Current State of the Real Estate market in Massachusetts 6/2003

Prices in Massachusetts stabilized during the first half of 2003 after a slight decrease in the last quarter of 2002..  Since that time, prices have remained virtually flat with the exception of certain small micro-economic pockets.

The overall market is still in a state of very low inventory, and it remains pretty much a Sellers market.  Many Massachusetts Buyers are finding the selection of suitable homes limited, which requires more preparation time on their part but likewise requires far less decision making. 

This is very much dependent on the type of home people are looking for.  The obvious areas of inventory shortage are found in what I call the "cream-puff" houses.  The under 10 years old home on a great lot in a beautiful neighborhood always remain a sought after commodity.

What should Buyers do differently under these circumstances?

Here are a few quick tips for Buying in a Sellers market.

#1 Since there is so little inventory to look at, it becomes very hard for some Buyers to formulate in their minds a database of homes so that when a home comes available, they find themselves still looking at it and wondering if it's a good value.  For that reason, I recommend that Buyers take from me a list, showing all homes SOLD in their range in the past 3 months.  By taking some time and driving by these "comparable Sales" they'll be able to put together data in their minds as to what constitutes a good value.  Then, when a home does come on the market, they'll be able to react immediately, without having to research too extensively.  

#2 Get your mortgage approved in advance, preferably from a well known Massachusetts lender..  When there are multiple offers on the table on a home, it's really hard to compete without being pre-approved for you loan.  Better still, use a high quality lender like PNC mortgage (508 -366-6466 -ask for Peter) or Chase Manhattan Bank (Ask for Patrick 508 872-2680) who will actually issue you a Real Commitment Letter, subject only to your finding a house.   This puts you in a great negotiating position, in which case your offer might be accepted even at a lower price, than a higher offer from a more "risky buyer."

A Note about Mortgage approvals.  In order to make an offer on "House X" you'll need to have a copy of your mortgage commitment letter or "pre-qualification letter" to submit with the offer.  The QUALITY of that letter, will often be the determining factor on whether or not you get your offer accepted on your house...or whether they go with another offer. I talk to Buyers all day every day and I always ask them the same questions "Do you have your mortgage approval done?"  "Do you have to sell the old house to buy the new house?"   The answers I get are very consistent, but when I "push the issue" a little more the answers sometimes fall to pieces...

Q:  "Sure Joanne, happy to show you that property...   Do you have your Mortgage approval done?"  

A: "Yup...the mortgage is no problem."

Q: "Great News Joanne... but when you say it's "no problem" does that mean your mortgage approval is on a piece of paper in your pocket?"

A: "You know... my husband was talking to a bunch of different companies, but they all said it would be no sweat to finance us with our income."

Q: "Great so which one did he finally decide to go with?  Did that company issue the appropriate letter?"

A. "I don't think he ever really picked one, but I'm telling you it 'won't be a problem,' cause we get letters in the mail all the time saying we've already been approved for a credit card."

Conclusion - No mortgage application was ever filed, no mortgage approval or pre-approval exists.   While ultimately, Joanne and her husband will probably get approval down the road, right now they've got nothing in hand, and with nothing in hand they can't make an offer on a home.  If they can't make an offer on "house x" is there really a reason to call the owners of "house x" and tell them we want to come over at 8:00 tonight for a showing???

Another enemy of the process is what I call the "Vapor Pre-Qualification letter."   In this case, you've called a local lender...usually one of the "puppy mill style" mortgage companies, and they faxed you over their version of what they call a "pre-qualification letter."   Unfortunately...these letters are usually worthless when making an offer...and read something like this...

Dear Mr and Mrs Smith,

We at North-South Mortgage are thrilled to tell you that based on what you told us, you've been "preliminarily pre-approved."

Of course, this approval is subject to the following conditions:

Verification on Income, Assets, Credit, Debt, Employment, Expenses.....etc..

Having verified all of those things later on, this is still subject to "our satisfaction with the property, purchase and sale agreement, appraisal, inspection report and other other requirements we may later come up with.   

Please note that this is in no way a commitment to lend you any money.  Such a commitment can only be issue by our "investor" and then will be subject to your meeting any underwriting requirements we may impose.   We reserve the right to refuse to ultimately issue a commitment, or revoke any commitment issued.

Regards

Mr. I'vebeeninthebusinessaweek
Senior Loan Officer

Clearly....that piece of paper has only one major use... Confetti !   it certainly in no way provides any reassurance to a Seller that makes them want to accept your offer.  I mean other than documenting that you have a pulse...what else have they done?

A Proper Commitment would be as follows:

Dear Mr. and Mrs Jones,

Thanks for applying for a mortgage from Chase Manhattan Bank.

We have verified all the information you provided, and evaluated a hard copy of your credit report.

With this completed we are please to advise you that your mortgage request has been APPROVED, based on a floating interest rate of 6.375% on a 30 yr fixed rate with no points.  Attached is a Good Faith Estimate of closing costs for your review.  This commitment is good for 180 days and is subject only to a satisfactory appraisal on your new home. Please let us know when you wish to close.

Regards

Pat O'Reilly
VP of Lending, Chase Manhattan Bank.

Obviously, with this letter in hand, you're as good as a cash Buyer to a homeowner, and your offer will clearly be the one they want to work with.  It may take an extra day to get a worthwhile letter, but it will save you countless frustration down the road...believe me....   

#3 Pick your Realtor very carefully... Now is not the time to "defer to the relocation company" as they choose an agent for you.  Countless articles have been written about this phenomenon, but in a nutshell I can dispel one popular myth right now... ALL AGENTS do NOT have access to ALL listings....   In an area where inventory is low, countless "quiet listings" exist and getting in on the ground floor of these is something that the "relo company assigned" agents just can't do. These agents are paying out, up to 70% of what they earn in "referral fees" to the relocation company...so you're most likely are not getting the creme-de-la-creme of the industry.

One you pick your agent, be nice and loyal to them. In times like this, many great listings never even hit the market.  When I get a call from a potential Seller who is thinking of making a move, before I even think about my "Marketing Plan" I'm thinking about which of my Buyers would be a good fit for this home.    These Buyers inevitably have an advantage in that I can let them know in advance (with the Sellers permission of course) about a potential hot listing before anyone knows about it.

#4 Set your expectations correctly for your Massachusetts house hunting.  I get people coming in from Atlanta, who tell me that they've allotted "....all day on Monday, Tuesday, Wednesday and Half of Thursday..." to looking at "...all the under 3 year old houses in Shrewsbury and Westboro between $280K and $320K that are on cul-de-sacs...."      of course, by noon on Monday, the "tour" of available homes is done...  For some of them, they feel disappointed because they planned this week long - 60 hour excursion of non-stop house-hunting that obviously isn't going to happen.    It's really not bad...you just need to set those expectation before the trip.  Also...it's important to note that for most of them, the first visit isn't a "House Buying Trip" but rather a "Look around the area" trip.  That being the case, it doesn't matter so much what's actually available today...but rather to learn in general what you get for your money...so that when you ARE in "house buying mode" you'll know where you want to be.