Real Estate Outlook

After the last 5 or 6 years, I view the business of real estate with eyes wide open. I am no longer certain that real estate will always go up—although once that was the mantra and using a home as a piggy bank worked awfully well for many folks. But after seeing the reverse also be true, a bubble that could burst, I am being a bit more conservative just now.

So when clients say to me the market is growing too fast, I wonder if they are right, or if it's mearly just making up for lost time and getting back to normal. American home prices increased an average of 10.6 percent between March 2012 and March 2013. Here in the Suncoast, we're ahead of the National average.

To some this kind of growth has created the fear that the current market’s exuberance will re-create the steep incline and decline in home values that we all remember. But really, markets have cycles, and part of what made the last down cycle so extreme was the fact that lenders were greenlighting massive home loans to borrowers without requiring them to document their ability to pay for the property over the long term.

And remember, data can be a bit misleading. My old business partner Dennis Jolicoeur used to say, “figures don't lie, but liars do figure...”

When values have been very, very depressed for a long time, it simply doesn’t take much of an uptick to generate double-digit percentage point increases. When you look at Miami and Tampa – ranked among the hardest hit markets in the foreclosure crisis and resulting downturn, a little growth goes a long way to making the percentage change pretty astounding.

Lately we've heard of the investor groups buying up lots of low-priced homes. From big Wall Street limited partnerships to smallish investors, the “investor” share of the market is about 20% of the May home sales. But it was 22% in April, and the trend is for investor activity to decline as prices increase, putting a cap on the profits investors can realize.

Today as the investor activity is declining, buyer demand is increasing, as evidenced by increasing numbers of cash transactions, the number of offers per property and the shorting of the DOM (days on market) before a sale—the speed of homes leaving the market.

Here is a really healthy fact, first-time buyers are responsible for 36% of current buyer activity and repeat homeowners for over 43%. That's good news. And more good news is the new home builders (who are adding to the total number of homes far sale in our area) have been quite successful as well and have found the intestinal fortitude to raise their prices almost every month.

Many sellers have finally been able to get out of the home they were trapped in. But find buying a new home is no picnic. Some have found themselves even having to rent a place until they can buy one. The good news as I see it is that none of the sales I have represented this year have required the seller to bring cash to the closing table—not like back in the day, say 1990—when about half my sellers had to write a check to their mortgage company to cover the “shortage” in the sale.

If you’re selling in a super-hot market, consider buying first, if you can. Or list your home with a Seller’s Contingency or a rent-back agreement (where your home’s buyer rents it back to you for a short time), to buy yourself some extra time to score a new place.

Last week’s reported 30 year mortgage rates were 3.94 percent, and 15-year rates were right around 3%.  This increase of rates is not likely to cause all the pent-up buyer demand of the last few years to dissipate.I bought a home when rates were 14% in the 80’s, and then put on an addition with a construction loan at 19%. Rates are cheap today and I will call them cheap until they get to 8 or 9%. Remember we are not talking about investments here, we are talking about shelter and people need and want a nice place to live. 

Finally, I have been asked if all the good deals have gone away—and the answer is yes...and no. There are always good deals out there if you are ready willing and able to buy--and there are no more good deals if you are not. My dad used to point to commercial properties as we drove down the highway near his boyhood home. “When I was your age I could have bought that corner for $1500,” he would tell me. “Why didn't you”, I asked. “I didn't have the money”, he said. And so it goes.

We can expect to have a higher-than-average number of foreclosed homes – REOs – on the market for some years to come. This so-called “shadow inventory” had declined over 10% nationwide between January 2012 and January 2013.  And with the uptick in demand, we should continue to see this so-called “shadow inventory” of homes decline as banks take the opportunity to get these homes off their books.

Dane Hahn is a real estate professional in Florida's Suncoast, serving Sarasota and Charlotte Counties. You can reach him by phone at 941-681-0312 or by email at dane.hahn@gmail.com. See him on the net at www.danesellsflorida.com

HOA Regulations--Florida

Starting July 1, 2013, Florida has a new set of laws affecting HOA’s (Home Owner Associations) and Condos. Here are the HOA changes for your reading enjoyment.

1. Community Association Managers: § 468.436(2).

The Department of Business and Professional Regulation may discipline community association managers for any violations of chapters 718, 719, or 720 of the Florida Statutes that are committed during the course of performing community management services pursuant to a contract with an association.

2. Official Records: § 720.303.

The bill changes the official records provisions for homeowners’ associations to more closely conform to the Condominium Act. Of particular note, official records must be maintained for 7 years, within 45 miles of the community or within the same county, and associations may also maintain records electronically.

