Archive for the 'Housing Prices' Category

Real Estate Bargains: Getting the Best Buy Possible

Yesterday we highlighted four common myths that sometimes lead buyers to believe they’re getting a better deal than they really are. Today we’re sharing some thoughts about finding true real estate bargains.

Let’s just get this first point out of the way early. If you’re looking for a ridiculous value – a complete steal – then a real estate agent probably isn’t going to find it for you. You need to start pounding the pavement to track down leads on your own. You need to find sellers who are (1) just starting to think about selling their home, and (2) completely out of touch with the approximate value of their home and the real estate market overall. Because once they talk to a real estate agent, or begin to look at what similar homes are selling for, the pricing is going to be far more rational and efficient. You are effectively competing with agents for listings.

Okay, so if we agree that your buyer’s agent is not going to find you the deal of a lifetime, how do you find a good real estate deal?

1. Look at what everyone else is ignoring.
Buyers are currently fixated on fully updated homes. This is a big change from the middle of the decade when sweat equity was all the rage. As a result, there are some interesting opportunities in homes that are in desirable locations but need some work. Sometimes these homes can be money pits, but other times the main issues are cosmetic. Differentiating between the two can lead to very good investments.

2. Be flexible in your requirements.
The wider the range of possibilities that you are considering, the more likely you are going to find a seller willing to compromise on price. Consider multiple towns. Consider different house styles. Consider different bedroom and bathroom configurations. The more options you are open to, the more likely an opportunity will come your way.

3. Be ready, willing, and able to react.
Every now and then we come across a property listed in the MLS that’s a good buy. We tell as many of our buyer clients about it as possible, but most of the time it’s not a good fit for their needs or the timing isn’t right.

For example, last year there was a home in a popular neighborhood in West Hartford that turned out to be a very good buy. According to the group of agents who visited it with us on broker’s tour, it was initially listed about 10% too high. It was also listed late in the spring market. The sellers quickly lowered the price to the point it was fair, but nothing happened. Buyers had checked out for the summer and there were no offers. After lowering the price to about 8% below was we all initially agreed was fair, they got an offer. The property ended up closing more than 12% below what we thought it was worth, and more than 20% below the initial asking price. It was not a distressed home, just one that got lost in the shuffle due to poor timing and pricing.

4. Focus on more than just the price.
Most of the homes in Greater Hartford are more than 25 years old, which means that their original mechanicals are approaching the end of their useful lives. Time for a quiz! You have the choice of buying two houses that are virtually identical. Choice A is a home with fresh, tasteful paint, but older mechanicals. Choice B is a home with hideous wallpaper and shag carpet everywhere, but new windows, roof, and furnace. Both have dated, but functional, kitchens and baths. Both have the same number of bedrooms, baths, and total rooms, and both have the same asking price. Which do you prefer?

Most buyers gravitate towards the tasteful and pretty. They overestimate the amount of time, effort, and money needed for cosmetic issues and underestimate the value of the mechanicals. Not only will newer mechanicals allow you to avoid the cost of replacing them, they will also operate more efficiently and save you money every month.

The average real estate buyer and seller is much more knowledgeable today than ever before. Information available via the internet and traditional media sources help them understand the sales process and pricing, which in turn makes the overall market more efficient. Finding an unbelievable bargain is a real challenge. Most buyers are focused on making sure that they get a good buy if a property needs work, and at least pay a fair price if the home is in move-in condition. The key is to know what else is on the market, so you know if the price is right.

Real Estate Bargains: Common Myths

So you’re looking for a home and you want a real bargain? You’re not interested in a fair price, or even a good price, you’re talking about a real steal, right? Join the crowd – there are a lot buyers out there just like you.

Unfortunately, bargain hunters have a number of misconceptions about the current real estate market. Today we’re going to examine a few of the surprisingly common myths.

Myth #1: You can get a great deal on a fully updated home.
There are two reasons why it is difficult to get a great deal on a fully updated home in Greater Hartford. The first is that most of our housing stock is older. Since we didn’t see a huge boom in new construction, the vast majority of “fully updated” homes are recently renovated older homes. They come on the market regularly, but are a small percentage of the active listings at any point in time.

