6 Easy Improvements to Increase Your Home's Value

1. You never get another chance to make a first impression: Most buyers have made their mind up whether they will offer on a house when they are standing outside the front door. If the entry is a mess, it leaves a terrible first impression. Paint or stain your front door; add polish to brass fixtures, fix numbers and door knobs; trim the bushes; plant flowers; spruce up mulch and have a great, new welcome mat.

2. Cut the clutter: You are moving, so get going. Minimize personal items so the home feels light and airy. Have a garage sale or rent a dumpster and declutter. Straighten cupboards, closets, offices and get rid of as much stuff as you can. You are going to have to move it eventually so you might as well get the benefit of your house showing well.

3. Clean and shine: Make sure your home is spotless and fresh smelling. Hire a carpet cleaner, clean the windows, wash the walls and make sure any odors are good ones. No pet smells, smoke or moldy odors. Careful not to overdo the air fresheners.

4. Paint: This is probably the most cost effective tool in your arsenal. Bedrooms can be left out if needed but make sure your paint is fresh. Spackle walls and fill holes and then pain in neutral colors like grey, beige or white, especially in high traffic areas.

5. Fix anything that needs fixing. The saying goes if it aint broke don’t fix it, thats true, but if it is broke, fix it. Nothing makes a buyer feel like a house has been neglected more than seeing a needed repair.

6. Pay attention to the bathrooms. Bathrooms can sparkle with a minimal investment in money. Replace vanities, soap dishes, wall coverings, light fixtures. Replace any worn caulk and replace showerheads and faucets with new ones. Think hotel clean.

Price gains in Hugo 26.6% this year!!!

What is going on with the real estate market? I was always taught by the real estate economists to look at several different fundamentals to determine the state and direction of the market. If the fundamentals are all going up, the market is rising, if they are all decreasing, the market is falling. If its a mix, the market is changing and stay tuned….Let’s look at median sales price, inventory supply, days on market to sell and list to sale price - those are the big four fundamentals.

Median sales price is up 26.6% in Hugo for the past year. That is unheard of in my 20 year tenure in real estate. The most I can remember is a double digit price gain being off the charts.

Monthly inventory is at 1.3 months. That means that all the inventory listed for sale will sell in about 1 month at the current sales rate. 4-6 months is considered a balanced market. Still a major sellers market and what is driving the price gains.

It takes an average of 10 days on the market for a property to sell. That is unbelievably fast. I don’t know what the historical average is but I would guess 40-60 days.

100.6% - that is the average percentage of list price that a home sells for. Over list price is the norm. This drives pricing up faster and faster.

When you look at theses four fundamentals, there is no sign that the market is slowing or changing any time soon. The main driver is the lack of inventory. The market needs more sellers to slow the demand that is driving up prices. I would guess with 26% annual price gains that it might entice some sellers to enter the market…but with a lack of options of where to move to, it is still a challenge…

year over year median price gain in Hugo 26.6%

Highest and Best...i'm sick of it.

Everytime there are multiple offers on a house, how do realtors tell the Seller of the property to handle the situation? They call for “Highest and Best” Right? If you have been out shopping for homes lately, you have heard this. I say there is a better way…for everyone.

First, lets start with where did this “highest and best” come from? It came from the banks who were selling foreclosed homes in the Great Recession housing crisis when almost 50% of sales where foreclosures or distressed properties. A bank hires a realtor and they are handling multiple properties and every property has 10+ offers on it and the agents are overwhelmed, and making very little money on every transaction. They don’t want to work to make the seller a few extra dollars. Also the Bank and the realtor don’t communicate very well, especially on multiple properties, so they tell the realtor to sell the property and get them the most they can for it. No offense to the realtor, they don’t really care if they get $5,000 more for the property or not, they get close to market value, it sells quick and they move on. Everyone is happy. So they called for every Buyer to submit their “highest and best” offer by a certain date and time - no negotiating, no telling anyone what the offers are, get the highest offer, send it in to the bank and move on. So many realtors were involved in these transactions and that’s where they figured out how to handle multiple offers. Realtors think this is how we have to handle this.

I say there is a better way….for everyone

Here is how I handle multiple offers. I disclose the offers to all parties. Yes, this can be done as long as you have the Seller’s permission to do so. Most Sellers want you to get them the most amount of money and the best offer and if this is a way to do that, why wouldn’t they want you to do so.

Lets say we get 3 offers on a house that is listed for $499,000. The 3 offers are $490k, $499k, $503k. Again, the way most realtors would handle this is to let all Buyers know that they need to submit their highest and best offer by 5pm on Thursday. So, the buyers don’t know what the offers are maybe they go slightly above list price but they aren’t going to overbid without knowing what the other bids are. So maybe the bids end up $495k, $501k, $505k. Not bad, you would think a Seller should be happy. But they left money on the table.

Let’s play it differently. Once we receive all 3 bids, let’s try this. Lets tell the 3 offers what the other offers are and tell them we are going to pick the best. Now one of the buyers says after hearing about a $503k offer: “well we gave them list price but we are willing to go up a few thousand and if we go to $504k, we can get the house. So they go just higher than the $503k offer and now you have $504k. Now the offer that was at $503k says, well I’ll revise up a couple of thousand and go to $506k, of course they would go up a couple thousand. And this keeps going until one of the buyers says, we aren’t going any higher. Then the Seller picks the offer they want. In general the Buyers stretch as far as they possible can to get the house. And not only is the Seller happy but the Buyers feel they have had a fair shot at the house. If they wanted it, they could have bid higher. I can’t tell you the number of times that a Buyer has said, “of course we would have bid a little higher, we just didn’t know what it would take to get the house”.

So I am trying to educate realtors to handle multiple offers differently because I think it is a more transparent, fair process to all involved and it gets the Seller the most money for their house. I have had great succes in multiple offer situations using this tactic and will continue to do so in the future.

Can't find a home to buy. There's a new crisis brewing.

