Minnesota Real Estate Weekly Update

The Twin Cities real estate market continues to experience heavy inventory levels. Currently, there are 43,000 properties on the market in the Twin Cities metro area. This past week, we added almost 3000 new properties on the market with 1000 listings going pending (properties that have accepted an offer and are set to close)

In June of 2006, there were 38,000 active properties for sale. Four years ago, there were 11,000 properties on the market in the Twin Cities area. Pending sales are down almost 20% from 2006.

This market is forcing home sellers to be extremely conscious of price and condition. Homes that are staged and priced correctly continue to move.

Look for another market update next week!

The Contingency Conundrum

Friday, June 22, 2007 - By Aimee Blanchette, Star Tribune

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MINNEAPOLIS (MCT) - Amy Hyatt-Blat heard the horror stories of homebuyers who ended up paying mortgages on two houses, and wanted to avoid that when she decided to buy a bigger house. So when she made a full-price offer on a townhouse in south Minneapolis, the proposal was rejected.

The deal breaker? Her offer was contingent on selling her condo. She and her husband tried again by making a full-price offer on another Minneapolis townhouse, and while this offer was still contingent upon them selling their condo, they sweetened the deal by offering to lower the price on the condo to show the seller they were serious about selling.

Their strategy worked. Three months later, their condo sold and they have no regrets.

"There are so many things that are out of your control," Hyatt-Blat said. "But one thing you do have control over is whether or not you choose to gamble on how long your place will be on the market."

Contingencies have become a way of life for buyers and sellers in today's challenging housing market. Buyers don't want to take a chance getting stuck with two mortgages, and eager sellers are more willing to accept any offer, even if it includes a contingency.

Contingencies, however, are a gray area in the negotiating process, so both buyers and sellers should weigh their options before making or accepting them.

"Be very cautious and thoughtful about offers that are contingent," warned Faith McGown, an agent with Coldwell Banker Burnet.

During the strong sellers' market of recent years, contingencies were rare because buyers were confident they could sell before closing on their next home.

That's all changed. The average time it would take to sell the current supply of houses on the market is 8.4 months, according to the National Association of Realtors. The market is considered to be balanced between buyers and sellers when there is roughly a five-month supply of homes available.

Contingencies can be a conundrum for sellers, too. Realtor Steve Fiorella has a client who recently rejected an offer contingent on the sale of the buyer's northern Minnesota home. Fiorella and his client checked on the property and determined that it might be a difficult sale.

Fiorella, head of the Fiorella Group in Re/Max Results' Apple Valley, Minn., office, said it's common to stake out a buyer's home. "First and foremost, you want to make sure that the buyer of your home is marketing their home aggressively and pricing it accurately," he said.

McGown said it can be a smart move for buyers to make a full-price offer to make up for the contingency. To Fiorella, it's even better to offer more earnest money with a portion of it nonrefundable. "Additional earnest money will show that you're into making things happen," he said.

Contingencies can be confusing, stressful and complicated. Usually, there are many variables, such as the length of time that the buyer will have to sell their home before the contract expires, the potential of another buyer making a better offer and how comfortable the seller is with the buyer's ability to sell their home.

That's why McGown generally discourages buyers from making them.

"Get your house sold first, then make an offer. You have so much bargaining power when your house is sold and you're going in non-contingent," she said. "You need to sell your house before you can buy the new one anyway."

Contingencies can be a headache for developers, too. Most lenders won't count contingent offers as a legitimate purchase agreement, which is used to determine what the bank will set the interest rate at and when construction can begin.

"Contingencies have gone from being something of a nuisance to being a deal breaker for a lot of sellers," said Scott Parkin, marketing director for S.R. Hoffman & Associates in Minneapolis, which handles marketing for several condominium projects.

"They know that when someone has a home to sell, it's a crapshoot if that home is going to sell in any reasonable time in this market." Parkin said some developers are even targeting buyers who are unlikely to make a contingent offer.

