The McAllister Team Blog

Now that the home buyer tax credit ‘frenzy’ has run its course, it is time to look ahead to what will sustain our local real estate market over the next three to five years and into the next decade. Short term, sales and increases in property values will level off now that the tax credit has expired and the summer vacation season begins. However, I firmly believe the worst of the real estate recession is over and better days are coming. In fact, I am more bullish on real estate now than I have ever been.

Here is why:

As we know the ‘baby boomers’ have driven our economy for the last 20 to 30 years. This generation, loosely defined as those born between 1946 and 1964, contains almost 80 million members. The baby boomers, as every generation does, grew up and began families or their own. In fact, it is estimated that between the early 1980’s and late 1990’s the baby boomers became parents to a brand new, 80 million member demographic group, known as the ‘echo boomers’.

Why is this important to those of us who own real estate? Because the echo boomers will need housing of course. This group of potential homebuyers, coming of age right now, will need places to live. Many of these young people are thinking about moving out of their parent’s homes for the first time, many are just entering the workforce out of high school, and many are graduating college. Echo boomers are entering their peak years for forming their own households.

This HUGE group of young people will be looking for rental housing, existing homes, and even new homes to purchase. Quality, affordable, starter homes will be in wide demand over the next three to five years and beyond. This new demand will allow people who purchased their existing homes 7 to 10 years ago, to move to their next home, thus generating demand throughout market.

In some respects this group is getting off to a late start, given the state of the economy the last couple of years, many young people are still living at home, whether they can afford to be out on their own or not. People of all ages have been doubling up, taking roommates, or living in Mom and Dad’s basement in an effort to reduce expenses and save money for a down payment on a home. This trend will not last forever. In fact, as people become more comfortable in their employment prospects, I expect a mini boom here in Ohio and throughout the country.

First time buyers already make up almost 50% of recent home sales. This trend will continue and probably get stronger in the short term but level off to more traditional levels as the overall market improves. This combined with the fact that the baby boomers are living longer, more active, and mobile lives than any generation in history, makes the outlook for housing very bright in deed.

Housing has been through a very bad patch, but long term, it will remain a solid investment.

Demographics will see to that.

Chris McAllister is a Realtor® and Business Development Director for Real Estate II, Springfield, Ohio. Chris can be reached at 937-390-3715.  chris@realestate2.com

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If you are a real estate practitioner and want to understand what happened to your business over the last three or four years, or if you are a homeowner bewildered as to how the value of your home could drop like it has, I have a couple of books for you to read. 

It seems most of us don’t have time to read much anymore, including me, so I purchased these at Audible.com and listened to them while working out or driving in the car.  Both of these are actually very interesting and at times read like ‘thrillers’ even…  (that might be stretching it a bit but I really enjoyed the intrigue.)

The first is the new Micheal Lewis Book, _The Big Short_.  It is the story of how three different investment firms were able to shield themselves from all the hype surrounding the mortgage industry, credit default swaps and assorted other ‘investment’ products and see the truth of what was happening.  When they saw the truth, they made bets against the conventional wisdom and were prooven correct over time.  Lewis explains how and why Wall Street drove the sub-prime mortgage markets to the extremes they did.  He also explains who was on either side of every bet, and how the ‘bookies’ or ‘casinos’ i.e: Lehman, Bear, Goldman et. al, made a fortune.

The second book I liked was _The Quants_  by Scott Patterson.  This books explains how the ‘smartest guys in the room’ made billions performing ever more complicated feats of financial engineering in an effort to maximize profits and eliminate risk.  The quants were incredibly successful until real life and it’s attended uncertainties overwhelmed their rational market models.  The thing I took away from the this book is that while nothing exactly like the meltdown we just experienced will happen again, something else will bubble up and burst soon enough. 