Can't find a house to buy...can you believe it? The real estate market may have a different kind of crisis brewing. If you want to buy a house... you can't. There are 8 single family houses for sale in Hugo right now (excluding new construction). The lowest price home for sale is $400,000. Look at the active single family homes on the market in the photo below, there are only 3 houses on the market in Stillwater under $300k. Any house with an a, is sold on a contingency. The homes with just an a are the ones available. (a,s is sold on the sale of the buyer’s property so technically still available but still sold to some degree and many buyers won’t look at these homes.)

The buyer's have certainly disappeared behind their masks but so have the sellers. Uncertainty, stay at home orders and health concerns have dampened both sides of the housing market. But, there are needy buyers and they are fighting for houses to buy. The buyers looking for houses right now, aren't tire kickers and the pickings are slim. Would you go out and look at houses right now if you weren’t looking to buy a house immediately?

Multiple offers are common in homes under $400,000, if you can find one. There are buyers out there, not a lot, but they are struggling to find inventory in especially the affordable price points. This is what might keep the housing market in decent shape for the foreseeable future...a declining market is led by over supply and rising inventory. Supply and demand is the main driver of the housing market. More sellers than buyers - prices fall. More buyers than sellers - prices rise. If you can believe it, we probably have more buyers than sellers right now in the affordable price points.

Am I saying this is a good time to sell your home.? Obviously, no. Surprisingly the housing market has reacted in self preserving way right now. It's gone on pause, especially on the selling side.

The market does change as houses get more expensive. Look at the photo below of homes on the market in Stillwater price between $400,000 and $600,000. 25 homes for sale and 5 of them are sold with a contingency. So, under $300k was 20 homes on the market with 15 sold with a contingency vs. $400k - $600k with 25 homes on the market with only 5 sold. Big difference in availability and buyer demand. I am not even going to look at the over $600k price point because I know the direction it is going.

The big concern to the housing market would be another foreclosure crisis like we had in 2006 - 2010. When banks become sellers they reduce prices until a property sells. It also floods the market with inventory because banks are losing money every month that a houses sits vacant so they are going to sell as fast as they can. That could happen here if the economy doesnt’ recover and the most fragile home owners can’t keep up on their mortgages. But for the time being and if we can find away to get back to a sense of normal, this pause by sellers has kept the housing market in decent shape to emerge from this without a big dip in prices.

It starts at the bottom and works its way up. The upper bracket homes are the first to feel the effects of decreasing buyers as these buyers are move up buyers who sell their existing home and then buy a bigger, better one. If people are uncertain and scared, they are not going to sell the home they are in. They will stay put. That decreases the over $500k buyer pool which causes a negative influence on those prices. So, if theses owners don’t sell their $300k-$500k house, that pulls a lot of inventory off the market in the more affordable price points, which is what is happening now. It becomes a tale of two markets: one a buyers market and one a sellers market.

There are a lot of other factors at play here. Amazing low interest rates (30 yr - 3.31%), tighter lending requirements, fear of the unknown, deflation, inflation, etc. so we will see how this plays out . For now at least, the pause on the housing market is keeping it poised to rebound if we can pull out of this in the next few months.

Stay tuned…

Are any buyer's still looking at homes?

The graph below shows the latest showing activity for the state of Minnesota. This compares the number of showings for the current week to the first week of January. It is a way to compare the demand side of the supply/demand ratio. Showings are when a realtor shows a MLS listed to property to a buyer. Its generally the best way to track how the market is going, at least on the demand side.

As you can see, this week showing activity was about 10% less than the first week of January. That’s not much, especially since the first week of April is historically the beginning of the peak spring season which runs from April - June.

This doesn’t mean that there are no showings. Houses sell every year in January and more than you would think. There are always buyers moving, and sellers needing to sell, so 10% less than January is still a market. And, the buyers that are out there looking for homes right now are not tire kicking. They are serious buyers who need or want a home now. In a normal market, probably 30-50% of showings are buyers that are not prepared to buy a home yet and are just getting information. So, really the market is probably a little better than the showing activity shows.

Now for the supply side. I pulled the new listings in March 2020 and compared it to the new listing data for March of 2019. Listings in March were about 5% below the listing level seen in 2019. Very surprising. After an initial pause in listing inventory, most of the sellers that were intending to sell this year have continued with their plans to list their homes. What does this mean? It means that buyers are acting like its the middle of winter and sellers are acting like its business as usual.

For the past few years we have been in a low inventory market, especially in the lower end price points. So, we will we be able to absorb some of this added inventory and it is even a good thing for a healthy market in some areas to have more supply and create a more balanced market. But, if this scenario continues for months on end, then seller supply will begin to outpace buyer demand and that will lead to a negative pressure on prices.

My guess is that it won’t continue like this. I think a lot of the sellers that are listing their homes right now were all set to go prior to the Corona outbreak. They are thinking, well we are all set to list, what’s the down side to testing the market? And they are probably right. Most of the sellers that were thinking of selling later in the year or would be beginning to think now, probably have had their plans changed. I think that after the initial surge in houses coming on the market, if we go several months of lock down, that the houses listed on the market will begin to decrease. Part of this is just the lockdown itself. While real estate is classified as a necessary business and allowed to work, which includes all the vendors needed to get a house on the market like photographers, painters, handyman, etc., many people have chosen to put a pause on all of that until a later time. The sellers who are listing now had most of this work done prior to the outbreak so it didn’t affect their timelines.

In summary, there are buyers out there but don’t let anyone tell you that its business as normal. Buyer showings are very low right now. There are buyers and they are motivated buyers, but it depends a lot on what area you live in. I looked at showings in the Stillwater School District from March 18th - April 1st, basically the time we have been locked down. There were 7 for 256 homes on the market. That’s scary quiet. Normally the numbers would be in the thousands. As long as sellers eventually get this message and begin to pause their listing activity the market should be able to absorb this shock. If they don’t and inventory grows, we will be in for a new selling market when things get going again.

Showng activity in the stillwater school district since March 18th. 7 total showings on 256 active listings.

Corona Real Estate Update March 26, 2020

As of March 26th, real estate has been classified as an essential business by the State of MN. Closings have been allowed to happen and agents are still allowed to show houses. Buyers and Sellers have been signing separately at closings and they have been as minimally attended as possible. Moving companies are classified as essential services as well, so if you need to hire a mover, you can. All open houses have been banned. So overall, if you have to move you can but keep interactions to a minimum.

