Buying
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Strong First Five Months of Contract Activity in 2022 |
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![]() Look out... before you know it, I'll be saying the year is halfway over!? As usual, the months are flying by in 2022 and we are now looking backwards at a full five months of contract (and sales) activity. The graph above illustrates how many buyers (and sellers) have signed contracts to buy (and sell) homes in the first five months of 2020, 2021 and 2022. As you can see, the pace of home buying activity increased quite a bit between 2020 and 2021... and this year, it has increased even further. Higher mortgage interest rates in 2022 might slow down overall home sales activity, but thus far we don't seem to be seeing it here locally. | |
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Comparing Tax Bills in the City of Harrisonburg and Rockingham County Over Time |
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![]() If you're buying a $300K house, will you pay more in property taxes if that house is in the City or the County? In most cases, you will pay more property taxes if you live in the City. The analysis above looks at how a monthly property tax bill has changed over the past decade for a median priced home in the City and County. To be clear, this analysis uses:
As shown above, City property taxes have increased by 155% over the past decade while County property taxes have increased by 70% during the same timeframe. | |
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Monthly Cost Of Median Priced Home Jumps Much Higher In 2022! |
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![]() Wow. The monthly cost of a median priced home has jumped quite a bit in 2022! This is related to a variety of changes between 2021 and 2022... [1] The median sales price increased from $270,000 to $296,500. [2] The average mortgage interest rate increased from 2.96% to 4.27%. [3] The City real estate tax rate increased from $0.90 to $0.93. All of these factors, combined, resulted in a rather significant increase in the monthly cost of a median priced home in our local market. | |
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Reflecting On Large, Fast Changes In Mortgage Interest Rates |
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![]() For at least the past five years, I have remained convinced that mortgage interest rates would start rising... anytime. But month after month, year after year, interest rates did not rise... instead, they fell. But 2022 has been a bit different. If you had asked me anytime in the past five or ten years what would happen if mortgage interest rates increased from 3% to 5% in the course of just four months, I likely would have told you that the market would likely immediately and significantly slow down... not to a screeching halt... but certainly to a slower pace than before that enormous increase in mortgage interest rates. But, here we are, on the other side of rapidly increasing mortgage interest rates for the past four months, and the market seems to still be, doing pretty similar things to what it was doing before mortgage interest rates started rapidly climbing. Homes are still going under contract very quickly. Buyers are still often competing with multiple offers, including escalation clauses and waiving contingencies. Prices keep climbing. So, have the rising mortgage interest rates had any impact at all on our local housing market? I'd say yes. 1. Some would-be home buyers are no longer able to afford the homes they would like to buy. 2. I think some homes might be receiving two or three offers now instead of six or eight that they might have received before. 3. Some would-be sellers might not be selling after all as they see how their buying budget will be affected by higher mortgage interest rates. So, there have been changes in our local market as a result of these rapidly rising interest rates, they the higher rates have had a much narrower impact than I would have assumed in years gone by. One other point of trivia... the last time the average mortgage interest rate was 5.25% (or higher) was... way back in August 2009... almost 13 years ago! | |
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It Is Totally OK To Make Fast OR Slow Home Buying Decisions |
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![]() The housing market in Harrisonburg and Rockingham County is moving very quickly right now. The median "days on market" is only five days... which means that half of homes are going under contract in five or fewer days.
