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Sarah I. Deben |
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| Realtor-Associate, ASP, Coldwell Banker Residential Real Estate, Miami, Florida |
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In South Florida, homebuyers have returned to the market in 2010, where 66% of sales were in the $250,000 range and below, according to data from the Miami Realtors MLS service. In March of last year, Miami-Dade County had a total of 10.5 months of inventory of homes, condominiums and town homes combined. By December, the months of inventory was reduced to 9.6, which is considered a positive sign and significant improvement. However, there is continued and increased pressure from distressed assets, whether they are “short sales†or REO’s (Bank owned properties).
These numbers paint a clear picture that potential homebuyers are chasing and buying distressed assets. More often than not, bank owned properties have sat in the market for 1-2 years vacant and in disrepair. Homeowners who are still in their homes and having to do “short sales†don’t have the money to keep up their properties, as most have either lost their jobs, or don’t want to spend any money maintaining their property, knowing they will be losing their homes.
If we take off the foreclosure blinders, we will see that approximately 44% of sales in this market are considered to be the old fashion “regular salesâ€â€”where homeowners are not upside down, where they have maintained and improved their properties—but, they have to price their homes to sell in line with comparables sold in the last six months. If, such a large number of sales in South Florida are distressed assets selling at or below market, naturally the comparables used by an appraiser come in at those price points. Sellers, who need to move on because of life events such as job relocation, retirement or family issues, have to price their homes at the “average†or “median†price of said comparables.
An example of a good buying opportunity:
A property owner is retiring, has relocated or needs to move near a family relative in another city.
If the price of this home does not exceed $417,000 the buyer can apply for a Federal Housing Administration (FHA) loan, which only requires a 3.5% down payment. Additionally, FHA guidelines allow the buyer to ask for up to 6% of the sale price of the home as “seller contribution†towards closing costs. Furthermore, since the buyer is negotiating directly with a regular seller, the buyer can structure the purchase contract to set a specific dollar amount for repairs, if needed, or to ask the seller for a specific amount towards repairs.
In Florida buyers typically have 10 days from the effective date of the contract to conduct an inspection by a qualified inspection company; the buyer has the option to go back to the negotiating table if the amount of repairs exceeds the limits set in the contract. And, the buyer can re-negotiate the contract to ask the seller to split the difference in repairs or any combination thereof.
Going back to the scenario of a buyer purchasing a home at $417,000 and applying for an FHA loan, the down payment will be $14,595. If the buyer was able to negotiate a 5-6% contribution to closing costs, that could amount up to $25,020. Essentially the buyer can purchase the home with very little out of pocket.
By the way, in South Florida banks have taken a very strict stance on property appraisals, so they do not have to face foreclosure a second time on a property. Appraisers are using the guidelines of looking back at no more than six months of closed properties within a mile of the subject property. So, all distressed sales go into the mix and comparables used. “Regular sales†cannot hide under the pretense they are better or different than distressed assets because they will not appraise, therefore, buyers can walk out of the contract.
As a final note, on January 15th 2011, Trulia released their Buy vs. Rent index which compares the total cost of homeownership to the cost of renting. This revealed it is cheaper to buy a home rather than rent one in 72% of the 50 largest U.S. cities. “Since the start of the ‘Great Recession,’ many former homeowners have flooded the rental market,†Pete Flint, CEO of Trulia, said in a news release about the index. “Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets.†The index compares the median sales price of homes with the median rent on two bedroom apartments, condos, and town homes that were listed on Trulia as of Jan. 10, 2011. And the #1 city is….Miami, followed by Las Vegas, Arlington, Texas, Mesa, Ariz., Phoenix, Arizona, Jacksonville, Florida, Sacramento, Calif., San Antonio, Texas, Fresno, California and El Paso, Texas.
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