Despite being allowed, the real estate market has basically like everything else, come to a halt. Last week there were 3 showings of homes in the Stillwater School District for the 224 homes listed for sale. So, the market is basically shut down. Despite the lack of buyer activity, there were still 16 houses that still came on the market last week.

The attached graph shows how the current showing activtiy for the week compares to the first week of January activity. The first week of January is basically, no activity in the real estate world. Only the buyers and sellers that really need to move are out looking in the first week of January. Its freezing and it’s the holidays. As you can see on the graph, we are about 10% above that first week, and we should be at just about the busiest time of the year. There are people who have to move and that who is out looking at homes.

With the stay home order from the Governor, this is going to continue and even shut down the market further. My quick thoughts on the market (that could be way off depending on where the crisis goes) is that this is going to be a different crisis for the real estate market than the housing crisis of 2006-2010. The market was flooded with inventory then (mainly from foreclosures) and that's what caused prices to fall. As long as we don't have a huge foreclosure crisis, then most sellers are going to wait this out and prices hopefully won't dramatically fall due to over supply. It all depends on the length of the crisis. We will see. It could go in a lot of different directions. I hope this helps and if anyone has immediate questions, let me know. I'm just sitting at home :)

How will Covid-19 affect the real estate industry

It depends on how long this lasts and the severity of the hit to the economy. Housing prices rise and fall much slower than the stock market but the fundamentals are the same, supply and demand. If there are more sellers than buyers, prices fall. If more buyers than sellers, prices rise. Right now, buyers are scared and that is going to but a big damper on the buyer pool but most sellers will choose to pause as well.

Part of the good news: we are starting from a low inventory market, which will give the system some slack to absorb the coming inventory.

This crisis could be different, at least initially because a lot of sellers will not put their house on the market until this blows over, which will keep inventory low. Therefore, even with a huge drop in fearful buyers, low inventory will keep prices from falling too fast. Think an extended January market. Its like 6 months of January, very few sellers, very few buyers, prices hold their own until the spring market hits and then prices rise as buyers need to outbid each other in order to win the house.

The problems will come if this is an extended winter when people start losing jobs and not being able to afford mortgage payments. Then we have a foreclosure crisis just like the housing crisis of 2006 -2010 over again. This starts at the bottom and eats its way up the housing chain to eventually affect the move up buyers and the luxury market.

The only way I see this not happening right now is if this is a short quarantine and everything gets back to normal fairly quickly and that doesn’t seem to be the case.

Initial reports from the National Association of Realtors show house showings to have dropped to levels similar to the 1st week of January, which is when only the people that really need a house are out shopping. That data was through March 17th. I would expect these numbers to continue or even drop to levels less than that. See the graph below, the axis on the left represents the percentage change in showings from the first week of January to the current week. See where the lines cross over, that is about March 12th when everything began to shut down. In a normal world, every week from Jan. 1 to the current week showings should increase until a peak around June. The good news is the showings aren’t less than January, yet, but we will watch that going forward. I think we could handle low showings but if that number gets under 0%, the market is shut down. Hopefully if it does shut down, its for a few weeks and then begins to rise. This will be an important statistic to watch.

The good news about the virus and real estate is how showings happen. Buyer and Seller don’t need to meet. An agent and the buyer can stay 6 feet away from each other. Other than the door knob, which could be sanitized, nothing needs to be touched. So, from a health stand point, there is no reason that a housing market couldn’t continue. Obviously, there are the financial concerns, but from a functionality standpoint, this can continue. There are virtual tours and video to cut down on showings until necessary. I was out yesterday looking at houses. The buyer rode in their own car and we were aware of our distance.

All that being said, as this goes on, houses will sell, buyers will buy, especially as we can see the end of the tunnel. Investors will step in looking for opportunity. Interest rates will most likely be the lowest they have ever been trying to generate opportunity for buyers, especially first time home buyers.

Obviously this is going to affect the housing industry. The Sellers who get hurt the most are ones that sell and don’t buy. It can be a great opportunity if you are selling and then buying a different house, but just make sure you can sell your house. And if you are buying and not selling, it can be a great opportunity. People always need a place to live, that will never change and there have been housing crises for as long as there has been real estate. In the late 70’s there was the interest rate crises when rates where almost 20% and sellers had to pay 25% points to a buyer to sell. The dot.com bust, the Great Recession. They are all a little different and we will watch how this one plays out.

Thinking of selling a hobby farm?

Farm Story

You have lived in Washington County for 4o years and always knew that at some point in time the work would get to be too much for you and you would have to move. Where? That’s another question and one that gets answered after we figure what to do with the farm or acreage property that you have lived on for most of your life. Maybe it has even been in your family for generations and no one has thought about selling it for 80 years. But now, none of your kids have any interest in the lifestyle or could they afford the price if they did and at some point you know that you won’t be able to keep the place up. And when that happens it will begin to deteriorate and probably lose the value that you have spent years creating.

This is a common story that I hear from many property owners in the St. Croix Valley and Washington County. They can’t stand the thought of moving from paradise but they know the reality that at some point the story comes to an end and its better to prepare a little early for the inevitable. Maybe even secretly you’ve wandered what life would be like if you didn’t have to do chores every morning in the middle of winter or cut grass for 3 hours every weekend in the summer.

Step 1: Figure out what you have

The first step to selling your hobby farm is to figure out what is the highest and best use of the property and by doing this you figure out the maximum value the property can be sold for. I am not saying anything about deciding how to sell your property at this point but you want to know what your options are and what the highest potential value of your property would be. There are other factors that will influence which path you ultimately decide on such as how much time and effort you want to put into some of this and how much more money one option has than the other. Also, certain options will sell faster than others and that is a factor. Most hobby farms are on over 10 acres of land and the minimum lot size in many of these areas is 5 or 10 acres. So, lets take a property in an area that is zoned for 10 acre lot minimums. if a property is currently on 30 acres, there is a potential for creating three 10 acre lots. In order for new lots to be created there also has to be a minimum amount of road frontage depending on the municipality, lets say 300 feet. So if you have 600 feet of road frontage you most likely would be able to create an extra lot for sale. Now, look at the value of the original homestead on 30 acres and its value and compare that to the value of the orignal homestead on lets say 15 acres and another newly created 15 acre parcel. The topography of the land and any wetlands and driveway access would play a part in how the new parcel should be laid out but this gives you a general idea. If you think that the the value of the house on 15 acres and the value of the newly created 15 acre parcel is higher than selling the homestead on 30 acres, you should contact your city planner and tell them what you are thinking. You are not committing to anything at this point. You are just looking to see if what you are considering is feasible.

