The 2022 Spring Housing Market

Charlie McDermott, host of the SW Florida Realty Show, interviews Billee Silva regarding the spring housing market.  Billee advises home sellers on what to look for when receiving multiple offers.

To learn more about Billee Silva:
www.SW-FloridaRealtor.com
Jones & Co Realty
(239) 247-2490

Transcript

Speaker Intro:

Welcome to the Southwest Florida Realty show with Billee Silva and here’s your host Billee Silva!

Charlie:

Hey there, this is Charlie McDermott the producer of the show and I have exciting news today. Billee has brought me on, but don’t worry, Billee is here fortunately for me. Billee how are you doing?

Billee

I’m doing great this morning, how you doing Charlie?

Charlie:

I’m doing great. It’s nice to participate, although I enjoy just sitting back and listening, you’re so knowledgeable about the market which leads me to, what the heck is going it in this current real estate market?

Billee:

Oh my gosh, the market is crazy at the moment. We actually have more buyers than we do homes for sale.  It’s the same trend we’ve been seeing for months: a limited supply of for-sale inventory, high buyer demand and rising prices. It’s definitely a seller’s market. Inventory was at an all-time low as February began, we were down 17% from a year ago. And home prices continue to be impacted by this shortfall in inventory and when homes do hit the market, they’re going under contract very quickly. Almost everything is going for at least asking price or above.  

Charlie:

I have heard crazy stories both in my neighborhood and the community in general. Tell us about what you’re seeing. Are you seeing multiple offers coming in?

Billee:

Oh, my goodness, most definitely.  Almost everything these days is a multiple offer situation.  It’s not uncommon that within 24 hours of a home hitting the market the sellers are calling for highest and best by a specific deadline.  The days where buyers can submit a lowball offer and hope the seller will counter are long gone.  In this current market there’s very little negotiating going on.  Sellers are receiving so many offers they just pick their favorite and rarely go back and negotiate, so as a buyer in this market its essential you submit your highest and best right of the gate.

Charlie:

So, has it just come down to that anymore, is it just the highest bid wins?

Not necessarily.  Sometimes the highest offer may have the worst terms, so it pays to scrutinize the entire contract before deciding on which to choose.  Believe it or not, it’s not always about price.  One buyer’s beautifully high offer might not look so good if the sellers discover that it’s contingent upon them moving out a month earlier than planned. Or if there are a lot of contingencies attached. 

What are some types of contingencies that sellers should look for in a contract?

Well, it is important to note that most offers have contingencies which are provisions that must be met for the transaction to go through, or the buyer is entitled to walk away from the deal with their earnest money. Contracts with fewer contingencies are more likely to reach closing, and in a timely fashion.  So, when sellers are weighing the pros and cons of each offer they take into account the various contingencies. For example, look at how many days the buyer is asking for the home inspection contingency, that’s a big one.  This gives the buyer the right to have the home inspected and request repairs by a certain date.  With the Florida As Is Contract it also gives the buyer the right to cancel. If this section of the contract is left blank, then the buyer has 15 days within which to have inspections done and back out of the contract.  It does not need to be inspection related, the contract reads, if buyer determines, in buyer’s sole discretion, that the property is not acceptable to buyer, they may terminate the contract by delivering written notice to the seller prior to the expiration of the inspection period and then their earnest money deposit shall be returned. So, during that inspection or right to cancel period as its stated in the contract a buyer can back out for any reason. Therefore, as a seller, the offer with the shortest number of days for the inspection period can be very attractive because there is a shorter opportunity for the buyer to get buyers remorse.  Realistically in this market a buyer can get a home inspection within a week.

Charlie:

Ok, ya it’s interesting there’s buyer’s remorse and then there’s probably in this market seller’s remorse, right?

 Billee:

Oh my goodness, yes.

Charlie:

Like, I wait a day I could get another five to ten grand more, or God knows what, right?

Billee:

Or, they get sellers remorse once it goes under contract and they can’t find a house to move into and then they’re like ok I want to change my mind and I’m like, ahh too late!

Charlie:

Wow, wow, crazy times. So how about cash or financed offers. What are you seeing is it mostly cash now a days and which ones are winning?  Are you seeing mostly cash or financed offers win the bids?

Billee:

Well, the buyer's funding is a very important consideration to sellers. Most sellers give preference to a buyer who is offering to pay cash for their homes because there are less contingencies attached.  With a financed offer you are going to have both a financing contingency and an appraisal contingency.  A financing contingency which is also called a loan contingency or mortgage contingency, protects the buyer in the event their lender doesn’t approve their mortgage. The contract allows 30 days after the effective date to obtain mortgage approval.  Then, for a mortgage lender to approve a home buyer’s loan, the home must pass appraisal, a process during which the property’s value is assessed by a neutral third party. The appraisal verifies that the home is worth at least enough money to cover the price of the mortgage. If the appraised value matches or exceeds the listing price, all is well, but in this current market with everyone bidding so much above the asking price it is not uncommon for a home to appraise for less, which is another reason sellers prefer cash offers over financed because they don’t have to worry about the home appraising.

