As first-time homebuyers, Anna and Thomas Babcock underwent a two-month, learn-as-you-go crash course on the state of real estate in Monroe County last fall.
It wasn’t necessarily a pleasure cruise.
They toured nearly two dozen homes, twice had their buying offer rejected, and soon discovered they needed to look beyond their neighborhoods of choice.
“There were so many things to consider, so many variables,” Anna Babcock said. “It kind of made my head spin.”
But the newlyweds eventually found the house they wanted in the West Irondequoit School District.
“We were fortunate,” she said.
The Babcocks are proof that a happy ending to a sometimes exacting home-buying experience is still very possible–despite what for nearly two years has been a chronically short supply of inventory in Monroe County’s residential real estate market.
The months’ supply of homes in the county has been repeatedly lowest in the state, according to data from the New York State Association of Realtors. That means it is clearly advantage: seller.
“There is no shortage of buyers,” said Andy Kachaylo, president of the Greater Rochester Association of Realtors and an agent with RE/MAX in Lakeville.
But, Kachaylo cautioned, just planting a For Sale sign in the front yard doesn’t mean you’ll be sifting through a multitude of offers. Buyers still want bang for their buck.
“You can’t overprice your house and expect it to sell quickly,” said Marc Mingoia, an agent with the Fairport office of Howard Hanna Real Estate Services. “I’ve seen a lot of homes priced too high because they’re trying to reach for the stars. It has to be priced right.”
Simply put, buyers—and their agents—know value.
“If your property is properly prepared and accurately priced, it will sell,” Kachaylo said. “Properly prepared and accurately priced is what buyers are looking for.”
He provided two examples as proof:
» Earlier this month he had clients from Texas very interested in a home in Spencerport that was listed at $340,000. They bid $369,000—and lost out.
» A house in Webster went on the market at 5 p.m. on March 8 with an asking price of $242,000. There were 20 people who attended the March 9 open house. At least 15 toured on March 10. And on March 11 there were already two offers eclipsing the asking price.
When the Babcocks were house-hunting, they weren’t interested in a bidding war, and they had time to be patient. Anna said they also were well prepared, thanks to their Realtor, Jodi Carville of Howard Hanna’s Chili-Ogden office.
Carville goes through every facet of the home-buying process with her clients, from listings, to pricing, to financing, to purchase offers. Knowledge is a buyer’s greatest asset. That’s true in any market, but especially when choices are limited.
“Buyers are pretty savvy, they’re educated on the market, they know the neighborhoods and they know what’s too high,” Carville said.
“But sometimes buyers just look at the freshest listings. I like to educate them on why a house has been on the market for a while. Maybe the owner started too high (in price) because they tried to take advantage of the market.”
She also asks her clients not just for their ideal buying price, but a bit above and below.
“Let’s look at a range, let’s look at what’s a little higher than you’re comfortable with and a little lower than you’re comfortable with,” Carville said.
“Then we’ll walk through several homes to see what you get for your money. I want them to know home style, home quality, home condition.”
And having already looked at a house that was a bit above the comfort zone can be especially helpful if the price drops; you’re already prepared to act, she said.
The Babcocks had a relatively finite area of interest in East Rochester and Irondequoit when they began their search. Their price range was between $120,000 and $135,000, but they weren’t having any luck.
“We broadened our search area, then broadened a little bit more,” she said. “To find a house at our price point, we had to expand our area.”
After viewing around 20 houses and having two bids turned down, they found their house in an area not originally on their target map: A Cape Cod in West Irondequoit for $129,000 .
“But we had to make concessions from our ‘This is what we want in a house list,’ because of the way the market was,” Babcock said.
They sacrificed the desire for a garage. They got their four bedrooms and two full bathrooms. And they’re happy.
Their search is a common tale for the market, and one that very likely will be repeated over and over for others in 2019.
“The feeding frenzy that was in place last year will probably continue,” Mingoia said.
