Confusion Over Contingent Offers

Confusion Over Contingent Offers

 Buyers and sellers differ on their view of offers that are contingent on the sale of the buyer’s home. Currently in Chisago County there are only 3 listings that are sold contingent on the sale of the buyer’s home. No doubt there have been many more offers submitted that have been rejected by the sellers.

 One buyer that I worked with wanted to find the perfect house before putting her home on the market as she didn’t want to sell her home until she knew she had a place to move. She was not qualified to purchase another property until she sold her home. I explained the risk involved with a contingent offer, as if the sellers accept her offer they will continue to market the property to try to find a non-contingent offer. If the sellers do receive another offer, they can bump her offer and accept the other one.

 Once a contingent offer is accepted, the listing status on the MLS is changed to reflect the contingent offer. This draws the attention to savvy buyers that it is a good property which they can bump, or it can cause confusion to buyers that think the property is sold so they don’t go see it.

 In order for the buyer to remove the contingency for the sale of her home, she would need an accepted purchase agreement on her home, by a pre-approved buyer, that is not contingent on anything other than financing.  This could take at least two weeks to get through an inspection contingency, even if her home sells right away. This allows plenty of time for another buyer to bump her.

 Knowing all of this, the buyer still wanted to submit an offer contingent on the sale of her home. The offer was for full price, as it was the first day on the market. The seller did not accept the offer because they had several other showings on the first day, and they feared if the listing was marked sold on a contingency the showings would slow down.

 My advice was to put her home on the market right away, price it competitively, and hope that the home she wanted to buy would be available when her home sold. After two weeks the buyer’s home sold and she submitted a new offer for $25,000 less than her original offer.

 In hindsight the seller would have been better off accepting the contingent offer as it was for full price and the buyer had a good home, that was priced to sell quickly.

 An experienced agent can provide you with the best advice on contingent offers for your home.

Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to ckempenich@cbburnet.com. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.

Home Equity is Up

Home Equity is Up

Many sellers think they still don’t have equity in their homes and are surprised to find out they can sell their home and walk away from closing with a substantial check. Foreclosures are down, but there are home owners that get behind in their mortgage payments, receive a foreclosure threat, and give up. If you know anyone in this situation, they should talk with an experienced real estate agent as soon as possible. There are more options available earlier in the foreclosure process than later, and it is sad to see a homeowner lose their equity because of a job loss or change in life.

Many septic systems need to be updated to sell, and this has been holding some sellers back. There are options available where the seller doesn’t need to come up with the cash before closing, as some sellers don’t have $10,000-$20,000 to pay out of pocket.

The Chisago Lakes Area has a lot of seniors looking to move off the lakes and into one level living with less maintenance and less stairs, but they are not ready for a nursing home. Many of these homeowners are in their late 80’s and 90’s and their homes may have laundry and mechanicals in the basement, the bedrooms maybe upstairs or the bathroom isn’t near the bedroom. Now that they have the equity to sell and purchase or rent a one level home, they are finding there isn’t enough inventory available for them to move to.

With home prices up, it is a great time to sell your home, but it may sell quickly and you may be hard-pressed to find a place to move. It is a good idea to explore your options before you put your home on the market. Find a community where you would like to live and determine if it is possible to purchase or reserve a home before you sell.

An experienced real estate agent can estimate your selling proceeds and give you options on where to move and how to best accomplish your goals.

Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to ckempenich@cbburnet.com. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.

Real Estate Sales Change with the Season

Real Estate Sales Change with the Season

 New listings were up 16.6% for Chisago County in May 2016 over May 2015, according to the Minneapolis Area Association of Realtors, however, closed sales were down 6.4%. This is most likely attributed to our warm winter weather, which brought the buyers out early for 2016. Closed sales in April were up 17.4% over April 2015. Closed sales are based on purchase agreements that were written approximately 45-60 days before closing.

 The inventory of homes for sale in Chisago County was at its highest point for 2016 in May. A lot of buyers weren’t ready to put their homes on the market until May as it took time to get updates complete, the landscaping looking good, and they prefer to move over the summer. Many sellers also saw an opportunity to take advantage of the media’s hype of the “seller’s market” with homes selling in multiple offers over list price due to low inventory. The problem with listening to the media hype is that they are reporting on historical data (closed sales) and not the current market activity.

 We started 2016 with low inventory, which was down 18.2% in January, 11.3% in February, and 11% in March compared to the inventory in 2015. It stabilized in April in and increased in May. The low inventory months are typically best for the sellers.

 With more inventory comes lower prices, which moves us into a buyer’s market instead of a seller’s market. The median sales price dropped from $230,000 in April 2016 to $210,000 in May 2016. This means there were more options for buyers, more negotiating, and lower prices for sellers.  

 This is not all bad news as the inventory for May 2016 was still below the inventory for May 2015 by 19.6% and our median sale price year to date was up 10.7% over 2015 from $189,700 to $210,000. The average list vs. sale price was at 96.3% through May 2016.

 Now that we are in our prime vacation season for the area, we should see an increase in waterfront home sales and acreage as more buyers visit the Chisago Lakes Area and fall in love with our wonderful community!

 An experienced real estate agent can provide you the current market data to help you determine if now is a good time to sell or buy your next home.

Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to ckempenich@cbburnet.com. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.

Student Loan Debt Delays Homeownership

Student Loan Debt Delays Homeownership

The National Association of REALTORS® (NAR) teamed up with American Student Assistance®’s (ASA’s) SALT® consumer literacy program to conduct a survey of student loan borrowers who are current in repayment. Of the respondents 71% cite student loan debt as the factor delaying them from buying a home.

