Buying
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Some Home Buyers Are Offering Sellers The Opportunity To Stay In The Home For A Few Weeks Or Months After Settlement |
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In this VERY competitive market, would-be buyers are going to great lengths to try to be the winning buyer selected by a home seller. In many larger markets (think cities larger than Harrisonburg) where the housing market is even more competitive than it is here, many buyers are offering sellers the option of staying in the home they are selling after settlement - often for a few weeks or a few months. Wow! But... sometimes it's happening here in Harrisonburg and Rockingham County as well! I have now been a part of three transactions thus far in 2022 where this was the case -- where the buyer let the seller stay in the house after closing -- and I don't think those will be the last three this year. So how does it work? [1] Sometimes a seller will ask to be able to stay in the house after closing when they put their house on the market. This will often work for many but not all buyers. [2] Sometimes a seller won't ask to stay, but a buyer will offer it. [3] Sometimes a seller ends up staying for a few days or weeks... and sometimes several months. Every situation will be different as to what a seller desires and what works for a buyer. [4] In this market, currently, it seems that sellers are typically paying (rent) for the right to stay in the house after closing. In some other markets, buyers are offering sellers the right to stay without paying for that post-settlement occupancy. So... if you're buying (or hoping to) in 2022, perhaps we should chat about whether you would be able to work with a closing and moving timeline where the seller stayed in the home for some period of time after settlement. If you're selling a home in 2022, we shouldn't assume that many or all buyers will be willing to let you stay in the house after settlement, but there is a decent chance that it will work for some or many buyers, especially given the highly competitive current housing market. | |
It Can Be Difficult For An Owner Occupant Buyer To Compete With An Aggressive, Motivated, Investor Buyer With Cash |
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Some properties that hit the market these days -- particularly townhouses -- appeal to two different pools of buyers... Owner Occupants - often first time buyers, hoping to buy the townhouse to move in, put down roots, establish some equity, and more. Investor Buyers - hoping to buy the townhouse to then rent it out to tenants to provide a return on their investment. Sometimes, owner occupants and investor buyers are on relatively equal footing when it comes to negotiations. They might offer similar prices... they might both be financing a part of the purchase price... they might both have inspection or appraisal contingencies, or they might not have either of those contingencies. But sometimes... ...sometimes aggressive, motivated investors with cash, make it *very* difficult for an owner occupant buyer to have a chance at all. Even if an owner occupant's offer price is identical to this aggressive investor' offer price... an investor who is paying cash removes the loan approval as a variable... and more importantly (especially in this market) they remove the appraisal as a variable. Let's say that townhouses in this particular neighborhood have been selling for $200K... but both the owner occupant buyer and cash investor buyer are willing to pay $225K. That $225K offer (times two) is great news for the seller... but... the owner occupant buyer who is financing their purchase will likely need the property to appraise for $225K (in many cases) and thus the investor buyer, paying cash, which will not require an appraisal, becomes a MUCH more compelling offer. And who can blame the seller of the townhouse... even if they would much rather sell their townhouse to an owner occupant buyer, it's hard for such a townhouse seller to choose a path that is objectively much more likely to have issues related to the appraisal. So... if you are a would-be owner occupant buyer making an offer on a townhouse... you better just hope you aren't competing against an aggressive, motivated investor buyer with cash! | |
Go, Go Now, Go Fast, Go See That House That Was Just Listed For Sale! |
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This is not news to most of you -- but homes are selling QUICKLY these days. It's no longer sufficient to try to see a new listing in the first week that it is on the market. You should likely try to see it within the first one or two days that it is on the market. On one home I recently listed for sale there were 20 showings within the first two days -- and four offers within 24 hours of the first showing. I have been working with buyers who wanted to view several other recent listings but they weren't able to see the homes on the first day or two that they were on the market -- and the houses were under contract by the time they were ready to go see the houses. If you're planning to buy this spring or summer you will likely need to be ready to act very quickly. Plan to go see new listings on the day they are listed -- or the first day thereafter. Be prepared with a bank letter showing you have the ability to make whatever offer you might decide to make on the new listing. Finally, you may not have the luxury of sleeping on the decision and waiting until morning to determine if you will make an offer. It seems this will be another fast paced spring housing market in Harrisonburg and Rockingham County! | |
As You Might Expect, Most Home Sellers Are Not Providing Closing Cost Credits These Days |
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Sometimes a home buyers doesn't have all the cash on hand that they need for both a down payment and the closing costs. In that situation, sometimes a buyer might propose a higher sales price with the seller providing a closing cost credit at settlement. For example... instead of the buyer paying $240K for the house, they could pay $245K and the seller would give them a $5K credit back at closing. But... these days... that isn't happening as often. Three years ago sellers were giving closing cost credits to buyers in nearly half (46%) of all home sales in Harrisonburg and Rockingham County. These days, it is only happening about one in four times. Why might these types of transactions (with closing cost credits) not be happening as frequently right now? First, many or most sellers seem to gravitate towards buyers who have the strongest financial position (largest downpayment) as that is often an indication that they will be more likely to make it successfully through the contract contingencies (inspection, financing, appraisal) to settlement. Second, artificially increasing a contract price in order to have part of your closing costs included in that contract price will most often raise the bar as far as the the price for which the house will need to appraise. If presented with a $240K offer and a $245K less $5K offer, nearly all sellers will choose the $240K offer so that the house only has to appraise for $240K and not $245K. So... if you need a closing cost credit when buying a home... that's fine, it's still happening sometimes... but not nearly as frequently as it was in the recent past. | |
Does It Make Sense To Wait To Buy A Home Until Prices Decline? |
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Does It Make Sense To Wait To Buy A Home Until Prices Decline? I think not. I think it will be a long wait. But sure, I am willing to be wrong. ;-) Home prices have been rising quickly, of late...