Charlie:

Ya, ya, I could so see that and I guess the tendency is if you’re going to get financing that you want to outdo the cash offers with a higher price which leads me to the ok, well what happens if a home doesn’t appraise?

Billee:

Well, homebuyers can be negatively impacted when the contract sales price is above the appraised value as lenders use the lower of two values to calculate the loan-to-value (LTV) ratio. This scenario can require borrowers to bring more cash to closing to “close the gap,” or they may need to pay for mortgage insurance as their loan to value ratio is higher than planned. In the worst-case scenario, the sale falls through as the anticipated financing doesn’t work out.  In a buyers’ market the seller would typically agree to come down to the appraisal price, but in this current market sellers definitely have the upper hand and are asking buyers to pay the appraisal gap.  

Charlie:

Ya, ya for sure. So, how about are there any other types of contingencies besides financing and appraisal?

 Billee:

 Ah, yes, there are.  Before approving a mortgage, a lender will require the borrower to clear title, this is referred to as the Title contingency. A process in which the title company reviews any potential easements or agreements that are on public record. This ensures the buyer is becoming the rightful owner of the property and the lender is protected from ownership claims over liens, fraudulent claims from previous owners, clerical problems in courthouse documents, or forged signatures, stuff like that.

Then there’s the sale of current home contingency, which tends to be used more often in a strong buyer’s markets, when buyers have greater leverage over sellers, but I was just in a multiple offer situation yesterday on one of my listings and four of the offers did have a sale of their current home contingency attached to the offer because the buyers needed the proceeds from the sale of their current home to be able to purchase my listing. This contingency puts the seller at a disadvantage because they can’t control whether the buyer sells their house in time. 

Charlie:

Right, wow, wow. Four offers, ok.

Billee:

Well four offers out of like sixteen.

Charlie:

Wow, wow, this is really helpful. So, anything we missed? Like, what other things should sellers look for in a multiple offer situation Billee?

Billee:

Well, when evaluating your financed offers, look at the amount of the down payment. Depending on the type of mortgage, the seller, I mean buyer, must make a down payment on the house and the size of that down payment can affect the strength of the offer. In most cases, a buyer’s down payment amount is related to the home loan they're taking out. Your chief concern as a seller, of course, is for the transaction to close — and for that to happen, the buyer’s mortgage has to be approved.

Generally, a larger down payment signals the buyer's financial ability to complete the sale. The average down payment, is ten to twenty percent. Some mortgage products, such as FHA and VA loans, allow for even lower down payments. 

If, by chance, the appraisal comes in higher than your contract’s sale price, like we spoke before, the buyer with a higher down payment would more likely be able to cover the difference with the large amount of cash they have available.

The more cash the buyer plunks down, the more likely the lender is to approve their loan. Again, that’s why an all-cash offer is ideal for both parties. The buyer doesn’t have to fulfill an appraisal contingency — whereby their lender has the home appraised to make sure the property value is large enough to cover the mortgage — or a financing contingency, which requires buyers to obtain mortgage approval within a certain number of days. As always, having a sales contract with fewer contingencies means there are fewer ways for the deal to fall through.

Oh, and another thing is to look at the closing date. Does the closing date work for your schedule?  Whether you want a slow or quick settlement will depend on your circumstances. Like, if you’ve already purchased your next home, for instance, you probably want to close as soon as possible. On the other hand, you may want a longer closing period; say, sixty days if you need to find another home, arrange for movers or use the proceeds from the sale to purchase your new home.

Some transactions, such as those involving government-backed loans from FHA, VA, and USDA, may take closer to 60 days because of the additional buyer paperwork, so those are all things to look for.

Charlie:

Ya, which points to the, boy in any market, use a Realtor! There are so many things to consider. I mean if you’re doing this once every ten years ow whatever. What’s the average now a days that someone sells or buys a home? I know it was seven years for a long time. Is it still around seven years?

Billee:

That’s the magic number that they use in the industry, but I see people all over the board. You know, especially in this market. People who have bought secondary homes and they’re thinking, well, you know we don’t use it that much, lets take advantage of this market and sell it now.

Charlie:

Ya, ya. Well Billee, this has been great. I really appreciate you spending time and inviting me on the show, how cool is this? Wow.

Billee:

I appreciate you doing this. It’s always fun. You bring so much energy to the show. I love it! 

Charlie:

Well, thank you Billee. And kudos to what you’re doing and we’ll see you in the next episode.

Billee:

Wonderful. Everybody have a great day and thank you for tuning in today.

 Speaker’s closing remarks:

 Thank you for listening to the Southwest Florida Realty Show with Billee Silva. To learn more about Billee Silva go to www.sw-floridarealtor.com.  That’s www.sw-floridarealtor.com.  Or call 239-247-2490.