2013 Massachusetts real estate market

Lara Gordon, Coldwell Banker

Put Your Best Offer Forward & Get Pre-Approved Beforehand, Advise Local Experts

Well, it’s official now. With buyers back in droves, an abnormally low inventory of good properties, and bidding wars popping up all over the place, the Greater Boston real estate market has now made full circle into a seller’s market. As the Boston Globe recently wrote, the market is “desperately seeking sellers.”

images-11For prospective buyers in a seller’s market, the strategies to succeed and find your dream home are very different from just a year or two ago. To help you navigate these unfamiliar waters, I’ve asked Cambridge-Somerville Realtor, Lara Gordon of Coldwell Banker, and Brian Cavanaugh, Senior Mortgage Banker at RMS Mortgage, to join me in this “round-table” discussion about how buyers can succeed in a seller’s market. Lara and Brian were both featured in this month’s Boston Magazine Best Places to Live 2013.

Q: Laura, what are you seeing out there on the streets in terms of inventory, pricing, and respective bargaining power between buyers and sellers? Has the tide really shifted back to sellers?

A: (Lara Gordon) Yes—in a very big way. When sellers have 5-10 offers to choose from, which is typical for most listings in Cambridge & Somerville right now, they are really setting the terms, and some buyers are willing to accommodate just about any request they make, from waiving the inspection to offering a sale-and-lease-back if the seller needs time to find a new place. My listing at 27 Osgood Street, Unit 7 in Somerville (pictures to the right) is a good example — 6 bids.

Q:  Lara, I’m hearing about bidding wars on well-priced, good condition properties. What are you seeing out there, and what’s your best advice on getting that winning bid?

A: (Lara Gordon) I always tell my buyer clients this: if you know you’re going into a multiple offer situation, you should put your best foot forward from the start. Some people feel nervous about coming in high on their offer, thinking they need to leave some room to come up during negotiations, but that is a mistake. If a seller receives one offer that is significantly stronger than the others, they may well accept it without going back for a “best and final” round.

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And again, price is just one aspect of the offer, so have a good pre-approval from a respected lender, do the best you can with the downpayment, be willing to work with sellers’ preferred dates, and make sure your agent is “selling” you as a knowledgeable buyer, reasonable to deal with, and committed to seeing the transaction through.

Q:  What do buyers need to do in terms of making their best and most competitive offer? Are we back to buyer’s writing a personal appeal to sellers and that sort of thing? 

A: (Lara Gordon) Some buyers do write letters to sellers, but it’s the list agent’s job to keep them focused on the strengths of the respective offers, so an emotional appeal really only gets a buyer so far. Buyers really need to put their best foot forward. This starts with price, downpayment, a solid pre-approval from a respected lender, tight contingency dates and as much as possible accommodating the sellers’ preferred timeframe for closing. Beyond that, list agents and sellers are looking for a deal that will proceed smoothly and will “stick” through closing, so buyers’ agents really need to “sell” their clients as educated on the market, realistic about the home inspection and committed to seeing the deal through.

Q:  Brian, I hear that buyers are coming to you at all hours and weekends for pre-approvals. When buyers come to you for mortgage approval, what sort of documentation should they have ready to go and how quickly can you close loans these days?

ex-mlsA: (Cavanaugh). Well, I’ll start off by staying that the pendulum has definitely swung around. When the market favored buyers, you would go look for houses, get an offer accepted then go to your mortgage banker for an approval. Now it’s the other way around. You need a mortgager approval in hand when you are out looking for homes. And that means from the start you need a very firm grasp on exactly what you can afford, how much to put down, etc. You need to work with a mortgage banker with a strong grasp of Fannie and Freddie guidelines.

As for the paperwork, you need 2 years of tax return and W2’s, 30 days of pay-stubs, one year of bank statements, statements for your 401ks, IRAs, and investment accounts. A lot of first time buyers use gifts of downpayment from their parents, which are particularly tricky. I tell them to get those monies into your account ASAP. You will need a gift letter executed by all parties involved and verification of funds.

Currently, we can close a single family loan in 45 days, and a condo purchase in about 60 days, since condo mortgages require more extensive FNMA approval.

