The question about what happens when an appraisal comes in lower than contract price comes up often. Sellers do not have to sell the property to the buyer at a lower appraisal price. This article from Florida Realtors, written by Joel Maxson is Associate General Counsel for Florida Realtors, sums up this issue quite well:
“If a contract includes both a financing contingency and appraisal contingency, where does one end and the other begin? There’s substantial overlap in the two contingencies, but they have very different rules.”
What’s going on in real estate in covid-19 times? Real estate was deemed an essential activity in Florida, and real estate is still being bought and sold! Things have slowed down. Time will tell just how much because things that were in the pipeline prior to covid-19 progressed and most went to closing.
We did see significant numbers of sellers pull their homes off the market at the offset of the pandemic. However, there are still many people who have to move whether its for job transfers, divorce, moving to assisted living or decreasing real estate holdings. We entered this time with a very low housing inventory and there still continues to be more buyers than sellers. Thus far, we continue to see home prices rising.
The number of closings in March was similar to last year. However, in the past week closings for single-family homes are down 37% and for condominiums more than 50%. My sales personally are down 21% for the same period last year.
The real estate industry is adapting with new ways of doing business. This month I had my first closing using a remote (online) notary to execute the closing documents. Meetings are being held with Zoom videoconferencing and video home tours are increasing. Showings can still be conducted easily in vacant homes as well as owner occupied homes with precautions such as gloves and masks.
The data indicates that real estate will be the least affected and among the first market segments to rebound. Why? Unlike the last recession, this one is not caused by the real estate market. And since then, homeowners have been staying in their homes longer and have more equity in their homes. (See my prior Blogpost)
Want to Read more on the covid-19 real estate market –
Waiting for Price Cuts Due to the Pandemic? Keep Waiting
Fla. Home Showings Pick Up After Bottoming Out on April 7
by Michelle L. Anderson, MBA, January 29, 2020
The low housing inventory has been driving up home prices and creating a seller’s market. In December 2019, the inventory in Pinellas County dipped to a supply of 2.3 months – way short of a balanced market of 5.5 months. We are talking supply and demand here.
One reason for the low inventory is that homeowners are staying in their homes longer than they did previously. Reasons may include longer lifespans and changing lifestyles of the baby boomer generation, homeowners wanting to capitalize on a rising market or changes in consumer’s mentality following the past housing bust of 2007-2008. From 2001 – 2008, Americans held their homes for an average of only 6 years. According to an article in the Wall Street Journal*, “More homeowners staying put has helped cause housing inventory to dwindle to its lowest level in decades, which has also helped push up prices on homes for sale. Adjusted for population, the inventory of homes for sale is now near the lowest level in 37 years of record-keeping.”
The good news is that we may be seeing a shift. In 2018, the nationwide average was 13 years, which shifted down to 10 years in 2019*. In Florida, the rate is lower – 8 years. Florida homeowners likely hold homes for a shorter period because they are bought as 2nd homes, bought later in life, or are purchased by those who come from other states and later decide to return to their state of origin.
Conventional thought has been that a homeowner should hold their home on average at least 5 years to break even. This number fluctuates with the market. Currently in St. Pete, the average break-even point is at 3 years. From this perspective, I think it bodes well for the financial health of Americans that they are staying in their homes longer. If in homeowner doesn’t hold their home up to the break-even point, they may have actually been better off renting. To calculate break-even points by area, down-payment and home price, this online calculator can be used.
Housing Inventory Turnover
Another way to analyze housing inventory trends is to calculate the inventory turnover rate. This rate can be useful when comparing neighborhoods within an area and what the expectation for new homes coming on the market may be. It is a way to determine if a neighborhood’s residents tend to stay put.
