Charleston area homes sales – optimism sets in

Is this the right time to buy a home in the Charleston area?

I don’t have a crystal ball. What I have is experience selling homes in Charleston – and a lot of data. If trends and history give us good guidance, we have an actionable picture of the future in home sales and home values in Charleston.

LAST YEAR –

- great inventory of homes, record number of homes for sale, record “months of inventory”

- builders sit idle hoping just to keep in business long enough to recover when the sun finally comes out

- really LOW interest rates

- numerous shockingly low priced homes clutter the market, driven down by distressed properties

- motivated, depressed sellers, feel trapped , willing to cut about any deal – even bring cash to the table to get their homes sold

- buyers firmly in the driver’s seat often making seemingly outlandish demands of sellers

- banks backlogged with offers, burdened with defaults, ready to take deep losses on bank owned homes just to get them sold fast

THIS YEAR –

- inventories have dropped fast even though many, previously sidelined sellers are starting to list their homes for sale

- builder confidence, local and national, is improving. Builders are building “spec” homes again

- interest rates remain low, maybe will be low for some time BUT if inflation starts, all bets are off

- the extreme bargains have almost dried up. Yes, a few aberrant fire sales pop up now and then but they are the exception rather than the rule

- seller confidence is rising. Fewer sellers feel that their homes are destined to sit unsold unless they take a huge loss or throw in their first born

- bank owned homes are out there, now in fewer numbers. Savvy investors, on the prowl for these properties, have been moving in with cash deals

- buyers remain in the driver’s seat yet offers are more balanced. Sellers are still making solid concessions but now with far fewer give away deals in the mix

THE NEAR FUTURE

I can’t tell the future. I can tell you that most Realtors who study our market are convinced of the following:

- Inventories will reach balance (5,000-6,000 active listings on the MLS) in under 3 years in Charleston. That means that the pendulum is shifting gradually in the direction of a balanced seller to buyer market. With each degree of shift, the buyer looses power and the seller gains power. In 3 years or less, the current buyers’ market will go away.

- with the historic average  interest rate around 8%, the likelihood that rates will stay at/near record lows for long is highly improbable – almost impossible. In theory, a balanced market runs in tandem with balanced (historic average) interest rates. The regression to average rates should be clear cut to most buyers but it’s not. Why not? The home buyer of today has, in recent memory, only low rates to reference. The pre-market crash rates were artificially skewed low because of government policies that helped cause the crash. Don’t expect the government to promote unnaturally low rates once the market is back on track.

- home prices in Charleston will rise. Sales in the most robust areas, such as Mt Pleasant, are already indicating rising prices. Home values in other areas will rise as well – perhaps more slowly. The bottom is in with the sole hold back to rising prices limited to the influence of distressed inventories. That problem will fade, too.

Whether the time is right to buy a home is a complex personal decision. I can offer logic, data and reason to help. As you consider your decision, consider this:

Every point of interest rate increase and every tick up of in home values translates into less purchasing power for you. Dropping inventories mean, not only reduced choices, but also decreasing buyer bargaining power and increasing home prices.

For now, the home sale is still on; but, like the sun setting over the beautiful Charleston Harbor, the door buster discounts are starting to dip slowly below the horizon

Do you need a home warranty?

For most of us, the purchase of a home is a huge investment. Once you purchase your home, you take on all of the responsibilities of a homeowner – including all maintenance and repairs of the home.

No home is perfect. No appliance lasts forever. You will make repairs and replacements while you own your home. Of course this is a reasonable expectation.

Still, no new homeowner wants to be faced with unexpected expenses soon after purchasing a home – especially at a time when there are so many other areas on which you may wish to spend your money (such as furnishings and window treatments). Making expenditures to repair something in your home soon after buying your home is something no one wants.

If you are purchasing a home that was recently built, it’s likely that you have some protections available to you through the builder for certain items during a given period time. In addition, appliance manufacturers and other vendors may still provide some coverage. With any home over 1 year old, considering a warranty is a good idea.

Most people who purchase a resale property these days are strongly advised by their agents to get a home warranty. This home warranty may be purchased by the buyer or by the seller and is frequently negotiated into the contract for sale. Most sellers are willing to pick up the cost of the warranty for the first year.