The planner will let you know if your idea seems reasonable. They will let you know what you need to do to perform a lot split. There is a formal application process that is online and easily downloadable. But that is all if you decide to actually perform the lot split. Maybe you won’t but at least you want to know what the highest value of your property is. It really isn’t that difficult to split off one parcel of land from a homestead and often that is the best option for an owner. I generally find that additional acreage land is worth about $5k/acre after about 10 acres, where a 10 acre parcel can sell for $10k-$20k/acre by itself.

Step 2: Start to downsize and declutter

This could probably be step 1 once you know that a sale is coming and this can take several years, depending on how much junk you have accumulated over the years. And this is probably the one that scares a lot of people because of the amount of stuff that seems to accumulate in the assortment of out buildings that we can fill up.

The first think I would do is get a dumpster and start to throw things away. There are many dumpster companies out there that will drop off a dumpster, usually a 10 yarder is fine to start with and leave it on your property for as long as you need it and then pick it up and haul it away for $400-$500. You want to make sure not to get one with high sides that make it difficult to throw things up and over the sides but other than that the size isn’t that important. If you fill one up, you can always order another one.

There are also auction companies out there that will come to your house and auction off much of your personal property. I have use Twin Pines Auctions out of Forest Lake and they generally take about 50% of the price of an item. They are very good at valuing odd items like saws and old furniture or older farm equipment. They do an online auction and also allow buyers to come out during certain times and view the property. They get an amazing turn out. Its a good way to get some money out of items that have some value but not a lot. If you do have any larger value items, like a tractor or a snow mobile, it might make sense to sell that separately on Craigslist or through other channels to maximize the value where you don’t have to give 50% away. You can also set aside any items that you don’t want to sell or include in the auction.

So, after the dumpster and the auction you should have made a good dent in the amount of belongings that are left. Barns don’t have to be completely cleaned out by the time you put your property on the market, but they usually do by closing so if you are downsizing anyway, it probably makes sense to have the property show better to buyers. It is possible that you can negotiate the buyer to take a lot of your junk that is left but you will need to pay extra for that.

Step 3: When to sell?

Life happens and circumstances come up that don’t allow us to follow the plan, but if you can, I would try to get a hobby farm on the market in the spring. Generally the buyers of these properties are families with kids still in school and they would like to move after the school year is over and prior to the next year. This means they are looking in April - June and would like to close in June-August. The buyers usually are established enough in their careers and they have enough income to afford the cost of a hobby farm but young enough that they can handle the physical labor that a hobby farm requires. They usually aren’t in the toddler phase of parenting where they can’t keep their heads above water, but are looking to provide their school age children with a lifestyle of farm animals and work that they can enjoy for many years. There are some buyers that have enough money to be able to hire a lot of the work to be done and just enjoy the privacy of country living and for them, and maybe schools aren’t as big a concern, but in general I would pay a lot of attention to trying to sell during the school cycle.

Overall, selling a hobby farm can seem like a daunting proposition running the gamut from, I can’t believe anybody would ever buy this place to I can’t believe I would ever sell this place. But, times are always a changing…and there comes a time when a home needs to go to a new owner. Just plan a little bit ahead, move a little slower than a normal seller and maybe you will even be surprised at how your investment paid off…

iBuyers: A new choice for home sellers but at what cost?

Here is an article from Collateral Analytics, a real estate research company.

iBuyers: A new choice for home sellers but at what cost?

by Dr. Michael Sklarz* and Dr. Norman Miller** August 07, 2019

Introduction

iBuyers offer quicker closings for sellers who would like to avoid the uncertainty of knowing when and if their home will sell. For motivated sellers who want a predictable sale date and need to move, perhaps a long distance from the current location, there is no question that iBuyers have provided a welcome alternative to traditional brokerage. Rather than compare iBuyers to traditional brokerage, as if the market was required to offer only one choice, we welcome a plethora of choices for home buyers and sellers. A robust and competitive market will provide different levels of services and charges to compensate providers for cost of service and risk. Here we address the question “ Who are the iBuyers, how do they make money, what risks do they face, and what are the benefits for sellers?”

iBuyer background

The largest iBuyer, based on capital raised to date, is OpenDoor, but there are several others including OfferPad, Zillow Offers, Redfin, Knock, Realogy, CataLIST, Perch, Keller Offers from Keller Williams, and many others. Some of these are local brokerage firms like SDCountyhomebuyers.com and we can expect a few localized iBuyers in every major metro. In fact, iBuying can be viewed as comparable to corporate relocation companies that have been around for many years, providing a guaranteed a sale for employee transfers, but now offered to the general public and paid for directly by sellers.

When did they start?

OpenDoor, now with over 1300 employees, headquartered in Phoenix, started in 2014 and is available in at least 20 major cities as of July, 2019. OpenDoor has been reported to have raised at least $1.3 billion dollars and purchased over 10,000 homes in 2018, more than three times the number of homes as the next closest competitor, OfferPad.1 They also sold more than double the number of homes as OfferPad.2 OpenDoor has now teamed up with Redfin.

OfferPad started in 2015. Another iBuyer, Knock is slightly different, in that it provides a home trading platform, assisting the seller by temporarily buying your new home and then selling your old home. As such Knock is combining the functions of a short-term banker with those of a brokerage firm.

Zillow Offers jumped in after witnessing the growth of OpenDoor and is on pace to enter more markets by 2020 than OpenDoor and OfferPad combined, based on their listing data base presence throughout the United States.

The industry is still in its infancy and represents an extremely small part of the overall market, but one can’t ignore any financial innovation that has been growing in market share at over 25% per year. Eventually the most efficient firms, that make the fewest mistakes, with enough capital to reach significant market share will remain. At the same time, traditional brokerage firms are likely to add this option for sellers, if they have not already done so.