The neighborhood turnover rate is the percentage of homes in a neighborhood that sell each year. The rate is calculated by dividing the total number of homes in a neighborhood by the total number of homes that sold in that year. I calculated the turnover rates for a few St. Pete Neighborhoods:
Central Oak Park – 12% (of 1,727 homes on North Streets)
Historic Kenwood – 8.3% (of 814 homes)
Historic Old Northeast – 8.3% (of 534 homes)
Broadwater – 21% (of 378 homes)
Old Southeast – 16% – of 247 homes
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*National Association of Realtors, How Long Do Homeowners Stay in Their Homes, Jan. 8, 2020
*Wall Street Journal, “People Are Staying in Their Homes Longer—a Big Reason for Slower Sales,” Nov. 3, 2019
Home RemodelingSARASOTA, Fla. – Dec. 12, 2017 – Home renovations as an investment for a future sale with hopes of recovering the improvement costs are a dicey prospect at best. Real estate agents and remodeling construction specialists caution against that assumption.
“Hardly anything will offer a net profit,” says Barry Grooms, Realtor, broker and co-owner of SaraBay Real Estate with his wife, Sherry. But some improvements “will help sell the property faster and will fetch a higher sales price.”
On the flip side, renovations for personal and lifestyle inclinations or remodeling an older residence after a purchase are commonplace and prudent. The popularity of HGTV’s portfolio of “reno” shows reflects public interest, but solid evidence comes from BuildFax. The data analytics firm has a new report showing residential remodeling outpacing new construction spending.
“Residential remodeling activity has increased by 30 percent since 2010,” BuildFax reported, though that began trending down in the Southeast during the last half of 2016.
Denny Yoder, president of Yoder Homes & Remodeling, is well acquainted with remodeling motivations. “The majority of our clients are improving their homes for personal lifestyle reasons,” he said. “About a third of our clients have just purchased the property or are converting it from a rental to a retirement home.
“While the concern for appropriate investment and not over improving is always important, we advise clients the more years they plan on keeping the property the less important this consideration is.”
While cosmetic and lifestyle enhancements are attractive and advantageous to homeowners, prospective buyers will take a different view should those renovations be unappealing.
The return on investment for an updated kitchen averages about 60 percent, a bathroom remodel around 68 percent and a master suite addition about 53 percent, Grooms said.
Michael Moulton, a broker-associate with Michael Saunders & Company, cites expensive new marble and/or wood floors as iffy. Those are “too much of a gamble that a new owner may want something other than what you install.” Plus, he said, “not all buyers would appreciate” expensive windows such as Pella and Anderson.
Basic infrastructure upgrades could prove valuable, though.
“The best improvements a home seller can make are replacing the roof, HVAC, electrical and plumbing,” Grooms said. “The reason for this is that most home buyers will have a professional inspection and most homes require homeowners insurance, and if the aforementioned items are not in good condition, it may increase carrying costs for the new buyer or an immediate out-of-pocket burden that is too much and break up a deal.”
Moulton emphasizes re-plumbing a house in neighborhoods where that is typically needed and replacing an aging roof.
That falls in line with the “Remodeling 2017 Cost vs. Value Report.” The website – – compares the average cost for 29 popular remodeling projects with the value those upgrades retain at resale in 99 U.S. markets, including the Sarasota-Bradenton-Venice region. Nationally, home maintenance projects, such as siding replacement, paid off best.
Curiously, every one of those projects undertaken in Southwest Florida, for example, paid back a higher return on investment than the national average. The highest differential came in at 27 percentage points – a garage door replacement – 104.1 percent here versus 69.3 percent nationwide.
“In general,” the report stated, “the hotter the market, the bigger the payback.”
This is the 30th anniversary of Remodeling Magazine’s first such survey, undertaken with the goal of providing an unbiased, third-party report on how much it costs for a professional to do a typical remodeling project as well as how much a real estate pro believes that project will increase a home’s value if it’s sold within a year of when the work was completed.
