As featured in the December Shenandoah Valley Business Journal...

Absent hard data on the local real estate market, we could make erroneous assumptions by listening to national news stories.  Here is a quick overview of how things stand in the Harrisonburg and Rockingham County real estate market:

Are property values falling?  No. The median sales price of all residential properties shows a 1% increase when comparing 2008 (Jan-Nov) to 2007 (Jan-Nov).

Are buyers buying?  Yes.  However, it is at a significantly slower pace than last year.  In 2007 we saw 1,182 residential sales (Jan-Nov) and this year we have only seen 861 sales (Jan-Nov).  This indicates a 27% decline in market activity.

Are sellers selling?  Yes.  Homes are selling at approximately the same pace as last year with an average "Days on Market" of 166 this year (Jan-Nov 2008) as compared to 171 last year (Jan-Nov 2008).

Hopefully this draws out the realization that while the national housing market is not doing so well, our local housing market is a different story entirely.  But yet, the state of our housing market isn't good news for everyone:

A Buyer's Delight

Buyers currently enjoy many housing choices, as the slow pace of sales provides for high inventory levels.  Inventory levels have declined since September, and will likely continue to do so through the winter, yet current levels still provide buyers with many options for their next home purchase.

The current slow rate of sales can allow for significant price negotiations in some instances.  Even as median home sales prices stay steady, some sellers are ready to negotiate to provide for a faster sale instead of waiting for months amidst the masses of homes for sale.

Buyers are also enjoying tremendously low interest rates, now below 5% again with many lenders for a 30-year fixed rate mortgage.  The most recent time we have seen interest rates this low was in 2003.

A Seller's Despair

Despite no significant change in the time it has taken for homes to sell, high inventory levels equates to a long wait for many sellers.  This can mean month after month of keeping a home ready to be shown, or it can equate to weeks or months of discouragement from a lack of showing activity.

Buyers want to negotiate on price like never before, which means that not only do sellers need to price their homes competitively to attract market attention, they also need to still have room to adjust once negotiations begin.  Many sellers of late find themselves balancing money and time as they consider a buyer's offer.

Where We Go Next?

As 2008 comes to a close, we still find ourselves in a buyers market, and we will likely see a similar market into the first and second quarter of 2009.  We could start to see an across-the-board downward shift in home values, but if we were going to see a tremendous shift, I believe we already would have seen the start of it.

One of my colleagues in the financial sector recently shared a great cliche about the housing market: "Most people get in too late, and they get out too late."  As he pointed out, the second mistake has already been made by most.  Don't let the first happen, too.

So you want or need to buy a new house, but you must sell your current house before you can close on the new one.  Do you wait to try to sell your house until you have a contract on a new house, or do you wait to make an offer on a new house until you have a contract on your current house?  This is a bit of a puzzling question in the current market, and two of my clients are currently wrestling with this enigma.

Option 1 - offer to buy first

• PRO - as a result of first negotiating on the new house, you can more precisely price your existing home because you know what you "need" to get out of the sale.
• PRO - you don't have to wonder if the house you love will still be available once you have a contract on your current house.
• CON - you will likely have less negotiating ability since your offer to buy is contingent upon your current house selling.
• CON - even if you negotiate a deal on the house you hope to buy, the seller will likely include a kickout clause, which means you might not end up being able to buy the house after all!

Option 2 - offer for sale first

• PRO - you'll know exactly how much you can spend on your new house, because you'll know what you will get out of your current sale.
• PRO - you'll have lots (hopefully) of negotiating power on the new house, since you will effectively be making an offer sans home sale contingency.
• CON - if there was a house you had your eye on when you first started offering your current home for sale, it's possible that it will already be sold by the time you have a contract on your current home.
• CON - if you don't have a replacement house picked out, you may feel pressured to select a less-than-perfect new house because you don't want to lose the buyer you have for your current house.

