We're in a really unique and special place in real estate. The market has flipped and flopped rapidly over the last couple of years and we've seen just about everything. During the boom years, home owners were able to refinance at ridiculous amounts and lenders were happy to lend above the value of the home. Some home owners were actually receiving 125% the value of their home. Those home owners either over improved their properties, or didn't improve them enough to live up to the new value they've set.
When these home owners needed to sell for whatever reason, they found themselves in a sticky situation. They now owe more on the home than it's worth in the market place. What to do? Either slash the price of the property and come to the table with money to close, (which is actually some of the money they already received from the bank during their refinance) or just let it go and add another foreclosure to the pile.
Home buyers are walking in on this mess at an interesting time. Being a Realtor, I see reactions and comments from home buyers. Many have ideas and an outline drawn up of how the process works and what they'll do while buying a home. Yes, the media and a million different shows highlighting the real estate market have made home buyers and sellers react and conform to the trends set by others.
In today's market, home buyers are wanting to see every home on the market in order to determine which is best for them. While this isn't a bad thing, often times the thought behind this is "That third house I saw will be there when I'm done taking the real estate tour." When they're finished with the tour, that home is gone. Why? Because they liked it and it was priced well and other buyers looking for a home with similar needs snatched it up. Now that buyer is back to square one starting a new tour and may never find a match to the home of their dreams that got a way.
Home buyers are walking into properties and expecting everything to be perfect, high end upgrades, meticulous maintenance, and a below market price. Home buyers today want it all and believe they're entitled to it. Some think that every home owner is willing to negotiate and make any and all repairs if needed. Buyers want everything on their terms and at their price. Naturally I don't mean every single home buyer but it's a trend we're seeing and it's damaging the existing market even further.
While I'm not taking sides with sellers by any means, I'm just telling it like it is and addressing what we're facing. Here's an example:
Mr. and Mrs. seller, have lived in their home for eight years. Three years ago they refinanced their home because the mortgage rates were fabulous and they couldn't possibly resist. They took out all the equity in their home, put on a new roof, added a new furnace and painted and carpeted the entire house and now owe $200,000. The current market in their area calls for the value to be somewhere around $195,000 with the homes in the same condition. They're automatically in the negative by $5,000. Mrs. seller's job requires them to move to another state. They put their home on the market by force and while accounting for their negative loss, selling and closing fees, they list the home at $195,000 to stay competitive and hopefully sell quickly. That will still put them far below what they owe. If they got that price, they would have to come to the table with approximately $16,000. They're prepared to do this and know they might have to negotiate a couple of thousand dollars so they've set their limit to $18,000 to bring to the table in the form of a check. Ouch, you say? Ouch indeed. But hey, it's not the buyer's fault that they did what they did and owe what they owe!
Correct, it's not the buyer's fault but here's what ends up happening... The buyer walks into the property and sees the new upgrades and appreciates them but continues to notice that the windows are a bit old and the driveway has some larger cracks in it. They also notice that the garage is a bit worn and aged and the deck needs painting. The buyer makes an offer of $182,000 and asks that there be $5,000 worth of repairs made to the property. The sellers sees the offer and can't possibly accept it. The sellers counter back the offer at $195,000 with all repairs made. That's below what they had expected by about $5,000 but they want to unload the property desperately. The buyer hears of the counter, and feels they're still paying too much and walk away from the offer altogether.
The unfortunate part of this situation is that the home had 98% of what the buyer was looking for, it was a good deal for them and they were getting the repairs made so they would walk into the home of their dreams with nothing to do but move in. The sellers were quite flexible and willing to take a loss on the home in order to sell it. The buyer, while not knowing the seller's private information or situation, feel that they were getting ripped off and that they were owed a home for a fantabulous and unprecedented deal just because they were buyers in today's market. The home buyers continue for another six months looking for another dream home that had everything that home had and the seller endures another month of showings, inspections and inconvenience.
The scenario above was a perfect fit for both the home buyer and home seller and would have been a smooth transaction to benefit both of their moving schedules. Because of the market we're in, some home buyers aren't enjoying the process as much as they should be and are going bizerk trying to find that steal of a deal that they heard about on TV. Home sellers aren't understanding what the problem is when they're doing everything they can including losing money to get their home sold.
Home buyers want all amenities and some seem to have their minds made up right off the bat that they will offer 10% or more below market value on a home and ask for additional repairs and upgrades. Standards have been set and home sellers are feeling the pinch. Along with home sellers, neighborhood values are also feeling it. It's a depreciation snowball. If homes are actually sold at such a low price, that drives down the market for neighboring properties even if they're worth more. Homes can only be sold for what the appraisal amount comes in at. Appraisers work off of the sale prices of neighboring properties to determine the value.
Ultimately, the new home buyer will endure the price decline of their neighborhood if the trend continues and lord forbid they have to move in a few years to another state...
I'm not advocating paying full price or above market value when buying a home, but realistic shopping and price determination is required in order to stabilize the existing and future real estate market. Sometimes a good deal is within reach right away and just needs to be pursued in a proactive, fair manner. Not all homes are priced too high or lacking upgrades.
It's important when shopping for a home to find one that fits your needs. It's important to evaluate the actual value with your Realtor carefully and decide on an asking price that a seller will accept. Not all home buying transactions will be in favor of the seller or the buyer but it has to at least be close on both ends with a little sacrifice from both parties.
When these home owners needed to sell for whatever reason, they found themselves in a sticky situation. They now owe more on the home than it's worth in the market place. What to do? Either slash the price of the property and come to the table with money to close, (which is actually some of the money they already received from the bank during their refinance) or just let it go and add another foreclosure to the pile.