How high can prices go? Will they decline at some point? Some would-be home buyers wonder whether they should just wait things out... with the thought that if homes prices are going up this quickly, certainly they will have to come back down again at some point... and maybe they should wait to buy until that time comes. I am not convinced that home prices will decline in the next few years. A few points to consider... [1] Longer Term Trends A decade ago, the median sales price was $169,900. Now, it is $270,000. Prices increased rather slowly in the first half of the decade (1% - 4%) and then more quickly in the latter half of the decade (3% - 10%). If home prices had increased a uniform amount each year, this ten year rise from $170K to $270K works out to be a 4.75% increase per year for 10 years. This is higher than my understanding of long term norms (3% - 4%) but not by much. [2] Supply and Demand We seem to continue to have more and more folks (individuals, couples, families) who want to call Harrisonburg (or Rockingham County) their home and would like to buy a home in this area. So, demand keeps climbing. Supply is trying to keep up, but is clearly failing, as inventory levels are remaining stubbornly low. So long as we continue to have well more people who want to buy homes than there are homes to buy, it seems likely that prices will keep rising. [3] My Crystal Ball OK, actually, I don't have a crystal ball. Darn. But as I look at likely scenarios for the next few years, I am not thinking it is very likely that prices will decline. Putting some arbitrary numbers to it, here's my best guess as to the probability of each of these scenarios... 10% chance that homes prices three years from now are lower than today 20% chance that home prices three years from now are within 3% of today's' prices (average of 1% increase per year) 40% chance that home prices three years from now are 6% - 9% higher than today's prices (average of 2% - 3% increase per year) 20% chance that home prices three years from now are 10% higher than they are today (average of more than a 3% increase per year) 10% chance that home prices three years from now are more than 15% higher than they are today (average of more than a 5% increase per year) So, is there a chance that home prices will be lower in the near future -- and you should wait until then to buy? Yes, it is possible, but it does not seem likely. | |
Missed Another Resale Home? Maybe Build A Home Instead? |
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An age-old question is whether to buy a re-sale home or build a new home, especially as your price range gets above $500K or $600K.
Typically, the tension between buying vs building is one of: 1. Goals 2. Money 3. Timing If you build, you can get the house you want, but you'll pay more for it and it will take a lot of time and attention. 1. Goals = Win 2. Money = Lose 3. Timing = Lose If you buy an existing home, you won't get exactly what you want, but you will pay less for the house and the process will not be as much of a drain on your time. 1. Goals = Lose 2. Money = Win 3. Timing = Win Don't let my oversimplification of this issue fool you -- this is something that buyers can get stuck debating for months, or even years, often while looking at resale homes to try to convince themselves to buy instead building. AND -- two current market conditions are making it an even more complicated decision...
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Is Your Escalation Clause Working The Way You Think It Will? |
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If you are making an offer on a house in 2022 there is a decent chance there will be other offers on the property as well. As such, you may find yourself considering the use of an escalation clause. What is an escalation clause, you might ask? An escalation clause allows you to offer one price but then to effectively increase your offer price to be above any other competing offers. Consider the following scenario on a house listed for $350,000
Offer 2 wins, right? If all the other terms were identical, then probably so. But if the first buyer didn't want to pay more than the asking price if they didn't have to -- but if they would have been willing to pay up to $360,000 -- then things could have worked out differently...