Wow!  It's a tough decision!  Each buyer's (and seller's) situation is unique, so I can't universally recommend one of the courses of action above, or the other.  But we do need to understand all of the pro's and con's of each strategy so that you make the best decision on how to proceed!

As I mentioned yesterday, when interviewed by WHSV, there is still somewhat of a stalemate of buyers and sellers. Some sellers are holding their prices a little higher than perhaps they should be priced, and some buyers are not wanting to try to negotiate.So, you have that gap that likely could be bridged, but it just isn't happening. 

I tried to encourage buyers to make that first move yesterday, and in the past I've pointed out that sellers can make offers, but here are a few perspectives that sellers should consider in our current market.

1. This is not the most wonderful time to sell your home, as there are many more sellers in the market than there are buyers.  That doesn't mean you'll have to sell at a loss, and it doesn't mean that your house won't get snatched right up the first week it is on the market --- but if you don't have to sell right now, you might consider waiting until we have a more balanced market.
    
   
2. If you have to sell your home, or you really want to sell your home, you must price your home "correctly" from the start.  If your home sits on the market for several months with an overly optimistic asking price --- and nobody bites --- you're likely in for a long ride, with several price reductions and an improbable sale.  In a buyers market more than any other time, buyers are skeptical of homes that have been sitting on the market for a long time.  You must put your best asking price on your house at the start, your Realtor should market the home like crazy and follow up aggressively with any interested buyers.
    
   
3. Even though I told you to put your best asking price on your home from the start, you still must be prepared to negotiate, at least a little.  Even with a very well-priced home in today's market, buyers have a hard time paying full price or very close to that asking price.  With that optimal price on your home from the start, you'll still likely have to engage in some "token negotiation" so that the buyer knows and/or feels that they are getting a good deal on the house.
    
   
4. More than anything else (and this one is a bit out of order), you need to know your segment of the real estate market!  As you price your home, as your home is marketed, and as you negotiate an offer, you must be aware of the other homes on the market that you are "competing" with, and also the other homes on the market that have recently sold and now affect the value of your home.  This knowledge will educate your pricing and process, and is essential for any seller in today's buyers market.

Earlier I noted that you shouldn't sell your house right now if you don't have to or really want to.  And yet, even in this market, you can sell it relatively quickly and at a good price.  But to do so, you'll need to know the market, price the house "right", market it thoroughly, follow up aggressively, and negotiate wisely!

I am currently representing the buyers of a house that was pre-inspected before it came on the market.  That is to say that the homeowners engaged a home inspector to inspect their own home before they put their house on the market.  Then, going a step further, the homeowners made almost all of the repairs that the inspector suggested.

Good for the owner, good for the buyer...
Going through the inspection process and making repairs before any buyers even look at the house can be very helpful.  You can discover and address significant issues that might otherwise derail a transaction when a buyer conducts the home inspection.  In fact, my clients were quite relieved to see how many repairs the homeowners had made on the house they are purchasing.

Bad for the owner...
If you, as a homeowner, are not willing to make repairs as a result of the inspection, you might not want to pre-inspect your home.  Having the information, you would then need to disclose the adverse issues to buyers -- which would just focus their attention on what had previously been unknown to everyone.  It is likely the buyers would have conducted their own inspection anyhow, and thus would have discovered the items, but why bring up these adverse facts at the beginning of the process if you aren't willing to fix them.

Bad for the buyer...
If a homeowner pre-inspects their home, it is often the case that they will be reluctant to make any further repairs at the requst of a buyer.  Most homeowners in this situation decide that they have made all of the repairs which are reasonable for a buyer to request --- so if a buyer starts requesting other repairs...

Given the good and the bad...
I strongly recommend that sellers pre-inspect their home if they suspect there may be some needed repairs and if they are willing to spend the time and/or money to make the repairs. 

