Monthly Archives: April 2014

By Jeff Stewart, CCIM, Broker Associate,  Stanberry & Associates

We are experiencing a high number of failed contracts.  The reasons vary, but two stand out. First, after buyers repeatedly lose out to multiple offers, they begin to pull the trigger with less caution.  The result is that buyers may jump into a contract first and look later.  Also when buyers pay full price or above, they understandably expect the seller to remedy issues found by inspection.  If that is not the case, they tend to back out of the deal.

The other issue – which raises the question of, “Is it legal?” and “Is it ethical?” – is that of simultaneously placing multiple properties under contract with the intention of closing on only one.  First, as long as the buyer has paid an option fee for the right to back out of the contracts in some specified period of time, I doubt there is any legal issue.

Why would buyers place several properties under contract at thesame time if they only had interest in purchasing a single house?  The answer varies, but the root cause is lack of inventory.  Some buyers contract for more than one property and then decide which one to close based on the results of the inspection report.  In other cases, out-of-town investors have been known to contract for several properties and then come to Austin to decide what to close and what to release.

Is it ethical?  That is a tougher question.  Certainly it does not feel quite right if you are the seller and you were acting in good faith and have begun to make moving plans.  Buyers on the other hand argue that they paid the sellers for the right to option out of the property and that they are completely within their rights.

The question of ethics on subjects such as this can get tricky quick.  For almost the last year and a half I have been participating in graduate classes at St. Edward’s University.  The program, organizational leadership and ethics, has served to remind me that the Board of REALTORS idea of ethics may seem valid from our historical point of view. But that perspective is from a shared culture that has been largely unchanged for quite some time. As our industry rapidly changes because of shifts in technology and a society that expects near instant results, it will be a challenge to reconcile divergent perspectives in future ethical debates.

Jeff Stewart, CCIM

jstewart@stanberry.com

Stanberry & Associates, REALTORS

Flood Insurance Rates Changed Again

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By Jeff Stewart, CCIM

FLOOD INSURANCE

With the Biggert – Waters Act, Congress had decided to stop subsidizing the National Flood Insurance Program (NFIP). The phase out of subsides was to happen over the course of five years.  However due to public outcry, Congress and the President have relented to some degree.  The new legislation was just signed last month and I have only seen news reports as to what to expect.

The Homeowners Flood Insurance Affordability Act (HFIAA) will roll back insurance rates for many homeowners.  For those lucky owners, their policies will be limited to rate increases of 18% per year.  Earlier, some had been reported to have jumped as much as 500% after the Biggert-Waters bill had been passed calling for the eventual elimination of subsidies.

The new legislation is still focused on getting rates closer to reality and that may be bad news for owners with second homes . . . particularly in areas where the flood plains have risen since most of the homes were built, like Lake Travis.  The FEMA floodplain at Lake Travis was raised six feet a number of years ago, but not until many hundreds of homes were built along the 67 mile length of the lake.  I have read conflicting accounts regarding how HFIAA will treat second homes that were originally build out of the floodplain. As a general rule, it looks like NFIP rates on these homes will rise at 25% per year until they reflect the true cost of the insurance.  Industry insiders have stated that it may be a year before we learn exactly what new rules will be implemented.

So what do we know now?  We know that NFIP is roughly $28 billion in the red and that Congress is determined to stop subsidizing it. We also know that virtually any lender is going to require flood insurance if the structure is in the 100-year floodplain.  We are all aware that floodplains almost always go up with development – not down.  The exception is when engineering projects can channel areas or provide protection with levees. We also know that recent increases on some policy holders were as much as 500%.

In short, we should be smart enough to see that owning any home in or very near the floodplain is going to become too expensive to make sense.  Congress may have momentarily reduced the pain for thousands of homeowners, but the end result is still going to be the same soon enough.  The only reason this has not been a burning topic around Lake Travis is that the extremely low lake level has chilled all demand for waterfront homes.

Jeff Stewart, CCIM   Stanberry Commercial

jstewart@stanberry.com