Archive for the 'Contracts' Category
West Hartford Sales Contracts
Real estate activity in West Hartford feels like it has really picked up over the past few weeks. Agents are buzzing around like busy bees, and houses are going under contract. We’re seeing some homes sell very quickly after they are offered for sale, and we’re seeing multiple buyers compete for properties. There is clearly still broad interest in living in West Hartford.
I was curious to see if the data supported our “feel” for the market, so I decided to try to look at the number of homes that went under contract in the town of West Hartford since the beginning of the year. My initial plan was to plot the number of contracts written on a week-by-week basis and then compare that to last year. Unfortunately, I was foiled by the MLS data source. We are only allowed to see the date on which a property went under contract after the listing agent moves it to “Deposit” status.
Properties flow through five standard categories in the MLS during the sales process. They go from “New” to “Active” to “Show” to “Deposit” to “Closed.” The “New” status helps flag new inventory for agents and lasts for a maximum of 7 days before a property is automatically moved to “Active.” Homes that are considered “for sale” are in either “New” or “Active” status. Once an offer has been accepted, the listing agent sets the status to “Show,” which means that buyer’s agents can still show the home to other potential buyers just in case the current deal falls apart. Since most deals stay together, we don’t typically show properties in “Show” status. There are no formal rules about when a property moves to “Deposit” status, but most agents wait until the mortgage commitment contingency has been satisfied.
Which brings me back to my data problem. Most of the recent contracts have not achieved “Deposit” status, so I’m not allowed to see the date on which it went under contract. All I can see is that of the 176 contracts that have been accepted so far in West Hartford in 2009, that 52 have closed already, 53 have reached Deposit status, and the remaining 71 are in Show status. Circumstantial evidence that there has been a flurry of deals, but nothing concrete.
The research got me thinking about the number of contracts written each month versus the number of closings during that month. Agents do a lot of work in the spring, but the results don’t show up until later when the closings actually happen. And West Hartford in particular seems like a town where people like to close during school summer vacation. Below is the number of contracts written versus the number of closings for each month in 2008.
From January through May, the number of contracts exceeded the number of closings by a considerable margin. In June, the number of closings nearly doubles, setting the stage for more closings than contracts through September. Contracts written has a final hurrah in November, followed by a spike in December closings.
The real estate market is busiest when buyers and sellers are agreeing to contracts. That’s when the action is for the agents too - we have to be able to keep up with all of our buyers and sellers. Once the contract is in place, the focus shifts to the inspection, mortgage and legal team members as buyers work through their purchase contingencies on their way to closing.
The time between a buyer and seller signing a purchase contract and the actual closing can vary considerably. What’s hidden in the chart above is that contracts written earlier in the spring tend to close more slowly than average. And contracts written over the summer tend to close more quickly than average.
Although every situation is different, contracts written during March, April and May take noticeably longer to close than those written in July and August. There’s not really any way to prove motive, but the trend seems to support the hypothesis that closings are intentionally scheduled within the summer school vacation if possible. Deals negotiated in the spring extend the closing, while deals negotiated during the summer accelerate it. Deals negotiated when the summer school vacation is not in play cluster around 40 days to close.
So there we have it - a meander through real estate purchase contracts, MLS statuses and days to close. The data seems to support my mental models about both when the real estate market is most active and that West Hartford buyers and sellers tend to work around the summer school vacation. Hopefully I’ll remember to look into my initial question once the 2009 data is available…
Please, Put Your Offer in Writing
I don’t know what’s going on lately, but in the past few months I’ve gotten several calls from real estate agents that have clients interested in my listings and they’d like me to present verbal offers to my sellers. Verbal offers are not standard practice when selling real estate in Hartford County.
The Greater Hartford Association of Realtors has a standard purchase and sale contract that is used to write and present offers on properties. The written contract outlines a purchase price, escrow deposits amounts, a mortgage commitment date, a closing date, inspections that may be performed, and a variety of other items relevant to the sale. The contract is typically supported with a mortgage pre-approval letter from a bank or lender and a photocopy of the first deposit check that the buyer provided to accompany an accepted offer. All of these items support the fact that the buyer has some level of seriousness when pursuing the property.
If your agent calls me and says that they want to submit a verbal offer on your behalf, you’re sending the message that you are not a serious buyer. You’re not interested enough in the property to sit down with your agent for an hour to work with them on writing up a contract.
With a verbal offer my sellers won’t necessarily know your name, where you live, that you’ve been pre-approved by a bank for a mortgage, that your puchase isn’t contingent on the sale of another home and a host of other important considerations. I will always advise my sellers to never respond to your offer until it is in writing. Why should they show their negotiating position if you’re not even willing to sit down with your agent and take the time to write the offer?
I’ve also been on the other side of the table where I’m representing a buyer and they want me to present an initial offer verbally. I coach them that this is not acceptable if they are truly interested in the property. We need to show that they are a serious, qualified buyer. Yes, the initial offer price might be low, but the seller wants to know that they can get a mortgage, along with all of the other factors to consider in the offer. It also protects my buyer so that if another buyer enters the picture, my buyer at least has a chance at getting the property if they choose to pursue it further.
If you’ve found a home that you like, take the time to sit down with your agent and write up an offer. You might learn something about the process and you’ll put yourself in a position to at least be taken somewhat seriously by the seller.
The Right Offer Price
I’ve been showing lots of houses lately because in many cases buyers have much to choose from and they’re a little bit more hesitant about the market. The current financial situation is freaking people out, and rightly so in some cases.
When we do eventually find “the one,” there is much more hand wringing about what to initially offer than there used to be. Some of my buyers take a low ball strategy, no matter what the situation. They look at Zillow and do not listen to me. It can be frustrating, as it is difficult for me to properly support their offer when presenting it to the seller’s agent. My various buyers have yet to be successful with a true low ball offer.
Some of my buyers feel that a house is correctly priced (based on my market analysis and recommendation), but still can’t rationalize offering anywhere near full price. They say to themselves, “It’s a buyer’s market, I should be able to get “X” percent off,” even though it’s not always the case and they’ve already agreed the house is reasonably priced. In some cases we eventually reach an agreement with the sellers, but sometimes my buyers end up losing the house because another buyer will come in with a more attractive offer to the seller. Buyers eventually get tired of “losing” houses and will eventually become a bit more realistic in their offer prices. At that point they typically end up with a successful contract.
I’ve also noticed that we are going through many more rounds of negotiations with sellers, even more so than the Spring market. Before we might only go back and forth on price 2 or 3 times, now going back and forth 5 or 6 times is not uncommon. Buyers are being increasingly wary that they not overpay, even though the purchase price is always supported by an appraisal that says the house is worth the contracted amount. It’s the unknown of what the market will be doing in 3-5 years that worries people. They are trying to hedge their bets.
The right offer price is one that you’re comfortable offering and hopefully reflects the fair value of the home. Sometimes it gets you the house, sometimes it doesn’t. It all depends on a meeting of the minds which usually only happens when each party sees the other as rational.