A short sale is one where the sales price was insufficient to pay the total of all liens and costs of sale; and where the seller did not bring sufficient liquid assets to the closing to cure all deficiencies.  In other words, the seller had to sell at a price where they needed to bring money to closing, but they couldn't. 

A short sale almost always results in an incomplete payoff of one or more mortgage debts, so a lender has to agree to a short sale.  Lenders are apt (in the current market) to consider a short sale because they are likely to recoup more of the money owed to them than if they are forced to foreclose on the property.

I am listing a property this week that will almost certainly be a short sale, and I was surprised to learn from the owner that the bank had encouraged the short sale and was quite willing to go along with a short sale.  This was somewhat of a surprise to me because over the last years I have heard countless stories of lenders who are hesitant to consider a short sale, and instead pursued foreclosure. 

If you are considering buying a property that will be a short sale, it will likely take a little bit longer for the transaction to take place, as the bank must approve of the deal that is worked out between buyer and seller --- but a short sale can be a great opportunity to buy at a good value.

Especially in our current market, it is very challenging to predict the "popularity" of a house -- in other words, how many prospective buyers will come to view the house.

This comes to mind today, because over the weekend two new prospective buyers came on the scene for a very affordable home on East Rock Street.  The house has had many showings, and even an offer --- but we haven't had any showings in the past few weeks.  So it was a bit surprising to receive two calls within a few hours of each other with interest in viewing the house.  After weeks of inactivity, showing activity will sometimes pick up quickly and with unknown cause.

On a different note, I have seen several listings lately that have been priced appropriately (in my view), marketed well, and have seen few if any showings in the first few months they are on the market.  Sometimes even the houses you are sure will sell quickly, won't even show quickly.  Could it be the evil flyer syndrome?

And then there are the houses where buyers dutifully tour in and out several times a week, with no results to speak of.  I know of several homes on the market right now that have had over 50 showings, and still have not received any offers. 

Just as it is difficult to predict the pace of a sale in today's market, it is very difficult to predict the pace of showings! 

For almost all of my listings, I have flyer boxes in front of the home to provide interested buyers (or neighbors) with instant information on the home.

Sometimes I wonder....

• Do flyers help possible buyers realize that a home might be perfect for them, and thus incite them to look at the home? or...
  
• Do flyers make some possible buyers discount the home as an option for them whereby if they had seen inside the home they might have been more moved?

And the bigger question....

• If I removed all of my flyer boxes would more or less buyers schedule appointments to visit the home?

As I mentioned a few weeks ago, some sellers think, or assume that the date filled into the contract will be the actual closing date.

So, if a seller wants or needs to nail down a specific closing date, can it be done?  A common inclination is to insert "time is of the essence" into the contract.  This seemingly innocent phrase signifies that if the closing does not take place on or before the closing date stated in the contract, the deal is off!

This is a problem, because in almost all cases, the seller who wants the closing to happen on a particular date does not really want the deal to fall apart.

The fact of the matter is that it is, reasonably, very difficult to contractually mandate a specific closing date.  It isn't reasonable for a seller to demand a particular closing date because the buyer isn't always in total control of the timing of the closing.  If an appraiser, loan underwriter or settlement agent (for example) is behind in their part of the process, the closing can be delayed without the buyer having any control over the situation.

If, as a seller, you want to nail down a specific closing date, I would suggest that you:

1. Communicate this strong preference kindly but repetitively to the agent representing the buyer.
2. Consider putting a positive financial incentive into the contract for closing by a particular date.  Ex. If settlement on the subject property occurs on or before November 15, 2008, the Seller shall credit the Buyer $500 towards the Buyer's closing costs, points or pre-paids.
3. Follow up with every person or company that will touch the transaction to make sure they are aware of the importance of a timely closing.

In the last three months, 250 properties have sold in Harrisonburg and Rockingham County.  On average, it took 177 days from the time they hit the market to the time they closed.

There have, however, been some record-breakers....

• The five homes that sold most quickly sold in 18, 19, 25, 28, and 28 days.
• The five homes that sold most slowly sold in 539, 541, 558, 704, and 752 days.  (That's a range of 1.5-2 years.)

As you can see, there is an enormous variation in the time that it takes for a property to sell.  It is interesting, in contrast, to look at the "days on market" for active listings.  This group of 886 properties has an average current days on market of 194 days, with the low being 3 days, and the high being 1,151 days (3.15 years!).

What does this mean for you?

1. We should analyze average days on market for your neighborhood or part of the city/county before putting your house on the market, and while it is on the market.
2. Even with the analysis referenced, we must bear in mind that it is hard (in our current market) to predict how long any given property may take to sell.
   

While houses are certainly selling, and some are selling quickly, there are many homes that are languishing on the market because of a collective increase in hopeful sellers, and decrease in able buyers over the past two years.



For the owners of those homes, the selling process can be an emotional roller coaster of an experience.  I have witnessed that first hand several times lately in conversations with some of my seller clients, and in watching the Facebook status of some of my Facebook friends who are selling their homes right now.

What a high when someone actually wants to come see your house --- what an anxious feeling when you're waiting to hear how they liked your home --- and what a low when you discover they may not be making an offer on your home.

My advice for sellers in today's market:

1. Familiarize yourself with market conditions and price/market your home accordingly.
2. Seek to understand how supply/demand in your price range may affect the timing of your sale.
3. Be reasonably optimistic as you see buyer activity --- do everything possible to make a sale possible, but don't expect that every buyer that sees your home will want to buy it.

Does anyone else have advice based on their current experience selling their home?

Yes --- sometimes we are still seeing multiple offers!

A house that shows well, is priced well, and is marketed well can still generate strong buyer interest --- even in a market where we are seeing 22% fewer sales than last year.

We received three offers in the first week on this delightful home on the northern end of Harrisonburg.


1143 Waterman Drive, Harrisonburg, VA

The "Settlement" section of a standard Virginia real estate contract reads....

Settlement shall be made at the office of the Purchaser's settlement agent on or about October 1, 2008.

Did you catch the three small words so innocently wedged between the location and date of the closing?  The meaning of those three words (on or about) is often overlooked!

Some sellers think, or assume that the date filled into the contract will be the actual closing date.  It very well might be --- but oftentimes a buyer or seller's circumstances will shift it a few days in either direction.  So, the first thing to remember is that it is usually just a close estimate of when the closing will occur.

But what happens if (in the above example) a buyer informs the seller that they won't actually close until October 22nd --- three weeks later.  May the seller indignantly demand that the buyer close on October 1st, OR ELSE?  Contractually, no!  "On or about" is typically understood to mean plus/minus 30-60 days, depending on the attorney.  That certainly allows for some flexibility, and this is the second thing to remember --- the standard contract language will not allow you to precisely plan the day or week of closing.

So, what is a seller to do?

BAD:  If you need to close on a precise date, or no later than a particular date, you'll want to add "time is of the essence" to the standard contract language.  With such language, if the settlement does not take place by the date in the contract, the contract automatically becomes null and void.  Of note -- I rarely suggest using "time is of the essence".  Having the contract "die" after a certain date usually doesn't help either the buyer or the seller.  If the buyer wants to buy, and the seller wants to sell, and the final closing documents are one date late, should the deal really automatically die??

BETTER:  A better option is to introduce a (positive or negative) financial incentive for the buyer to close in a timely fashion. Perhaps a positive financial incentive for closing on (or before) the scheduled closing date.  Or, an increased purchase price or other penalty if the closing is more than X days later than scheduled.

BEST:  Leave well enough alone --- don't change the standard contract language.  Understand the above, but be flexible and willing to adjust, within reason to make the closing process smooth and successful. 

I hope this is clear --- feel free to leave a comment below, or call/e-mail me for further clarification.