Home buyers are walking in on this mess at an interesting time. Being a Realtor, I see reactions and comments from home buyers. Many have ideas and an outline drawn up of how the process works and what they'll do while buying a home. Yes, the media and a million different shows highlighting the real estate market have made home buyers and sellers react and conform to the trends set by others.
In today's market, home buyers are wanting to see every home on the market in order to determine which is best for them. While this isn't a bad thing, often times the thought behind this is "That third house I saw will be there when I'm done taking the real estate tour." When they're finished with the tour, that home is gone. Why? Because they liked it and it was priced well and other buyers looking for a home with similar needs snatched it up. Now that buyer is back to square one starting a new tour and may never find a match to the home of their dreams that got a way.
Home buyers are walking into properties and expecting everything to be perfect, high end upgrades, meticulous maintenance, and a below market price. Home buyers today want it all and believe they're entitled to it. Some think that every home owner is willing to negotiate and make any and all repairs if needed. Buyers want everything on their terms and at their price. Naturally I don't mean every single home buyer but it's a trend we're seeing and it's damaging the existing market even further.
While I'm not taking sides with sellers by any means, I'm just telling it like it is and addressing what we're facing. Here's an example:
Mr. and Mrs. seller, have lived in their home for eight years. Three years ago they refinanced their home because the mortgage rates were fabulous and they couldn't possibly resist. They took out all the equity in their home, put on a new roof, added a new furnace and painted and carpeted the entire house and now owe $200,000. The current market in their area calls for the value to be somewhere around $195,000 with the homes in the same condition. They're automatically in the negative by $5,000. Mrs. seller's job requires them to move to another state. They put their home on the market by force and while accounting for their negative loss, selling and closing fees, they list the home at $195,000 to stay competitive and hopefully sell quickly. That will still put them far below what they owe. If they got that price, they would have to come to the table with approximately $16,000. They're prepared to do this and know they might have to negotiate a couple of thousand dollars so they've set their limit to $18,000 to bring to the table in the form of a check. Ouch, you say? Ouch indeed. But hey, it's not the buyer's fault that they did what they did and owe what they owe!
Correct, it's not the buyer's fault but here's what ends up happening... The buyer walks into the property and sees the new upgrades and appreciates them but continues to notice that the windows are a bit old and the driveway has some larger cracks in it. They also notice that the garage is a bit worn and aged and the deck needs painting. The buyer makes an offer of $182,000 and asks that there be $5,000 worth of repairs made to the property. The sellers sees the offer and can't possibly accept it. The sellers counter back the offer at $195,000 with all repairs made. That's below what they had expected by about $5,000 but they want to unload the property desperately. The buyer hears of the counter, and feels they're still paying too much and walk away from the offer altogether.
The unfortunate part of this situation is that the home had 98% of what the buyer was looking for, it was a good deal for them and they were getting the repairs made so they would walk into the home of their dreams with nothing to do but move in. The sellers were quite flexible and willing to take a loss on the home in order to sell it. The buyer, while not knowing the seller's private information or situation, feel that they were getting ripped off and that they were owed a home for a fantabulous and unprecedented deal just because they were buyers in today's market. The home buyers continue for another six months looking for another dream home that had everything that home had and the seller endures another month of showings, inspections and inconvenience.
The scenario above was a perfect fit for both the home buyer and home seller and would have been a smooth transaction to benefit both of their moving schedules. Because of the market we're in, some home buyers aren't enjoying the process as much as they should be and are going bizerk trying to find that steal of a deal that they heard about on TV. Home sellers aren't understanding what the problem is when they're doing everything they can including losing money to get their home sold.
Home buyers want all amenities and some seem to have their minds made up right off the bat that they will offer 10% or more below market value on a home and ask for additional repairs and upgrades. Standards have been set and home sellers are feeling the pinch. Along with home sellers, neighborhood values are also feeling it. It's a depreciation snowball. If homes are actually sold at such a low price, that drives down the market for neighboring properties even if they're worth more. Homes can only be sold for what the appraisal amount comes in at. Appraisers work off of the sale prices of neighboring properties to determine the value.
Ultimately, the new home buyer will endure the price decline of their neighborhood if the trend continues and lord forbid they have to move in a few years to another state...
I'm not advocating paying full price or above market value when buying a home, but realistic shopping and price determination is required in order to stabilize the existing and future real estate market. Sometimes a good deal is within reach right away and just needs to be pursued in a proactive, fair manner. Not all homes are priced too high or lacking upgrades.
It's important when shopping for a home to find one that fits your needs. It's important to evaluate the actual value with your Realtor carefully and decide on an asking price that a seller will accept. Not all home buying transactions will be in favor of the seller or the buyer but it has to at least be close on both ends with a little sacrifice from both parties.
posted by Cleveland Real Estate at
6/12/2008
4 Comments:
Interesting situation, thanks for sharing with us! As being a realtor in West Toronto area we face the same type of problems. However I think as the clients have a greater access to preview the choices listed on internet they have more precise ideas about their dream home. Fortunately there is no tough competition on the real estate market so the buyers have the opportunity to consider their decision both their choice of the mortgage plan and the property as well.
Thank you for posting this. I tried to sell my home a year ago and ran into this type of scenerio. I don't think the "sweet deals are going to last forever" and homebuyers need to get it through there heads. I'm waiting it out for a few more years.
Thanks for your good info, I visit often. My parents may retire to Ohio so I go to your blog for info.
I agree Toronto Realtor... The opportunities are endless for buyers right now but many have to understand the changing market and how it works. It's not five years ago and searching for a home and expectations have changed...
Anon - Thanks for visiting often. Depending on your home's price and condition, it may be difficult to sell right now. Waiting if possible is a good idea unless all is perfect with your property and price.
Whatever the situation is, we must try to keep our eyes open & be realistic in forecasting & must convey the same to clients as well.
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