The methodology includes such factors as the cost of materials and labor in each market, subcontractor payments, taxes and additional considerations. The study compares the costs for the same hypothetical project in all 99 markets surveyed. Nationally, the 29 projects in this year’s survey paid an average of 64.3 cents on the dollar in resale value. The study broken down into 19 mid-range and 10 upscale projects.
Overall, the report found that newer and older trends continued. Improvements to the outside of a home produce higher returns on investment than interior projects. Curb appeal upgrades sell, be they to doors, windows or siding. Replacing those features proved better than a remodel, real estate pros said.
On the lifestyle front, Yoder cited bathroom remodels as “very common,” with hand-held and multiple shower heads being very popular. “Other popular requests in bathrooms are replacing bathtubs with walk-in showers and stand-alone tubs,” he said.
“Next in popularity are kitchen remodels followed by closet organization,” he added.
In several areas that Remodeling did not address, Grooms did. “Landscaping on average can return up to 150 percent of a return of investment,” he said. “Fencing may return up to 95 percent.”
The fence issue brings up an important matter. “The other area that I have observed that often helps a home sell faster and for more money is homes that are ‘pet friendly’,” Grooms said – which translates into wood, tile or laminate flooring, fenced yard or large yards. “More than 65 percent of homebuyers have pets, so making a home friendlier or decreasing the maintenance may help a buyer choose your home over one that is not!”
In the Sarasota market, Remodeling Magazine, published by Hanley Wood, reported only four projects with positive resale values. The installation of fiberglass attic insulation scored the best, with 124.4 percent rate of return. That is followed by replacing the entry door with a steel one (106.9 percent), installing a new garage door (104.1 percent), replacing the garage door with an upscale model (104 percent) and replacing the siding (100.9 percent).
Of the 2017 national averages, only attic insulation recouped more than the job cost, at 107.7 percent.
In upscale projects in SW Florida, a bathroom remodel (61.8 percent), a bathroom addition (64.1 percent), a master suite expansion (65.9 percent) and a major kitchen remodel (69.1 percent) scored the worst ROI (return on investment).
“Consumers often are surprised to see that some of the most common remodeling projects recoup the least costs,” the report said. The rate on investment for a mid-range bathroom addition scored the worst payback at only a 53.8 percent average across the country. “Not a single kitchen or bath project ranked higher than 17th out of the 29 projects,” Remodeling found.
The magazine’s research put quantitative figures on the value of curb appeal. Exterior projects had an average payback of 74.9 percent nationally, while interior projects returned 63.5 percent, the study said. Almost an identical percentage differential separated replacement and repair costs from remodeling improvement projects.
Plus, kitchen and bath upgrades require more costly skill and labor. “As a general rule,” the study said, “the simpler the job, the cheaper it is and the more likely it will have a high ROI.”
Here in hurricane country, a backup power generator holds a lot of appeal. The addition of that piece of equipment came in dead last among mid-range projects in Sarasota at 66.4 percent.
But the survey’s information was gathered before Irma knocked out electricity to thousands of households in September, and residents scrambled to purchase those units.
“Timing also figures here,” the study stated. Generator popularity surged after Superstorm Sandy struck, soaring some 20 percentage points. ROI has been slipping since then, but Hurricane Irma served as a reminder of the value of that equipment.
The remodeling and replacement industry continues to reach new heights. One only needs to check the large audiences for HGTV’s numerous programs that highlight home overhauls. “Fixer Upper” – HGTV’s highest-rated show ever – has made media darlings and design icons out of Chip and Joanna Gaines. Their Waco retail business has skyrocketed and their 40-acre farm made the Texas city a destination.
This year, with an average of more than 30,000 visitors a week, their Magnolia Market business, complete with grain silos, should draw about 1.6 million people, according to the Waco Convention and Visitors bureau.
Their “blockbuster” series ranked as one of the top two most-watched cable telecasts in Nielsen data that covered their season four finale this past summer. Two of HGTV’s other home renovation series, “Property Brothers” and “Flip or Flop,” have also fueled the network’s rise even as ratings for other cable television companies fell.
