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 – 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 – 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

     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

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 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

The Travis Central Appraisal District (TCAD) is not going to re-appraise residential properties for 2020. Marya Crigler, the Travis County Chief Appraiser, has stated that the county only has access to roughly 15% of the home sales and that is insufficient to appraise most areas.  TCAD had been buying Austin MLS data in violation of the MLS vendor’s contract with the Austin Board of Realtors.  All MLS data is copyrighted and owned for the exclusive use of its members. The vender, CoreLogic, and TCAD were issued cease-and-desist orders by the Board and the transfer of MLS data was stopped.  As mentioned before, this is a risky tactic that is likely to fail.

The unprecedented step of freezing tax values presents a number of questions.  First, will tax agents have no work in Travis County? Will owners protest in 2020, if they did not last year? Or, second, will TCAD have no timely comparable sales that they can use in a arbitration hearing to combat protest challenges?

ProTax, a well-known firm which contracts with property owners to protest their real estate valuations, has changed their business model from charging a success fee of 40% of the saving to charging a base fee of $150 per property and the same success fee.  One has to wonder if they are of the opinion that frozen tax valuations will automatically be too low to reduce further?

The TCAD position also makes one wonder if many of the currently employed appraisers in that office will be told they are no longer needed.  It will all be very interesting as we move into something I have only seen once before in Hays County.

In the late 1980’s, it appeared that Hays County’s hierarchy mad the decision not to re-appraise residential properties since the values were in free-fall.  Some of the values had not been lowered once in the three years of sharply declining values.  Since I had built and sold many homes in the Norther Hays area, I was very familiar with the actual values and Anna and I started a tax agent business.  We represented 55 families.  During the course of all the many meetings I had with HCAD, it was finally acknowledged that the values were left artificially high in order to fund the schools.  I believe the comment was something like, “If we drop the appraisals to the real values we might have to close some schools.”

It was during my time protesting tax values at HCAD that I discovered something worth sharing.  The state law is adamant that the valuations and taxes shall be equitable.  In the case of HCAD, it was easier to get them to lower the improvements than it was the land for the simple reason that technically the lots were to stay roughly the same value.  The rare exceptions were homes next to detention ponds, hones on the corner of a busy entrance, or some other unique issue that justified a reduction in valuation.

In any event, I am betting that this issue of full disclosure is a hot topic in the Legislature again.

Each year a great deal is made of the fact that Texas, like 11 other states, does not require the public disclosure of real estate sales prices. This year the discussion of the pros and cons of full disclosure will be intensified. The Travis County Chief Appraiser, Marya Crigler, has taken the unprecedented step of announcing that she is going to freeze the 2020 home valuations at the 2019 tax values. This announcement has caused a great deal of angst with local officials who have to prepare the budgets for everything in Travis County from school districts to the county expenditures.  It was a clear orchestration to put intense pressure on the Austin Board of Realtors.

One aspect of a boom like Austin is experiencing is that the local politicians can usually brag that they, “held the line on tax increases.” Of course, this is seldom true.  It is often the case that the taxing entities decide to “hold the line” on the tax rate, but with rapidly rising values we end up with significant tax increases. This happens so often in Travis County that the various taxing entities count on the revenue bump . . .  as if it is a built-in tax increase that they did not have to approve.   It provides the politicians with a degree of cover, all the while netting the revenue increases that they seldom own up to.

About a year ago the MLS discovered that our vender, CoreLogic, had been secretly selling our MLS data to the Travis Central Appraisal District (TCAD).  This was blatant breech of the contract and once it was discovered the MLS immediately sent the district a cease-and-desist order.

Cut off from the surreptitiously acquired sales data, the chief appraiser has announced that there is no way for her to do her job without MLS data and that TCAD will not change any residential tax values in 2020.  This leads me to two specific points.  First, I knew Art Cory when he was the chief appraiser and he had to scratch and fight for sales information as well, but he found ways to fulfill the role of appraising all the property in Travis County. Second, like Art, Ms. Crigler is facing an uphill battle without the MLS data, but she is trying a novel approach in an effort to gain full disclosure.

By announcing that TCAD is freezing values for 2020, Ms. Crigler is waging war on the Austin Board of Realtors and the MLS.  It is a risky tactic.  I cannot imagine what the taxing entities are telling her, but it cannot be pleasant.  They were expecting their politically free revenue increase.  If this freeze holds, many elected officials will find themselves on the hotseat if they have to vote to increase tax rates to balance their budgets.

Clearly Ms. Crigler is betting her employment on successfully creating enough bad press for Realtors that we acquiesce or the elected officials finally alter the non-disclosure rules.  I doubt either will happen, which will be interesting for Ms. Crigler’s future.