The second reason why it is difficult to get a great deal is that buyer preference has shifted towards homes in move-in condition. Maybe it’s the fact that the real estate markets are no longer consistently rising, or maybe it’s all the HGTV shows in which everyone buys a fabulous home. All we know is that sweat equity is currently out of favor. Therefore our clients are competing against lots of other buyers when they try to bid on properties advertised as “New, new, new!” It’s difficult to negotiate aggressively when there is a lot of interest in a home.

Myth #2: You can get a better deal on For Sale By Owner properties.
Homeowners that sell their property on their own have a choice to make. They can use the money saved by not using (paying) a listing agent to price their home at a discount, making it more attractive versus their competition. Or they can price it at “full price” and try to net more money on the transaction. Most FSBO sellers try to make more money – they want to capture everything they save by not hiring a listing agent, not give it away to a buyer!

Myth #3: You can get a better deal by working directly with the listing agent.
Here are three facts to get us started:
1. Listing agents are hired to get the highest possible price for a home.
2. Sellers pay the same commission whether the buyer uses their own agent or not.
3. Listing agents have a fiduciary duty to represent their sellers’ best interests.

Listing agents know a lot about their sellers. In some cases they even know the amount the sellers hope to get for their home and the least they’ll accept. The line of thinking behind this myth is that listing agents are willing to undermine the negotiating position of their sellers in order to get a deal together and collect the double commission. Buyers who believe this are essentially assuming that the listing agent is unethical and untrustworthy. Naturally we disagree, but there is actually an even better argument against this line of thinking than drawing on our observations.

Let’s do a thought experiment. Suppose you’re a buyer and you believe that the listing agent for a particular property will give you “inside information” on the sellers. If the agent is willing to stab the sellers in the back to get a deal done, then how would you expect to be treated? Will the agent point out concerns about the property (rather than only playing up the positives)? Will the agent evaluate the price using all relevant comparable sales (rather than selectively choosing comps that support their price)? Will the agent vigorously protect your interests throughout the transaction (rather than try to convince you that with the “deal” you’re getting you shouldn’t expect X, Y, or Z)? If we assume that the agent doesn’t take their fiduciary duty to the sellers seriously, then it seems unlikely they will treat you fairly since they have no contractual obligation to you as an unrepresented buyer. Now who’s the sucker?

Myth #4: Discounts off of the original asking price, or cost, prove it’s a great deal.
Buyers are smarter than this when they sit down to really think. One way the problem shows up is when a home’s price has been lowered significantly from the original list price. Another is when the seller recently bought the home and claims to have put in thousands in upgrades. Every home price needs to be evaluated independently. It really doesn’t matter what the seller paid when they bought, how much they spent to improve it, or how much they were asking when it first came on the market. All that matters is how the home compares to other similar properties. Sometimes homes are priced realistically, other times they aren’t. Buyers, and their agents, need to understand what else is on the market and how they compare to the target property to truly understand the price.

The real estate industry is full of professionals looking for great deals. It is hard work and a full time job. Generally the best deals are only seen in hindsight – the buyer had what turned out to be the correct view on how the real estate market would evolve in the coming years.

To be continued … tomorrow we’ll share some ideas about how to put yourself in position to get the best deal possible.

HCPR: Increasing Activity in the First Quarter

Hartford County’s housing markets saw an increase in the number of closings in the first quarter of 2010 versus the first quarter of 2009. This continued the positive momentum from the second half of 2009, but is still well below the sales pace from the early and mid 2000s. Median sales prices were up slightly, while median days on market fell sharply.

Single-Family Homes
First quarter sales of single-family homes increased 16.4% compared to the year-earlier period. However, the 1,024 total sales for the quarter were still below Q1 2008 levels and the 1,596 average Q1 sales from 2001 — 2007.

The median price for single-family homes in the County increased by 6.4% from $206,700 to $220,000. Sales price per square foot, another valuation metric, increased 2.2% during the quarter from $137/sqft to $140/sqft. Finally, the median time on market decreased from 59 days to 45 days.

Condominiums
The condominium market trended in the same general directions as the single-family market. The number of sales was up 13.3% over the first quarter last year, though the total of 315 for the quarter was well below the average of 583 from 2001 through 2007.

The median sales price was flat during the quarter, increasing slightly from $172,500 to $173,000, and the median price per square foot fell 2.1% from $139/sqft to $136/sqft. Condominiums also experienced a decrease in sales time, with the median days on market falling from 67 to 55 days.