In this situation, Offer 1 becomes an offer of $352,000 and likely is the chosen buyer instead of Offer 2 which is then $1,000 lower. But let's add a layer here -- contingencies...
I see this type of scenario play out quite regularly. In many cases, the seller is will choose to move forward with Offer 2 - even though it is $1,000 less than Offer 1. Buyer #1 might have thought their escalation clause would do the trick and ensure they get to buy the property -- but that is not likely to occur. Why, you might ask? Buyer 2 seems to be better qualified to buy the home, with a larger down payment, plus they do not want to do a home inspection and they won't try to renegotiate after an appraisal. So, if a buyer has some other terms (financing, inspection, timing, etc.) that are possibly or likely to be less favorable to the seller, said buyer might consider leveraging their escalation clause a bit, such as the following...
In this scenario, Offer 1 becomes an offer of $356,000 compared to Offer 2 which is an offer of $351,000. This will cause the seller to think at least a bit longer and harder about whether they really want to go with Offer 2 that is more favorable from a contingency perspective. Think strategically when you are crafting your offer -- and your escalation clause -- knowing that a seller is looking at all of the terms of your offer, not just the offer price. | |
Each Year, 10% - 15% Of Home Buyers Pay Cash In Harrisonburg, Rockingham County |
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How often are home buyers paying cash for their homes in this area? It seems between 10% and 15% of home buyers are doing so each year according to data from the HRAR MLS. When a home sale is reported to the MLS, one of the required details is whether the purchase was made with cash or with financing. As shown above, 2021 feel right in the middle of the pack as far as the portion of home buyers who paid cash for their homes. So, what do you say, will you pay cash for your next home purchase? 😉 | |
New Homes are an Increasing Share of Total Home Sales in the Harrisonburg Area |
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First, some raw data... Resale Home Sales:
So, there have been more and more resale homes selling over the past five years. New Home Sales:
There have also been more and more new homes selling over the past five years. The graph at the top, though, tells a third story -- an increasing portion of home sales are new home sales. Between 2017 and 2020 new home sales comprised 12% - 14% of all home sales. Then, in 2021, that jumped up to 19% new home sales. Thus, last year, approximately one in every five homes sold was a new home. This would seem to be good news, generally, as there is an ever increasing number of people who want to buy homes and make Harrisonburg their home -- so we'll need to see more new homes to help provide that housing. | |
Average 30 Year Mortgage Interest Rate Rises Almost A Full Percentage Point In A Year |
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About a year ago, on February 11, 2021, the average 30 year fixed mortgage interest rate was 2.73%. A few days ago, on February 10, 2022, the average rate was 3.69%. So, yes, rates are rising, which means mortgage payments are rising for anyone who is not paying cash. In other words, for most home buyers. For example, if you were financing 90% of your $300K purchase...
But if you were buying a $300K home a year ago, given roughly the 10% increase in the median sales price over the past year it would be a $330K home today. So it's really more like...
The cost of housing is certainly increasing rather quickly right now given increasing prices and increasing mortgage interest rates! | |
200 Home Buyers Paid More Than 5% Over Asking Price For Their Homes In The Past Year |
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Sometimes, you have to be willing to pay the price to get the house... Over the past year-ish (Feb 7, 2021 - Feb 6, 2022) there have been 1,660 home sales in Harrisonburg and Rockingham County. As noted earlier this week, 73% of buyers paid full price or more for their home -- which is 1,229 of those 1,660 home sales. But going a bit further... 200 buyers paid more than 5% over the asking price for the home they purchased in the past year. Looking just at those 200 transactions where buyers paid more than 5% over the asking price... on average, buyers paid $25,561 over the list price! How does that number strike you? It was much higher than I thought it would be... I guess the guy in the photo above is holding out $40,000 of cash -- slightly higher than the average of $25,561 noted above -- sorry for my illustrative exaggeration. ;-) | |
The Value Of Writing A Fake Offer To Buy A House |
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OK, OK, don't get too excited -- I'm not suggesting you actually MAKE a fake offer on a house... just WRITE the offer. ;-) ...and here's why... As we roll into March and April we will likely start to see quite a few houses start to hit the market for sale - and you might, finally, find the house of your dreams! When that dream house does come on the market, we'll need to go see it the first day (or second day) that it is on the market - and then you will likely need to make an offer within 12 to 24 hours. So, it's all going to happen rather quickly! When we get to that point, you will have to make a bunch of decisions, quickly... [1] Offering Price? [2] Escalation Clause? [3] Inspection Contingency? [4] Radon Test Contingency? [5] Appraisal Contingency? [6] Closing Timeline? [7] Deposit Amount? ...and more! Now, certainly, the answer to some of these questions will vary based on the property you are pursuing... but it can still be very helpful to talk through these decision points when we are not in the middle of a mad dash of putting an offer together to meet a seller's deadline for submitting an offer. So, if you plan to buy (or hope to buy) this spring, we might consider writing a fake offer to buy a house -- so that we can talk through the different decision points that will exist when we make a real offer on a real house! | |