What do iBuyers charge compared to traditional transactions?

Traditional brokers fees generally range from 5% to 7% of the sales price, with 2% to 4% charged to sellers and 3% typically paid to buyer’s agents, known as a co-op fee. In addition to this cost, buyers typically pay some closing costs including lender related charges in the range of 1% to 3%. Aside from direct transaction costs, the sellers must often spend time and money on home repairs, frequently clean and leave their home for showings, and bear the uncertainty of not knowing when and if the home will sell.

iBuyers charge sellers a “convenience fee” of 6% to 9.5%, some also charge the seller for fees typically paid by buyers at closing adding another 1% or more. Most iBuyers will inspect the home, assess a generous home repair allowance and negotiate a (an additional) credit to handle such repairs. Some iBuyers like OfferPad will pay for moving costs within 50 miles and allow a few extra days after closing. Overall the total direct costs, ignoring repair credits, will run 7% to 10% for an iBuyer, versus the typical 5% to 9% combined seller and buyer costs with a traditional broker. Yet, that is not the end of the story or comparison.

iBuyer Prices Versus Traditional Market Prices

Comparing the transaction costs above of iBuyers, one might conclude that for 2% to 5% more than a traditional agency, I can sell my home with certainty, avoid the hassles of showing and shift the risk of not knowing when the home will sell to the iBuyer. iBuyers are well aware of the risks inherent in selling a home. Using their data analysis, they should, hopefully, know about competing inventory, how long it takes to sell on average, and how much they will need to sell below market, if they wish to sell fast. iBuyers also need to be compensated for their capital costs for typically 60 to 80 days. Because of these risks and costs, iBuyers cannot afford to buy all homes offered at all times of the year, without a conservative offer price. The more unique the home, the worse the season for selling, or the more competing inventory is present in the local market, the more conservative will be the offer price.

Using public record data to identify iBuyer and non-iBuyer purchases, Exhibit 1 below shows quarterly median single family prices paid on a per square foot of living area basis in the Phoenix metro for two of the larger iBuyers compared to the rest of the (non-iBuyer) market. It should be mentioned that these prices represent the purchases which we could easily identify and totaled approximately 4000 transactions.

While the graph above in Exhibit 1 is a good way of seeing trends in home values and purchase prices by buyer type, a more accurate way of measuring iBuyer discounts paid is to control for size, age and a host of other variables influencing value on both the iBuyer purchased properties and all other buyers of similar properties.
To do this, we compared the purchase prices with our CA (Collateral Analytics) Value AVM (Automated Valuation Model) since the latter correlates very well with actual market values. Here we analyze four active markets. Exhibit 2 below summarizes the analysis and includes approximately 6000 transactions. Here we see the median discounts of 4.5% to 6.9% for iBuyer1 and 2.0% to 3.3% for iBuyer2. Exhibit 2 shows quarterly median values of this ratio for the two iBuyers along with the same for purchases of non-iBuyer transactions for four major iBuyer markets, – i.e. Phoenix, Atlanta, Charlotte, and Las Vegas. The difference between the top line and the iBuyer lines represents the average spread from our estimate of market value.

One might look at Exhibit 2 and conclude that the spread below market value paid by iBuyers is declining. This may be true, or it could be that the pressure to deploy capital has reduced the spread as the iBuyer market matures. Ultimately, the spread will be at an appropriate level to compensate the iBuyers for liquidity risks and capital costs.

RESEARCH

The median purchase price discounts for the four markets studied are shown on an annual percentage basis in Exhibit 3.

Other iBuyer Risks: Vacant Property Signals and Adverse Selection

iBuyers face two risks not inherent with most traditional brokerage sales. The first, is that as iBuyer for sale signs become known, the public will know these are vacant properties. Home break-in’s became more common when borrowers departed from negative equity homes during the housing crisis of 2008-2010. Empty homes became targets for vagrants and criminals stealing appliances, copper wires and more.

In some cases, fake buyers are able to gain access to the homes with a phone app which opens the lock box, and because iBuyers do not have agents accompany potential buyers into homes for sale guarding against fake buyers that only wish to steal from the home may require new safeguards.

The second significant risk for iBuyers is one of adverse selection. Sellers know the nuances of their homes better than anyone. They will know if the pit bulls next door will make it harder to show the home without terrifying visitors. Valuation models used by iBuyers have a range of accuracy, just like all appraisals, and when this value estimate happens to be on the high side of market value, sellers are likely to recognize this and be more willing to accept the offer. When the offer is too low, the sellers will turn to other iBuyers or other more traditional selling options. If sellers know the values of their homes better than the iBuyers, then there will be a problem of adverse selection for the buyers. Sellers tend to accept offers, even those considered conservative by the iBuyers, when they are close to or above market value and reject those which are too low. Not all sellers are better informed than the iBuyers. Still, there is some risk of informed sellers taking advantage of relatively high offers.

Conclusions

The kind of spreads observed, from our market value estimates to the prices paid by iBuyers, apparently makes sense for the iBuyer companies. The iBuyers do have carrying costs involving significant amounts of capital, safeguarding the home risks, and adverse selection risks. They also bear significant risks if prices decline. A downturn in home prices, not forecast by the iBuyer market analysts could be devastating as they ramp up their business platforms, particularly if the cost of capital increases. At the same time, downturns are precisely when the most sellers would want this option.

These preliminary empirical results suggest that sellers are paying not just the difference in fees of 2% to 5% more than with traditional agencies, and a generous repair allowance, but another 3% to 5% or more to compensate the iBuyer for liquidity risks and carrying costs. In all, the typical cost to a seller appears to be in the range of 13% to 15% depending on the iBuyer vendor. For some sellers, needing to move or requiring quick extraction of equity, this is certainly worthwhile, but what percentage of the market will want this service remains to be seen.

How to win at multiple offers from a listing agent

There was just an article in the Star Tribune about how many properties were going to multiple offers and how difficult it is for a first time buyer to buy properties because of multiple offers. and prices going over list price. While this may be the case, it is a very competitive environment out there, especially in the certain neighborhoods and certain price points, there are some things that are not being done that can help a buyer win this game.

