Understanding the Market – September 2018

Where is the housing market headed these days?

In June we predicted a strong market ahead for 2018 and 2019. Data shows that the trend is at pace with our forecast.

Per GRAR monthly statistics, the number of new residential listings in August 2018 has shown an uptick, increasing by 4.8%, while multi-family units and vacant-land listings have been stagnant. The low inventory has carried a positive effect on home values which have gained 14% since last year – in line with June 2018 numbers. The average home in the Greater Grand Rapids Metropolitan Area – which includes “Kent County; Georgetown and Jamestown Townships in South East Ottawa County; Ionia County; the six Townships in North East Allegan County; and the North half of Barry County, including all of Gun Lake” – now sells for $238,773.

In Kent County numbers have been even more favorable to homeowners. Based on closed sales, home values have increased by 15.7% since August 2017, to an average sale price of $243,050.

Similarly, sales of single family homes valued at $500,000 or above have continued unperturbed, with 42 units closed in August 2018 and 264 since the beginning of the year, maintaining a consistent 4.3% share of the market.

This general tendency is sustained by the average months of inventory, which has been decreasing steadily from 2.3 in 2014, to 2.0 in 2015, 1.8 in 2016, 1.4 in 2017, and 1.3 as of August 2018.

All these indicators point to a strong and consistent market in which home values are increasing significantly. My personal local knowledge and experience align with the data. We are still observing a few multi-offer instances, although far from the double-digit number of offers experienced in spring – remember the 13, 27, 45, up to the astounding 58 (yes, you read correctly, fifty-eight) offers for a property in Grandville, MI?

Statistics and market conditions in the Grand Rapids area are consistent with Freddie Mac’s analysis. Although mortgage rates have jumped by an average 0.82% since last year and their increase will likely persist for the next two years, the real estate market will continue to benefit from low unemployment combined with solid employment rate. Home values on a national level are anticipated to grow by an average of 6%.

Hence, homeowners and homebuyers should be able to confidently sell and buy, capitalizing on their equity, and looking at a solid investment. No one can predict the future with absolute certainty. However, given all the data, if one is planning to sell there could be no better time.

If you are a buyer, the market might seem intimidating right now, but postponing your purchase may not be the best approach. Prices are going up steadily, interest rates are also increasing, while borrowing limits typically do not. Instead, property values follow the market. The good news is that if you buy today you’ll have secured a better interest rate, and by next year your investment will have yielded an average 6% nationally – or possibly a 14% locally.

Happy sales everyone! And yes, I am extremely contactable if need be.

GL

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When The Trevi Fountain Went Up For Sale

The Trevi Fountain is an iconic landmark in the heart of Rome. As such, it has been the subject of many movies. La Dolce Vita (1960) by Federico Fellini is likely the most famous.

Trevi Fountain
Trevi Fountain

The fountain is also extremely attractive for its business potential. Each year tourists throw in the fountain approximately €1,4M – about $1,624,000, or $4,450 per day worth of coins, which are given to charity.

The crowded fountain
The crowded fountain

Because of its profitability, someone did try to sell the Trevi Fountain as investment property. The alleged sale, which was presented in the movie Totò Truffa, features all the elements of a real estate transaction: showing, asking price, negotiations, multiple offers, and collection of the Earnest Money Deposit. Especially the latter.

Did the transaction close? Well, not really. A series of major missteps was made by the buyer. We are going to analyze them, but not before you watch and enjoy the five-minute clip in Italian or with English subtitles.


This is a transaction between a FSBO (Totò, aka Cav. Uff. Antonio Trevi) and an unrepresented buyer (Decio Cavallo). Although not the norm, these deals happen and close. However, if the sale presents potential issues, an inexperienced buyer who has lived many years abroad might not be able to read the warning signs. Which is exactly what happens to Mr. Cavallo.

Mr. Cavallo trusts Totò’s claim of ownership and the desirability of the fountain. Totò makes him believe that the licensing rights are set at L. 100 per picture, or about $1.36 of today’s money. Three pictures equal $5.00 profit. Not bad for a monument that is photographed a thousand times each day!

In the initial phase of any transaction buyers should acquire information through, among others, the words of the seller. However Mr. Cavallo’s information only comes from the seller, and when he sees a conflict with his tourist guide, he simply trusts Totò’s words.

Misstep #1: Research, or lack thereof. Which should be conducted before making an offer. Including obtaining the seller’s disclosure form as a starting point.

Mr. Cavallo now wants to buy the fountain that Totò is willing to part away with. The price is L. 10,000,000, or today’s $136,600. Mr. Cavallo does not negotiate. Perhaps he thinks he is having the best end of the deal.

Totò appears to be a skilled salesman. Mr. Cavallo misses the seller’s claim that the property has been in  the family for generations, and does not wonder why, suddenly, it becomes available to him and only him. A below-market asking price for such unique piece of real estate and profitable business might be too good to be true.

Misstep #2: Rush. This is exactly the spin and the pace Totò has masterfully placed on the deal. An asking price that is a perfectly comprehensible number – typical of transactions based on passion rather than reason – and unbelievably cheap. While personal residential purchases can be emotional, business investments should not. 