Trend Towards Faster Deals
The extended Federal Tax Buyer Credit has pulled much of the traditional spring activity forward. Buyers must have a property under contract by the end of April in order to capture the credit, which has motivated them to start looking sooner. Sellers have also gotten an early start by listing their properties in hopes of attracting the credit-seeking buyers. The decrease in days on market is the main result of the credit this quarter, while there will likely be a large spike in closings next quarter.

Download the full report, which includes data and charts for all 29 towns in the County.

West Hartford Feeding Frenzy

The West Hartford real estate market feels like it’s moving very quickly these days. We’re especially noticing it since we have many buyer clients looking in the town and because the town is traditionally the most active real estate market in the county.

It is common to see new listings sell in a couple of days if they are priced right, and we’ve been seeing multiple offer situations on a regular basis. Despite the bidding wars, buyers still seem to be showing restraint in the prices they offer. We have not seen, or heard about, dueling escalation clause bids or over-the-top Godfather offers (An offer you can’t refuse).

Rather than simply relying on our feel for the market, we wanted to try to put some data behind our anecdotal evidence. We decided to look at all the homes that went under contract between March 1st and March 28th. These are properties that have not closed, but a buyer and seller have agreed to a price. Here’s what we find using residential data from the Multiple Listing Service, which is deemed reliable, but not guaranteed:

The number of signed contracts is up considerably over the same period last year. This reflects the increased activity in the market with buyers hustling to capture the Federal Home Buyer Credit and take advantage of the continued low interest rates.

More interesting is the sharp decrease in the median days on market, from 47 last year to 21 this year. This data more than confirms our observations. Properties are selling very quickly in West Hartford, so both buyers and sellers need to factor that into their plans and expectations. Buyers need to understand that they face a lot of competition right now, so they need to be prepared to act quickly and be willing to pay a fair price – the market is quite efficient.

Homeowners definitely have an opportunity if they are interested in selling a property that shows well. The sweet spot for sellers is in the $200k – $399k price range, which made up a larger percentage of the number of contracts in March than for 2009 overall.

For now, sellers still have to price their home appropriately in order to generate interest, but perhaps we’ll start to see more aggressive bids from buyers as the April 30th credit deadline draws near.

Remodeling Cost versus Value

The November 2009 issue of Remodeling Magazine included the 22nd edition of their annual report about the financial impact of various home improvement projects. They look at both midrange and upscale projects, and hit on all the major renovations, calculating the percentage of the cost that could be recovered in a sale. Data is broken down by region and even by major cities within a region. I was excited to discover that Hartford is one of the cities profiled, meaning that the data is specific to our area. Check out the complete list of projects and paybacks for Greater Hartford on the Cost vs Value Website.

There is lots of interesting data – here are some observations after poking around the various reports:

- Most projects allow homeowners to recoup between 60% and 80% of their cost. Basically this is saying that it is not appropriate to think about renovations as “investments” since they will rarely increase the value of a home by more than the cost of the project. Sellers sometimes think that they should recover at least 100% of the value of recent projects. Every situation is different, so in some cases that may be true, but in general remodeling projects do not “pay for themselves” except when the owner’s enjoyment of the finished work is factored in.

- Most of the projects with higher payback percentages are structural renovations that have little opportunity to customize. For example, siding and window replacements rank highly. On the other hand, projects that are often very specific to the owners bring a lower payback. Examples here include a sunroom addition or a home office renovation.

- At the national level, payback amounts for most projects have decreased since last year. However in the New England region paybacks have actually increased for most projects, though the report doesn’t try to explain why this might be true. Perhaps the data simply reflects the fact that the housing stock in New England is older than in other parts of the country so renovations are more important here.

- Payback amounts are generally higher in the Hartford metro area than in the New England region, which are in turn higher than the national averages. Renovation projects are apparently very cost effective in our area – good news for us! Three projects return an average of more than 100% in Greater Hartford (siding replacement, converting attic space to a bedroom, and replacing the front door).

Check out the full report to see the specifics for any projects that you’re considering. The key message that the study sends is that each dollar spent on the average remodeling project translates into less than a dollar of increased value for your home. That being said, the payback for every project is going to be different. It will be based on the needs of your home and specific decisions made within the project.

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