I have listed hundreds of properties in my career so I feel I have a good handle on evaluating listings. I have been in a large number of multiple offer situations and I have gained experience about certain ways an offer is written and how to infer some information about the buyer. I say this because understanding the buyer and therefore the likelihood to close the sale on time and without renegotiating is a big deal. There is more to an offer than just the initial offered price, the likelihood that it will close can be a bigger concern than the offer price. There are a lot of mistakes that I see agents make in writing an offer in a multiple offer situation. There are several key items that should be discussed with a buyer to make an offer more enticing to a seller.

Here is an example. I just listed a duplex in Golden Valley for $325,000. We had 30 showings the first weekend and ended up with 7 offers. We could have gotten more but decided to have a deadline to accept offers. The offer we ended up accepting was for $400,000. Wow, you say. How would a buyer compete in that situation? Well here is a few things that the seller and I discussed. The seller actually said to me “I don’t want any more money, I just want to know which one of these offers will close”. So, there it is - the key to getting an offer accepted without being the highest price: showing the seller that you are going to close on time and without any renegotiating.

There are several ways that a buyer can let a seller know that they fully intend to close the transaction and won’t play games with inspection or even appraisal. In the above example, if there would have been an offer for $350,000 with no contingencies the Seller would have accepted it. So how do you do that? Lets look at each of the contingencies:

Inspection

This is the big one. Especially in a multiple offer situation where a buyer may feel that they had to over bid to get the house, they are going to use inspection to claw back some of that purchase price. So, if a buyer doesn’t include an inspection, this is a huge advantage to an offer. In the above example, every offer had an inspection. The agents changed the inspection dates from 5 - 10 days, but none of the offers removed this contingency.

Maybe you aren’t comfortable without an inspection, well here are a few thoughts on how to get around that.

1. Bring the inspector with you to the showing. Let’s say its Wednesday and the seller says they have received multiple offers and they request highest and best offers by 5pm on Friday. Have your realtor set up another showing for Friday morning and hire an inspector to do a quick inspection of the house. Tell them they don’t have to provide you with a worthless written report and that will save the inspector a lot of time and they will be much more likely to do a quick inspection of the house. Meet them there and just tell them to look out for major concerns. If there are none, you can now write an offer without an inspection contingency.

   Maybe you have a friend in construction. Have them meet you at the house and look out for major concerns. Inspections these days have gotten so concerned with minor details. In a multiple offer situation where you really want the house, only major concerns should be looked at. There are about 5 or 6 items that are major concern : roof, windows, structural, furnace, sewer/septic, exterior. You could inspect all of these in 30 minutes.

   I can tell you that in the past 100 inspections that I have negotiated the number of inspections that came back with no issues is less than 5. If you write an offer without an inspection, that is a huge plus to a listing agent and the Seller.

2. So you aren’t comfortable without an inspection. Then write the offer with specific inspections only and state the conditions that would trigger the contingency. Let’s say you want to inspect the sewer line to the City sewer. This is an expensive repair that could be $5-$10k. If you write up an offer with only a sewer line inspection and only for repairs of $3k or more. This lets the seller know that its only “big” problems that would be a problem here and if they don’t have any, there should be no issues. You could do the same with a furnace inspection and have the seller provide a “certified” furnace from a licensed HVAC contractor in lieu of an inspection. This means that as long as the furnace is 100% safe and working, you don’t need an inspection contingency.

Appraisal

The other big contingency is an appraisal that is performed by the buyers lender to verify the value of the property. Appraisals are a big concern for a seller, especially in a situation where the sale price ends up going over the list price. If a property doesn’t appraise, then the difference in appraised value to the price on the purchase agreement, needs to come from somewhere or the purchase agreement is cancelled. And usually the buyer doesn’t have the funds to come up with the increased down payment, so the seller ends up reducing the price to cover the shortfall.

Let’s say the house was listed at $280,000 and you offer $300,000. You could either write in the offer that in the event that the property does not appraise for sufficient value, the buyer will be responsible for bringing additional funds to closing. Maybe the buyer doesn’t have the funds, but if it ends up being only $3,000 shortage in funds, the advantage by removing the appraisal contingency could outweigh the risk of bringing a small amount of funds. And generally when an appraisal is short, it isn’t by a lot, so the risk isn’t that great.

It is this lack of appraisal contingency that gives a cash buyer a huge advantage over a financed offer. So, if the financed offer can remove the appraisal contingency, it would tremendously help their offer.

There are some other items that should always be addressed in a multiple offer situation. Earnest money should always be higher than normal. Its very difficult for a seller to keep a buyers earnest money, so why not write it up higher. A rule of thumb is $1,000 of earnest money for every $100,000 of purchase price. So on a $300k house thats $3k of earnest money. Why not double it? It just looks better to a seller and there is basically no chance that you will lose your earnest money.

Closing dates can be left blank so the Seller has the choice. If that’s an option, it can be a great relief to a seller to know that they don’t need to vacate their house in 30 days.

There is a section on financing that the buyer states when their financing will be finalized. This should always be checked in a multiple offer situation. I see this unchecked all the time and it just makes a seller concerned about the buyer getting their loan approved.

Overall, while it certainly can be difficult competing in a multiple offer situation, there are some things a buyer can do to make their offer more attractive. Removing contingencies is a big part of that and one that most agents don’t appropriately address with their buyers.

State of the City - from the Mayor of Hugo

Here is an article after the latest State of Hugo address by mayor Tom Weidt:

State of the City

Top 10 remodeling projects to get your house ready to sell

REMODELING Magazine announced today the release of its 32nd annual Cost vs. Value Report – the industry standard study which compares the costs of the most popular remodeling projects to how much the investment will improve a home’s resale value. The 2019 report surveyed more than 3,200 real estate professionals about returns for 22 projects in 136 U.S. markets, up from 100 markets last year.

For all projects, the overall cost-to-value ratio stands at 66.1 percent, only slightly ahead of last year, and well below the decade-high of 71.2 percent in 2014.  As in prior years, there are significant variations in return in different regions. The average payback nationwide for the 22 projects in the 2019 Cost vs. Value report ranges from as high as 123.8 percent for a garage door replacement in the Pacific region to as low as 45.0 percent for an upscale master suite addition in the mid-Atlantic region.