The price is agreed by the buyer, but the negotiations instead focus on the Earnest Money Deposit. This is where Totò’s interest resides – after all, he has no title to sell the Trevi Fountain! Mr. Cavallo proposes L. 100,000 which per today’s standards is a perfectly acceptable 1% of the purchase price. Totò asks for 5% – because he needs L. 500,000.

The plot thickens. Seller turns down the initial EMD offer and insists on the 5%, giving the impression of owning a much sought-after property; and that he is not willing to sell unless under the right conditions. But the negotiations stall nevertheless. Finally Mr. Cavallo is beginning to negotiate, and this might be his only chance to spare himself a very bad deal.

As negotiations take a downturn for Totò, an artificial multiple-offer situation comes handy. Mr. Scamorza, a Totò associate representing alleged American buyers, steps in. Because Mr. Cavallo’s offer has not been accepted yet due to ongoing verbal negotiations on the EMD, Mr. Scamorza contends that Totò is technically free to receive and evaluate any other offer. Mr. Scamorza does not attempt to make any specific offer on the purchase price. Simply, he negotiates a more substantial EMD in order to secure the property. This is when Mr. Cavallo finally agrees to pay L. 500,000 as deposit, in cash, which he carries in his pockets. Such amount is the equivalent of going around Rome today with about a $6,800 money roll. At this point the winning bid is Mr. Cavallo’s, who sets the closing for the following day at the American Embassy. Totò takes the money and promises to meet Mr. Cavallo as agreed.

On the buyer’s standpoint nothing is worst than seeing the collapse of a sweet deal almost in his pocket. Mr. Cavallo last bastion of resistance is now weakened, and his self-preservation instinct cracked. Totò shows his mastery by playing the card of fast pace along that of buyer’s pride.

Misstep #3: The desire of winning at any cost. When multiple-offer situations are not handled properly and buyers rush to outbid each other setting aside logical considerations – as an investment property would certainly recommend – there are risks of making mistakes, and with that, of buyer’s remorse. In this case the single major mistake was handing a hefty EMD. Cash. No receipt. Should we call it “non refundable”?

Misstep #4: Proof of funds. Mr. Cavallo is clearly well off to the point of carrying rolls of cash in his pockets. However, he never wonders why the seller does not ask for proof of funds. The answer is simple: Totò is not interested in closing the sale.

As we know, this transaction never closed.

Misstep #4: Every step of a real estate transaction must be in writing. For example, had Mr. Cavallo made an offer in writing with L. 100,000 EMD, and had Totò countered in writing at L. 500,000 EMD, Mr. Scamorza would have had no business interfering while negotiations were ongoing. At best Mr. Scamorza could have placed a back-up offer. In the very least, a written offer and counteroffer would have taken the time pressure off the hands of the buyer.

Misstep #5: Real estate transactions have a number of factors involved, and not just a purchase price and EMD. What about inspection period, land survey, title work, or proof of funds, just to name a few? None was agreed between Totò and Mr. Cavallo.

The conclusion is that whether you wish to purchase the Trevi Fountain, the Colosseum, or a regular residential dwelling, consider hiring a REALTOR®. If Mr. Cavallo had a buyer’s agency agreement in place, his REALTOR® would have run a simple title search to find out that Totò had no interest in the property and the transaction would have been moot. Sparing Mr. Cavallo the embarrassment of having to be taken away with an ambulance, and a loss of L. 500,300.

Yes, L. 500,300, because he has also paid Totò for his three pictures!

Happy fountain hunting everyone!

GL

Giuseppe Lupis REALTOR®

WE BUY HOUSES, CASH!

WE BUY HOUSES, CASH!

It happens regularly to homeowners: the unsurprising surprise of receiving a mailing stating that someone is ready to buy their home, cash, as-is, no hassles, no costs, and regardless of conditions. If one thinks that such offer is too good to be true… than probably it is.

As it happens, REALTORS® are not excluded from the pool. In fact last week it was my turn to receive my share of opportunities.

One card was inviting me to call immediately to discuss my options in case I were interested to sell for “top” money, with the promise of a quick close and a “hassle free” transaction. Another letter was proposing me to sell for “cash” and “no hassles” with the commitment to close in less than one month, and no costs; however warning of a markdown on purchase price. “I Buy Houses” signs appear time to time near intersections, and websites where to find real estate investment companies abound. Fill in a form, share some information on your property, and someone will contact you with a cash offer.

Anyone would feel enticed. After all it is every homeowner’s dream to sell effortlessly, quickly, as-is, in cash, with no costs, fees, or commissions, while having someone else handling all the paperwork. So, why hasn’t the market already rushed completely to these investment companies? And how much top dollar or discount is involved? As of now, the vast majority of sellers still hires REALTORS®, and for a good reason.

These companies promise transactions completely free to seller. Analyzing the costs attached to a property sale could help bring some clarity. Let’s consider an average house valued and appraised at $300,000 as-isbilled a yearly total of $3,600 in property taxes. What would its owner save by selling at “no cost”?

