Buying a house has become more difficult; local realtors explain why – Park Rapids Enterprise
Local real estate brokers recently responded to a report that a local homebuyer was outbid on multiple offers by people moving to the Park Rapids area.
The firm asked real estate brokers Diane Dennis of Coldwell Banker Clack & Dennis Real Estate, TJ Simon of Wolff & Simon Real Estate and Jack Brann of Affinity Real Estate if they had seen anything unusual in the local real estate market .
“Yeah, we’re seeing strong demand,” Dennis said. “Inventory is changing very quickly. A lot of homes end up with multiple offers.
Simon said this reflected a lack of available inventory, i.e. homes for sale. This time last year, he said, “we were at about 4.2 months of supply. This year, right now…we are on a one month supply.
“It’s below the national average, which is already at an all-time low,” he added.
“There’s a lot to the seller’s advantage right now,” Brann said. “The ‘supply and demand’ analogies that you hear used in so many situations, couldn’t be truer right now. There’s high demand, there’s a huge shortage of inventory, and when that happens, it only benefits only one person in the transaction, i.e. the seller, every day of the week.
“Year-to-date, the percentage of the original list price received is 95%,” Simon said. “That’s up half a percent from last year. Our pending sales, the sales closed so far this year, are up almost 50%, just in the headwaters region.
Dennis said one of the factors behind the inventory shortage is that “people don’t really want to put their homes on the market until they know they can find another home that’s right for them. So they wait, and it turns into a vicious circle.
“A lot of our elders have decided to stay put,” Brann said, adding that the COVID-19 pandemic has made them wary of leaving their lake to return to more densely populated areas.
Plus, he said, in normal times, he can convince people to sell their homes and use the proceeds to buy a local replacement.
“Right now you can’t even make those calls,” Brann said, “There’s no replacement. There’s no carrot that you can hang to knock them out of position. ( But) if you are a seller, if you leave the area, the world is absolutely yours right now.
Dennis said she expects this imbalanced demand to stabilize this summer.
“It made it a very difficult time for buyers,” Brann said. “We are processing several offers.”
“In multiple offer situations, offers often exceed the asking price,” Dennis said. “We’re also seeing the use of escalation clauses, where a buyer will say, ‘I’ll pay X dollars on a competing offer, up to a certain price.'”
She said it was not common to see such acceleration clauses in the local market until last year.
“They’re just trying to do their best and be the winning bidder,” she explained. “Price is usually the primary factor in which offer a seller is going to accept.”
Dennis acknowledged that other factors can also come into play, such as whether an offer is contingent on the sale of another home, financing, an inspection or the closing time. “But yes, the competition is very tough in the housing market right now,” she said.
“A low bid, right now, is an asking price,” Brann said. “We see many offers that exceed the asking price by tens of thousands of dollars. And we see many circumstances where there are between three and 20 offers on a property.
Each of the brokers suggested possible reasons for the local real estate rush. A common theme was current interest rates.
“A lot of people who are renting right now, with the low interest rates, could get a first-time home buyer’s loan and buy a house, and their mortgage payment could potentially be less than what they’re paying in rent. “Dennis said.
“There’s this overwhelming fear of missing interest rates that start with the number 2,” Brann agreed. “We’ve never seen rates below 3%, and most people think once they’re gone they’ll probably be gone forever. And so there’s this mass hysteria that they don’t care if it’s 2.99 or 2% or somewhere in between. If it’s number 2, they want to participate.
He said that was also a factor in many buyers’ decision to offer more than the asking price. “Right now people are saying, ‘If it’s 100,000, will 120 take it? We’re just tired of searching. We don’t want to lose that interest rate.
Simple calculations, he said, show that even if they pay more for the purchase at an interest rate of 2.5%, in the long run they will pay less than if they bought it at a lower price at a higher interest rate. .
Because of those issues, Brann said, in “this crazy situation right now…we have buyers buying out of sheer emotion.”
Like the caller who complained that he continues to be outbid, Brann said, “Every buyer out there right now, making offers, almost every one of them has been a loser in another negotiation. People are just tired of research. They are tired of losing. And they just buy out of sheer emotion and fear of missing out. Really, the fundamentals have gone by the wayside.
With the pandemic, Dennis said, many people are realizing they can work from home.
“We see a lot of people who want to leave metropolitan areas,” she said, “but can now work from home, so they want to be in Lakeland.”
She said locals who work from home find they need more space. So they’re looking to move to a bigger location, with room for a home office.
Brann cited urban flight as the reason. “Downtown Minneapolis is still closed, and there’s still a lot going on there,” he said. “And money is mobile.
“We also have a paradigm shift,” he said, “this west coast exodus.”
Brann said he’s seen an influx of home buyers from California like he’s never seen in his two-decade career.
“Every year I may have had a sale from someone who was associated with or from California,” he said. “Since April of last year, I myself have had probably 15 closures with people in California.”
Traditionally, he said, when someone from California made a bargain on a real estate sale, they replaced it with property in Colorado, Montana, Utah, Nevada or New Mexico.
“But what’s happened now is that the prices in those states are almost in line with the prices in California, so they can’t take their profits and their equity and buy it back at a lower price and still have a sparkling bank account.”
As a result, buyers are venturing further east and discovering Minnesota as an area where they can buy property while holding the cash.
“We’re a very broad community in terms of price ranges and offerings, in terms of country homes, town homes, lake cabins, what have you,” he said. “Your dollars go even further here than they do in Brainerd or Alexandria, or even Detroit Lakes.”
Another reason for the pressure on housing supply, Brann said, “is that building materials and construction costs are so high right now. People who were previously in the market to build have simply been shut out of that market because the material costs are exorbitant, unlike anything we’ve ever seen before.
When asked for advice on how buyers can be the winning bidder in a multiple bid situation, all three brokers recommended getting a pre-approval letter from their bank showing that you are financially able to buy a house.
Brann went further, suggesting a pre-approval letter for a specific property when submitting an offer.
Both Simon and Dennis insisted on staying on top of new listings and being available to view a property at any time.
“Things sell out so quickly that if a house comes on the market and they can’t look at it for four or five days, there’s a good chance it’s gone,” Dennis said.
She also assumed that most buyers will work with a real estate agent, who will give them good advice.
“Align yourself with someone who knows how to trade, knows how to navigate these market cycles,” Brann agreed.
He also suggested being prepared to make a substantial down payment and, if you’re offering more than the appraised value of the home, to document that you have funds on hand to cover the difference.
“Too many people are making offers without these simple clarifications or forward-thinking steps,” Brann said. “But the people who are prepared, who show they’re serious…they’re the ones who come off the scales.”