“With the increasing costs of building materials and labor, we urge remodelers to think like real-estate professionals first,” said Clayton DeKorne, Editor-in-Chief of REMODELING Magazine.  He added “when you adjust your focus to think like a broker first, you can dull clients’ No. 1 pain point – cost – with a discussion of the amount that can be recouped, then go on to show them how to think like a remodeler by raising their understanding and appreciation of the total value, not just resale value, of a home.”

Due in large part to sharp increases in material costs over the past summer, the percentage of costs recouped is trending downward for all the replacement projects (see National Cost vs. Value Averages graph).  Material costs tend to comprise a greater proportion of replacement projects compared with larger indoor remodels, which have a higher percentage of labor costs.

Key Highlights from the 2019 report include:

1. Rising Materials Costs are Impacting Rates of Return: While the overall changes since last year are modest, the latest Cost vs. Value report reflects the robust market that the remodeling industry has enjoyed over the past year.  But costs have correspondingly increased, and in some cases, significantly so.  These increases are likely due to the tariffs that have roiled commodity markets, which have led to a slight downturn in the percentage of costs recouped for some projects, but overall, returns are up slightly compared to last year.

2. Curb Appeal Projects Continue to Provide the Highest Returns: Nine out of the top ten high return projects are exterior replacement – or high curb appeal – projects.  The three exterior projects with the highest recoup on investment are garage door replacement (97.5%), manufactured stone veneer installation (94.9%), and a wood deck addition (75.6%).  Siding replacement and window projects also provided high returns, with the highest recouping interior project being a minor kitchen remodel (80.5%).

3. New for 2019: Two new projects were added to the 2019 Cost vs. Value Report. The first is a roofing replacement job that adds standing-seam metal roofing.  Compared with asphalt shingles, metal roofing costs significantly more but brings with it much greater durability.  The second project is a revamp of the universal design bathroom, which was first introduced to Cost vs. Value in 2017.  While the overall dimensions and features of the current project are comparable, the finishes and mechanicals – including tiled walls and shower, humidity-controlled ventilation and radiant-heat floors – are more consistent with an upscale project than the previous specs allowed.

4. Think like a Broker: The reason for high returns on exterior projects, and especially façade facelifts, stems from the valuations set by the real estate community.  “Curb appeal” and “first impressions” are central to a real estate professional’s estimation of resale value.  Granted, a home’s exterior will only persuade potential buyers to see more, and first impressions can vary from one individual to the next.  But the impact these impressions make is critical in setting the stage for what a buyer is willing to pay for a home.

For 2019, the top ten projects by percentage of cost recouped are:

1. Garage Door Replacement (97.5%)

2. Manufactured Stone Veneer (94.9%)

3. Mid-range Minor Kitchen Remodel (80.5%)

4. Wood Deck Addition (75.6%)

5. Siding Replacement (75.6%)

6. Steel Entry Door Replacement (74.9%)

7. Vinyl Window Replacement (73.4%)

8. Fiberglass Grand Entrance (71.9%)

9. Wood Window Replacement (70.8%)

10. Composite Deck Addition (69.1%)

Point to note: none of these projects show an above $1 to $1 return. Meaning, there isn’t a project on the list that according to the numbers gets you more money than you spend. That should be a warning to be careful spending money just because you think you need to to get your property ready to sell.

I also think it depends on the current state of your area that you are upgrading. If your garage door is rotting and has holes in it, the return will be much greater than if its a vinyl garage door that you are upgrading to improve curb appeal.

There are some items that I almost always think make sense and they fall in line with curb appeal. Fresh paint and new carpet almost always pay off in what I think is above a 100% return, especially if the paint and carpet are dirty or in need.

And following the Remodeler recommendation to focus on curb appeal, attention and money spent on especially front yard landscaping is generally a good idea.

When is the "Best" time to sell your home?

Probably the question I get asked the most is “when should we put our house on the market?” or “when is the best time of year to sell?” I usually answer about April 1st or about when the snow melts every year, depending on the weather. You don’t want to put your house on the market right when we are getting a late season snow storm but that is historically what I would say. I decided to look at the data and see if we an get a little more scientific.

I looked at the closing dates for single family homes in Washington County. Townhomes would be different because generally they aren’t as affected by the school year so its a little different for them, but I still think relevant. Here is the data:

2019 Month of Closing

• January 155

• February 168

• March 210

• April 256

• May 284

• June 431

• July 363

• August 442

• September 340

• October 297

• November 304

• December 273

And we have to make a quick assumption that if the closings happened in these months the sales happened 45-60 days prior, so lets say 2 months to make it easy. Because the buyer wasn’t found in the month of closing, what we are trying to figure out is when the most buyers where out in the market buying homes. So, take this data and the month with the most closings and then subtract 2 months and we have our answer.

Interestingly, August is the winner by a slight margin over June so that means June is slightly a better time to put your home on the market than April.

A few more insights:

June-August are definitely the busiest months for closings, so April - June is the best time to sell your home.

The slowest month is January for closings, so don’t put your house on the market in November. But, sales do happen every month and not an insignificant number.

The biggest monthly jump is from May to June, which means the biggest jump is from March to April in terms of sales. So there is a big spring market push in April (maybe thats from realtors saying April 1).

Overall, its interesting to look at the breakdown. I would still shoot for an April list date if possible, that gives you some margin for error if the house doesn’t sell right away. If it doesnt sell in spring, you have 3-5 months more to sell, where if it doesn’t sell in summer, every month can add some pressure to sell before the holidays.

New development Rice Lake Reserve in Hugo pushes the lot size boundaries

The new development that will be beginning construction in 2020 in Hugo is squeezed into 51.5 acres just north of Egg Lake Rd (County 8) and east of Goodview. Its not on the corner of Egg Lake and Goodview but it is just north of the wetlands that are on the corner. There area is currently 4 parcels with two homes that will be torn down.. There will be 93 residential lots built in three phases.