The U.S. currently has a student debt load of $1.3 trillion, which accounts for 10 percent of all outstanding debt. As the magnitude of student debt continues to rise the homeownership rate falls, especially among young people. Among the respondents 39% owe $30,000 or less, 48% owe between $30,000-$100,000 and 14% owe more than $100,000. Only 55% of student loan borrowers are current in repayment.
 
Of this group only 18% are homeowners, 78% say they can’t save for a down payment, 63% can’t qualify for a mortgage due to high debt to income ratios, 47% can’t afford to buy their preferred house or neighborhood, and 69% don’t feel financially secure enough to buy a home.
 
Among homeowners, 31 percent say student debt is impacting their ability to sell an existing home and move up to a different home and 7 percent have problems with their credit caused by student loan debt.
 
The average delay in buying a home among those with student debt is five years. Those with higher amounts of student loan debt and those with lower incomes expect to be delayed longer.
 
Forty-two percent of the respondents were delayed in moving out of their family member’s home after college because of student debt. Forty-six percent of younger millennials currently live with family. Twenty-one percent rent with roommates. Seventy-one percent are employed full-time.

According to the National Association of REALTORS® Profile of Home Buyers and Sellers, among recent homebuyers, one-quarter have student loan debt and the typical amount is $25,000. The share of those with student loan debt rises to 41 percent among first-time homebuyers. Even among successful homebuyers, this amount of debt is cited as a difficulty in the home-buying process.

Student loan debt doesn’t only impact the housing market. Sixty-six percent of respondents said their student loan debt effected their ability to take a vacation, and 57% said it effected their ability to purchase a car.

 An experienced Real Estate Agent and Loan Officer can provide advice on how much home you can afford.

 Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to ckempenich@cbburnet.com. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.

Low Appraisal Reduces Seller’s Profit

Low Appraisal Reduces Seller’s Profit

 In the past few weeks three of my clients have been involved in transactions where the properties did not appraise for the purchase price. In all three cases the sellers agreed to a price reduction in order for the buyers to qualify for their loans, which was an exciting benefit for the buyers.

 Because inventory is low, buyers are willing to pay more to get the house they want and sellers want to get the highest price possible. When real estate agents prepare a market analysis, we show the sellers the history of the recent closed sales, for a similar type home, in their area. This is the same data the appraisers will use during the appraisal process to prove to the lender that the home is worth the purchase price.

 When we are helping sellers determine the list price, we also review the active competition to see how their home compares to the competition that the buyers are looking at. It is not unusual to price a home 3-5% above the average closed price as the average sale price is typically 3-5% below the list price. Sometimes sellers pick their own price and they don’t care about the market data, but at least they have been educated about the appraisal process.

 It is not uncommon for the seller to pay up to 3% of the purchase price for the buyer’s closing costs, for first time home buyers. First time home buyers usually don’t have enough cash for their down payment and closing costs. Two of my transactions that didn’t appraise had 3% seller paid closing costs included. Example: purchase price $250,000, $7,500 seller paid closing costs, net purchase price to seller was $242,500. The property appraised for $248,000. The buyers could only borrow 95% of the appraised price; because it was lower than the purchase price.

 In this case the appraised price was more than the net purchase price to the seller, so you would expect the buyer to reduce the seller paid closing costs to $5,000 instead of $7,500.  But if the buyer doesn’t have the cash to make up the difference, the seller either drops the price or can cancel the purchase agreement. The problem with cancelling the purchase agreement is; there is no guarantee a future appraisal will be higher or a new offer will be better. In this situation the buyer and seller split the difference so the price was dropped to $248.000 to match the appraisal, and the seller paid closing costs were dropped to $6,000.

 Negotiations are an important part of the real estate transaction. An experienced real estate agent can help you get the best price whether you are buying or selling a home.

Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to ckempenich@cbburnet.com. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.

Pitfalls of Buying Foreclosure Properties

Pitfalls of Buying Foreclosure Properties

   There was a time after the market crash in 2008 that up to 70% of our buyers were purchasing foreclosure properties and realizing handsome profits within a few short years. Today many buyers think buying a foreclosure property means getting a good deal, but unfortunately that is no longer guaranteed as foreclosure prices are now typically within 10% of market value.

 Many real estate agents are resistant to working foreclosure listings because it can mean delayed responses from the banks, long closing times, additional paperwork, multiple offers, and frustrated buyers.

 Foreclosure properties consist of short sales and bank owned properties. With a short sale the home owner is in default but the bank doesn’t own the property yet as the home owner is still in title. There is no guarantee that an offer on a short sale will be approved by the bank and often times the bank will counter the price above the seller’s asking price.

  Foreclosures listings are not as common as they were after the market crash. Bank owned listings made up less than 4% of the new listings in April 2016 and short sales listings made up less than 1%. In April 2009 new foreclosure listings made up 31% of the new listings. This is good news for traditional sellers as their home prices rise and their marketing time decreases with less foreclosure listings available.

 Last weekend I showed 2 bank owned properties and both were priced below market value, which was enticing to my clients, but the condition of the properties was less than desirable, and not worth making an offer on. It is not uncommon for homeowners stop making repairs on their home when they can no longer make the mortgage payment. In most cases banks will sell the properties “as is”, but in some cases they renovate them, if they believe they can profit from the improvements.

 Another client of mine was adamant about purchasing a bank owned property, which we successfully accomplished after submitting 3 different offers and competing in multiple offers. The bank would not accept an offer below list price, or contingent on the successful closing of their home, and they wanted a guaranteed closing in 30 days or less. The buyers were allowed to do an inspection to make sure they wanted to purchase it, but they had to buy it “as is”.

 An experienced real estate agent can help you determine if purchasing a foreclosure property is in your best interest.

Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to ckempenich@cbburnet.com. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney