Decisions with the Golden Question By Jeff Stewart, CCIM, SRES

For the past six months or so, I have struggled with how to help prospective buyers decide what to offer.  This is new territory for me. With decades of experience as a landlord, homebuilder, developer, and real estate broker, I feel qualified to answer most any questions about a property . . . until recently. More now than probably ever before, my buyers are asking a question that I am unsure how to answer.  The question?  “How much over asking should I offer?” The problem is that I have no way of knowing what the winning bid will be when sales prices often far exceed other comparable sales.

So what is paying too much in an extremely competitive market? I am not sure, but I have heard of numerous cases of buyers’ remorse lately.  Where is that intangible line between the satisfaction of a winning bidding war and a sense that one paid too much?  It is a line that varies with each individual buyer.

In short, I have been struggling with the whole concept of representing a buyer who decides to offer $100,000 over asking.  Obviously, many other agents have no such reluctance – in fact I have dealt with several who regularly urge their clients to make such offers in order to win the sale.  Since March, I have had at least eight to ten offers on my listings that exceeded $100,000 over the asking price.

Justin Bariso has written an excellent common-sense article published by INC.com that I believe will help my buyer clients with this very real dilemma.  Justin refers to it as the “Golden Question.” He suggests that the golden question will help anyone make better decisions with fewer regrets.  It is simply one question that is really the same question in five different contexts. It is so simple and so obvious, yet it pertains to every individual making a difficult decision.

Justin offers this simple “decision tree,” if you will.  When my next client is struggling with a stressful decision, I plan to urge them to contemplate Justin’s simple questions:

How will I feel about this in:

  • a day?
  • a week?
  • a month?
  • a year?
  • five years?

So simple, but so logical . . . especially when dealing with the largest purchase most people will ever make.  If we are honest with ourselves, the answers to the questions can guide us to minimize our emotions and make better decisions with fewer regrets.

When preparing an income proforma for a commercial property, CCIMs are taught to make educated predictions about the future . . . inflation, market demand, interest rates, etc.  We do so, knowing full well that the future will certainly be a little different than we have imagined it, but acknowledging that we are making the most common-sense, long-term decision possible based the best information we have in the present.  The concept of asking the golden question is very much the same and I think it has the potential to give buyers a little more confidence in their decision-making.

 

Jeff Stewart, CCIM

Broker Associate / Stanberry REALTORS

jstewart@stanberry.com

 

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) 

to prospective buyers, tenants, sellers and landlords. Please see the link above.

Consumer Protection Notice

Buyers’ New Strange Psychology By Jeff Stewart, CCIM, SRES

MAKING SENSE OF AUSTIN HOUSING PRICES

 

Today the Austin American Statesman had a front-page article describing our red-hot housing market.  Quoting research from Redfin, the piece detailed how more than 1,500 homes in the Austin area sold for more than $100,000 over list during the period of January 1 to May 23.  By comparison, there were only 22 such sales over the same time in 2020.

This begs the question, “Does that mean that these 1,500 plus homes were underpriced considering the market?”  I do not have an answer for that, but it would seem so.  However, let me tell you about a recent listing I had. Several weeks ago, I had a client list a rent house.  Based on recent experience selling similar rent houses, we priced this home higher than we would have just two months ago.  It immediately had quite a few showings. Unfortunately, even though the house was in a very popular neighborhood, the house had a few problems, and we received no offers . . . low or otherwise. In this market, it only takes a few days to realize the listing price is too high.  We substantially reduced the price and immediately began to receive offers . . . ALL well over the list price. I find this very interesting from the perspective of trying to understand the mindset of today’s buyers.

Considering all this, it demonstrates at least two critical points. First, for whatever reason, the listings probably must be somewhat underpriced in order to create the feeding frenzy we so often hear about.  This is difficult for sellers to swallow. If they are hoping for an ultimate price of $700,000, why would they willingly list it at $595,000?  Well, they would not in a normal market, but this is anything but normal.

The second point this brings up is that buyers are just not in the frame of mind to offer below list.  I am at a loss to explain why, but this has been my experience and others’ as well.  All told, for the first time in my long real estate career, pricing a listing is less about carefully analyzed sales comps and more about some strange, new buyer psychology.  We are in uncharted waters here.

 

Jeff Stewart, CCIM

5 Things Every Seller Needs To Know By Jeff Stewart, CCIM

5 Things Every Austin Seller Should Know

By Jeff Stewart, CCIM

We are living in crazy times.  The median days on market for new listings has been down to four days. It would seem that the only things needed to sell a house in Austin is a sign and a post on FaceBook.  Actually, that might be partially true.  A sign and a post on FaceBook are all it takes to get offers.  To get from verbal offers to closing can be a convoluted path in this market. So, lets take a closer look at five very important things every seller needs to know.