The statute also reduces the amount an association may charge for copying records. From 50 cents per page to 25 cents per page.  An association’s ability to charge for personnel costs is also now limited to requests exceeding a half hour to complete and only if the pages copied exceed 25 pages at a rate of no more than $20.00 per hour, and members must now be allowed to photograph records using a camera or other electronic device at no charge.

3. Reporting Requirement: § 720.303(13).

Community association managers are now required to report certain information about the homeowners’ associations they manage to the State DBPR by November 22, 2013. The association’s legal name, federal employer identification number, mailing and physical addresses, the total number of parcels, and the total amount of revenues and expenses from the association’s annual budget must be reported.  Registration will be available on an internet website developed by the DBPR to report the required information by October 1, 2013. 

This law creates somewhat of a trap for community association managers who are subject to disciplinary proceedings under F.S. § 468.436(2) for failing to comply with these new reporting requirements.

4. Officers and Directors: § 720.3033.

A new section has been created that governs officers and directors. It also brings into conformity certain requirements of directors of homeowners’ associations to that of directors of condominium associations.

Board member certification: The section imposes a board certification or education requirement for board members, as is currently required for condominium board members.

Newly elected directors must certify in writing, within 90 days, that they have

1) read the association’s governing documents and policies;

2) they will work to uphold the documents and policies; and

3) that they will faithfully discharge their fiduciary responsibility to the association’s members.

Instead of written certification, a newly elected director may also submit a certificate that he or she has completed the Division’s educational curriculum within one year prior to election or 90 days after election or appointment.

Disclosures: If the association enters into a contract or other transaction with any of its directors certain disclosures are now required. The section also provides that the contract or transaction may be canceled by a majority vote of the members present at the next regular or special meeting of the members.

Solicitation/Acceptance of anything of value: Another important aspect of the law to be aware of is that officers, directors and managers are prohibited from soliciting or accepting anything of service or value from any person providing or proposing to provide goods or services to the association for which consideration has not been provided. However, there is an exception for accepting food to be consumed at a business meeting with a value of less than $25 per individual or services or items in connection to trade fairs or education programs.

Board removal: The section provides that officers or directors charged with felony theft or embezzlement involving association funds must be removed from office.  However, if the charges are resolved without a finding of guilt, the director or officer must be reinstated for any remainder of the term of office.

Insurance/Fidelity Bond: All associations are required to maintain insurance or a fidelity bond for anyone who controls or disburses funds of the association. However, the members of the association may waive this requirement by a majority of the voting interests present at a properly called meeting of the association.

5. Amendments to Governing Documents: §720.306.

Within 30 days after recording an amendment to the governing documents, the association now must provide copies of the amendment to the members.

6. Suspension of Use Rights.

New Florida Statute Section 720.305(2), as amended, clarifies existing law and provides that in a HOA setting a suspension of use rights in common areas does not allow the association to suspend access to and from a member’s home or the right to suspend utility services to their home.

7. Mortgagee Consents to HOA (Amendments).

Florida Statute Section 720.306 has been amended to alleviate the need for an HOA to solicit and receive mortgagee consents to certain amendments.

For any mortgage recorded after July 1, 2013, any provision in the HOA’s governing documents that requires consent and joinder of some or all the mortgagees of record will only apply if the proposed amendment will adversely affect the priority of the mortgagee’s lien. As to mortgages recorded before July 1, 2013, any provision (s) in the HOA’s governing documents requiring mortgagee consents is still enforceable.  However, in securing these consents, the HOA is entitled to rely upon the public records to identify the mortgagees and the HOA is entitled to request the mortgagee for their consent. Any mortgagee who fails to respond within 60 days after being requested in writing is deemed to have consented to the amendment.

8. Right to Speak.

HOA members already had a right to attend membership meetings and the right to speak for at least three minutes on any agenda item. But, effective July 1, 2013, the member is no longer required to submit a written request to speak prior to the meeting and the association may not require the member to submit a written request to speak prior to the meeting. Florida Statute Section 720.306(6).

9. Elections and Board Vacancies: §720.306(9)(a).

The statute has been amended to clarify that nominations from the floor are not required if the election process allows candidates to be nominated in advance of the meeting. This is an important change and should alleviate the need for HOAs to accept nominations from the floor. The section has also been amended to provide that an election is not required unless more candidates are nominated than vacancies exist.