The purpose of the home warranty is to provide buyers with a certain level of confidence that they will not need to come out of pocket to cover unexpected expenses after purchasing a home. The home warranty also provides benefits for the seller. It reduces the probability that the buyer will feel the need to pursue damages from the seller should unexpected repairs arise soon after closing. Also, offering a home warranty in advance of the sale can help close the deal. It is an excellent marketing tool if it is advertised with the listing.

The home warranty may offer the seller pre-sale protection as well. Home warranty companies offer seller protection covering the period of time during which the home is on the market. To get this, the seller needs to get the warranty about the time that they list the home.

A home warranty provides some general coverage and may be modified to increase levels of coverage in certain areas based on the needs of the seller or the buyer. For example, normally the warranty may not cover the repair of an ice maker. The warranty company may offer the option for additional charge of including icemaker coverage.

When the homeowner encounters the need for a repair, they simply call the warranty company. Usually, there is a fairly substantial deductible for each service call to discourage frivolous service calls – typically $50-$80. But, the warranty does provide fairly substantial protection in the areas that count the most such as repair or replacement of an air conditioning system.

A number of good companies offer home warranties. Your agent should have some suggestions. My experience has been it is better to stick with the larger companies, such as American Home Shield or Republic. There are numerous other companies out there that offer protection so discuss the options with your agent.

In order for a buyer to ensure that a home warranty is provided by the seller, it is important to understand how to negotiate this into an offer to purchase. It is awkward to attempt to negotiate in a warranty after sales terms have been agreed to so be sure you include the warranty as part of your initial negotiations.

The cost of a home warranty typically runs between $400 and $600. This is a nominal figure in comparison to the price of many home repairs and to the price of the opportunity cost should the seller miss out on a potential buyer for not offering it. It usually makes good business sense for the seller to offer this. Still, if it is not offered, ask for it.

Whether or not a home warranty has very much economic value to the buyer is debated from time to time among agents I know. Obviously, if a major repair pops up, the value of the warranty becomes clear. For many home buyers, the warranty is never used and is allowed to expire. On average, most companies who provide home warranties say that they get about 1- 1.5 claims per warranty that they sell.

Some home buyers will choose to renew their warranty. Most expire one year from the date of purchase. If they do choose to renew the home warranty, the price for renewal is usually very close to the price of the original purchase. For owners of older homes especially, it may be a good idea to continue with the home warranty after the first year.

Chris DeLoach
843-270-1272
www.chrisdeloach.com

The offer – part 5

Termite inspection (CL-100)

Most banks will require a termite inspection to be done (CL-100). Termite inspection (CL-100)

Most banks will require a termite inspection to be done. Either the buyer or the seller can pay for this inspection. It is more common for the seller to pay for this inspection (this payment is a negotiated item). This inspection is designed to locate active termite infestation, previous treatment for termites, excessively high moisture levels in wood, and the presence of active or inactive wood destroying fungi. Items found during this inspection may need to be corrected in order to achieve a “clear letter” which will be required by a lender.

Contract extension clauses

Contract extension clauses are sometimes included. Usually these say something to the effect that the buyer and the seller may extend the contract if the closing those not occur by the closing date expressed in the contract. The buyer and the seller, during their negotiations, determine how many days they are willing to extend his contract for in the event that the closing does not occur. By including this extension clause, it reduces the paperwork later on if the buyer and the seller wish to extend.

Delay penalties

Delay penalties are usually included if the seller is a bank. These penalties may apply on a per diem basis or they may be lump-sum penalties. Most common are per diem penalties which assess a certain amount per day for each day that the closing is postponed beyond the agreed to closing date. These penalties may be assessed whether or not there is any fault on the part of the buyer. Because of this, it is important to understand these penalties. Be aware of the current lending conditions as bank delays in providing lending may be sufficient to invoke these penalties and are the biggest reason for the application of these penalties.This inspection is designed to locate active termite infestation, previous treatment for termites, excessively high moisture levels in wood, and the presence of active or inactive wood destroying fungi. Either the buyer or the seller can pay for this inspection. It is more common for the seller to pay for this inspection. Items found during this inspection may need to be corrected in order to achieve a “clear letter” which will be required by a lender.

Contract extension clauses

Contract extension clauses are sometimes included. Usually these say something to the effect that the buyer and the seller may extend the contract if the closing those not occur by the closing date expressed in the contract.