What To Do If You Want To Buy A House But Are Discouraged By Current Offerings |
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Are you trying to buy a house? Are you discouraged by seeing very few options on the market for sale right now? Here are some action items... [1] Be encouraged to know that in 2021, despite inventory levels staying very low all year, more buyers bought than anytime in the past 15 years. So, over the course of weeks and months -- plenty of new listings came on the market, allowing all of those buyers to buy -- despite very few homes being on the market at any given time. So, as we move through 2022, you are likely to see plenty of options coming on the market in the coming weeks and months. [2] Talk to a lender, ASAP if you haven't already. When a new listing of interest does hit the market, you will likely need to see it within a day or two and make an offer shortly thereafter. You'll need a lender prequalification letter to make a reasonably strong offer - so talk to a lender now to have that in hand when the right house does come on the market for sale. If you'd like a recommendation for a few great local lenders, email me. [3] Make a plan for keeping track of new listings. You need to know about new listings and know about them quickly. There are plenty of options out there, including NewListingsInHarrisonburg.com (with an email alert option), Realtor.com, Zillow, and many others. I can also set up a few saved searches on my end to be watching for the types of houses that would be of interest to you -- so feel free to email me with details of what you'd like to buy. [4] Go view new listings that are almost perfect. As new listings hit the market, some will seem to be close to what you'd like to buy -- but not quite perfect. Go see these houses anyhow. You might be pleasantly surprised that what seemed to be an "almost" house is a "perfect enough" house when you see it in person. If you see a house and conclude that it really is off the market, as you had anticipated, you will at least have further established a context for what you want to buy -- and how much you will likely need to pay for such a house. [5] It sort of goes without saying... but you'll likely be most successful in your home buying quest if you are working with a Realtor. Whether that's me, or another agent, engage a Realtor for assistance with the home search and home buying process! | |
74% of Homes Sold for Full Price or Higher in the Past 12 Months! |
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A somewhat shockingly high number of homes sold at or above asking price over the past year...
So, what does that mean for you if you are selling or buying in 2022? SELLERS: If you want to sell for $400K, you likely don't need to list your home for $420K in order to leave yourself room to negotiate down on price. Listing it for $400K will likely do the trick, and might result in the house selling for more than $400K. BUYERS: Understand that you are likely to need to pay full price or higher for the house you plan to buy -- though that needs to be put in the context of the value of the home. Certainly, if a $400K house is listed for sale for $475K then you shouldn't pay full price or higher... Understanding the local real estate market is more important than ever for buyers and sellers in 2022! | |
Savvy Home Buyers Are Content To Wait For The Right House To Hit The Market |
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Three years, home buyers starting the year by looking for a home to buy in Harrisonburg and Rockingham County would have been choosing from about 270 homes actively for sale. Two years ago, home buyers would have been choosing from about 200 homes for sale. One year ago, home buyers would have been choosing from about 130 homes for sale. Today, buyers are choosing from about 100 homes for sale. So, yes, home buyers today have far fewer choices... at any given moment in time. That's the important part, folks. If we look at the full span of a year, we find that... Three years ago buyers bought about 1,300 homes through the year. Two years ago buyers bought about 1,500 homes through the year. Last year buyers bought about 1,665 homes through the year. So, if you are getting ready to buy a home in early 2022 - or in 2022 at all - two things are true... #1 - You will likely have fewer options at any given moment in time as compared to the past few years. #2 - You will likely have more options over time as compared to the past few years. Thus, home buyers this year should get prequalified with a local lender... and then be content to wait for the right house to hit the market for sale! | |
With So Few Homes For Sale, You Should Expand Your Search Parameters A Bit |
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If you're looking for a four bedroom home, it might be worthwhile to look at a few homes with three bedrooms. If you plan to buy a home under $300K, it might be worthwhile to look at a few homes priced between $300K and $325K. If you prefer homes built in the past 20 years, it might be worthwhile to view some homes that are 21 - 30 years old. If you know you need 2400 SF, it might be worthwhile to walk through some homes that are 2200 - 2399 SF. If you only want to live 10 minutes from where you work, it might be worthwhile to look at a few homes that are 15 minutes from your job. Sometimes buyers draw firm lines around what will and won't work for them. This is fine, but there is definitely value in walking through some homes that are close to but not within those parameters. Here's why...