10. Turnover of Association Control: §720.307.

The statute, as amended, adds several scenarios that trigger the transition of control of the board from the developer to nondeveloper parcel owners. The statute also now permits members other than the developer to elect at least one member of the board when 50% of the parcels in all phases of the community which will ultimately be operated by the homeowners association have been conveyed to the members.

11. Prohibited Clauses in AssociationDocuments: § 720.3075.

A new subsection is added which limits the ability of the developer to make certain unilateral amendments to the declaration subject to a test of reasonableness.

12. Payment for Assessments; Lien Claims: §720.3085(2)(b).

The statute has been amended to clarify that the term “previous owner” shall not include an association that acquires title to a delinquent property through foreclosure or by deed in lieu of foreclosure. The subsection further provides that a present parcel owner’s liability for unpaid assessments is limited to any unpaid assessments that accrued before the association acquired title to the delinquent property through foreclosure or by deed in lieu of foreclosure.

Dane Hahn is a real estate professional serving the “Suncoast” of SW Florida. He can be reached at dane.hahn@gmail.com. Or by phone at 941-681-0312.  See him on the net at www.danesellsflorida.com

Flipping Rules & Tree Law

After the banking debacle, as we are returning to the “new” normal, financing seems to be much more difficult to get. Buyers have been experiencing frustrations, especially where the seller has recently acquired the property and has offered the property for sale (as a flip) and the new buyer needs to obtain financing.

There are “flipping rules” for financing.  If the house was sold within the past 90 days, usually no financing will be available (for FHA, FNMA, FHLMC.) However, under the temporary guidelines, which have been extended through 12/31/14, financing may be available so long as the sales price does not increase over 20% of acquisition cost.

Also, 2^nd appraisals may be required (buyer cannot pay for 2^nd appraisal). It is possible to go over 20% per underwriter discretion.

Once the property has gone 91 days since the last sale, financing can be available for FHA, FNMA, and FHLMC.  But there are a few things to watch out for.  A red flag is raised if the sales price is increased by over 20%. Again, a 2^ndappraisal may be required (buyer cannot pay for 2^nd appraisal).  Also it will be up to the underwriter’s discretion on strength of appraisal.

For more information on these rules, check with your lender, for more information on appraisals, see the following:

Sarasota County appraisers office: http://www.sc-pa.com/home

Charlotte County appraisers office: http://www.ccappraiser.com
The website to check if a property is eligible for USDA financing is: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do.

And now the age-old favorite question, “Who is responsible if your neighbor’s tree falls on your property?”

The general rule is that unless the tree owner knew that the tree was unsafe, he is not responsible. The general rule throughout the United States is that if a tree limb or a tree root protrudes on a neighbor’s property, that neighbor has the right to exercise self-help—i.e. the offending root or limb can be cut off. But just a word to the wise, discuss your intentions with the neighbor before cutting the branches off.

Some Court cases have determined that when a tree falls, and if the neighbor had previously asked the owner about that tree, the courts found the tree owner was not liable, since the neighbor—who suspected that the tree was dangerous—did not exercise his rights to trim the branch and thus did not exercise his self-help. In other words, the neighbor’s own negligence defeated his claim against the tree owner.

The Court suggested that a landowner might have a duty to periodically inspect the trees on his property or at least have them examined by an expert to determine whether they are safe to continue to stand. But you as the neighbor should have a look at the trees in and hanging over your yard.

What if your tree falls on a public roadway? According to a recent Supreme Court a landowner does not have a duty to inspect and cut down sickly trees that have the possibility of falling on a public roadway and inflicting injury. This is the duty of the local government to periodically inspect to assure the safety of the public.

There is a long—often convoluted and contradictory—legal history relating to the development of “tree law”. Our legal system is predicated on what we refer to as the “Common Law”—and under the common law, the landowner owed no duty to those outside his property to correct natural conditions on the property—even though those conditions might present a hazard to outsiders.

The current rule of law, states that the tree owner is responsible only if that owner was negligent. So if your neighbor’s tree falls onto your property—whether or not it causes damage—you should talk to your neighbor and propose that you share in the cost of removal and repair. Clearly, this is probably the least expensive way to resolve your issues, and you also can avoid filing a claim against your insurance carrier.

How do tree owners protect themselves to avoid the allegation of negligence? One safe harbor is to have your trees periodically inspected by a certified arborist, and get a written report stating that the trees are healthy.

Dane Hahn is a real estate professional serving clients in Sarasota and Charlotte Counties. He can be reached at dane.hahn@gmail.com or by phone at 941-681-0312.  See him on the web at www.danesellsflorida.com

Good Time to Buy?