Property Taxes. A quick cash transaction closing at the end of August would save a seller four months of taxes at $300 per month, equaling $1,200 total.

Brokers’ commissions. Commissions vary, depending on multiple factors. In this example, we could assume a total of 5% to 7% of sale price, to be divided between listing and selling broker. At an average of 6%, saved fees to seller would amount to $18,000.

Seller is typically responsible for the Michigan Transfer Tax, which has a State and a County component. The former is calculated at $3.75 per each $500, and the latter at $0.55 per each $500 of sale price. Hence, seller would save $2,250 plus $300 for a total of $2,550.

Seller is also responsible for Title Insurance, which is a set amount based on purchase price. This corresponds to $1,570.73 in further savings.

There is also a series of smaller items to consider, such as broker’s fees, closing fees, sometimes a water bill final reading, and similar. We can approximate the total of these figures to $700.

Seller is not responsible for appraisal or inspection charges, and unless agreed, is also not responsible for any land survey costs.

One of the websites I visited was claiming to spare sellers those “hidden fees.” In real estate nothing is hidden. Everything is disclosed and accounted for, including all fees down to the cent. Before a listing, agents provide their clients with a net-to-seller sheet. Before a closing, seller and buyer receive a statement with each and every credit and debit involved in the transaction, and how these figures have been computed.

If we add all these fees and costs that these companies are willing to take off sellers’ hands, we obtain $24,020.73, or about 8% of the purchase price. This is a typical percentage for most sales.

Now the buyer’s costs. Per their messages, these companies do not seem interested in having REALTORS® involved. One went as far as stating that licensed real estate agents add “costs” and “confusion” 😂 to the field! One only wonders why the State of Michigan is still willing to license a horde of professionals to bring chaos to a specific sector of its economy.

Hence, by handling everything in-house, these companies would probably incur in lawyer’s fees, some closing costs, and have to cover title work, appraisal, inspection, and land survey where necessary. These costs could easily amount to a few thousand dollars: let’s pin them at around $6,000.

Numbers speak for themselves. In our case property is valued and appraised at $300,000. Some homeowners might be led to believe that these companies would agree to pay up to about $312,000 (a figure that includes all the costs excluding brokers’ commissions, as no agent is involved) netting them $300,000. A seller’s dream – but too good to be true! In a different scenario, if these companies were represented by a REALTOR®, and had a cash offer accepted at $300,000 on a listed property, with $1,200 in inspection, appraisal, land survey, and some closing costs, their total check would be cut for only $301,200, netting seller $275,979.27 – significantly less, but an amount to which seller has already agreed at the time of listing. This option would save any company $10,800 on just one single purchase! Or close to $1,000,000,000 (one billion) for any company that would  pride itself of closing tens of thousands of transactions.

If one wonders why would any investors go to great length to buy random properties paying cash about 4% above market and appraised value, the answer is simple. They won’t. It is vastly more advantageous for any investment company to shop currently listed properties. And even more profitable to extend cash offers below market value to those random sellers who are still willing to accept an offer on their unlisted houses. If a seller’s best option is to net $276,000 at market value on our sample property, a cash offer from these companies at around $276,000 ($282,000 out of pocket to the investment company versus the $301,200 on the market) might be the highest and best they could expect to receive. But investors are typically extremely attentive to nickels and dimes. If we take into account the premium that a cash and hassle-free transaction would command, the offer could prove even more discouraging to seller, perhaps 10, 15, or even 20% below market value. How does it sound a hassle-free cash offer of $255,000 on a $300,000 property as-is?

In the end, sellers, enjoy your moment in the spotlight; and if the numbers do not meet your expectations please do not be disappointed. Before accepting any offer I would encourage any homeowner to seek the services and the experience of a REALTOR®. A listing with professional marketing would certainly provide a wider chance at a stronger net return by letting the market speak first.

Happy cash sales everyone!

GL

Giuseppe Lupis REALTOR®

A Week In The Life Of A REALTOR® – August 2018

Yes, I’m back! Welcome back everyone!

It has been an eventful summer during which I traveled to Europe. Thanks to technology, even from the other side of the ocean I still managed to work on a pending, write and negotiate an offer, and observe the different ways real estate works in other countries. These pictures of real estate offices come from Italy and Germany. Notice how the listings are displayed.

Rome, Italy
Rome, Italy
IMG_5204
Bremerhaven, Germany

 

 

 

 

 

 

 

In Rome, Italy, there were these two interesting pieces of property. Neither was for sale, although Italian actor Toto’ did manage to sell the Fontana di Trevi once. To be precise, he was only able to collect the EMD…

Trevi Fountain
Trevi Fountain
Colosseum
Colosseum

And for the number lovers, below are those related to the first week of work in August – as soon as I was back!

