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Buying Tips in a Weird Market

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | June 24th, 2020

All this spring, a couple in their mid-30s struggled to buy their first home. They were exasperated with their landlord and eager to move to a handpicked neighborhood where their boys, 10 and 11, could attend top-ranked schools. Yet due to COVID-19, the spring market proved a bust for this young family.

“In five multiple bidding situations, they lost out to other buyers. They were extremely disillusioned,” recalls Neil Corkery, the buyer’s agent who assisted the couple.

As it worked out, this true tale had a happy ending. Through quick action a few days ago, these buyers were finally able to secure a property. They did that with a full-price offer on a diminutive gray rancher with three bedrooms and an attached one-car garage.

This is an acutely frustrating time for many buyers. It’s also a puzzling period for first-timers who wonder why, in the midst of a recession, the housing market remains highly competitive in many areas.

“The problem is, lots of buyers are now rushing forward because they believe mortgage rates are the lowest they’ll see in their lifetimes. The other issue is there’s a serious shortage of available houses, because many potential sellers don’t want buyers trooping through their property until COVID is over,” Corkery says.

In reality, of course, some would-be buyers are also waiting on the sidelines until there’s greater certainty about the direction of the overall real estate market. And economists say this position also has validity.

For example, at Moody’s Analytics, the financial services firm, chief economist Mark Zandi is forecasting a “cooling off” of home price appreciation later this year due to macroeconomic pressures.

Here are a few pointers for buyers:

-- Keep your emotions under control when shaping a bid.

Joan McLellan Tayler, who owned a realty firm for 15 years, says would-be buyers who in the past have lost houses to other bidders are sometimes prone to rush into a deal they might later regret.

“Without quick action, they fear they’ll be shut out of the market altogether,” says Tayler, the author of several real estate books.

Granted, buying a home is currently a competitive activity in many neighborhoods. But, she says, every property should be evaluated on its merits, not on the number of people vying to own it.

Eric Tyson, a personal finance expert and co-author of “Home Buying for Dummies,” suggests buyers set a ceiling on how much they’re willing to pay for a property before making an opening bid. This is especially important if one partner in a couple is likely to get carried away with a “must have” house.

-- Research neighborhoods through local residents.

Your agent should be helpful in sorting through property listings, making sure you identify the most promising homes available.

But once you have your eye on a particular place, it could be the time to talk to those who know the community best: residents.

“Believe me, most neighbors will bend your ear about their neighborhood. For example, they’ll tell you if they like or hate the local schools and the ages of kids who live in nearby homes,” Tyson says.

-- Educate yourself on local property values.

If you’re uneasy about the price tag attached to a property you like, have your real estate agent show you several comparable homes that are also on the market, including those “under contract,” Tyson says.

Resourceful buyers might even go a step further by asking people who’ve recently bought into the neighborhood whether they would mind giving them a peek inside.

“Drop a little note in their mailbox telling them you’re interested in the neighborhood, and leave your names and phone number in case they’ll let you come by,” Tyson says.

What’s the advantage of evaluating the price and quality of freshly sold homes? In areas where home prices are rising, the latest sales are the most telling, more so than transactions that occurred months ago, he says.

-- Visit enough properties to make an informed comparison.

Even if the first place you see looks perfect, you’ll want to ponder alternatives to make sure you have a basis of comparison, says Tyson, who recommends that home shoppers look at a minimum of six properties before they buy.

Due to COVID-19, many more sellers are now offering virtual tours, or you can go inside properties with the proper protective gear, including masks and gloves.

“Buyer’s remorse is much less likely if you’ve examined several options, even if you must do so in a single day,” Tyson says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

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How to Minimize Risk When Buying a Home

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | June 17th, 2020

The economy is officially in recession, 30 million Americans are collecting unemployment benefits, and COVID-19 deaths continue to rise. Meanwhile, the number of young adults applying for mortgages to buy a home is skyrocketing. Economists who track real estate are amazed.

“The housing market has displayed incredible resilience,” says Danielle Hale, chief economist at Realtor.com, the national real estate listings website.