The buyer and the seller, during their negotiations, determine how many days they are willing to extend his contract for in the event that the closing does not occur. By including this extension clause, it reduces the paperwork later on if the buyer and the seller wish to extend.

Delay penalties

Delay penalties are usually included if the seller is a bank. These penalties may apply on a per diem basis or they may be lump-sum penalties. Most common are per diem penalties which access a certain amount per day for each day that the closing is postponed beyond the agreed to closing date. These penalties may be assessed whether or not there is any fault on the part of the buyer. Because of this, it is important to understand these penalties. Be aware of the current lending conditions as bank delays in providing lending may be sufficient to invoke these penalties and are the biggest reason for the application of these penalties.

Chris DeLoach

843-270-1272

www.chrisdeloach.com

The offer – part 4 – Earnest money

Earnest money is always an important issue. Ernest money is offered for the purpose of solidifying an offer into a contract once the offer is accepted. Ernest money is the legal “consideration” for the offer and “consideration” is a necessary element in forming a contract.

In addition to this reason for having earnest money, a reason that is important to the seller is that the earnest money gives them a level of comfort that the buyer is serious and it provides them with a simple means for collecting liquidated damages in the event the buyer defaults on the agreement to buy.

In understanding the seller’s perspective, the seller makes an important decision in removing their home from the market as an “active ” property on your behalf because, while the property is off of the market awaiting closing, it is not likely that buyers will continue to consider that property. While it is true that a property may be listed as, “active contingent” and still be available for showings, as a practical matter, most agents will not waste their time showing properties that are already under contract. Therefore, the seller wants to be sure you are serious.

Ernest money can have a big impact on whether or not the seller accepts your offer. The question is: “how much earnest money should you offer?” There is no set figure. More expensive properties usually require more earnest money but there is no formula for determining exactly what the correct or best figure is.

High earnest money amounts will make the seller more comfortable and will have the potential for allowing you to negotiate a lower sales price or other terms that may be favorable to you. The operative word here is “potential” because it is difficult to know the value that the seller places on the earnest money. The downside to high earnest money offers is that, in the event of a dispute or default, the buyer has a higher potential loss.

Low earnest money amounts may signal to the seller that the buyer is not very serious or that the buyer is not strong financially. However, by offering a lower figure, the buyer has less exposure to loss.

Finding the right balance for earnest money is a discussion you should have with your agent.

Chris DeLoach

843-270-1272

www.chrisdeloach.com

The offer – part 3 – Contingencies

Contingencies

Most people, who are not first-time home buyers, have a home to sell before they can buy their next home. The problem that many people face is that their ability to buy their new home hinges upon their ability to sell their current home. The following e-mail is an example of e-mails I receive frequently on the topic of how to buy and sell.

Buyer: ” Am I to understand then that a contingency only applies to the purchase of a newly-built or under-construction home? If so, please share with me how other folks make this transition of selling a home in one state and relocating to another. It looks as though I won’t have alot of time between the date of my closing and my moving out date- maybe a week. Will l simply have to wait until my closing takes place in order to make an offer on a home in your area? Thanks, Chris

This situation is quite common. Most people have a home to sell before than can qualify for a new purchase and few people can carry two mortgages.

One strategy for handling the situation is to use contingencies as a bridge to allow you to begin the home search process and even make an offer before you have sold your current home. The basic idea is to make the purchase of the new home “contingent upon” the sale of the old home. This is not always a straight forward proposition and it is impacted by many potentially confounding factors. Still, it is a strategy that can be used successfully and often is.

Keep in mind that the person who may make an offer on your home may also present their offer contingent upon the sale of their current home. It becomes evident, very quickly, that the contingency option can add significant complexity to home buying and selling. Cases of multiple contingencies can work much like a row of dominoes were the failure of one contingency can result in the collapse of more than one sale. This is one reason why contingencies should be used with great care.

Contingencies may be accepted on a re-sale or a new home depending of the situation with the seller. While new construction home builders are still cautious after the large number of contingency contracts that fell through in recent years, it is still possible to get one accepted in the Charleston area – while not nearly as easy as before. Also, builders that accept contingencies may impose a cap on the number of contingencies that they do accept on a per-development basis and/or on a per time frame basis.

An individual selling their home to you may accept a purchase contract contingency on the sale of your home also – especially if they know that you already have a contract on the home you are selling. A lot of things can make a difference to the buyer in deciding whether or not to accept any contingency, such as earnest money, offer price, closing date and other important terms.