First is the strategy of pricing.  A risky tactic we occasionally see is to under price a property and create a feeding frenzy. While that might be an ego boost for the sellers, this just encourages low-ball offers from the bottom feeders.  On the other hand, an unrealistically high price risks losing the momentum of that first burst of buyer enthusiasm.  In a hot market such as ours, it is obvious within mere days if a property is over-priced.

The second important point is the need to establish a process for dealing with multiple offers.  Multiple offers are now the rule rather than the exception, and while nothing is set in stone, most listing agents have slowly adopted a process that garners the seller their best deal while treating all interested parties in a reasonable and honest manner.  No one likes to lose, but there is much less animus when all parties feel they had a fair shake.  If the number of offers becomes unmanageable, it becomes very difficult to communicate with all the buyer agents.  Currently, a common strategy for multiple offers is: 1) put the home in the MLS on Thursday night or Friday morning.  Once it becomes clear that several offers are on the way, suggest to the sellers that they consider all the offers on Monday morning and require all offers to be delivered by Sunday evening.  Many agents change the remarks in the MLS to reflect this.

Many buyers are surprised to learn that sellers are not required to respond to offers in a timely manner . . . or at all, for that matter. Someday, when the pendulum swings back to a buyers’ market, it will be very interesting to see if sellers dare to sit on offers for several days as they do now.

Third, I want sellers to know is that the offer with the highest price might ultimately be the wrong choice. Many factors should be considered in addition to price. Yes, the net proceeds are of primary importance, but it is pointless if the transaction does not close and fund.  The financial strength of the buyer, the expertise of the buyer’s agent, and the motivation of the buyer should all come into play.  It is not uncommon for the most inexperienced buyers and their newly minted agent to submit the highest offer, only to fail to get to the finish line when complicated issues come up.

The fourth thing on my list is awareness.  Sellers get dollar signs in their eyes when the contracts get bid up to incredible amounts.  I always warn my sellers of two things: 1) when people pay exorbitant prices, they expect the product to be flawless. Those expectations may be unrealistic.  Buyers may either be very disappointed with the inspection results or may expect the sellers to provide repairs and improvements that seem excessive. 2) Some buyers’ agents are well-known for their approach of having their clients offer outrageous prices to win in the bidding wars, with the promise that they will claw a large portion of that back in demanding repair dollars from an excessively harsh inspection. One excellent idea in combatting this strategy is to have a “pre-inspection.” Pre-inspections are becoming more common since they help sellers affordably address problems ahead of time. Plus, if the inspection is made available with the sellers’ disclosure, it is much more difficult for buyers to claim they were unaware of these items when they made their offer.

Finally, every seller needs to know the contract is just the beginning. Getting to the closing table is the goal, but challenges may arise, and it is best to expect a few.  Appraisers are not meeting their promised deadlines and lenders have been swamped with both sales and refinance deals. Also, due to the severe shortage of homes, buyers are rushed into impulse buying.  When three other groups are waiting outside on the sidewalk of the home you are viewing, it is extremely difficult to give your purchase the careful consideration it deserves.  No wonder so many transactions are falling to the wayside.  Enough sales fail at the last minute that I have changed my philosophy.  I was always against seller leasebacks.  It is unquestionably the best practice if the closing is the time of physical transfer.  I get that, but sellers might want to think about a two-week leaseback just so they do not move out for a cancelled closing.  I had a lender back out the day before closing once.

Different times call for different strategies, but we adapt. My best advice?  Remain calm and carry on.  I think I heard that somewhere.

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS)  to prospective buyers, tenants, sellers and landlords. Please see the link above. Consumer Protection Notice

Jeff Stewart, CCIM   Broker Associate

Stanberry REALTORS   jstewart@stanberry.com

FIRPTA- The Foreign Investment in Real Estate Tax Act By Jeff Stewart, CCIM, SRES

FIRPTA – One of the last paragraphs of the residential listing specifically asks if the seller is a ‘foreign person.” It fails to fully explain why.  The Foreign Investment in Real Property Tax Act (FIRPTA) is one of the more onerous and misunderstood federal tax laws when it comes to real estate. The concept is simple: Foreign sellers of real estate must pay a 10% or 15% tax upon the sale of U.S. real estate. It sounds like a reasonably straight forward tax until one discovers, often to great financial distress, that the buyer is ultimately responsible. How is that? The buyer is legally tasked with acting as the withholding agent and for making certain that the IRS is paid the correct amount of tax. In other woods, the buyer is on the hook. As unreasonable as this might seem, one can see why the IRS might pose this burden on the buyer since the seller is likely out of the country. Also, any money sent past the U.S. border is almost certainly beyond the reach of the IRS . . . so it is easier to hold the buyer responsible. . . fair or not.