  • 63 miles driven
  • 56 significant incoming emails, countless the insignificant
  • 44 outgoing emails
  • 43 phone calls, to or from clients, lenders, agents, FSBO’s, and floor (the technical term to indicate the agent on duty who answers office calls)
  • 21 separate text conversations with clients, agents, lenders, prospective tenants, and sellers
  • 13 car drives
  • 8 new real estate articles read, including property rentals
  • 7 scheduling of showings
  • 5 real estate article draft prepared for publication on blog
  • 5 showings of in-town properties concluded
  • 4 clients served
  • 4 hours of floor
  • 2 deck repair quotes
  • 1 verbal land negotiation
  • 1 meeting with City Assessor
  • 1 meeting with Planning officer
  • 1 comparative market analysis’ (CMA’s) completed and delivered to client
  • 1 managing of a rental property
  • 1 new MLS automated search set up
  • 1 maintenance
  • 1 leased property
  • 1 picking up keys for a past client at the end of a 30 DAC possession period
  • 1 research on investment property for client
  • 1 research on land lot
  • 1 outgoing referral for client
  • 1 meeting with new lender
  • 1 work with title company in preparation of a closing
  • 1 preparation for an upcoming open house: listing cards, business cards, signs, disclosures, publicity, and signs
  • 1 prospecting activity
  • 1 new business card design
  • 1 license renewal
  • 1 meeting with a management company
  • 1 travel to other office to pick up open house sign
  • 1 travel to client’s new home to drop off keys
  • 1 closing
  • 1 office business meeting
  • 1 accounting
  • 1 open house

More posts and stories coming soon. Happy summer everyone!

GL

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The Risk Of Overpricing

It is not uncommon to entertain in-depth conversations with sellers regarding how to properly price their property. A Comparative Market Analysis (CMA) serves as general tool, whereas experience helps fill the voids.

The subject of a recent exchange was a pond-facing condo unit: whether it should be priced at, or above, similar units facing elsewhere. And if above, whether overpricing could carry some risks.

The CMA showed that twelve similar units were transacted in the last four months: three were pending, and nine sold. Days on market ranged from 0 to 31, with an average of 8 days, suggesting high demand and a quick turnaround. Of the sold properties, three were closed at the same exact price – the highest historically paid for these units based on MLS data – regardless of listing price, and slightly above asking. The others were all sold within a 4.7% range below. Asking price for the three pending units was well within such range, with one unit on the market for 6 days and two for just 2.

The fact that half of these units were facing the pond and half weren’t did not seem to have any particular impact on the purchase price, even if the listing remarks were keen to point at the water view. Of the two units that sold barely below asking, one was pond-facing and the other wasn’t. All other units, equally distributed location wise, sold slightly above asking. As if the market was indifferent to a specific view.

Locations and communities vary, therefore pricing must be considered on a case-by-case. In general, my personal experience seems to confirm that where properties face non-navigable bodies of water, and other units facing elsewhere are also available at a lower price, waterfront units tend to sell at or around that lower price.

This is a situation comparable to a yard effect. Yards are expensive to maintain, and require time and dedication. All residential buyers appreciate a nice-looking yard, but in the end they are only willing to pay for the house. A yard – or a pond – will definitely help sell the unit or make it stand out. Where buyers are given a choice, they prefer the property with pond view or detailed yard work. However, data shows that in a homogeneous landscape – such as a condo or a HOA – these features might not command a premium.

Case in point. Last year I listed a nicer-end waterfront property in my area. Pond was not navigable. Compared to nearby properties without water access, seller was aiming at a significant premium. The only offer ever in the talks in which buyer was willing to pay a small premium for the waterfront was nothing close to seller’s expectations: a gap large enough to purchase a brand new Mercedes. In the end it is buyers who have the last say on property value, which is whatever they are willing to pay for it.

If one’s property is worth X thousand dollars, whether listed at $1 or $10,000,000 it will eventually sell at X thousand dollars. The difference is in how quickly, and how many offers and showings one is willing to entertain. At $1 seller will receive endless showing requests and a similar number of offers. At $10,000,000 seller may not see a showing or offer until price is lowered close to X thousand dollars.

In the real estate market the first few weeks of a listing are critical. Overpricing a unit risks alienating the bulk of potential buyers, that is all buyers currently on the market. After the first weeks, unsold units will be targeted mostly by new buyers coming to the market, which are disproportionately less. The risk of overpricing means that sellers have to chase down these buyers with further price reductions, while fueling that something-must-be-wrong feeling of any property sitting unsold.

Any unsold property carries a cost. Mortgage payments, taxes, insurance, HOA fees, utilities, ground maintenance, general maintenance, and other expenses, continue to be needed. That could add up to a few hundred to a few thousand dollars per month. Non to mention the necessity to keep the property constantly clean and ready for showings or open houses.

The conclusion is obvious. If you believe your property has some unique or special features that in your opinion would translate in a higher listing price, such as a pond or a nicely kept yard, always trust your REALTOR®. Numbers, whether found on internet sites, or computed through algorithms, or comparative market analysis, are only a conversation starting point. The experience of your REALTOR® will provide you with the best possible outcome.

Happy sales everyone!