Hale is one of a number of housing economists expressing surprise at the strong rebound in buyer demand. At the Mortgage Bankers Association (mba.org), forecasting specialist Joel Kan notes that in recent days home loan applications have risen to the highest level in more than 11 years.

Kan says the current homebuying surge is largely attributable to demographics and the fact that many in the millennial generation -- a cohort already entering their late 30s -- still have yet to buy a first home.

“The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence,” Kan says.

But the reality is that many millennials have suffered financial setbacks due to the pandemic, making it tougher for them to fulfill their housing aspirations. To make up for lost income, Hale says numerous young adults have had to dip into accounts earmarked for a down payment.

Take the true story of a couple in their 30s -- a landscape designer married to a medical assistant. The medical assistant was furloughed by her hospital in March, and it took her weeks to obtain unemployment compensation. During that difficult period, the couple had to rely in part on savings to meet regular expenses. That postponed their dream of acquiring an exurban cottage surrounded by enough land to plant a huge flower and vegetable garden.

Yet, despite the delay, the couple is as driven as ever to fulfill their housing desires. And they have reason for optimism, because the medical assistant’s hospital expects to soon recall her to work. Meanwhile, the pair have resumed house-hunting and are back in contact with their mortgage lender.

Not all young would-be homeowners are as sanguine about their prospects. And others are weighing the pros and cons of moving forward with a purchase in the near future, given lingering uncertainties about the economy.

“Some young buyers are gung-ho and can’t wait to get the keys to their new house. Because we’re short on available homes in hot neighborhoods, we’re witnessing multiple bids for entry-level property. But some qualified buyers are still waiting in the wings,” says Michael Crowley, an independent real estate broker who works exclusively with buyers and takes no listings.

Crowley, a past president of the National Association of Exclusive Buyer Agents (naeba.org), counsels wannabe buyers who are solidly employed to persevere with their plans while at the same time making sure they don’t overpay for a property or get themselves into too much mortgage debt.

Here are a couple of other pointers for novice buyers:

-- Review your personal economy before deciding what to buy.

Would buying a well-priced home in a strong neighborhood be a good financial bet for your household if your monthly mortgage payments are a major stretch for you to afford? Probably not, says Eric Tyson, a personal finance expert and author of “Let’s Get Real About Money.”

Despite stringent credit standards, Tyson says it’s still possible for many buyers to qualify for a larger mortgage than their situation warrants, thereby placing them at risk of a future default. That’s because the lender knows less about their financial obligations and spending habits than they do.

Before committing to any purchase, it’s always wise to first take an in-depth look at your budget and assess your level of job security. Is your current position at risk? Do you have easily marketable skills that would allow you to quickly get another job if you had to?

-- Consider neighborhood property values before you bid.

Researching local property values before you bid on a home is critically important these days.

To reduce your odds of overpaying for a particular place, Crowley recommends you ask your agent to provide you with information about similar homes that have sold recently -- ideally within the last six months or still more recently.

But data on comparable sales won’t give you the whole story. These days, you also need numbers to track the direction of the market. Ask your agent to give you data on the median price of a home sold this past month versus the month prior. Also ask for median-price comparisons on an annual and yearly basis. These statistics should give you a good feel for the trend.

Use these data when crafting a bid for a property you like. If selling prices have been rising in the neighborhood where you’re searching and inventory is scarce there, you could lose out to rival bidders if your offer comes in lower than market level.

“Lately, many sellers have been holding out for the stronger market they anticipate in 2021. Because many owners are in this wait-and-see mode, there are fewer listings on the market than at many other times. Strange as it seems, we’re in something of a seller’s market despite the recession,” Crowley says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

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Pointers for Restless Renters With an Urge to Buy a House

Smart Moves by by Ellen James Martin
by Ellen James Martin
Smart Moves | June 10th, 2020

In the era of COVID-19, homeownership has new luster. While once many young adults prized the flexibility and mobility of a rental, now they place a higher premium on acquiring a spacious place with a piece of land where their kids (or dogs) can romp.