I can gratefully say that I have not knowingly had to deal with this complicated process.  The key point is that it is imperative to positively know if the seller is a foreign person, hence the question on the listing contract. Unfortunately, one can see why a seller might be a little less than forthright in answering. The FIRPTA withholding process is not for amateurs. A knowledgeable title company is extremely important in such a transaction.  However most importantly, It is critical to engage attorneys and CPAs with the required expertise when conducting a transaction that falls under FIRTPA.

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS)  to prospective buyers, tenants, sellers and landlords. Please see the link above. Consumer Protection Notice

Jeff Stewart, CCIM   Broker Associate

Stanberry REALTORS   jstewart@stanberry.com

Flood Insurance By Jeff Stewart, CCIM, SRES

FLOOD INSURANCE – Did you know that according to FEMA roughly 80% of the houses damaged by Hurricane Harvey did not have flood insurance? Of those homes which did have flood insurance, the average flood insurance claim was $116,000.   Are you properly insured? Are safe from flooding?

Perhaps, but consider that the Atlas 14 weather study determined that the 500-year flood zone in our area should instead be approximately what we currently call the 100-year flood zone.  Because of that study, the City of Austin has formally designated the FEMA 500-year zone as the 100-year zone in the City for development purposes. They fully expect the next FEMA maps to reflect similar changes.

The public has long misunderstood what those zones mean.  The 100-year zone is NOT an area with a 1 in 100-year chance of flooding.  Instead, it is an area that has been determined to have a 1% chance of flooding in any given year, which equates to a 26% chance of flooding over the life of a 30-year residential loan. Those figures remind me of the old joke where fellow asked the rancher how much rain do they get out at Snyder.  The old fella replied, “Justa ‘bout 28 inches a year . . . and boy-howdy, you ought to be here the day it comes.”

So going back to the 500-year flood zone . . . that sounds pretty safe doesn’t it?  I mean, the mortgage companies do not even require flood insurance in the 500-year zone.  Well, that are has a 6% chance of flooding over a 30-year loan.  Do you feel lucky?

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS)  to prospective buyers, tenants, sellers and landlords. Please see the link above. Consumer Protection Notice

 

 

    Appraisals – “Hurry up and wait.”  By Jeff Stewart, CCIM

     Astonishingly low interest rates and a tidal wave of newcomers have swamped lenders and appraisers in the greater Austin area. Unfortunately, appraisers have become the bottleneck for most resale transactions. Since the appraisal process is largely unseen by the public, most of our clients only learn about the process whenever a problem arises, so let us look behind the curtain.

First, it needs to be said that a real estate license does not give agents the right to perform an appraisal.  We may offer an opinion of value or do a competitive market analysis (CMA), but absolutely nothing we do may be called an appraisal. Appraisers are licensed by the Texas Appraiser Licensing and Certification Board.

Regarding the bottleneck comment, until the last six months or so, a typical residential sale transaction took roughly thirty days from contract to closing.  Recently, many transactions are taking forty-five to fifty-five days to close, simply because of appraisal delays.  After the frenzy of working through multiple offers and hurried inspections, waiting for weeks for an answer on the appraisal definitely gives buyers and sellers a feeling of “Hurry up and wait.” So, what is the cause?

First and foremost, sales are just off the chart, but that is not all. In our Texas REALTOR magazine, I recently read that the number of appraisers in Texas has been declining as aging appraisers have retired and fewer young people are choosing it as a profession.  Perhaps one reason fewer people have an interest to become appraisers is that FANNIE MAE now has an automated system for lenders that looks at past sales data and often determines that an appraisal is not even required for a new loan.  Technology probably does not bode well for the long-term future of the appraisal industry.

Nevertheless, most mortgage loans still require an appraisal, and we must deal with the various rules and requirements that the public never sees . . . such as the changes brought on by Dodd – Frank regulations. After the financial debacle of 2008, the Dodd – Frank Act of 2010 was passed and greatly altered the way lenders, appraisers and title companies do business. For this article, we are sticking to the appraisers.

The Dodd – Frank Act sought to limit the ability for lenders to influence appraisers. Mortgage lenders are no longer allowed to use on-staff appraisers or hire specific appraisers. Appraisal management companies have been created to act as a buffer between lenders and appraisers.  The lenders submit a request for an appraiser and the management company broadcasts that request to their selected list of appraisers.  The appraisers are then free to bid on the job, or not. The bidders name a price and a promised delivery day, and eventually someone is chosen. The idea of the management company buffer was to stop the undue pressure that many lenders once put on the appraisers to get them to hit a value that would allow the loan to go forward.  Trust me . . . it was a common complaint that I heard from my appraiser friends.  While the lenders are no longer allowed to directly communicate with the appraisers, the same rules do not apply to the brokers. In fact, I often find it very beneficial to meet the appraiser at the subject property . . . and generally the appraisers seem to appreciate the input.