GL

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Condos As Investment Property

In a low-inventory market, investors tend to evaluate all options. Recently, I have been working and have been in contact with buyers and sellers who have turned to condos as potential investment.

Condos are appealing for a variety of reasons, ranging from low maintenance, to location, to community, to value, and to investment potential.

These units are regulated by bylaws. Some condos allow tenants, some only co-owner occupants, and others allow both, in various proportions. Hence, it is imperative to investigate all bylaws and amendments to ascertain that one’s investment plan is permissible under current rules. It is not uncommon to discover minimum homeowner occupancy requirements prior to renting, or restrictions on pets, rental unit caps, fees, and board approval. Sometimes rules are changed and if limiting amendments are approved while tenants are already leasing the units, co-owners are typically given a deadline or grace period to remedy the situation. With the unintended consequence that in some cases this could imply divesting or selling.

Case in point. Last week I showed a condo purchased one year prior as investment property by the current co-owner. Bylaws were amended afterwards, transforming that condo association in an owner-occupant only community. Owner had no other option but to sell – now to a restricted pool of buyers, one that no longer included investors.

Which brings me to a second aspect of the investment. While collecting rent certainly represents an immediate benefit, part of the financial appeal is in the real estate itself. Values grow along with the market and depreciation provides immediate fiscal advantages. Some investors see the ownership of rental properties as a retirement fund. Rental income offsets mortgage and maintenance expenses – in the very least; until the right conditions to cash in on the equity materialize. One word of caution should be spent on membership dues. In addition to monthly fees, condo associations may have plans that require the levy of special assessments. Depending on the nature and the scope of these improvements or repairs, additional fees could be small or otherwise significant; and when a unit is sold, assessments could be due in full at close, thus affecting one’s investment plan when sellers are reluctant to absorb them.

Condos in certain communities may be cash machines. When tenants abound and maintenance is low, fewer units might be on the market, sometimes giving FSBO and unlisted units an edge. And if a unit does not sell at or above a certain price, the seller will continue to rent and enjoy the cash flow.

Condos are also about community, more so than just conforming to a dry set of rules and regulations. One of the situations I encountered this month reflects the spirit of a community slowly moving away from rental units.

Here is the story.

At the beginning of July I was contacted by clients to help secure a unit in a condominium. Although a few units had become available and had sold there in the previous two months, only one was currently on the market and listed as FSBO. I approached the seller, and as part of our conversation I asked for copies of the bylaws, which I promptly obtained. Scrupulously, I contacted the association management, and requested a copy of the bylaws as well. Based on the available information, I advised my clients on the possible offer to submit, which was accepted by seller after short negotiations.

During the inspection and investigation period we discovered that the bylaws had been recently amended, but none of the amendments disclosed or shared with us. In order to investigate further, all parties agreed to extend inspection period and closing date.

The general sense that was gathered by our following contacts with the Board and the management was that this community was trying to move away from rentals in favor of co-owner occupancy. Bylaws did not prevent rentals, however one of the amendments specifically placed restrictions. Owners were required to occupy the unit for at least one year prior to renting. Furthermore, I was told that rental units were capped at a percentage of the total, that an application to rent had to be filed along with a fee, and that a spot could not be reserved ahead of time.

My clients felt the restrictions contained in one of the amendments and the rental rules were in conflict with their needs. Hence, we pursued further a conversation with the Board and the management in the hope of being granted an exception – for example in light of the incomplete information we were given. Nevertheless, our requests were all denied, including the possibility of seller placing a tenant in the unit before conveying the property to my clients. In the end this deal had no more margins for negotiations, and the agreement was terminated.

My clients’ offer was in cash and generous. Per my research, historically it had the potential to become the highest paid price for similar units within the association. In real estate, a general tenet among agents is that the first offer is almost always the best offer (as this Zillow article explains.) Ours was the first offer on this condo. Shortly after these events, another homogenous condo was listed on the MLS, priced below the one we were transacting. Given these facts, my personal opinion is that in this case, due to the restrictions imposed by one amendment, the seller probably lost an excellent opportunity to close quickly and sell well.

Communities change, boards change, bylaws are amended. Condos make excellent rental options, however anyone planning such investment should maintain a continued conversation with seller, Board, and management before, during, and after the purchase in order to maximize profit and minimize risks.

Happy condos everyone!

GL

Giuseppe Lupis REALTOR®

A Week In The Life Of A REALTOR® – Part One

Many wonder what a REALTOR® truly does. Finally the mystery is about to be revealed: real estate is about stories, people, and their lives.

We buy or sell properties at the most critical junctures of our lives. Marriages, divorces, new jobs, job losses, new babies, emptying the nest, moving, aging, dying, lottery wins, inheritances, investments, divestments, developments, business, bankruptcy, going to college, tired of renting: these are just but a few of the reasons that bring us to the decision to sell or acquire a property.

