This is the time of year agents are busy selling properties. If you look at the last two years, historically you will see that sales begin to build each month heading into summer. The last two years are fairly typical as to how our local market works. April and May closed sales are results of deals put together in March. There is typically about a one month lag from contract to closing. Some closings occur in the same month, and some take longer, especially short sales.
We think everyone who possibly can buy is attempting to right now for several reasons. Interest rates are headed higher. The Treasury Department’s phase-out of buying mortgage backed securities on FNMA and Freddie Mac expires this month. The last time this happened rates shot up about ¾% in a week or so, so we’re keeping our eye on rates in April and what if anything the government does when they shoot back up.
We also have the Home Buyer tax credit in place for sales through April 30. Buyers have a few months after that to actually close these sales, but essentially it allows first time home buyers a credit of up to $8,000 and repeat home buyers a credit up to $6,500. This is real money, and buyers are acting to receive this money.
Additionally, inventory in certain price ranges is drying up, and prices are low. Buyers from near and far and reaching to scoop up these bargains. Because these homes are so far below replacement cost, these prices won’t last once the economy improves and builders start building again. Many of these homes are 40-50% below cost, so there’s a built-in profit for buyers willing to buy now and hold until market improves.
We know why the market is Hot, but let’s go behind the scenes and explain some things that are affecting the market many people might not know about. The first major obstacle is appraisals. Appraisals have been coming up short up to 30% of the time as appraisers not familiar with the neighborhoods are using comparables that are not the best for the subject property. They are not taking the time to discern if the two neighborhoods are similar, or if the comparables condition is similar. We’ve seen appraisers use comparables from other neighborhoods that just don’t measure up while ignoring a good comp 2 doors down that closed last week. We’ve also seen appraisers only use the foreclosures, but they don’t tell the whole picture. The foreclosures can need lots of work and be in poor condition, and if the appraiser wants to use them as a comp, they need to research its actual condition when property sold.
The next big issue is we often have multiple offers on each property, and buyers are bidding against each other. Cash is king, and buyers wishing to finance have a hard time competing with cash buyers. The seller doesn’t have to worry whether the buyer will get financing when a cash buyer is involved, nor worry about a bad appraisal. Many of these properties are selling well over asking price, and many buyers are frustrated no matter what they do they can’t land a property.
We also have out of town buyers who believe they can bargain down these homes, and wonder why they lose home after home when the sellers accept someone else’s offer. Many buyers have said they don’t pay full sticker price, and yet they’re downright frustrated when the seller accepts another buyer’s offer. Agents I speak with say they are educating buyers right upfront about our market, but buyers often times have to try for themselves. A buyer can find out the hard way and miss out on their first 6 choices or take their agent’s advice and have a chance at getting choices 1-3. Even if you offer $10,000 over asking price all cash, there’s no guarantee you’ll get the home, but at least your chances are better. It pays to study each submarket and determine how each home fits in that puzzle.
Lastly, title can be an issue. If you’re buying a foreclosed home, it’s not uncommon for a title issue to creep up and extend the closing out. Banks don’t always complete the full title process until a contract is secured, and that’s when it could be discovered some outstanding liens, or homeowner associations trying to collect more than the law allows to issue an estoppel letter. We’ve even experienced a home that needed to be re-foreclosed as it wasn’t done properly the first time.
If our market wasn’t so challenging, we’d see even higher sales reported. This market is more complex than ever, but at least it keeps people on their toes and moving. That’s often little solace to those caught up in a deal when things are going wrong, but I guess it beats having a dead market. There’s nothing dead about the SW Florida real estate market.