One common denominator of these shows is ripping out walls to unite kitchen, dining and living rooms. Moulton supports the open floor plan as a positive on home values.
When I am working with a buyer and an offer is being made, the buyer will ask, “What should I offer?” To respond to this question, my first step is to provide the buyer with comparable properties that have sold recently and collectively we form an opinion on what the home is worth. If the home needs some repairs or updating, that is taken into account on the price.
The next question from the buyer may be, “How much lower can we offer?” Let’s say for example that the home is priced at $250,000 and after reviewing the comparable sales it is determined that the home is in fact worth $250,00. The next consideration should be how long the home has been on the market (keeping in mind that we are in a seller’s market). If the home just went on the market, the chances are much lower that the seller will accept a lower offer. In addition, there is a chance that another buyer may submit an offer. In our current market, homes that are priced right sell quickly!
Say the house has been on the market for 60 days. How low of an offer is advised? In low-medium priced homes, anything that is 90% below asking price is considered a low-ball offer. Some may think it doesn’t hurt to try, but in fact it can. I have personally experienced sellers rejecting low-ball offers and declining to even counter. If the buyer truly is only willing to pay the lower price, than by all means make the offer with the awareness that it may be strongly rejected. In my role, whether I represent the buyer or the seller, I try to maintain amicable negotiations throughout the process. A low-ball offer, even if it leads to successful negotiations can start things off on the wrong foot.
I did an analysis of all the home sales in a specific area of St. Pete (Central Oak Park Neighborhood) for the last 60 days (mid-March – May). The average sale price for these homes was 96.5% of the asking price. That tells us that sellers are getting very close to asking price and they are not accepting low offers! The except is those homes that are overpriced and not selling at all!
So what would I advise offering on that $250,000 house that has been on the market 2 days? If the buyer says they really want the house, then offer $250,000. If it has been on the market 2 weeks and the list agent says that no other offers are currently expected, then offer $240-245,000. If it has been on the market for 60 days, then an offer of $230,000 would not be unjustified in my opinion.
Buyers typically want to buy low and sellers want to sell high. Working with both buyers and sellers balances my perspective. In some cases I have been selling a client’s home while at the same time procuring a new one. I ponder their expectations for selling their home above market value and not accommodating their buyer’s repair requests while at the same time submitting a low offer on their new home and expecting the seller to make repairs!
How to value a pool comes up a lot in my work with buyers and sellers. Putting in a new pool averages about $80,000 but appraisers do not value pools based on their cost. Typically, if a buyer wants a home with a pool, it is more economical to buy a home that already has a pool rather than add one. Since we are in Florida, one might think that pool homes would be in abundance. However, finding homes with pools is not as easy as you might think in St. Pete.
Right now, there are 766 single family homes for sale in St. Pete priced under $500,000. 84 of these homes have an in-ground pool. Furthermore, only 33 of these homes are not in a flood zone. I had two different appraisers gave me their guide for making home valuation adjustments. For a home priced at $250,000, one appraiser gives $8,000 – $15,000. If the pool has a screened enclosure, they add another $5,000. Another appraiser’s guide stipulates a $12,000 – $25,000 adjustment and also another $5,000 for a screened enclosure.
Working with buyers and sellers, I have had a sense that pools are reflecting a higher value to buyers in the St. Pete market than just a $15,000 adjustment, so I took a closer look at the statistics.
In the last 6 months (October 2018 – March 2019), 111 single-family homes with pools that aren’t in a flood zone sold under $500,000.
Data calculated on all homes recently sold under $500,000 with an in-ground pool:
|Average sale price||Average sale price/SF|
|With pools – not in a flood zone||$299,000||$186.13|
|With pools – in a flood zone||$329,000||$198.13|
|Without pools – not in a flood zone||$204,798||$166.01|
|Without pool – in a flood zone||$248,500||$178.oo|
Pools homes definitely sell for more. Based on my analysis, in-ground pools add $50,000 – $80,000 to a home’s value.