These events can be emotional, intense, and life-changing. Thus, a real estate agent becomes a client’s best friend. A caring and empathic friend who must fully embrace a client’s needs, and needs to understand the client’s available finances, timelines, and sometimes compelling issues. Clients open their lives to their agents as they would never dare with anyone else. Would we ever tell our friends how much money we have on our account and show them a bank statement to prove it? With how many friends would we share that our marriage is on the rocks and divorce might be nigh, with all the details that pertain to the property division? Our clients expect us to be caring, and to show empathy and consideration. Because it is through our service that people continue to pursue their dreams and their journey in life.

Yet, this week a curious story raised above others for its peculiarity. Events similar to the one below should not be considered the norm.

Thursday morning I was on a showing tour with a young couple. Among the properties we visited sat a vacant single-family unit that had been newly renovated. The listing card advertised all new stainless steel appliances, accompanied by a series of pictures. When I arrived on site – slightly ahead of my clients – there stood a colleague with his client in the front yard. Both were quite puzzled and wondering why, out of all the new appliances advertised, only the dishwasher was in place. In fact, when my clients and I accessed the property, no stove, refrigerator, or microwave could be found indeed! Undeterred, we carried our showing as planned, giving it thorough consideration, then left for the next property on our schedule. Although the lack of appliances did not seem a deal breaker, I felt that the showing was concluded below expectations, with the potential cost of new appliances looming on our mind. When… surprise! Later that afternoon GRAR sent an email to all agents. Apparently, the evening before someone with a van had parked in front of the property, entering undisturbed, and had loaded all the appliances onto the van leaving shortly thereafter. In full daylight. It was a theft!

Real estate is also a data-driven reality. Net to seller, property taxes, value, square footage, days on the market, HOA fees, are just a few of the elements involved in any transaction. Numbers are everywhere, numbers matter. Each address begins with a number. Parcel numbers, are in fact… numbers. Listings are defined by a MLS number and a listing price. Offers start with a date and a purchase price. Commissions, closing dates, EMD’s, possession: everything is quantified.

There are also numbers that do not appear in any deal or in any contract, but are still an essential part of it. If you ever wandered what a REALTOR®’s week looks like, this list below might help.

  • 434 miles driven
  • 130 significant incoming emails, countless the insignificant
  • 81 phone calls, to or from clients, lenders, agents, FSBO’s, and floor (the technical term to indicate the agent on duty who answers office calls)
  • 67 outgoing emails
  • 41 car drives
  • 33 separate text conversations with clients, agents, inspectors, office manager, FSBO’s, and unrepresented potential buyers
  • 18 scheduling of showings
  • 14 showings of in-town properties concluded
  • 10 clients served
  • 8 hours of floor
  • 7 new real estate articles read, including: FHA minimum standards, HUD, and property taxes
  • 5 comparative market analysis’ (CMA’s) completed and delivered to clients
  • 4 contacts with rental property manager due to tenant eviction
  • 4 new MLS automated searches set up
  • 2 meetings with new clients
  • 2 car drives with a colleague
  • 2 days of negotiations on a submitted offer
  • 2 meetings with current clients
  • 2 collecting and reading of condo association bylaws and meeting minutes
  • 2 real estate articles completed and published on blog
  • 1 showing of out-of-town property
  • 1 in-person meeting and negotiations with FSBO
  • 1 out-of-town in-person meeting with clients to write an offer
  • 1 cash offer submitted
  • 1 offer accepted
  • 1 referral from client
  • 1 inspection set up
  • 1 work with a client’s lender on VA loan paperwork for a pending property: termite inspection, invoice, addendum to purchase agreement (PA), and affidavit
  • 1 work with a client’s lender on estimated closing costs and monthly payments
  • 1 work with title company in preparation of a closing
  • 1 inspection of an investment property
  • 1 preparation for an upcoming open house: listing cards, business cards, signs, disclosures, and publicity
  • 1 prospecting activity
  • 1 contact with rental property manager for unit prep work
  • 1 real estate article draft prepared for publication on blog
  • 1 travel to inspector’s office to pick up an invoice
  • 1 travel to client’s house to pick up an EMD check
  • 1 travel to seller’s home to pick up Seller Disclosure and Lead-Based Paint forms
  • 1 garage door repair
  • 1 office business meeting
  • 1 accounting
  • 1 estate sale attended
  • 1 outgoing referral placed
  • 1 open house (almost 2)

These represent only some of the possible activities, which for example could include attending continuing education (CE) classes, taking pictures, closings, listing appointments, and offer presentations.

Pictures to follow in part two, for those curious… to see with their own eyes how fascinating and enticing this profession can be!

Happy summer everyone!

GL

Giuseppe Lupis REALTOR®

How To Win Multiple-Offer Situations

Great a number of buyers who have submitted an offer to purchase a property in the Grand Rapids, MI, area in the last couple of years have become acquainted with multiple-offer situations, accepting them almost as a unavoidable tenet of life. Often an insurmountable obstacle to some, a few grow discouraged and eventually throw in the towel (more below why this could be a fatal mistake.)

So, how do buyers emerge victorious in a bidding war? Agents who carry out their duties with diligence will win an offer through attention to details, perseverance, and patience.