I received a call the other day from a Realtor who was representing the seller of a house that I had showed to some of my buyer clients.  I was informed that "the owner just had the house appraised, and the appraisal came in $20,000 above the asking price."  I believe the conclusion that I was supposed to come to was that the house was a great deal, even at the asking price. 

This all started me thinking about the many ways that a value of a house can be defined.  I would argue that the value of a home is NOT (necessarily):

• how much the owner paid for the house
• how much the owner paid, plus the value of the owner's improvements to the house
• the tax assessed value of the house
• the appraised value of the house
• how much the neighbor's house sold for a year ago
• how much the neighbor's house sold for yesterday
• how much the owner needs to sell the house for in order to pay off a mortgage
• how much the owner needs to sell the house for in order to buy their next home

A house is worth what a buyer can and will pay for it, in the current market.

Certainly, this is a bit ambiguous, but my main point is that we can't make any assumptions about what the market value is of a house. 

No interior photos? 
No need to visit that house!

Some sellers find it absurd that a buyer would have this mentality as they decide which homes to visit --- they assume that if a buyer is serious, they'll come see the house for themselves even if there aren't any (or very many) interior photos.

But buyers are smart, and make reasonable generalizations: most homes without interior photos are hiding something.  Perhaps it is the awful condition of the home, or the hideous decor, or the tiny rooms.  In most cases where only one photo exists for a house for sale, there is something that the seller doesn't want to have highlighted for the world to see.

And thus, as busy buyers pare down their list of homes to view, they will often assume the worst of houses that do not have interior photos.

Sellers -- you don't need to go overboard with how many interior photos are posted to the MLS or other web sites, but do include some interior photos so that prospective buyers can have at least some idea of what to expect.

Are all buyers created equal?  Certainly not --- especially from a seller's perspective in our current market. 


Here's how I would rank buyers, from the most exciting to sellers (#1) to the least (#9)...

1. Cash buyer, without a home sale contingency
   
2. Pre-approved buyer, without a home sale contingency
3. Pre-approved buyer, with a home sale contingency (with the house under contract)
4. Buyer without pre-approval, without a home sale contingency
5. Buyer without pre-approval, with a home sale contingency (with the house under contract)
6. Pre-approved buyer, with a home sale contingency (with the house on the market)
7. Pre-approved buyer with a home sale contingency (with the house not yet listed for sale)
8. Buyer without pre-approval, with a home sale contingency (with the house on the market)
9. Buyer without pre-approval, with a home sale contingency (with the house not yet listed for sale)
   

It is important to note where you are on the list above since the factors represented above often affect a seller's willingness (or lack thereof) to negotiate.

The good news is that you can (sometimes) take steps to move up this list:

1. Get pre-approved
2. Get a contract on your current home
3. At least put your current home on the market
   

To note, here are some other buyer characteristics that are desirable amongst sellers:

1. Minimal inspections
   
2. In a hurry
3. Large down payment

As a buyer in today's market, it's important to understand a seller's perspective before or during the process of making an offer.

Here's an interesting phenomenon --- in most real estate transactions, the buyer makes the first move, by submitting an offer to purchase a house.

In stark contrast to this (time-proven?) norm, I have recently had several Sellers make an offer to sell.  More specifically, when it became known that a buyer was seriously considering the purchase of the seller's home, the seller proactively either:

• made a general offer of being willing to negotiate on price or pay the buyer's closing costs, or
• made a specific offer of a price below the asking price, or the inclusion of a certain amount of a closing cost credit

So far, it has had mixed results --- in some cases it has worked (and a transaction has come together), and in some cases it has not worked.

