Real Estate Revival
After enduring some of the real estate industry's worst years, cautious optimism is catching on among Central Ohio agents. The burst housing bubble and the Great Recession dealt a one-two punch. But many Realtors see 2011 as the year that the industry will lift itself off the mat and start swinging again.
Of course, recovery is relative after years of plummeting values and market sluggishness. The holidays and the difficult winter weather might have slowed down some buyers in late 2010 and early 2011. Still, agents expect to build on last year. "Starting out this year, it feels like the phone is ringing a little more and there are serious buyers out there. The expectation is, it can't get any worse than it has been," says Chris Pedon, a sales associate with HER Real Living in Bexley and the Columbus Board of Realtors' treasurer.
Columbus Board of Realtors (CBR) statistics showed slight improvement from 2009 to 2010. Average time on the market fell from 97 to 90 days. The average list price increased from $163,193 to $167,670, but the average sale price fell slightly ($159,840 to $158,893). In 2011, the Clear Capital Home Data Index places Columbus among 10 markets expected to see home prices rise. Columbus ranked fifth with a projected 2.1 percent increase. With values expected to decline in 35 of the top 50 markets, Columbus is in comparatively good shape.
Central Ohio is expected to remain a buyer's market, but prudent sellers who keep their goals realistic can sell their home. Some pitfalls exist. The end of "no money down" mortgages has eliminated some buyers from the pool, as have expiring federal tax credits.
Overall, inner-ring suburbs such as Bexley, Grandview Heights and Upper Arlington as well as Columbus neighborhoods like Clintonville have been steady. The Downtown housing market may stumble now that tax abatements are beginning to expire.
The high end of the market, which thrived during the early part of the decade, remains a challenge. "If you're under $325,000, there are more buyers than if you're over $500,000," says Rick Benjamin, a salesman with RE/MAX Premier Choice and president of the Columbus Board of Realtors.
Columbus never reached the foreclosure levels of cities such as Las Vegas or Stockton, Calif., where entire subdivisions became deserted. Realtors say it's because the advantages the region offered in the past still hold true. "We have good, stable employment here. Quality schools are everywhere. They have a great deal to do with the stability of Central Ohio," says Tom Calhoon of Prudential Calhoon Realty. In areas where school districts struggle to pass levies, housing continues to be soft.
But foreclosures aren't the only challenge. More and more buyers face the same situation as James and Rachael Lawton. After a long search, they chose a new home in the Lewis Center zip code based on its proximity to Columbus, schools and quality of life for raising a family.
The couple must still sell their Northwest Columbus condominium, which went on the market in October. The Lawtons conferred with their agent about how to best present the property. "We went into it knowing we were listing it at the worst time of the year," Rachael says, adding that they prepared financially for the likelihood it might not sell until spring.
Some agents say the housing market is likely to strengthen when other key economic indicators surge. Adam Knolls, an exclusive buyer agent and vice president of Revealty, says consumer confidence levels will be a forerunner for renewed energy in the housing market. The minor increases to date haven't been enough to move the needle, he says.
"First-time buyers are not ready to jump in. It does affect people's psyches to make that 30-year commitment," Knolls says.
Other agents are reporting more activity than they've seen in years. "On the middle and high ends, there has been a lot of interest. The confidence level is beginning to ebb back. We're hoping to see some of the inventory fall," says Virgil Mathias, sales associate with Coldwell Banker-King Thompson.
The housing crisis has changed how the market is gauged. Statistics now break out short sales, the practice of allowing homeowners who cannot pay off their mortgage to sell at a lower price to avoid foreclosure. Short sales became common after the real estate bubble burst and show no signs of diminishing.
"Appraisal is a challenge. In the beginning, appraisers were not looking at short sales. Now their lenders are saying you have to look at short sales. So that is part of the market," Calhoon says. However, a county board of revisions cannot consider short sales when a comparing a home to others in its neighborhood during a reappraisal.
As long as foreclosures and short sales persist, they will exert an influence on sale prices. Such an environment favors buyers who can afford to wait for everything they want in a new home.
When the so-called months supply of homes--a measure of how long it would take to sell all inventory on the market--stays above nine months, the market favors the buyer. Once supply moves to six months or less, the advantage goes to the seller, Benjamin says. As of December (the most recent data available), the supply of homes stood at 9.93 months.
In 2011, more buyers may be like Gretchen and Adrian Burns, who recently moved from East Columbus to Lancaster. For them, it was a matter of finding a home at the right price. The small-town feel of Lancaster and its close proximity to Columbus aided their decision. "We were ready to move out of our current one and wanted to find a house to raise a family," Gretchen says. The couple didn't sell their old home, opting to keep it as a rental.
The expiration of the first-time buyer tax credit has curtailed activity at the lower end of the pricing scale. "Some people were smart enough to notice the interest rates went down and you could make that back in a few years," Knolls says.