The types of items I have shared with appraisers varies, but it is often helpful for them to have a copy of the survey, a list of my sales comps, and most important of all – an accounting of any recent improvements. This is especially important on the big-ticket upgrades. Documentation of the more expensive improvements will aid the appraiser in making value adjustments when comparing the comps.

On several of my most recent sales, the appraisers have had to make major value adjustments in the appraisal due to the differences between the subject property and the sales comps.  For example, one home was several hundred feet larger than any home in the neighborhood . . . and had a pool, which no other recent sale had.  Appraisers have to use their best judgement in determining how to adjust for the value of other differences such as an extra-large lot or four baths instead of two, but the recent trend in flipping or tearing down houses is complicating the process.  Neighborhoods in transition can run the gamut from tear-downs to extremely remodeled flips to new McMansions.

To be sure, this is what the appraisers get paid for.  The issue for lenders and buyers comes when appraisers have so much work that they can pick and choose what appraisal assignment they wish to accept.  Why take on a complicated sale in East Austin when an appraiser can get plenty of easy work in a homogenous neighborhood of ten-year old homes in Hutto? It has been very difficult to place some appraisals in outlying areas. The appraisal cost can really climb if a property is extremely far out, unique or it is needed in a rush.

Finally, it is interesting to think about the price whiplash that appraisers are experiencing, along with the rest of us.  Imagine trying to support the sales value of a home that sold $40,000 over asking with eighteen offers – all over the asking price.  The odds are very good that the appraiser cannot arrive at an appraised value that reaches the sales price, yet if the buyers still choose to close (and by putting down more cash, many are), that sales price just becomes the new sales comp for the next appraisal.

It is crazy times.  All we can do is remain calm and practice patience.

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) 

to prospective buyers, tenants, sellers and landlords. Please see the link above.

Consumer Protection Notice

Jeff Stewart, CCIM, SRES

Broker Associate

Stanberry Realtors

 

Get Outside – Safely By Jeff Stewart, CCIM

Looking to get outside?

If you are like most folks now days, you are trying to spend a little more time outside – and socially spaced.  While we are all very tired of COVID 19 and the limitations it has imposed on us, I would like to suggest spending some time outdoors . . . in a park.  Specifically a Texas State Park near you.

Some of you may know that I have served on the Texas State Park Advisory Committee for years.  Parks are my passion, and they do not get much better than our own state parks. While the coronavirus has definitely had a negative impact on the state budget, our state parks are hopping.  In fact, Rodney Franklin, the Director of Texas State Parks, recently reported to our group that every day seems like spring break as Texans seek to safely spend time enjoying our wonderful parks.  The camping is limited to 75% capacity and many parks hit their limit on day users, so reservations are definitely recommended; but with a little planning, Texans can find that perfect place to get away for a day or a week.  If you have never visited any of our nearly 90 state parks, well now is the perfect time. Get out and do something!  We as like to say, “Life’s better outside.” Come join us.  You won’t regret it.

Jeff

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) to prospective buyers, tenants, sellers and landlords. Please see the link above. Consumer Protection Notice

Jeff Stewart, CCIM , SRES

Stanberry, REALTORS

jstewart@stanberry.com

A Crazy Housing Market By Jeff Stewart, CCIM

A Word From Jeff

This seems like a pivotal time to reach out, so I want to share some thoughts with you about what I currently see in the housing market.  For those of us in the residential real estate world, it seems like we went from going at breakneck speed before COVID, to a total shutdown, and now we are surging to warp speed. With limited inventory due to concerns about exposure to the virus, a now unflinching demand has led to extraordinary stories of multiple offers.   Buyers, while frustrated, are generally willing to visit occupied homes and cope with the COVID showing protocols, which often include masks, gloves, booties, and signed COVID statements / releases.  In short, we are working hard to keep everyone as safe and it seems to be effective.

In a market as tight as ours, it is critical that buyers and their agents craft their offers to be as creative and competitive as possible.  This is where the experience of the agents AND their clients can be of a great benefit.  If you are interested in a property, but are concerned about seeing it in person or convinced that  you will simply be out bid,  I am available to discuss the various strategies we use to enhance offers.

On the other hand, if you have been holding off on selling due to COVID, I would urge you to reconsider. Now is absolutely the time to move any residential property while inventory is almost non-existent. This period is offering sellers a rare moment in time. As for selling your personal home, we have made great strides in safely marketing occupied homes.  If you would like more information about our company protocols, please do not hesitate to call.  In the meanwhile, please stay safe and healthy!

Jeff Stewart, CCIM

Broker associate

Stanberry Realtors

 

PLEASE READ: Texas law requires all real estate licensees provide the Information About Brokerage Services (IABS) 

to prospective buyers, tenants, sellers and landlords. Please see the link above.

Consumer Protection Notice