Here’s a link to some video of the site: Rice Creek Reserve video view

The development is being classified a planned unit development (PUD) from the city and it looks like the developer just has to make some minor changes to their plan and they will allowed to move forward. PUD’s are neighborhood plans that allow the City to allow less stringent zoning requirements in exchange for what should be a better development for the City than would be otherwise. The density isn’t changed but there are some allowances for different lot sizes. The development will be called Rice Lake Reserve and it is one parcel to the west of the Hanifil recreational fields and where the City Public Works building is located. The builder will be M/I Homes who is well know for building villa style, one level properties, such their recent local offerings in Adelaide Landing just north of 130th St N. 75% of the homes here will be single family, two story homes and 25% will be one level villas. The price point is expected to be $350,000 to $450,000 with my guess that the villas are $350k-$400k and the homes are $400k-$450k. The development is buffered from the Diamond Point East neighborhood to the north by a 90 acre wetland parcel that is about 1,200 feet in distance away. So, the homes are a lower price point for new construction. As part of the PUD approval the homes are expected to have more architectural design than would be available to build otherwise.

By approving this PUD the City is allowing the developer greater zoning flexibility by adjusting several zoning requirements:

• Minimum lot width will be 55 feet instead of 80 feet

• Minimum front yard setbacks will be 20 feet instead of 30 feet.

• Side yard setbacks will be 7.5 feet instead of 10 feet.

• Minimum lot sizes will be closer to 7,000 sq. feet instead of 10,000 sq. feet

• No park in the development, just a meeting space, in exchange for a park fee of $216,000.

Overall, I am not opposed to new development. I think it is required for growth in a City, especially a growing City like Hugo. And if buyers want to purchase these homes, that is the market speaking. I am also not opposed to PUD development. It allows for a developer to add some enhancements to a project that it wouldn’t ordinarily be able to create and still be able to make a profit. The Victor Gardens and Water’s Edge neighborhoods are good examples of walking trails and some decent parks that enhance a community. However, the only advantage that the City gets in this case is a walking trail basically through the development that I think a sidewalk would have accomplished the same thing. The Park Commission stated that they don’t feel this neighborhood needs a park because there is a park in Diamond Point East and also one at Hanifil. Well, neither one of those is within walking distance for a family so I think that forces the neighborhood to be much less walkable.

The other thing is that approving a development that will be in direct competition with many of the existing home sellers in the next couple of years doesn’t help out current home owners. New construction should be more expensive to build and sell than existing homes and if the City grants zoning changes that allows a developer to build a property cheaper than it was built in the past that is very hard for existing homes. The $350k-$450k will be in direct competition with most of the homes that will be sold in Hugo in the next few years. New construction should be set at a price that is the limit for a similar sized home that is no longer new. If a buyer wants a new home, you pay this premium. If you want to pay less than that, you can buy an existing home. When zoning changes allow for a less expensive home to be built, it puts downward pressure on existing home prices. I think that is an unintended consequence for the City, but nonetheless one that happens. The DR Horton homes over in Creekview Preserve are an example of very inexpensive new construction and that definitely competes with existing home sales. Those prices have risen over $400k so if a home is priced under $400k it theoretically shouldn’t have competition from the new construction.

So, we will see if there is a market for homes that are much closer together, with smaller lot sizes and no neighborhood place for kids to play. It seems that buyers today value the house more than the lot and this will certainly be a test of that.

Here is a link to the Planning Commission Packet. Scroll down to the information on Rice Lake Reserve that starts on page 177: Planning Commission Packet

New Listing in Victor Gardens Hugo! $219,999 4605 Victor Path #6

Beautiful town home in Victor Gardens located at 4605 Victor Path #6. 2 bedrooms with an upper level loft, full master bath and walk-in closet. This unit has an amazing open floor plan as compared to many other Hugo complexes. The whole living room spills out onto the deck with walls of glass. The kitchen has been very updated with quartz counter tops and engineered hardwood floors throughout the main level. There is also a lower level den that makes a great office or third bedroom.

Tornado just missed Hugo this past weekend

https://minnesota.cbslocal.com/video/4134488-cleanup-underway-in-scandia-after-tornado/

New townhouse listing in Hugo - 13848 Flay Ave N - $174,500

Affordable entry into the hot Hugo town house market in the quaint Pineview Meadows neighborhood located out of the bust of all the building west of 61. Spacious main floor and 2 large bedrooms on the upper level. Situated on a quiet side street make this location even better. Contact me for more information or a showing - 612-202-4334 or brigg@briggbacker.com

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Tough Mudder finishers 2019

Congrats to all the runners that competed in the Tough Mudder at Wild Wings Game Farm this past weekend in Hugo. We had a team and made the 8-10 miles with a few scrapes and bruises but had a great time. Its a fun event to crawl around in the mud for a few hours and get some good comraderie with your fellow runners. The best thing about the event is the comraderie and that you have to work together to get over many of the obstacles, you can’t climb them on your own. You need help to either climb up or pull someone over and as the day goes on, for whatever reason, that becomes the best part.

For example, there is one obstacle where you have to stack 4 people on top of each other against a wall and then someone else needs to climb up the stack to get over the wall. The ones on the bottom are being used by complete strangers to get over the wall and you feel great about it. And then when its your turn, they make a human chain from the top and pull you up and then off you go. Its great fun and for any event that highlights this type of cooperation, its a win in my book. See you next year!

Pre-MLS town house opportunity in Pineview Meadows - $174,500

Pre-mls opportunity to see 13848 Flay Ave N in Hugo before it hits the market at the end of the week. 2 bedroom, 2 bath unit on a quiet side street in the desirable Pineview Meadows neighborhood which is located just east of Highway 61. This complex is a little more off the path than the expansive Victor Gardens and Waters Edge so if you are looking for some peace and quiet this is for you. Contact me for a showing or more information - 612-202-4334 or brigg@briggbacker.com

New town house listing in Hugo - 5065 149th #2 - $189,999

Best lot in the complex!! 2 bedroom/2 bath town home in Water’s Edge. New carpet and paint. Access to the community pool, amusement room and fitness center. Call for a showing.

Picture tour

Very private, end unit in Water’s Edge!

https://tours.spacecrafting.com/b-2c2n