Attention to details. An offer should never be construed as a one-item contract, namely the purchase price. Rather, because it comprises many movable parts, each of them surges to equal importance in the equation. In bare terms, the purchase price always stands out as an initial statement. Especially, going above asking price carries enormous appeal, but it comes with drawbacks, which listing agents are quick to point out to their sellers. For example, unless cash, a financed offer is contingent to an appraisal ordered by the lender. Offers that seem too good to be true risk not appraising. Among the possible consequences are a renegotiation of the deal in terms which are more favorable to the buyers; or deals not closing at all: both situations are not in the best interest of the seller.

Sellers who receive multiple offers are looking for their net-to-seller, a speedy and smooth transaction with fewer contingencies, and above all the reassurance that the sale will close.

Typically sellers are responsible for outstanding loans; broker’s fees; the Michigan Transfer Tax; the County Revenue Stamps; title insurance; recording fees; unpaid taxes, assessments, or liens; some inspection costs – i.e. termite inspection in case of a VA loan; and perhaps home warranty costs when warranted by the situation. Some of these costs cannot be negotiated: for example VA loans do not allow buyers to pay for termite inspection. Others however can, and will be negotiated.

Thus, offering to cover some or all of seller’s closing costs will increase the net-to-seller without increasing the risk of under appraising.

Let’s consider a property listed for sale at $150,000. An offer at $165,000 and an offer at $160,000 with buyer covering $5,000 of seller’s closing costs are equivalent in what they will net to the owner. However the latter has better chances to appraise than the former. If the risk of property appraising below purchase price is still present, this can be minimized by adding a provision to bring extra cash, if available, at close.

On the other hand, asking for seller’s concessions will reduce the net-to-seller. Yet, it is still possible to win over other offers with such provision.

It’s no mystery that sellers prefer cash offers. Typically there is no appraisal contingency, unless buyer makes it contingent to buyer’s appraisal, and the deal can close fairly quickly. On the other hand buyers making a cash offer are aware of the strength and advantages of their bid, and tend to be more conservative on the purchase price.

When a lender is involved, its reputation will go a long way. A well-know local lender with a history of closing all deals timely could potentially be seen more favorably than an unknown lender from out of state with no history on record. When multiple offers are on the table every detail matters.

The downpayment size should not be overlooked. A mortgage in the amount of 75% of purchase price versus one in the amount of 97% speaks to the greater strength of the former to close the deal.

Similarly, the type of mortgage in a multiple-offer situation may be viewed differently by sellers: a conventional mortgage for example carries fewer requirements than an FHA or a VA one.

Offers that are not contingent on the sale or exchange of another property have a higher chance to close and/or close sooner. If possible, it is preferable to sell first, then buy. The discomfort of a housing hiatus is easily compensated by the increased strength of one’s offer.

When speaking of contingencies, inspection and investigation is probably the most consequential. Any offer waiving inspection is by far a seller’s favorite. It speaks to the absolute commitment of the buyer, who no longer relies on the ten-day exit-window protection, and accepts the property as-is.

Asking for appliances, light fixtures, and window treatment is customarily accepted and acceptable. But if the seller has specifically excluded some or all appliances, or has reserved that beautiful chandelier gifted by her late grandmother, then the offer might be moot. A chandelier too many could be all it takes to lose a property with another twenty offers on it.

Before writing an offer, it might be a good idea to verify taxes and assessments. These can be negotiated, for example by offering to cover all outstanding assessments: yet another way to increase the net-to-seller without incurring in appraisal issues later on. I recall writing an offer in which my client proposed to cover these figures. They were less than $300, a relevant amount, but quite insignificant when compared to the purchase price. In the end, it is not the amount that can make a noteworthy difference, as it is the kind gesture to take a burden away from the seller.

It is always recommended to verify property boundaries. Even when… a garage looks solidly in the backyard of a property, it could be in fact comfortably sitting on the property line – yes, I heard of a similar situation once. Ordering a land survey will immediately dispel any doubts, as long as its cost does not burden the seller – who can choose among… twenty seven different offers! Asking for an existing survey could be an acceptable compromise, making sure that the seller does have an existing survey and she would be willing to share it before submitting the offer.

In a seller’s market it is not unusual for sellers to ask for possession to be delivered to buyer a week, a month, or sometimes two months after the closing of the sale. In a financed offer a seller cannot ask for more than 60 days of possession, because of lender’s rules. In fact, at close seller becomes buyer’s tenant, and lenders would consider the property an investment property beyond 60 days of tenancy. As tenant, seller can be asked to pay an occupancy fee. Minimizing or waiving that fee allows seller to live in the property saving on rent. Yet another way to increase the net-to-seller without having to touch the purchase price.

And now the final touches. Sellers want to sell, now. They want to close, now. They want to cash that check, now. Understandably so. Keeping a house clean, with a perfect yard, ready to show, requires work. And while the house sits on the market unsold, sometimes already vacant, utilities and mortgage must be paid. Even for a property that is owned free and clear, taxes, insurance, and maintenance, are still the owner’s responsibility.