I’m allowing myself one more indulgence before I put the past behind me, and that is Andrew Sorkin’s _To Big to Fail_.  I’m glad I started with the first two books above because it lays a base for understanding why the federal government did what they did in bailing out Wall Street.  This one has more of a ‘human interest’ feel to it but nonetheless, helps to explain what really happened during the last three years.

Sometimes a little historical understanding helps us move forward.  I truly believe that by understanding the past, we have a better chance at accurately interpreting the future, and the future opportunities, ahead for us in real estate.

There is a lot of confusion and misinformation in the real estate community and among home owners and buyers about what is involved in a ‘short’ sale.  A Short Sale is a situation where the seller’s lender agrees to accept less than what they are owed when a property is sold.  This can be a benefit to a home owner potentially facing foreclosure.  Short sales can be very frustrating for all concerned, but as time passes, some semblance of order is slowly making its way into the process. 

First of all, real estate agents and brokers are NOT attorneys, accountants, or tax experts.  We are licensed to perform a very limited set of services.  These include understanding the details of the local market, making sense of historical sales and future trends, making informed pricing suggestions to clients, negotiating price and terms, and ensuring a transaction makes it to the closing table.

Any seller contemplating a short sale should indeed enlist the services of a Realtor®, but they should also discuss their personal situation with their attorney and tax advisor.

A common misconception about the process is that the bank is in charge.  The bank is the final arbiter of the outcome as a short sale only makes sense if the bank would lose more money foreclosing on the property, or accepting a deed in lieu of foreclosure from the seller – but the bank is not in charge of the short sale process.  Up until such time as the deed transfers from the existing home owner / seller to a new owner, the seller owns the house and controls the process. 

What does this mean?  It means that Realtors® need to approach a potential short sale listing as they would any other listing.  That means starting with a complete and thorough comparative market analysis, or ‘CMA’.  The rule of thumb should be: ‘What is the most amount of money I can get this home under contract for in the next 90 days?” 

That means, just as an appraiser would, the Realtor will go back and look at comparable sales in the neighborhood for the last six months. If there is not enough sales history available from the last six months, they may have to go back a year or more.  They will then look at what is currently for sale and try to establish the current trend.  Is the market falling, or stabilizing?  Either way, the Realtor’s job is to figure out what the house is worth, or what it will appraise for today.  The Realtor needs to have enough data to defend their price recommendation to the homeowner, and potentially to the lender as well.

So what happens next?  Without fail a well priced home is going to generate offers.  A popular misconception is that any offer, no matter how low, has to be presented to the lender.  This could not be further from the truth.  Based on our experience and contact with several lenders, a lender is only going to consider an offer between 90 and 95% of the list price.  If the home is priced right to begin with, it is entirely reasonable to expect a full price offer and potentially multiple offers.

The primary reason it takes so long to get a response back from a short sale request is that the system is clogged with ‘low ball’ offers that the bank is never going to accept.

Regardless of the number of offers received, it is up to the seller to select the best offer in terms of price, terms, and the ability of the buyer to close.  This is no different than if the transaction were not a potential short sale.  The sellers look to their Realtor for advice and counsel during this process, and again, this is what we are licensed to do. 

The seller owns the house, it is the seller that accepts the best offer received, and it is the seller that requests their lender to accept a short sale based on this offer.

To review, the short sale process is a time consuming, and most times a frustrating process as well.  However, keeping in mind the following key points will expedite the process:

• The seller owns the home and makes the decisions.
• The Realtor is there to help the homeowner get the best possible price for the property.
• The market analysis must be defensible by the Realtor.
• No offer should be submitted to the bank that is less than 90% to 95% of the list price.
• Only one offer should be accepted and that is the offer that goes to the lender.
• Most importantly, your Realtor is NOT an attorney or tax advisor – get expert help.
• Your Realtor is the key person that will help get you to the closing table.

Best of luck!

Chris McAllister is a Realtor® and the Business Development Director for Real Estate II.  Chris can be reached at Chris@RealEstate2.com and 937-390-3715 Ext 401.