If you are a seller, considering such a strategy, I would advise you to consider that:

• Proactively making an offer to sell that is more compelling than that suggested by your list price can sometimes motivate a buyer to engage in the negotiation process.  This is valuable, as many current homeowners who are attempting to sell their home would love to even have an offer to try to negotiate.
• You should expect that (most) buyers will try to negotiate further below your offer to sell.  Thus, if you have a hard and fast bottom line, don't reveal that number in your offer to sell, as the transaction may not come together.
• In addition to offering something specific to a buyer, it often will serve you well to (attempt to) explore what would be most helpful for a prospective buyer --- a price reduction vs. closing cost credit vs. repair/upgrade.

I'll certainly be among the first to let you know when the tables are turning again -- but for now, buyers definitely have unique opportunities to negotiate -- and sellers can sometimes spur that on by a proactive offer.

If only it were that easy!

When I am representing a homeowner in the sale of their property, I am:

• creatively presenting their home in the best possible light
• aggressively marketing their home to potential buyers
• diligently following up with each Realtor who shows the property to potential purchasers

But many sellers want me to go one step further --- and convince the buyers to buy! 

The reality is that I often don't have that opportunity!  Most buyers these days are working with a Realtor and thus have someone representing their interests.  I can talk the ear off of their Realtor to try to convince them of the merits of the house that their client has viewed, but I don't have the ability to directly affect the buyers' decision making.

Alas, in a market where sales are much slower than previous years, most homeowners really wish that I (or their Realtor) could make that connection with the potential buyers --- and somehow, somehow, convince them to buy!

Driving around town, you might see quite a few "Price Reduced" riders on real estate signs.  Have you ever wondered whether most sellers are holding fast, or reducing their asking price?  Let's take a look....

In Harrisonburg and Rockingham County, there are currently 953 residential properties on the market (single family, townhome, condos) without a contract on them.

In the past 30 days (June 2008), 134 of those properties had a price change (that's 14% of the active inventory).  I'm going to assume most of those were price reductions, although some could have (??) been price increases.  (It isn't possible via our MLS to see en masse whether the prices went up or down).

In the past three months (April, May, June 2008), 293 of these properties had a price change --- that's 31% of the active inventory.

And if we look at all of the listings to see how many have, versus have not EVER had a price change, here's what we find:
    384 listings have had a price change (40%)
    569 listings have NEVER had a price change (60%)

This is rather interesting (in my view), as I suspected that most owners may have reduced their price at some point while it has been on the market.  But in fact, most home sellers (60%) have NEVER reduced their asking price.

Here are some other interesting stats looking at how long properties have been on the market.

I was showing a house last evening and as I pulled up, the homeowner was hurrying out of the house to let us view his home.  His departure immediately upon our arrival didn't seem too out of the ordinary, until we walked into the house... and smelled... freshly baked chocolate chip cookies!

On the counter we found some fresh-out-of-the-oven cookies and several ice cold bottles of water, along with a note inviting us to enjoy the treats as we looked through the sellers' home.  We really did partake of the cookies, and they were great! 

Many people would suggest that viewing a home is an experience taken in by all of the senses.  Thus, if the smells (and tastes) that a prospective buyer encounters while they are viewing a home are pleasing, they will be more likely to have a pleasing assessment of the home.  In contrast to our delight upon smelling still-warm chocolate chip cookies, think about how you would experience a home that has a heavy smoke or pet odor!

So --- did the cookies and bottled water convince these prospective buyers to buy this particular house?  This remains to be seen, but we do have a hunch that the cookies may have been laced with a strong aphrodisiac, as we all fell in love with the house!

A lot of people feel this way right now --- that they have been trying to sell their home for many months (or longer) without success.  This situation is mainly a numbers game ---- closings are down 23% this year, and new listings are up 43%.  Clearly, there are many more sellers in the market than there are buyers, which creates the impatience for selling.

To put your situation in perspective, let's break down the listings that are currently for sale in Harrisonburg and Rockingham County:  This information is showing how many months these sets of properties have been on the market without having sold:


If your house as been on the market for a few months without having been sold, don't despair --- it is just taking a bit longer for these properties to sell.