"If you can bombard an apartment building with fliers about your new construction project, those renters won't need contingencies." Parkin said. "In this market, offers without contingencies are golden."

While contingencies can complicate a deal, they can also motivate buyers.

Hyatt-Blat, for example, lowered the price on the condo she was trying to sell, hung color notices in coffee shops and at work, sent out personal invites and kept her condo in showing condition for three months until it sold.

"I was tempted (to make a non-contingent offer)," Hyatt-Blat said. "But what I wanted more than that townhome was peace of mind. It's better to lose a place and wait than to roll the dice and gamble taking on a second mortgage."

SELLER'S PROS

The market doesn't have as many buyers as it does sellers, so if you get an interested buyer, it might be wise to try to make it work, said sales agent Faith McGown.
You're more likely to get a full-price offer from a buyer who wants to make up for an unattractive contingency.
Typically, there's nothing about a contingent offer that prevents you from accepting other offers while you're waiting for the would-be buyer's house to sell. This could start a bidding war and could result in a higher offer.
You have the upper hand. "How much can a buyer really negotiate because - let's face it - they don't even have their home sold," said sales agent Steve Fiorella.
SELLER'S CONS

Contingent offers must be disclosed to other interested buyers and that can decrease activity. Buyers have so many choices in this market that they don't want to waste their time in a bidding war.
You have to guess how long it will take for the buyers to sell their home. If they're not able to sell by the time the contract expires, then you're back at square one.
BUYER'S PROS

You eliminate the risk of paying for two mortgages should you not sell your current house in time.
The contingent offer could motivate you to do things to get your house sold that you wouldn't normally do.
When buying a newly constructed home, writing a contingent offer could lock in an incentive or a special introductory price.
If another offer is made while you're still trying to sell your house, typically, you'll get the first chance to sweeten the offer by lifting the contingency or raising your price.
BUYER'S CONS

Because your offer is contingent on the sale of your house, you lose a lot of leverage and only gain an option to buy the house.
Some sellers won't consider a contingent offer.
If the home is attractive to first-time buyers, chances are good that the sellers will get a non-contingent offer from someone who is renting and doesn't have a home to sell first.
Someone else can make a better offer at any time and you'll lose the house. This can be emotional, as buyers often get their hearts set on a home that they don't yet own.

Chaska home sales down 20 percent

Submitted by Mark Olson on June 12, 2007 - 9:52am.
Filed under: Business News

Home buyer activity in the Twin Cities housing market remains relatively slow, according to the Minneapolis Area Association of Realtors (MAAR).

Most areas in the region, including Chaska, have seen some sort of decline, the MAAR press release stated.

Year-to-date, Chaska home sales are behind 2006’s pace by 19.9 percent, with 121 closed sales in 2007 compared to 151 in 2006. For the entire Twin Cities region, closed sales are down 14.2 percent year to date and 14.7 percent down comparing May of this year to May of 2006.

“Buyers aren’t returning to the fold as quickly as many of us predicted and everyone had hoped,” stated Deb Greene, president of MAAR. “With housing affordability still fragile and consumer confidence shaken by uncertainties in the lending industry, it is becoming clear that this period of readjustment will be here for awhile.”

Chaska has an average year-to-date sales price of $269,479, behind last year by 1.2 percent. The Twin Cities metropolitan area as a whole saw an average sales price of $270,485 for the year so far, which is 0.9 percent behind the same time period in 2006.

Year-to-date, new listings in Chaska are behind last year by 4.6 percent, posting 350 units as compared to 367 units the year previous. New listings in the entire region are down 1.2 percent so far this year as builders and sellers adapt to a changing market by restricting their output.

At the end of May, Chaska saw 135 single-family detached units available on the market, with 103 townhouse or condominium units on the market as well. Inventory should grow as spring and summer activity heats up.

Year to date, homes in Chaska have taken an average of 170 days to reach purchase agreement, while homes in the entire Twin Cities market have taken 142 days to do the same, the release stated.