Q:  How much are sellers looking at buyers’ financing? Are cash buyers winning out over financed buyers? What are the ways to ensure a seller that a financed buyer is of no greater risk that a cash buyer?

A: (Lara Gordon) Cash is definitely an advantage in that it takes one element of risk out of the equation. For sellers in a rush to close, a cash deal is also appealing because it can close a lot faster than when a lender is involved. But if timing isn’t a big deal and there are good comps for the property, there’s no reason a seller shouldn’t consider a good offer from a buyer who will finance. Of course, the size of the downpayment has become increasingly important as bidding wars drive prices up and appraisals become a concern.

Q: How are you dealing with contingencies in a seller’s market? Are buyers waiving inspection or even financing?
A: (Lara Gordon) There are certainly buyers out there waiving both financing and inspection contingencies, but it’s not always a good idea. While it’s fine for buyers to waive the financing contingency if they’re prepared to pay cash, I personally, would never advise someone to forego a home inspection. The key is to approach it as educational and a way out in case of a major issue, and not as a tool for renegotiating the price.

A: (Vetstein) I’m going to weigh in on this topic as it deals with legal issues. I would STRONGLY advise a financed buyer to resist the temptation to waive the financing contingency in the hope that it will make an offer more attractive. In this day and age of strict underwriting and frequent delays, this is simply a recipe for losing your deposit. I don’t care if a handful of lenders have told you that your file is a slam dunk — you could get laid off a few weeks before close and you’d be DOA for the closing. Same goes for the inspection contingency. Sellers know that buyers want to check the home’s bones beforehand. Trust me, it will cost you a lot more money down the line if you wind up buying equivalent of the “Money Pit.” Tightening the deadlines, that’s fine. Waiving them, that’s just asinine.

A: (Cavanaugh) I would echo Rich’s sentiments. In this day and age of tight lending guidelines, I would hate to see a buyer lose his deposit because he was under the assumption that he could qualify for a mortgage he really couldn’t qualify for. Again, talk to your mortgage banker before you make the offer.

Q: Last question guys. I always recommend that my buyers use a Realtor. But please tell the readers exactly why having a Realtor can greatly increase your chances of succeeding in a seller’s market?

A: (Lara Gordon) I’m glad you asked this question, Rich, because some people think that they will do better if they go directly to the list agent, but given the nature of the market right now, it just doesn’t make sense to try to go it alone.

A: (Cavanaugh). When my borrower works with a Realtor, it always makes the transaction run smoothly. I operate under a “team” concept with the agents, so I’m used to constant contact with both the buyer and listing agent to ensure we get access for the appraisal and all the documentation in place for the loan commitment and closing. When there’s a team of professionals involved in a transaction, it’s a win-win for everyone.

A: (Vetstein) A low inventory/seller’s market is precisely why you want a Realtor who knows the market inside out and can be your salesperson/spokesperson on your side. In a market where perception is everything, I think it’s fair to say that a listing agent/seller will take you more seriously if you are working with a top notch Realtor, rather than sauntering solo into an open house in your Bean duck boots. Not to mention that the buyer does not typically pay an agent commission in Massachusetts. Also, selfishly, working with a client with a Realtor is less stressful for the attorney.

Q: Lara and Brian, any final words of wisdom as we head full bore into the busy spring market?

A: (Lara Gordon) I guess I’d just like to acknowledge that this is a tough market for buyers, and I totally understand the stress and frustration many people are feeling. In an ideal world, you’d find a great house, take some time to think things over, maybe visit a few times, then make a fair offer in a non-competitive situation, and you’d have a new home. But buyers need to accept the reality of the market we’re in: we’ve got low inventory and high demand, and you won’t necessarily get the first house you bid on. Maybe not even the second or third. But if you are qualified financially, have realistic expectations, are patient and persistent, and know how to play the game, you will ultimately find a home.

A: (Cavanaugh). I would urge would-be buyers to talk to a mortgage banker as early as possible in the process. We still have near all time mortgage interest rates. Affordability may never be as good as now, so hang in there in terms of bidding wars and a seller’s market. RMS Mortgage is well known brand and people either know me by reputation or have worked with me. So you have some instant credibility with the listing agent who can vouch for a smooth and successful transaction, and that’s very important in this seller’s market.