This leads me to another point – homes in St. Pete that ARE in a flood zone sell for more. Obviously, waterfront property commands a higher price. However, many of the homes in a flood zone aren’t actually waterfront. Some of the nicer neighborhoods in St. Pete are close to the water. In those neighborhoods, you also find homes that were built later than their counterparts built in the 20s, 40s & 50s and these homes have larger square footage, garages and POOLS! The central parts of St. Pete tend to be older and were not built with pools.
Title insurance “insures” the title of the property. Title insurance makes the title marketable and insures the homeowner against claims to the title. Examples of title issues are claims from prior heirs, instances of bad foreclosures and prior liens such as construction or tax liens.
For example, a friend of mine bought a bank-owned house in Maryland that had been foreclosed on. After she did extensive renovations on the house, it was discovered that the prior foreclosure had been improper. The former owner was not provided with the due process that is required to foreclose a home. This occurred during the housing recession when large numbers of homes were being foreclosed on and there were many instances of process and paperwork errors. Luckily, my friend had title insurance that protected her, and the problem was resolved (and not at her expense).
Most buyers will not buy a house without title being insured. And, the vast majority of lenders require that both the buyer and seller have title insurance. The title policy purchased by the buyer protects the buyer and the lender while the seller’s policy protects the seller.
So for sellers – a seller’s policy is required unless you have a cash buyer, and even cash buyers often want title insurance. There’s nothing that makes it mandatory for the seller to pay for the owner’s policy, however, it is customary and requiring the buyer to pay it would be a disincentive to the buyer. After all, they are already paying for their own policy. I personally have not encountered a seller asking for a buyer to pay for both policies.
Other closing fees fall under recording & transfer taxes and doc stamps and are government fees. The title company that handles the closing and conducts all the liens searches, obtains title policy and holds the escrow funds also has a closing fee of a few hundred dollars. A seller’s title policy is typically $5.75 per every $100,000 of the sale price plus $5.00 per every $1,000. Recording and transfer fees to the seller are typically .70 cents per every thousand dollars. When working with sellers, I provide an estimated closing statement that details these fees.
by Michelle L. Anderson, MBA, REALTOR, RE/MAX Metro
Most of the year, Florida enjoys an active real estate market. Unlike states to the north that are not active in cold winter months, Florida benefits from our fabulous winters and our snowbirds. The short answer to this question is that late winter – early summer are the BEST times to put a house on the market. But the only time I advise sellers to NOT list a house is the 2nd half of December through the first week of January. The reality is that real estate activity slows to a crawl during the holidays. However, at any given time there are lots of people who need to move and homes sell all year long. There are a few things to consider when defining what is the “best” time, because is it best to sell the fastest, or at the highest price or do these factors coincide?
I looked at the numbers for Pinellas County for 2014 – October 2018* to see exactly what the sales trend looks like by month. Below is a graph that shows the number of closed sales for each month. Keep in mind that homes that closed likely went on the market two months prior. The average days homes have been on the market in the past year is 26 days and on average, most contracts close in 30 days.
You will see that sales consistently spike in the spring and summer. They also consistently die down in the fall and have a short spike again right at the end of the year. I hypothesize the end of the year spike is due to people making purchases prior to the end of the year in order to qualify for homesteading or investors looking to acquire a tax deduction. Another factor may be people from up north looking to buy in time to enjoy their new home for the winter.
The absorption rate is pretty much what it sounds like. It is the rate that listings are selling and it is calculated by dividing the number of closed sales by the number of active listings. A lower rate means that homes are selling slower (buyer’s market) while a higher rate means that homes are selling quickly (seller’s market). One of the highest rates in recent years was 44% in June 2016 and I can attest to encountering numerous bidding wars for homes at that time.