So -- loosen up your parameters a bit and look at some houses that are close to what you're looking for but not quite right on the money. | |
If Your Lease Ends This Summer, Start Looking For A Home To Buy Now! |
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If you have a lease ending this summer and you are thinking about buying a home instead of renewing that lease, you might think you have PLENTY of time before you need to start looking for a home to purchase. You might actually want to start looking for that new home sooner than you think. Let's imagine that your lease ends June 30th. Here's one potential timeline...
A few details worth mentioning...
Finally, one thing that is not noted above is how this might all play out related to your monthly housing payments...
As you can see, above, in this scenario (closing on home purchase on May 31, lease ends June 30) you would not have any months where you would need to both make a rent payment and a mortgage payment. | |
Buying A Home Today Might Feel Like Mostly Waiting Around |
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In days gone by, when you decided to buy a home, you would talk to a lender to get pre-qualified and then you would start going to view homes that were currently on the market to see if there was a house available that you wanted to buy - or whether you would decide to wait for some other houses to be listed for sale in the following weeks or months. Now days, that initial phase of looking at homes -- going to view homes that are currently on the market to see if there is a house available that you want to buy-- often does not exist. Many folks who decide to buy a home talk to lender to get pre-qualified and then find there are no homes on the market at that moment that they want to go to see. Now, to clarify, there may very well be homes "on the market" that are of interest -- but they'll all be under contract. And such is the fate of many home buyers these days -- get pre-qualified -- and then wait. Wait for the next new listing that is of interest and then hurry out to see it within the first few days to see if you want to make an offer. Interestingly, there are likely to be just as many (or more) choices of homes for a buyer to buy now as compared the "days gone by" described above -- it's just that now days those homes don't linger on the market, so there are very few available at any given time -- though there will certainly be more options hitting the market soon. So, if you plan to buy a home in 2022 - get pre-qualified - and then get ready to wait. :-) | |
Thinking About Home Buying By Examining Past Sales |
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You might be thinking about home buying by zeroing in on a neighborhood that you find interesting... -- I really think I'd like to live in ____ neighborhood. I love the style of homes in that neighborhood, and the location is ideal. So, let's go see some of the homes that are on the market in that neighborhood. Wait, what? There aren't any homes for sale in that neighborhood?? -- But, yes, this is a typical phenomenon... no homes for sale in a given neighborhood. So, what then are you to do if you want to better understand what options you might have for buying in the ____ neighborhood? Often, the best predictor of the future can be gleaned by looking into the past. It's certainly not an exact science, but the next five homes to come on the market for sale in ____ neighborhood are at least somewhat likely to be similar to the last five homes to sell in that same neighborhood. Certainly, this will be truer in neighborhoods with less variation in homes (age, size, style) and less true in neighborhoods with greater variation in homes -- but you get the idea. So, as you gaze out into the very, very small number of homes that are available for sale right now, perhaps will be more helpful to look backwards at past home sales to give you an idea of what types of houses at what types of prices might become available in the future. Here's one way to do this research... 1. Visit JustSoldInHarrisonburg.com 2. Click on the blue "Search by Street or Neighborhood" button 3. Type in the name of a street or neighborhood and click "Search" Happy researching... and let me know if you have questions or if you'd like help in fine tuning your research of past sales trends. | |
There Is Currently Only ONE Townhouse For Sale in the City of Harrisonburg!? |
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Yes, it can be done... ...you can buy a townhouse in the City of Harrisonburg... ...but it's much more difficult now than it was in the past! Townhouses Sales in 2021 in the City of Harrisonburg = 195 Townhouses Under Contract Today in the City of Harrisonburg = 16 Townhouses Currently Available For Sale in the City of Harrisonburg = 1 I should also point out that the median sales price of townhouses in the City of Harrisonburg in 2021 was $194,900 -- up from $185,000 in 2020 -- and up from $166,000 in 2019. So, yes, you can buy a townhouse in the City of Harrisonburg, but you'll need to be ready to act quickly when one hits the market as they don't stick around long. The median "days on market" for the 195 townhomes sold in 2021 was only four days! | |
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