But there are still homebuyers waiting to find the right house who won't drop their search just because the tax break vanished. Agents are quick to point out that a bigger block of potential buyers was lost after the initial market contraction occurred. "A lot of people who qualified suddenly did not," Knolls says.
Even a strong buyers market doesn't give shoppers carte blanche. When bidding on a home, buyers need to keep their offer realistic in order for the seller to counter. "If you're in the 10 percent range, it's assumed to be a serious offer. People should buy their first choice every time they can," Benjamin says.
Given the large inventory from which they can choose, buyers don't want to spend time or money upgrading countertops, appliances or carpeting. They want to minimize those decisions, Calhoon says. "They can be pickier. Many of our buyers are two-income families, so they are willing to pay to get something nice so they're not taking time off work. There is a higher expectation of quality," he says.
Buyers have grown more astute, checking statistics online and conducting other research before deciding where to shop, Calhoon says. Many times, buyer e-mails are the first point of contact an agent has.
Some buyers demand new homes, but the best opportunities lie in the resale market--as long the house has a good floor plan and is in good condition, Benjamin says. That does not mean new homes are immune from market forces. "Even the new builds are competitive, because they have to be," Benjamin says. Newer homes have advantages. For buyers who want to act quickly and not compromise on the features they want, there are better opportunities to find a match in newer communities, Mathias says.
There are limits to what a buyer can achieve, even in a down market. If a seller has priced competitively, shoppers need to be realistic, Mathias says. "Unfortunately, we see buyers who still think we have 10 to 20 percent off list price. In Central Ohio, those are few and far between," he says.
Pricing Propels Sellers
Even in the best real estate market, savvy owners who price their homes properly have better odds of finding a buyer. Benjamin proved this in the past year when he listed his own home. He priced it competitively, and it sold in 10 days.
Agents agree that homeowners who want to sell should not try to test the market, but enter it with an appropriate price from the outset. Buyers will react more quickly and chances of selling improve. The last thing most owners want is for their house to sit idle for months without any showings. "Those who are serious about selling are much more serious about pricing," Mathias says.
In the Bexley area, where demand is high and turnover is low, HER's Pedon says, buyers can still name their price to some extent. In 2010, Dublin homes sold for an average 94 percent to 95 percent of their list price, Mathias says, a result of proper pricing. That holds true in other Central Ohio communities, too. Westerville and Worthington both exceeded 96 percent of list price in 2009 and 2010, according to CBR statistics. Since the real estate bubble burst, the problem is not with the houses sold, but those not selling.
If sellers price their home correctly, buyer power drops. In cities where overbuilding occurred, mostly in communities around the outerbelt, sellers' leverage fades. Sellers have an advantage when they drive negotiations on items other than price. "They should compromise on timing, home inspections and other issues," Knolls says.
Sellers should consider hiring a professional to "stage" the home, removing the clutter and placing items in storage to improve its appeal. "Being so competitive in the market, you have to stage the house better," Pedon says. The upfront cost for the service is minor compared with what the seller stands to lose by going to market too soon and reducing the price later, Benjamin says.
To sell an Upper Arlington client's property, Calhoon listed their $400,000-plus home at $385,000, and it sold in the low $390,000s. If they had started in the $400,000 range, Calhoon says, "It would have sat there for two or three months, then we would have reduced it."
Delisting a house won't erase past sales attempts. Until a listing has been inactive for a year, CBR continues to count days on the market. "We feel that's a more accurate barometer of the market," Benjamin says. Still, if a seller delists to lower the price or make renovations, it could increase their chance of a successful sale.
It doesn't take long to find out if a house is overpriced. Based on activity and the number of showings, Mathias says, a seller can see how they fit into the market. For example, a $750,000 house that gets multiple showings and seemingly motivated buyers but no offers has a pricing problem, he says.
Some sellers will consider solutions that would have been nonstarters a few years ago, including renting or rent-to-own arrangements. "People have accepted that those are viable options. A lot of sellers are willing to work with you," Knolls says. Such options also have helped to reduce the local housing inventory, he adds.
In recent years, more sellers have sold their houses and moved into a rental while they continue to search for a new home. As selling has become harder, more owners are willing to take the sale whenever they can get it, Pedon says. That also applies to time of occupancy. While 30 days after closing was the traditional time allowed for the seller to vacate, that timeframe could be negotiable now, Pedon says.
Few transactions are open and shut. The sale process has slowed considerably as buyers gained strength and the ability to haggle. In a typical negotiation, the buyer will ask for things they don't want to increase the chances of receiving items they do, Knolls says.
"The seller needs to be flexible because it seems as if we're negotiating three or four times instead of one. It isn't like the old days where you put it in contract and move toward closing," Pedon says.
"There's a challenge on every little transaction. You used to stack up three closings in a row. You can't do that today because you're not 100 percent sure the first one will be funded," Calhoon says.
Bill Melville is a freelance writer.
Reprinted from the April 2011 issue of Columbus C.E.O. Copyright © Columbus C.E.O.