This fast moving market is largely caused by a supply and demand imbalance. There are more would-be buyers who want to buy than there are would-be sellers who are willing to sell. The fast moving market is resulting in very low housing inventory in just about every price range and location in our market. Given a quickly moving market and very low inventory levels, many would-be home buyers are thus concluding that they will likely need to make a relatively speedy decision about whether to make an offer when they see a new listing of interest. Some buyers, though, might feel like these current market dynamics (low inventory, quickly moving market) are forcing them to make rushed decisions. So, should would-be home buyers feel rushed and forced into making quick decisions? No. It is totally OK for home buyers in this market to make buying (or offering) decisions with whatever speed they would like. It is OK to move quickly in making a decision about an offer - and yes, that will likely increase your odds of being able to secure a contract on a house. It is OK to move slowly in making a decision about an offer - and yes, that will likely decrease your odds of being able to secure a contract on a house. But in the end... you get to decide how quickly you will make decisions about making an offer on a house in the current market. I won’t be rushing you to make decisions more quickly than you are comfortable... and current market dynamics shouldn’t be some external and magical force that rushes you to make a decision more quickly than you are comfortable. Let’s start exploring some houses together that you might want to buy, let’s come to understand the market as we go, and then you can make the decision about how quickly to make an offer based on your comfort level and based on how well any particular house fits your needs. It can be a stressful time to try to buy a home given current market dynamics, but it is totally OK to move at your own speed... whether that is fast or slow... or even if it starts off slow and then speeds up over time. | |
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Folks Who Bought Homes In 2020 or 2021 Might Stay In Their Homes Longer Than Expected |
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![]() Did you buy a home in 2020 or 2021? I'm betting you might stay in that home longer than we might otherwise expect. After all, who would want to give up that fixed mortgage interest rate that is SOOOO low! For nearly all of 2020 and 2021, the average mortgage interest rate on a 30 year fixed rate mortgage was below 3.5%. That is LOW. For some months during that two year period, the rate was lower than 3%! When home buyers from 2020 or 2021 think about selling five to seven years from now, I'm guessing a part of the though process of whether to sell will relate to whether they really want to give up that super, super, super low mortgage interest rate! Mortgage interest rates are currently hovering around 5%, and perhaps they'll stay there for much of the year, and beyond... If, seven years from now, you would potentially be selling and paying off a mortgage with a 2.75% interest rate... in order to take out a new mortgage with a 5.25% interest rate... will you really want to do it? Certainly, our needs for housing (location, size, configuration, etc.) change over time... and that might supersede a desire to hold onto that fantastically low mortgage interest rate. All that said, if you were fortunate enough to buy (or refinance) in 2020 or 2021, enjoy that super low interest rate, as it doesn't seem likely that we will see them anywhere near that low in the coming months and years. | |
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Can You Make a $300,000 Decision In Less Than An Hour? |
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![]() It's a weird time to be a home buyer... in oh, so many ways! But here's one of them... Perhaps you are going to spend $300,000 on the home that you hope to purchase this year... or $400,000... or $500,000... or even more. Given current market dynamics, this might be how you experience this home that you are going to spend hundreds of thousands of dollars purchasing... [1] See the new listing online. [2] Drive by, slowing down, looking like a stalker. [3] Frantically call or text your Realtor to set up a time to see the house. [4] Spend 30 - 45 minutes walking around and through the home with your Realtor. [5] You'll have to make an offer quickly, so no time for a second showing. [6] You're competing with several other offers, so no chance of including an inspection contingency. [7] Diligently work through the buying process with your Realtor, lender and title company. [8] Walk through your home one last time -- oh wait, for just the second time -- on the morning of your closing. [9] Attend closing and pay hundreds of thousands of dollars for the home in which you have only spent less than an hour of time thus far. [10] Move in, really get to know your home, and fall in love with it!? Hopefully!? ;-) The point is... in this fast moving, competitive market... most buyers will find themselves needing to make a decision about a very LARGE purchase very QUICKLY when that "perfect enough" house hits the market! | |
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Buying A Home To Lock In Your Housing Costs |