Hence, proposing to close two weeks sooner than the competition can make a significant difference. On a property that pays $1,500 per month in mortgage, taxes, and insurance, and $400 per month in utilities, such closing date places an astounding $950 in the seller’s pocket.

If not enough, adding an earnest money deposit (EMD) that is substantial, and partly or completely non-refundable, in the very least will make the seller seriously consider one’s offer.

Perseverance. Losing on an offer pinned against many others can be discouraging, especially in a low-inventory market – which in turn is one of the causes of multiple offers. However a loss can become the opportunity to foster problem solving skills, to remain focused, and to allow for more flexibility in crafting the next bid. Managing client’s expectations should be one of the agent’s areas of expertise. If you know that properties in the $150,000 – $170,000 range are selling in two days and for an average of $20,000 above asking price, you should have a conversation with your buyers about what might reasonably be within their reach and what might not. For example, buyers who qualify for a $175,000 conventional loan with 5% down repeatedly losing bids on $170,000’s properties, would be better served by considering just-listed properties in the $150,000’s, or properties at the top of their borrowing abilities, which have been sitting on the market for a while.

Moving away from a difficult market because of a few losses might not always be the best idea. If a market analysis reveals a strong market tendency, waiting or abandoning the search will make all but impossible to secure a property in the near or far future. This is because while prices and interest rates continue to increase, buyer’s borrowing power remains unchanged. It might be better for buyers to secure anyway a more affordable house not at the top of their list, build some equity, then resell a few years later: property value follows the market.

Patience. Purchasing a home requires time, thus a good amount of patience. Losing a bid does not mean that the deal is necessarily lost. In fact, not all deals close, due to various circumstances. In these cases, back-up offers can be the ultimate key to success!

This is the perfect time to hone and test those skills. I am always reachable for comments or advice, and… happy purchases!

GL

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Understanding the market: should I buy or sell?

“Should I buy or should I sell in the Grand Rapids area these days?”

This is a question I hear often, to which I try to answer with a combination of knowledge, experience, and data. Especially data. Because, unlike the formers, it is objective. In fact, nothing like numbers can offer a clearer picture of how the real estate market is behaving these days.

For starters, did you know that GRAR provides free monthly statistics, divided by county? For example, if we wish to learn what is happening in May 2018 in Kent County we’ll discover that residential listings are up by 1.8% compared to a year ago, while multi-family and vacant land listings are down by more that 20%.

When we look at pending or closed sales, statistics show that the number of transactions is below last year’s levels, but volume is increasing. Hence, here is one piece of information that will make all homeowners happy, no matter how we look at: values are increasing, significantly.

In details, based on closed sales the average home value rose from $219,063 in May 2017 to $240,557 in May 2018. That’s a gain of 9.8%! The year-to-date also rose from $206,723 to $221,408, with a gain of 7.1%. When we take in consideration pending sales, the gain appears even stronger: from $213,602 in May 2017 to $243,700 in May 2018, for a gain of 14.1% – and a 9.5% for the year-to-date (ok, I’ll spare you a few extra numbers.)

REALTORS® regularly receive bulletins and updates. Therefore, to complete the picture with more data from the GRAR weekly newsletter (specifically the June 18, 2018, issue) in the Greater Grand Rapids Metropolitan Area – which includes “Kent County; Georgetown and Jamestown Townships in South East Ottawa County; Ionia County; the six Townships in North East Allegan County; and the North half of Barry County, including all of Gun Lake” – the average sale price of a single family home is now up 7% compared to last year, at $217,175.  Also, based on pending sales, the average number of days on the market is 44 for multi-family homes, and 22 for single-family units.

The data seems to point to a strong market in which the trend is steady and home values are increasing. My personal local knowledge and experience align with the data. For example, we are still observing multi-offer situations. For fun fact lovers, I have direct knowledge of listings which received 8, 13, 17, 23 and comparable number of offers. I heard from a colleague of a listing with 45, which seemed a record, and then just six days ago of one case of… 58 (yes, you read correctly, fifty-eight) offers for a property in Grandville, MI. But wait: the same day I spoke to an agent who had planned to write the 59th!

To corroborate these findings, Freddie Mac’s analysis forecasts a 3% home sales growth in 2018 and a 2% in 2019, notwithstanding the increasing mortgage rates. Alongside, home prices are expected to grow by 7% in 2018 and a more moderate 3.1% in 2019.

Finally, the general answer to our initial question, the one we have been waiting for while reading this entire post is: yes! You should be able to confidently buy and sell. No one can predict the future with absolute certainty. However, given all the data, if you are planning to sell there could be no better time. In the GRAR area inventory is at a mere 1.2 months, and properties are still receiving multiple offers – we’ll touch on this specific topic in a later post.

If you are a buyer, the market might seem intimidating right now, but postponing your purchase may not be the best approach. Prices are going up steadily, interest rates are also increasing, while borrowing limits typically do not. The good news is that if you buy today you’ll have secured a better interest rate, and by next year your investment will have yielded an average 7%.

Happy sales everyone! And yes, I am extremely contactable if needed be.

GL

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