Understanding the Market – October 2018

Now that we are approaching the holiday season and the end of the year, how is the real estate market behaving?

In September we predicted a continued strong market. Data shows that the trend is at pace with our forecast, whereas growth is expected to slow down nationally. Per Freddie Mac’s analysis, the increasing interest rates, combined with other indicators, will pull the breaks on home price growth in the years ahead: 5.4% in 2018, 4.6% in 2019, and 2.9% in 2020.

GRAR’s monthly statistics in Kent County and the Grand Rapids area – both by comparison to last year and year-to-date (YTD) – show fewer new listings, closed deals, and pending properties. Yet, volume has increased significantly. By how much?

In the GRAR area, compared to last year, closed sales were down by 5.6%, and YTD by 3%. Volume on the other hand increased by 0.8% and 5.8% respectively. YTD average sale price has gained 9.1% based on closed sales, and by 9.4% based on pending deals, confirming the home price growth trend.

Multi-family units are behaving somehow differently. We observe a 2.1% rise in listings, and a 75.9% increase in closed volume compared to last year, in spite of a 11.4% decrease in transactions. Across Kent County the multi-family volume has increased by a staggering 99.9% during the same period. Freddie Mac is pointing to similar interest in new multi-family homes nationally, in spite of overall slower growth in the third quarter.

In Kent County, sales of single family homes valued at $500,000 or above have continued steadily at 4.3% of market share, with 34 units closed in August 2018 and 298 since the beginning of the year.

This general tendency is sustained by the average months of inventory, which has been decreasing steadily from 2.3 in 2014, to 2.0 in 2015, 1.8 in 2016, 1.4 in 2017, and 1.3 as of September 2018.

All these indicators point to a consistent and more balanced market in which home values are increasing significantly in our area, above national average. My personal local knowledge and experience align with the data. While multi-offer situations have decreased – there are seasonal adjustments to take into consideration – demand is still strong.

Whereas mortgage rates are expected to increase for the upcoming two years, raising to 5.6% in 2020, the real estate market continues to benefit from low unemployment combined with solid employment rate.

This seems a perfect time to sell and buy. Home prices are increasing, to sellers’ satisfaction. Loans can be secured with a more favorable rate now, to buyers’ advantage. Fewer multiple offers prevent buyers from overpaying, and sellers from losing a deal due to buyer’s remorse.

Time to make your move!

Happy market everyone! And yes, I am extremely contactable if need be.

GL

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Unsatisfactory Inspection

With the market in the Grand Rapids area becoming more balanced, we are observing a number of buyers walking away from properties under contract.

Paragraph 15 of our West Michigan Regional Purchase Agreement gives buyers 10 days after the Effective Date (we’ll address Effective Date in a different post) to complete all “inspections and investigations.”

This time is considered sufficient for any buyer to conduct an inspection of the property, as well as anything related to zoning, ordinances, codes, and the ability to obtain homeowner’s insurance. A land survey contingency is addressed separately. It is not uncommon for buyers and sellers to agree on a shorter or longer inspection period, or to extend it as needed – for example to investigate further unexpected issues.

The Seller’s Disclosure Statement – which is mandated for residential dwellings of no less than 1 and no more than 4 units, per Act 92 of 1993 – can provide an initial understanding of potential problems affecting a property for sale. Are appliances, systems, or services, available and in working conditions? Has there been evidence of water in the basement? Is the roof leaking? These are just a few of the items sellers are required to disclose – with a few exceptions.

When a legitimate question is raised by buyers within the agreed timeframe, sellers are typically amenable to compromise and negotiations. For example, if pest inspection reveals presence of termites unknown to seller, or if buyer provides a precise quote from a reputable company for a disclosed basement defect, there is a legitimate expectation that both parties will work together to solve the issue and move forward with the transaction.

However, issues may arise when there is lack of attention to details or good faith on one or both sides of the transaction. It is not uncommon to encounter Seller’s Disclosure Statements that are left blank, or incomplete. Sellers are legally responsible for what they disclose. A roof in poor shape, mold, an unfit electrical system, a wet basement, a leaking pipe, all would be easily discovered during inspection, whether disclosed or not. However, any unexpected major discovery, if undisclosed, may raise suspicions on the true conditions of the property. In the very least it could lead to buyers heavily countering their offer, or walking away from the deal altogether.

In a real estate market heavily skewed towards sellers, buyers often agree to accept some flaws, whether disclosed or not, as part of the deal. When the market balances out however, buyers are no longer feeling the pressure of losing their only chance to secure a deal because they feel they have options. Therefore if any issue is discovered buyers might be inclined to avoid negotiations and end the deal within their ten days, believing there will not be repercussions. Most of the times this is correct, sellers and buyers agree, sign a mutual release, and buyers are refunded their EMD.

Problems begin when there is disagreement, for example if buyer perceives bad faith on seller’s part in disclosing potential issues. Or if seller believes that buyer is ending a deal due to frivolous reasons. The first item to be contended in these instances is the EMD. Without a mutual release, if the deal fails to close, the Broker holding the EMD will notify the parties on Broker’s intention to dispose of the EMD. If one or both parties objects in writing within 15 days after the notice, the issue could potentially end up in litigation. In short, walking away from a deal could be a costly and time-consuming decision.

In conclusion, when selling a property, sellers should complete the Seller’s Disclosure Statement to the best of their knowledge. When acquiring a property, buyers should place an offer only if they intend to close on the deal in all good faith. These simple steps will avoid major headaches later on, assure a pleasant and smooth transaction, and grant a rewarding experience on both sides.

Questions? As usual, I am extremely contactable at any time!

Happy house hunting!

GL

Giuseppe Lupis REALTOR®