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![]() Yes, home prices are going up... and yes, interest rates are going up. As a result, your mortgage payment (if you buy a house) will be higher now than if you had bought a home a year ago. But... since I am not able to offer time travel services to my buyer clients... home buyers need be asking whether they should buy a home now within the context of how it compares to if they had bought a home a year ago... ...instead, they need to be asking... ...whether to buy a home today in the context of how it compares to continuing to rent a house for the next few years. Options for would-be buyers would seem to be... 1. Buy now (ish) 2. Buy later 3. Rent forever Buy now... this will allow you to lock in the majority of your housing costs. Your mortgage payment will almost certainly include principal and interest (on the loan) as well as property taxes and insurance... and the taxes and insurance portion can go up over time... but buying a home now with a fixed rate mortgage will allow you to lock in your housing costs. Buy later... it seems likely prices will likely be higher with only a small chance that they will be lower... and mortgage interest rates will likely be higher with only a small chance that they will be lower... meaning your housing costs will likely be higher if you buy later rather than sooner. Rent forever... rental rates keep going up, and up, and up... so if you don't buy a home, and keep renting a home, your housing costs will likely continue to go up over time. Certainly, buying a home isn't the right choice for everyone in every situation... but buying a home does give you the benefit of locking in your housing costs when many of your other costs will otherwise continue to increase given the current inflationary climate! | |
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If You Hope To Buy a Home and Have Not Talked To Your Lender Lately, Do So NOW! |
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![]() So, you've been planning to and trying to buy a home for the past four months... but despite having made multiple offers, nothing has worked out yet. This is not as uncommon as you might think -- there still seem to be many more buyers in the market as compared to sellers -- and thus, plenty of would be buyers haven't been able to convert themselves into actual real life buyers yet. As a conscientious and responsible buyer you likely talked to your lender before you started your home search -- four months ago -- and you became pre-approved for a loan. Good work! But... wait.... if you haven't talked to your lender since then... connect with them again ASAP! Why, you might ask? Because interest rates have increased quite a bit over the past four months! Buying a $400K house four months ago with 20% down...
Buying a $400K house today with 20% down...
As you can see, this fictional buyers would now be paying $381 a month more than anticipated because interest rates have risen quite a bit over the past four months. The buyer very likely can still afford the new mortgage payment and will still be pre-approved to buy the house of his or her dreams... but the payment will be higher than expected, and nobody likes surprises. So, if you are in the market to buy and haven't talked to your lender lately to get an updated estimate of your mortgage payment with today's rates... do so NOW! | |
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Many Would Be Buyers Are Finding Zero Homes For Sale Right Now |
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![]() It's a strange time right now -- there are quite a few segments of the market with absolutely no options for buyers. For example, let's say you wanted to buy a resale home just east of Harrisonburg, in the Spotswood High School district, with at least 2,000 square feet, and four bedrooms... ...and you could spend up to $700,000... ...you should have plenty of options, right? Nope. There are currently... zero homes for sale (that aren't under contract) in the Spotswood High School district, under $700K, with 2000+ SF and 4+ bedrooms. So, buyers, as much as you might want to buy -- you will be at the mercy of waiting for sellers to be ready to sell. And sellers, these extraordinarily low inventory levels in many segments of the market may very well mean that you will have lots of early interest in your home... and you may very well secure a contract with very favorable terms! | |
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Even Home Sellers of Newer Or Well Maintained Homes Enjoy Offers Without Inspection Contingencies |
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![]() So, you're getting ready to make an offer on a super popular new listing. You've heard that there have been 12 showings thus far, and there are already three offers on the table. You're going through the list of contract terms that you'll propose...
Let's arbitrarily and inexactly throw all homes into one of two categories...
Many buyers who are considering properties in the first category (older and/or poorly maintained) are hesitant - reasonably so - to skip the home inspection contingency. Here's where things get interesting, though... Some buyers who are considering properties in the second category (newer and/or well maintained) think that a seller of such a property probably doesn't mind an inspection contingency because, after all, their property is newer and/or well maintained. And yes, that is true. Those property sellers very likely don't mind a home inspection contingency all that much... ...but...
