the market. In a few cases, first time buyers were able to go up in price, but generally not; in other words, the market was squeezed from the bottom by investors. I thought that was incredibly unfair to young people trying to buy a home, because that’s an exciting feeling, taking that step to home ownership, and this group of buyers happens to be one of my favorite.

So, investors pushed people UP in price to where first time buyers were in the $220,000 price point to START, thereby wiping out most young buyers from the market. Because investors gobbled up lower price points, stress was put on the next price plateau until that group of homes was eliminated from the market. That happened very quickly, in part because existing homes sold fast, and people SELLING in that price point often couldn’t move up in price due to lack of inventory. So they stayed, and are staying, put.

All along, us real estate agents were able to funnel clients to new construction to circumvent the dearth of resale homes available. You know the result of that. Builders are now completely overwhelmed with buyers desperate to find housing. Waiting lists are being used and LOT PREMIUMS (once a rare thing) are now the order of the day, and now huge. Lot cost has become an add-on. And buildable lots are being put out for BIDS. So now in new construction, you start out overpricing yourself in the market, just to get a lot to build on. And then you have to be able to afford the house that goes on it. Example: A 2×10 board that used to cost 8 bucks is now 32 bucks. Want to guess how that effects new construction?

There has been a desperate charge by agents to find creative ways to get clients even under contract, and the result has been increasing and increasing due diligence amounts being offered to entice sellers to accept offers. This is a dangerous practice for people without tens of thousands of dollars to risk OR buyers who can just afford to do repairs no matter what. In other words, you had better not expect to walk away if you put up a huge due diligence because that money is at RISK. Period. There are other ways to find homes to buy, and I’m doing all of them. But it’s time consuming and the return on effort is low. It’s there, but low.

I hate to say that I wish interest rates would go up, but as bad as that sounds, it will probably have to happen to stop this insanity. I believe we are about to see the market flooded with short sales and foreclosures because of the Covid effect, which brings back memories of 2008. It’s a scary time out here for those of us who are the boots on the ground, so to speak.

SO…if you are planning to buy OR SELL actually, don’t expect things to happen quickly. Be careful how you handle due diligence. Get someone to help you think it through carefully and KNOW YOUR RISK, on both sides of the table, before you take that leap. My fervent wish is that sellers will stop looking at due diligence as a cash-grab, and help this crazy market un-inflame. We don’t have a ‘hot’ market right now; we have an INSANE market, and an insane market is unpredictable and dangerous. I’ve never seen ANYTHING like it, and I don’t like it AT ALL. I can’t predict the future, but I can tell you that it’s not going to be good in real estate. Not without some ‘rule changes’.

So let’s be careful out there. And, first time buyers? Are you there? I am patient and I will work with you as long as it takes. And as of now, it could be years. But you have to know that under 200 thousand, the homes are statistically nonexistent. That means, one pops up on a rare occasion, but it’s largely uninhabitable.

So while you pour over the internet looking for a house you like and can afford, KEEP SAVING YOUR MONEY. And as for due diligence, just know you’ll have to put about 2% of list price right on the table, up front, to even have a shot at getting a house, but you will get it back at closing. Just don’t walk away.

And call me.

I’m at Coldwell Banker Advantage at Wake Forest NC. Ask for me. Let’s talk.

The Latest Crazy Market Paradigm

Hi everyone!  Hope this post finds you well and I hope you’re planning on either buying or selling your home AND calling me first.  It’s a huge market out there and with an interest rate hike looming, it’s likely to get bigger, faster, busier. Crazier is probably a better word.

We’ve talked about how you can’t even get the offer on the table for consideration before the home goes under contract and now homes are selling BEFORE they hit the market.  Multiple offers have become the norm and it is a STRONG seller market.  Home prices are rising and builders are busy again.  Good to see.  But there’s something new and again, we need to be careful about this.

Sellers are demanding shorter due diligence periods in a market where getting immediate inspection services…for home, septic, well, HVAC, pests, roof…is impossible.  In some cases there’s a two week lead time to get someone out to inspect, and some sellers are asking for a three week due diligence period.  Impossible.  What this does is put undue pressure on buyers who are already incredibly busy getting loan approval and meeting all of their obligations as buyers.  Ultimately, it’s not good for the seller either; they end up with days to get repairs done, rather than weeks, so the stress boomerangs right back on them.

It’s hard to get through the due diligence period, followed by an even more difficult repair negotiation.  Let’s not be stupid about this.  Nobody’s losing anything if the home is under contract with a financially strong buyer and the home is well maintained.  Relax and give the buyers a chance to do their due diligence!  Agents, remember when you agree to this short due diligence period, you could very well be asking for an extension and your buyer might have to fork over more due diligence money.  The seller has a right to ask for it.

Due Diligence in Real Estate

1
:  the care that a reasonable person exercises to avoid harm to other persons or their property
2
:  research and analysis of a company or organization done in preparation for a business transaction (as a corporate merger or purchase of securities)
That’s the Merriam Webster definition.  Neither really clearly defines the way due diligence works in real estate, but it’s a period of time the buyer ‘buys’ to do inspections…all of them…and also to get their loan application done. Usually takes about 45 days.
I’m finding that buyer clients are not usually clear on how this works…and neither are listing clients most of the time.  But Due Diligence in real estate is the period of time the buyer uses, and pays for, by the way, to search through the nooks and crannies of a home…and pay for inspections of them…before taking the step to actually put both feet in the game.  Buyers can spend a lot of money during this time, and a lot of stress equity wading through the inspection results.  During this period, buyers can walk away for any reason…or NO reason…and stand to lose only the money they invested in due diligence fees and inspections.
Buyers, particularly first timers, usually get very upset when they see the inspection report, even if they’ve been told what to expect.  Here’s how it goes:  The older the house, the longer the report.  The longer the report, the more freaked out everybody gets.
I have decided it’s all about expectations.  Bottom line is this: Don’t expect an older house to have a three page inspection report.  Older houses have older house issues, not the least of which is that it’s not a new house.  It’s a great idea to have this conversation right up front, even before you find ‘the one’ that the buyer wants to make an offer on.
Anyway, the buyer benefits greatly from this period of inspections, but the seller needs to be aware that if a ‘disclosure’ issue is uncovered during inspections, they must then either disclose the defect, or repair it.  And it’s a no-brainer that it’s better to do the repair.  Are we hearing dollar bills rustling, or is it just me?  Oh, and the seller can also take the house off of the market, by the way.
So bottom line is this, I’m thinking:  Buyers need to have clear expectations of the inspection results based on the age of the house, and sellers should have a home inspection done, including the crawl space, before they list.  That way nobody gets surprised.
Scratch that.  Everybody gets surprised.  It’s real estate.