Thank you to Brian Cavanaugh and Lara Gordon for a great round-table discussion! Lara can be reached at [email protected] or 617-245-3939. Lara blogs at Cambridegville. Brian can be reached at [email protected] and 617-771-5021. Brian blogs at Smarterborrowing.com.

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IMG_1490Yesterday my firm sponsored a very informative breakfast seminar with veteran real estate journalist Scott Van Voorhis of Banker & Tradesman and Boston.com who offered his predictions on the 2013 Massachusetts real estate market. The presentation included a lively question and answer session with the 40+ Realtors attending from all over the Greater Boston area. Here are some take-aways from the seminar (in no particular order):

  • “Bright and sunny early, but with a chance of severe job cuts later.” According to Mr. Van Voorhis, the Fiscal Cliff and upcoming Debt Reduction negotiations may be the biggest obstacle remaining in the path of a sustained real estate recovery. At stake are anywhere from 50,000 – 70,000 jobs in Massachusetts if the current slate of proposed budget cuts pass — to defense (i.e., Raytheon), health care, hospitals, and medical research, and tech sectors. If Massachusetts sees severe spending cuts by the federal government, the Route 128 corridor will be most impacted. The current impact is of “wait and see” with defense contractors and tech companies waiting to see how the federal budget battle with be resolved. They are putting new hires on hold and bracing for possible cuts. The fact that Congress will likely wait until the last minute to resolve these important issues doesn’t help the market any!
  • We’re back…. Median sale prices in many suburbs are now back to 2005 levels. Natick’s median price is $418,500, just off from its ’05 high. Needham has surpassed its ’05 record with a median price of $670,000. Burlington has broken its ’05 record at $407,000 median price. A major driver of the real estate recovery is the tech-sector, with Route 128 lab space expanding by 50%, or 3.5 million square feet of space, since 2007, enough to fill three Prudential Towers of space. Shire in Lexington and Genzyme in Framingham have led with way.
  • Tear-Downs On The Rise. Builders are doing tear-downs instead of large scale subdivisions, where financial risk is minimal. Early data indicates increasing market activity in tear-downs in Lexington, Newton and Needham, for example.
  • Low Inventory of Move-In-Ready Homes. The attending Realtors lamented about the dearth of move-in-ready homes in the sought after towns. As we know, there is hardly any buildable land in Massachusetts, and builders have not been doing subdivisions for several years. The agents say bidding wars are back in a big way for these properties, which creates problems with potentially low bank appraisals as the “comps” must catch up with new sales data. The low inventory also affects potential home sellers, especially the empty nesters who are “paralyzed” as one agent described, waiting on the best time to sell.
  • Buyers’ Lack of Vision. We discussed that the current generation of buyers would rather pay a premium for a move-in-ready home with the requisite gourmet kitchen with granite and stainless steel appliances, rather than pay less for a fixer-upper. Some Realtors have enlisted trusted contractors to scope out fixer-uppers along with buyers, so they can envision the potential of a lower priced home.
  • Condos Remain Strong Sector. Condominiums remain the new starter home for many buyers, especially singles. Inventory is strong and pricing remains affordable in many communities. With interest rates still at historic lows and the mortgage interest tax deduction still in place, purchasing a condo is much cheaper than renting. The consensus is that condos will remain a strong sector through 2013.
  • Short Sales Strong & Less Time Consuming. As noted by veteran short sale negotiator Andrew Coppo of Greater Boston Short Sales LLC, short sales are now becoming far less time consuming with the new Fannie Mae short sale guidelines in place since the summer. Mr. Coppo reports that short sales are taking merely 60 days to get approval, and Bank of America finally “getting it” by implementing its computerized Equator streamlined short sale system. Also, the Mortgage Debt Relief Act was extended through 2013, giving short sale sellers tax forgiveness for discharged debt. There are still lots of underwater and struggling homeowners, so 2013 will remain another strong year for short sales.

What are your predictions and thoughts for the 2013 Massachusetts real estate market? We would love to hear from you!

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RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is a Massachusetts real estate attorney who writes frequently about new legislation concerning the real estate industry. He can be reached at [email protected].

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