That's not to say that all buyers should be making offers without inspection contingencies as long as a property is newer and/or well maintained... ...but at some point you have to do the calculus of what offer terms are most likely to secure you a contract to actually buy a house. Even if a home sellers has nothing to be worried about in home inspection category, they still enjoy be able to consider an offer without such a contingency! | |
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You Might Not Want To Think About This Aspect Of Escalation Clauses. Sorry!? |
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![]() Escalation clauses are all the rage right now when would-be buyers are competing against multiple other offers on popular, well prepared, well priced, thoroughly marketed new listings. An escalation clause allows you to make an offer at one price, but have that offer price automatically increase to compete against other offers. Yesterday, I pointed out that when it comes to escalation clauses... Today, I'd like to point out that sometimes, your offer with an escalation clause might escalate based on a competing offer that might make you groan when you see it after your offer escalates. Here's the imagined scenario, on a house listed for $400,000... Your Offer = $405,000 contingent on financing 75% of the purchase price, escalating to be $5,000 above any other offer up to $460,000. Offer #2 = $400,000 contingent on financing 80% of the purchase price, escalating to be $1,000 above any other offer up to $410,000. No biggie here -- your offer escalates to $415,000 and that probably seems reasonable. Offer #3 = $400,000 contingent on financing 97% of the purchase price, contingent on a home inspection, contingent on the property appraising at or above the contract price, $500 deposit, contingent on the sale of a property that has not yet been listed for sale, from buyers who have not yet been prequalified, escalating to be $1,000 above any other offer up to $460,000. Oof. Offer #3 is not likely actually an offer that would be accepted by the seller... but it caused your offer to escalate all the way up to $460,000 -- which is $55K above your original offer, and $45K above how far it would have escalated based on Offer #2. Pointing this out is not a recommendation that you make your escalation clause super complicated, as that might overwhelm or turn off the seller... but it is important to realize that competing offers that are extremely weak in almost every way except price might cause your offer to escalate just as much or more as a very strong competing offer would. I suppose, at a minimum, in the situation above, your escalation clause could have at least stated that your offer wouldn't escalate if the competing offer had a home sale contingency? | |
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If Your Downpayment Is Small, Your Escalation Clause Differential Should Likely Be Large |
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![]() Consider these scenarios of multiple offers on a house listed for $400,000... Two offers...
In this scenario, a seller will almost always pick the first offer. Most sellers would be just fine missing out on that final $1,000 being offered by the second buyers because they would rather work with a buyer with a larger downpayment that would appear to be more financially capable, more readily able to cure any appraisal shortages, etc. Interestingly, the second buyer seemed happy to pay $435,000 for the house, but is not likely to get the house because the differential of their escalation clause was only $1,000. Now, then, here is an alternative scenario that the second buyer could have created which might have changed the thought process of the seller...
In this version of the offer situation, the second buyer will at least (likely) get the seller to slow down and give their offer some serious thought. Even if the seller doesn't like the 95% financing situation, and the possible ramifications of that high loan-to-value ratio, to ignore that second offer is potentially leaving $10,000 on the table. So... if you have a small downpayment, you may want to consider a larger differential in your escalation clause... otherwise, you shouldn't be surprised if your offer is not seriously considered by a home seller with multiple strong offers. | |
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If Higher Mortgage Interest Rates Will Cause The Market To Shift, It Does Not Seem To Be Happening Yet |
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![]() In theory, as mortgage interest rates increase, some buyers will be priced out of considering some homes that they would like to purchase. If enough buyers are priced out of being able to afford their preferred home, maybe we will see fewer offers on homes listed for sale. If there are fewer offers on homes offered for sale, then perhaps buyers won't keep having to pay so much over the asking price. If buyers aren't paying so much over the asking price, maybe the 10% per year increase in median sales price in our area will start to move back to a more reasonable 3% to 4% per year. But, thus far, these are all just theories and possibilities, not actualities. Despite significant increases in mortgage interest rates over the past month (and 3 - 4 months) we don't yet seem to be seeing a decline in the amount of buyer interest in many or most new listings. I'll keep wondering if we will see that shift happening... and I'll keep crunching the numbers to see if there is evidence that it is happening... but if you are holding off on buying a home right now because you are absolutely certain that a shift is coming... it might be a long wait. | |
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Do Not Despair, More Homes Will Be Listed For Sale Soon! |