Buried in a newly released report from SatisFacts (satisfacts.com), which tracks rental markets for investors through surveys, is the stunning statistic that nearly 36% of current tenants are unlikely to renew their leases. Some simply can’t afford their payments any longer and expect to double up with family. But many others -- who’ve kept their jobs -- feel a restless desire for ownership.

Take the case of a Manhattan couple of finance specialists in their 30s now paying a hefty rent for a tiny two-bedroom near Penn Station. Once these millennials were dazzled with the excitement of a New York lifestyle. But after so many friends fled to outlying areas and their gym closed, they declared their intention to exit their building as soon as their lease ends in September. Their current plan? Relocate near family in California or Maryland and buy a house big enough for two work-from-home offices.

Ashley Richardson, a longtime real estate agent for the Long & Foster company in the Baltimore suburbs, doesn’t know the couple in this real story. But she says their now fervent desire to end their years in a rental apartment is a common sentiment among young adults who’ve endured more than three months of COVID-19 restrictions.

“As a group, millennials are very sociable. But the pandemic convinced them they really don’t like being cooped up in an apartment building with lots of other tenants. For safety, they want to own at least a little bit of outside space -- in either a detached house or a townhouse,” says Richardson, who’s affiliated with the Residential Sales Council (crs.com).

Despite the economic challenges facing them, many millennials at the older end of the age spectrum can now afford to buy real estate -- but only if they’re able to obtain a place for a very reasonable price, says Art Godi, the co-owner of a family-owned real estate brokerage that caters to young adults.

Having come of age during tough economic times -- and now enduring another recession -- young adults are more conservative than their parents were in selecting the right starter home, according to Godi, a past president of the National Association of Realtors (realtor.org).

“Because jobs have been so insecure -- and still are -- young people are used to belt-tightening. They’re a lot more cautious about how much they spend and the credit card balances they run up,” he says. He advises first-time buyers to think strategically. Here are a few pointers:

-- Don’t rule out a home with an out-of-date decor.

Money-tight buyers -- including many novice buyers -- may wish to consider a category of homes a notch above the fixer-upper. Typically, these are overall well-maintained properties with solid electrical and plumbing systems. But their owners, though conscientious in some respects, have neglected the cosmetic aspects of the interior decor. Thus, they may be forced to sell for a price below market value.

Godi says young buyers willing to overlook a dated kitchen or bathrooms can sometimes get a favorable deal on a property that they’re willing to improve themselves at a later date. But he cautions against taking on a home that needs major infrastructure improvements.

-- Focus on formerly overpriced homes that were converted to rentals.

Richardson reflects on a pattern of behavior she’s observed among some sellers whose inflated sense of their home’s value causes them to overprice their property when it’s first put up for sale.

“Because they shot too high, their house just sits and sits. Eventually they take it off the market and try to convert it into a rental. But they soon get discouraged with renting and throw in the towel on that, as well,” Richardson says.

After going through the trauma of renting, many owners put their property back on the market -- this time for a faster sale at a more reasonable price. Worn down by the long saga, they’re much more willing to negotiate than they were the first time.

-- Screen for motivated sellers.

When it comes to real estate -- as with many financial transactions -- time is money. Sellers who want or need to make a hasty move are generally more willing to let their property go for a very reasonable price.

As a young, first-time buyer searching for an affordable home, you probably won’t need to pry or do anything sneaky to determine the motivations of sellers, says Michael Crowley, a past president of the National Association of Exclusive Buyer Agents (naeba.org).

“Most real estate agents know lots of local people in the same field. Because of that, it shouldn’t be hard for your agent to find out why a house is being sold and how quickly the sellers want or need to move. Maybe the owners are getting a divorce and want the home sale over with. Or maybe they must move for a new job in just a few short weeks,” Crowley says.

He says a dedicated buyers’ agent can be especially helpful in assisting first-timers to shape a bid in keeping with the sellers’ timing preferences.

“Buyers who are pre-approved for a mortgage and can be extremely flexible on their move-in date are sometimes in an extraordinarily good position to grab a good deal,” Crowley says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

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