Contingencies can be tricky and can have an impact on your ability to achieve your objectives whether the contingencies are on the sale of your home or the contingencies are placed on an offer to purchase your home or even both.

If you find yourself in a position where you need to buy and but you need to sell in order to buy, speak with an experienced real estate professional.

Using contingencies is but one of many strategies that may help you achieve your goals. They can cut both ways so use them with caution – and only as needed.

Chris DeLoach

843-270-1272

www.chrisdeloach.com

Home for Rent in Goose Creek

Beautiful five bedroom home located in popular Liberty Hall plantation. This quality, well designed  home is like new and ready now. It comes equipped with an expansive, beautiful kitchen with stainless steel appliances, maple cabinets, plenty of counter space and a large pantry. All five bedrooms have generous living space and ample closets.  The master bedroom is exceptionally large and includes an impressive large walk-in closet, and a beautiful master bath with garden tub, separate shower and double sinks. This home design incorporates a downstairs bedroom positioned across the hall from a full downstairs bath – perfect for guests. If you love the outdoors, you will appreciate the large back yard which includes a professionally built privacy fence. The full front porch and  large screened back porch will add to your outdoor enjoyment. And, just down the street is a great community pool and play area.  Additional features of this home include a fireplace in the family room, a two-car garage with storage shelving, a hardwood entry foyer, Hunter ceiling fans, a large laundry room, window blinds, dual thermostats, a security system, and even crown molding.

For more on this home: Home

Strategy for the offer – part 2

Structuring the terms of the offer

After sizing up the seller, make a list of the terms and review them with your real estate professional. The terms that are the most important include:

- sales price
- closing date
- closing costs
- costs other than closing costs such as transfer fees
- personal property to be included (i.e., in South Carolina a –  refrigerator is considered to be personal property)
- contingencies
- earnest money
- home inspection

- termite inspection (CL-100)
- contract extensions
- delay penalties (most common with bank owned properties)

Sales price

In determining the sales price, your agent will help you look at the pattern for prices for similar properties as close as possible geographically to the home under consideration. This is like the process that an appraiser will do but in a less technical fashion.

Consider the average sales price per square foot, consider other factors such as the location in the neighborhood and the type of lot, and consider how much deviation is normal in that area between the average asking price the average sale price. Look at how long active listings have been on the market in comparison to homes that have sold in the past year (on market time trends).

Creating an offer price is more of an art than a science and does involve strategy. The best agents know how to massage the offer price to get you the best terms.

Closing date

The closing date should be as close to the contract date as possible. There are sellers who list far in advance of their need to close, but this is not common, so approach assume that the seller needs to close immediately. The sooner you are able to close, usually, the higher likelihood you will have your offer accepted.

Closing costs

Closing costs can be negotiated. The South Carolina contract that most agents use has a standard distribution of normal closing costs preprinted. Changes can be made to this. When you are considering asking the seller to pay closing costs, or a portion of your closing costs, remember that you are asking the seller to lower their net profit on the home, dollar for dollar, for every dollar of closing costs that you ask. The seller already carries the heaviest burden in closing costs because they have to pay for such items as real estate commissions. Do not expect seller to pay your closing costs; but, you may be fortunate enough to have them agree to do so.

Chris DeLoach

843-270-1272

www.chrisdeloach.com

Rights to know about your loan

As a buyer considering a loan, you do have certain rights that you need to be aware of:

You have the RIGHT to

1. shop for the best loan for you and compare the charges of different mortgage brokers and lenders.

2. be informed about the total cost of your loan including the interest rate, points and other fees.

3. ask for a Good Faith Estimate of all loan and settlement charges before you agree to the loan and pay any fees.

4. know what fees are not refundable if you decide to cancel the loan agreement.

5. ask your mortgage broker to explain exactly what the mortgage broker will do for you.

6. know how much the mortgage broker is getting paid by you and the lender for your loan.

7. ask questions about charges and loan terms that you do not understand.

8. a credit decision that is not based on your race, color, religion, national origin, sex, marital status, age, or whether any income is from public assistance.

9. know the reason if your loan was turned down.

Chris DeLoach
843-270-1272
www.chrisdeloach.com

Strategy for the offer – part 1

Once you have identified the home that you want to purchase, you and your real estate agent will put together an offer. An offer is simply a statement of your terms that you expect to be met in order for you to be willing to purchase the home.