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![]() If you're hoping to buy a home in the Harrisonburg area it can seem challenging to buy a home right now. After all, you might decide you want to buy a home in the Keister Elementary School district and then be dismayed to find that there are only two houses for sale right now under $500K in that area. Well! So, as you look ahead towards the next few months should you just expect to see one or two more houses become available in the Keister Elementary School district? I'm going to say a resounding, no! Over the past year there have been (60) single family home sales in the Keister Elementary School district under $500K! That's about five houses per months... so over the next three months there may be (15) houses from which to choose... or maybe even more since a greater number of homes are listed for sale in the spring and summer than in the fall and winter. Anyhow, if you're looking to buy right now, it will be challenging, and you'll have lots of competition... but the houses you see on the market today are not the only ones you'll be able to buy over the next few months. You'll need patience in waiting and then speed in pursuing! | |
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Home Buyers Who Buy Houses Without A Home Inspection Should Do One After Closing! |
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![]() On many, many, recent offers on properties I have listed for sale buyers have not been including home inspection contingencies. This seems, in many circumstances, to be the only way to (hopefully) make your offer competitive enough to (hopefully) win out when there are multiple other offers in this frenzied seller's market. In a more balanced market, there are two general outcomes of a buyer having hired a home inspector to conduct a home inspection... [1] First, a buyer affirms their decision to buy based on new information gleaned during a home inspection that they did not know when viewing the house prior to making an offer. If the new information causes them to see the house in a significantly different light, they may very well ask the seller to make some repairs, reduce the price or they might decide not to proceed with the purchase. [2] Second, a buyer typically learns a lot more about the house than they knew before the home inspection. Even if the new information that they learn does not cause them to decide not to buy and does not cause them to try to renegotiate contract terms with the seller, it still helps them to understand what types of future home improvement or preventative maintenance they should anticipate in coming months and years. Given this second factor, particularly, my strong recommendation to home buyers in this current, frenzied market, is to hire a home inspector to inspect your home after you close on the purchase. You are likely to gain additional information and insight into the condition and systems of your home that will serve you well throughout your ownership of the property for years to come! | |
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Rising Mortgage Interest Rates Are Causing Some Would Be Home Buyers To Adjust Their Target Purchase Price |
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![]() Have you heard? Interest rates are on the rise. In early January, the average mortgage interest rate was 3.22% on a 30 year fixed rate mortgage. Last week, the average mortgage interest rate was 4.67% on a 30 year fixed rate mortgage. That is quite an increase!!! Here are two examples of how that might -- and might not -- affect buyers. Buyer 1 - Buying Below Budget Our first set of fictional buyers was planning in January to buy a $450,000 home in Rockingham County while putting 20% down as a downpayment. Here's how things were looking in January with a 3.22% mortgage interest rate...
Here's how things are looking now with a 4.67% mortgage interest rate...
As you can see, these buyers will have to pay $300 more each month because of the increased mortgage interest rates -- but, they were originally qualified up to $600,000 so the $300/month increase is annoying and frustrating, but does not change their plans to buy a $450,000 home. Buyer 2 - Maxing Out The Budget Our first set of fictional buyers was planning in January to buy a $350,000 home in Harrisonburg while putting 10% down as a downpayment. Here's how things were looking in January with a 3.22% mortgage interest rate...
Here's how things are looking now with a 4.67% mortgage interest rate...
As such, here's how things really look for them if they are maxing out their $1,725 per month budget given these new mortgage interest rates...
As you can see, these buyers had to reduce their budget from looking at houses priced at $350,000 down to houses priced at $305,000. That's quite an adjustment, especially when home prices are currently increasing by 10% per year. So, what does this mean for our market? All this is to say that some buyers will *definitely* be affected by these rising interest rates -- finding themselves no longer able to buy the home they hoped to buy, or needing to lower the price point of houses they will be considering. At the same time, however, some buyers will still be able to afford to buy the same houses they had planned to buy -- though their monthly housing costs for having done so will certainly be increasing. If, in our local market, most buyers were maxing out their home buying budget, and thus now have to buy less expensive homes, that could cause values to stop increasing, or even to start decreasing. What is not clear is how many buyers in our local market were maxing out their home buying budget and how many had room to increase their monthly mortgage payment if needed. | |
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Using An Escalation Clause To Make Sure You Do Not Pay More Than You Need To Pay For A House |
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![]() This might sound a bit counterintuitive to suggest in the current market, but I believe an escalation clause can (amidst other appropriate offer terms) be an effective way to make sure you are not paying more than you need to pay for a house.