When the absorption rate is going up, sellers can list their homes at a higher price. However, when the absorption rate is declining, homes shouldn’t be listed at a higher price. In other words, a declining rate indicates that it isn’t a time to “push the market higher,” and that demand is decreasing.
From 2014 – 2018, the absorption rate has been trending upward. The rate also seems to follow a similar pattern with the number of listings, the number of sales and the median sales price. Homes that are on the market over the holidays sit the longest and the absorption rate tends to peak for the year in the spring and summer.
Home appraisers do factor absorption rate into their valuations. This means that when the rate is climbing, they may add additional value to a home. However, when the absorption rate is declining, they are less likely to increase value for market factors.
While the median sales price has been trending upward at a high rate over the last few years, the trend is not a perfectly straight path. Below are some charts that show the median sale price by month. Interestingly, each year the highest median price for the year occurs in the spring/early summer and dips down in the fall with another small spike prior to the year end. This trend mirrors the trends of the number of closed sales, number of listings and days on market.
How much difference in price does it make? An article on CNBC says that on average, homes that sell at peak times sell for $1,500 more. The article also says that the best time to list homes in warm weather markets like Florida is March.
Days on Market / Median Time to Contract
The median number of days homes were on the market prior to going under contract follows a similar trend with the longest average time falling around the holidays and beginning of the year and then declining until reaching a low point in early summer.
Want to know what day of the week is best to put a house on the market? Visit my previous blog: Best Day to List a Home
*Numbers as reported from the Pinellas Realtor Organization. Statistical calcualations and analysis conducted by Michelle L. Anderson
Graziosi, Dean. “What Is Absorption Rate in Real Estate and Why Is It Important?” Huffington Post 12/6/17 0
Olick, Diana. “Homes sell fastest during these two weeks” CNBC. 3/2/2017
The day your home is listed on the market does matter.
When working with sellers, I always try to schedule the listing to go live during the middle of the week. So when I stumbled on this article that substantiates this practice, I decided to turn it into a post to reinforce this practice.
This article explains that listing a home in the middle of the week allows for optimal showings and statistics show that houses listed in the middle of the week actually sell for a higher price. The timing allows the home to be included in buyers scheduled showings over the weekend and allows for timely scheduling of open houses.
When a home is listed over the weekend or early in the week, it does not allow for buyers to schedule weekend showings. This equates to wasted days on market and statistics show that the longer a house is on the market, the lower the sales price is. When selling a home, it is ideal to hit the market running and make every day count.
Want to know what time of year is best to put a home on the market for sale? Read my blogpost – When is the Best Time of Year to List a House for Sale?
Back to Econ 101 and Supply & Demand –
Most of the nation is currently in a seller’s market and has been for some time. While it may seem obvious this means that the market favors home sellers over buyers, what does it really mean?
A seller’s market means that there are more buyers than sellers active in the market. The inventory of homes is low. This creates a competitive marketplace where homes sell at a faster rate and often get multiple offers on the same home. This is also contributing to the increase in home prices (think supply and demand). In a seller’s market, buyers have less bargaining power. Currently, a buyer may feel they don’t have an abundance of homes to chose from and in some cases are waiting for new homes to come on the market.
To gauge just how strong of a seller’s market we are in and what direction the market is heading, look at the month’s supply of inventory. The industry standard for a balanced market is 5.5 months of inventory. The statistics below are provided by Florida Realtors (Association).
Pinellas County (St. Petersburg/ Clearwater) – Median Sale Price & home inventory
The above chart shows that the median sale price for single family homes in Pinellas County have gone up 8.7% in the past year and the inventory has gone down 14.8%. The median sale price of condominiums and townhomes went up an ever greater amount of 14.4% and the inventory was down a whopping 17.6% over the prior year.
To read more on a seller’s market, read my Blog “The Best Time of Year to List a House for Sale,” which explains the absorption rate and it’s correlation to seller’s and buyer’s markets.