That’s why, when you find the house you want, the terms of your offer are critical, starting with pre-qualification for a mortgage.
“If you don’t have a pre-qualified letter attached to an offer, they won’t even consider it,” Mingoia said.
Before the housing market crash of 2008, pre-qualification was often done by the Realtor. Income? Check. Asset availability? Check. Employment history? Check. OK, you’re good.
Today, banks and other mortgage lenders crunch the numbers, and the vetting process is extensive.
“It’s not just answering a few questions,” said Tina Lookup, manager for mortgage lending at ESL Federal Credit Union and president of the Mortgage Bankers Association of Greater Rochester.
A lot of times, that work by the lender won’t lead to a home purchase, since there are far more buyers than available houses. But providing pre-qualification is the cost of doing business for lenders.
“Our loan officers are spending a lot of time with customers on ‘pre-quals’ and that’s just something we have to build into the business model,” Lookup said.
But while lenders might not be writing as many purchase mortgages, banks such as JPMorgan Chase in Upstate New York have still been busy with refinancing.
“Year to date 58 percent of our business is purchase and 42 percent is refinance,” said Paul Pichoske, lending manager at Chase for Upstate New York. “We’re up 54 percent overall for mortgages.”
Lenders say that younger renters don’t believe a house is within their budget, so they’re trying to show them how it can be done.
“There are a lot of affordable lending programs but we see misconceptions with first-time buyers who don’t think they can afford the down payment and the closing costs,” Pichoske said. “For the first time homebuyer, it is scary. But we’re trying to educate people so it’s not as daunting as they think. We want to show them they can get into a home, and it might be their dream home.”
Another factor when making your purchase offer concerns the source of financing. Do you have a conventional mortgage or is it backed by a Federal Housing Administration (FHA) loan?
“The FHA process is slower, so that can hurt your offer,” Mingoia said.
But, Lookup points out, a mortgage that includes a grant can be advantageous if the seller wants to be in the house longer.
Something that’s becoming more popular: the eBay-type auto bid, Mingoia said. For example, you submit an offer for $160,000, but attach an escalation clause that says you’ll beat by $1,000 any offer up to $169,000. Of course, your pre-qualification letter must show you’ll be approved by your bank at the higher prices.
At the same time, the seller must produce proof of that higher bid.
Also becoming popular: Good old cash.
“In my time I can’t recall any other time in the industry where I’ve seen the number of cash offers that are coming in,” Lookup said.
With cash, there are no financing requirements and it shortens the closing window. But sellers will require proof of assets when the offer is made.
Sellers also are using a tactic–the delayed showing–with more frequency. They will list a property on a Wednesday but there won’t be an open house until the following Friday. Those nine days on the market allow every homebuyer to put the open house on their calendar.
“And they have a line down the street,” Mingoia said. “It creates that frenzy in a market with low inventory. It’s just embellishing that response of ‘We have to move on this now.’ ”
A supply of new homes would obviously lessen the inventory shortage. But contractors say their ability to build is hindered by the continuing shortage of skilled laborers. Thus, they can’t produce at the rate required by the market.
Also affecting the supply of homes on the market: purchases that become rental property.
“We’re seeing a lot of buy and hold, where investors are keeping them as rentals,” Kachaylo said. “You buy it and fix it up for (a total of) $60,000, and if you get $1,000 a month in rent, these guy are making a steady return.”
There’s a sound reason for the rental market. Rochester ranks 46th among 432 metropolitan areas with an annual gross rental yield of 12 percent, according to a
March analysis of national property data by Attom Data Solutions. The average three-bedroom house in the Rochester area rents for $1,264.
The good thing, Pichoske of Chase said, is that consumers want to buy. “I think confidence is still pretty good because interest rates are still pretty good.”
A stabilizing interest rate and the hope of more inventory are bringing a hint of optimism, especially since the market always heats up in the spring.
“Consumers and lenders are invigorated by the signs,” Lookup said. “They’re early signs, but we’ll take it.”
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