Here’s the scenario… A lovely house comes on the market… it is **exactly** what you have been looking for… and you manage to snag a showing slot on the first day the house is available for showings. We discover that there are a **lot** of showings on the first two days of showing and we’re already feeling anxious before we get to the house for our showing. We haven’t been inside for more than a few minutes before you realize this is **definitely** the house that you would do anything to be able to purchase. The house is listed for $400,000. You would happily pay $400,000 for the house… or even $405,000 or $410,000… maybe even $420,000 or $425,000. It is, indeed, that perfect. It isn’t until day two that you have an updated lender letter showing you are pre-approved up to $425,000 and you are relieved to find out that the house is still available. We start talking through potential offer terms and then find out that after 48 hours there aren’t any offers on the house. We get the sense that there have been about 20 showings and about 10 of those buyers still haven’t decided whether to make an offer… but at the moment, there aren’t any offers. What to do, what to do. Do we offer $400,000 and ask to be notified if there are other offers… with the plan of revising the offer if we find out that we are in competition with other buyers tomorrow? This is a reasonable plan, but some seller won’t slow down and wait for your revised offer if they get a stronger, acceptable offer after they receive your offer. Do we just offer $415,000 or $420,000 to try to proactively put our offer above any other offers that might come in? This is also a reasonable plan, but you might then be paying $15,000 or $20,000 more than you need to pay if no other offers are made. One strategy for this situation (among many, for sure) is to make an offer at or just above the asking price with an escalation clause to automatically keep your offer a set increment above any other competing offers that come in later. This might be an offer of $402,500 with an escalation clause to automatically make your offer $5,000 higher than any other offer up to $425,000. Doing so (as described above) would give you the advantage of only paying $402,500 if no other offers came in, or if the other offers were right at the list price of $400,000 -- while also allowing your offer to be automatically be higher than any other offer unless they offered $425,000 or higher. So… if you are making an offer… and there aren’t any offers in play yet… consider an offering price at or just above the list price… with an escalation clause to hopefully keep you in first position if or when other competing offers do start rolling in. You will be giving yourself the best chance of actually buying the house, while also doing a decent job of making sure you don’t pay any more than you need to pay based on competing demand. | |
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Half of All Homes Listed For Sale in the Past 10 Days Were New Homes, or To Be Built Homes |
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![]() If you want to buy a home, great news... there have been 100 homes listed for sale over the past ten days! Oh, but wait. :-) Half of those homes were new homes or to-be-built homes, mostly in these neighborhoods...
So... [1] Great news that new homes are being built. Lots of people want to buy homes -- more than there are homeowners who want to sell their homes -- so it's great that new housing inventory is being built. [2] If you don't happen to want to buy a home in one of these new neighborhoods (based on location, property type, size, price, etc.) then you don't actually have 100 new listings from which to choose... it's really only 50. | |
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Homeowners In Harrisonburg, Rockingham County, Likely Improved Their Net Worth By Approximately $25,000 Over The Past Year |
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![]() This fits into the category of...
The median value of a home sold in Harrisonburg and Rockingham County was $244,900 in 2020. One year later, in 2021, it was $270,000. This marks a $25,000 increase in the value of a median priced home over the course of a single year. So, if you have owned a home in Harrisonburg or Rockingham County over the past year you have likely seen a $25,000 increase in your net worth... or more if you own a home valued above the median sales price... or less if you own a home valued lower than the median sales price. So... Homeowners: Be thankful for the value of your home increasing so heartily over the past year. Would Be Home Buyers: Keep trying. It's a competitive market, but it is worth continuing to try to buy a home. Everybody Else: Some people may not be in a position to buy a home because of their job or income situation, because they are working to pay off debt, because they might need to move within the next few years, or for any number of other reasons. That's OK. But if you haven't bought a home and aren't planning to... but you could afford to do so, and you plan to live here for awhile... maybe we should chat. | |
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Scott Rogers
Funkhouser Real
Estate Group
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scott@funkhousergroup.com
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