An offer can be a simple, straight forward list of terms or it can be a very complex, convoluted proposition. The best offers are usually simple and clear. When you begin creating your offer there are a number of things to keep in mind.

The first consideration in putting together an offer is understanding as much as you can about the seller. Is the seller an individual or is the seller an entity, such as a bank. Individuals see their home from a much more emotional perspective than do banks. Unless it is an investment property, the seller probably lives in the home and may have a great deal of personal ego and emotional investment in the home. Presenting an offer to an individual should be done with these considerations in mind.

Buying or selling is always an emotional process. What you do not want to do is to derail the negotiations by offending the seller.

While it is important to address issues about the home that may have a direct impact on the home’s value, becoming unnecessarily critical of a home in order to attempt to drive down the price is not a typically successful strategy when dealing with an individual owner.

In addition, it is common for sellers to scrutinize buyers from a personal perspective – they want to be sure they are selling their precious home to someone who will be a caring owner – someone who will appreciate their home. Also, the sellers may have other emotional investments in neighbors and the community that are important to them. The best way to handle sellers is to be considerate yet firm about your offer. Criticisms of the home should be measured and tempered with honest complements.

Understand what the home is worth to you and have a strategy for transferring that understanding to the seller in a positive, caring way.

If the seller is a bank or similar non-individual, the emotions are largely removed from the side of the seller. These sellers are looking for the best net on the property and they want to sell the property as quickly as possible to get it off their books. These sellers, however, are not in the business of giving away property. They are usually well staffed with educated business people looking for the best deal for their company.

One common misconception is that bank properties are always a bargain.

While you have a good chance of getting an excellent deal on a bank property, the bank will seek to sell it for the highest price that the market will allow; so, if it is a popular property you will compete for it with other buyers and you will pay a fair price. Emotional considerations with the bank are very limited. Present an aggressive offer and expect a counter offer with several levels of negotiation before achieving a final sales price. Working with banks can take some time so be patient.

Chris DeLoach

843-270-1272

www.chrisdeloach.com

To the finish line

Part 6 or 6

In the past few days you with a feeling of despair to one of guarded optimism. You are now beginning to plan your move into your new home. You have looked at some new furniture, you have taken a lot of measurements, and you know that closing is just a few weeks away.

During this latency period, there will be a few hiccups. Usually most of them come from your lender. Expect your lender to appear to be somewhat disorganized. The loan department has various levels of hierarchy that must sign off on the loan. Different individuals may throw in a few unexpected requests into the mix. Typically they are related to additional verifications of income for clarifications about debt. Lenders today are more cautious than in recent years so expect a few delays. While you wait, be patient but be proactive in ensuring your lender is getting the work done. Trust but verify that your lender is on track to close.

Finally, your closing day has arrived. You will have quite a few papers to sign and you will have the opportunity to sit with the seller as they sign away their home to you. If everyone has done their job, this will be a problem free, smooth transition. Even so, many closings have delays. Most delays were caused by the lender. Most closings happened the day their scheduled even if there are some minor glitches.

During the closing process, in a state of South Carolina and least, you will usually meet in an attorney’s office to sign papers to transfer ownership of the property to you.

As a buyer, you are free to select your attorney to do your closing. South Carolina does require that an attorney be involved; but, unlike many states, one attorney, rather than two or more, can, and usually does, manage the whole closing. An attorney South Carolina who is a closing attorney will not solely represent your interests, since, as settlement /closing agent, he or she will also be representing the seller, the lender and others as well. (In South Carolina the attorney is hired by the buyer but because the attorney represents more than one party in the transaction, should a dispute arise later, the attorney will represent no one in that dispute.)

At closing you will review the closing statement or HUD 1 which is, in essence, a balance sheet which describes how funds will be transferred between parties. It is an important statement so you will need to understand how it works. After you review the HUD 1, you and the seller will go through and sign several documents transferring ownership.

For most people the closing process is not stressful and in many ways is a relief after days of waiting for the closing. Most closings in South Carolina take about an hour to an hour and a half. At the conclusion of the closing, you will receive your keys to the home. Congratulations!

Chris DeLoach, MAT, MEd, SFR, ABR, BIC
843-654-4578
chris@houseplanrealty.com

Your Charleston Buyer’s Agent