One of the topics I follow—and I hope my readers appreciate--the cycle of real estate. The cycle concept is really a prediction by those of us who live in the market every day—a prediction of what will be the next big issue in real estate.

I will go on record as not having a crystal ball, but just a basic understanding of real estate cycles. Again, there have been tons of books and articles written on this topic—but it's all prediction. And like the stock market, nobody knows what tomorrow will bring. 

All civilization rests on change. This change is cyclical in origin. A rhythmic series of extreme changes constitutes a cycle. When a cycle has completed, another cycle is started. The rhythm of the new cycle will be the same as that of the previous cycle. Although the extent or duration may vary.

An early mentor of mine used to say, “nothing happens until somebody sells something.” And once there is a sale, the statisticians step in and begin to record the sale, then see if there were other sales and cluster them by size and by month and the rest. Pretty soon you have enough data to measure—or at least demonstrate—what has been going on. And so when folks ask me, “how's the market?” I have some kind of an answer.

There is a Seller’s Boom and there is a Buyer’s Boom. Think of a seesaw, with a sell,er on one seat and a buyer on the other. At some point in time the sellers seat is up—in control—and they can pretty well set their prices and terms, and buyers just have to agree if they want to purchase a property; other times when the buyers seat is up and they are in control, at that point sellers who want to sell have to agree to the price and terms the buyers offer, or not sell at all.

When a seller lists a house for sale, usually they have a price in mind that they hope to achieve. Sometimes it's a go/no go price by which I mean if they don't get an offer for that amount, they simply won't sell. But usually the primary driver for a seller is greed and optimism. When we experience a so-called seller's market, over a short time period prices escalate. For those of us who follow these things, the telltale is really the selling price (stated as dollars per square foot) of new construction. The professional builders lead the price curve in the seller's market. At the beginning of this cycle you see strong sales volume, but not an immediate increase in home values. As this cycle begins to mature, prices grow and inventory begins to shrink. Days on Market (DOM) goes down. Investors buy the crap because that's what's affordable. Builders can't keep up with demand. Individuals see significant profits. At the end of the cycle, DOM increases, high-priced inventory languishes, and buyers are tired of the super-inflated prices.

At that point it can be said the market is depressed, the buyers are few and far between, and sellers get nervous. This is the beginning of the so-called buyer's market, which is identified by longer DOM time. What would have sold in 3 weeks a year ago, now takes three months, or longer. Sellers lower their prices, driven by fear. Fear of no buyers or minimal “bottom feeder” buyers offering low amounts. Even with minimal sales volume, sales prices erode. Buyers become desperate and to make any sale at all, capitulate to the seller’s offers. As this cycle progresses, resale home inventory grows, builders put on their brakes and building starts are minimal. Soon the only buyers are investors, and cash is king, mortgages are harder to get. Investors who have a ready supply of cheap money (maybe from a limited partnership) become the only buyers and they drive the prices down further.

But as this cycle matures, there is a pent-up demand for housing. About 20% of Americans move every 3 years. So when nobody moves for a couple of years, there is a pretty big pent-up demand—millions of people want to move for whatever reason—maybe they will retire to another part of the country; or take a new job in a distant city; and colleges are turning out graduates (and they're not all living at home). So there is a desire to move.

Once the buyer demand becomes evident and there is a large inventory of well-priced homes, the cycle starts all over again. By the way, this is where we are in May 2013. These cycles normally last about 7 years, so I would predict that we will see a good solid market, possibly adjusted for time of year and mortgage rates, and as much as a 1% to 2% monthly increase in prices for the first year or so.

Dane Hahn is a real estate professional serving Charlotte and Sarasota county. You can reach him at 941-681-0312 or at dane.hahn@gmail.com. See him on the web at www.danesellsflorida.com

Getting Rich Quick

Psychologists of the not-too-distant future will have fun with the last 6 years—as they try to categorize what was going through people's minds while the real estate market was imploding. Real estate, as a market had been sold to all of us Americans as the biggest wealth-building machine ever concocted. It was clear (back then) that house prices would always go up, and that if you bought the most expensive home you could afford, when you sold you would be rich.

In fact, the IRS regulations for home ownership aided and abetted our beliefs that home ownership was THE WAY. Back in the 1970's, if you sold a home the IRS would tax you on the profits—unless you spent your proceeds on another home. Without going into the fine points, basically if you didn't want to share your profits with the government, you had to “buy up”. This had the unintended consequence of driving up prices on high end homes, and there were some difficult accounting gyrations to make these trades, but they were worth the effort.





And then the tax regs changed, making selling a house and keeping the profits even easier. The new regs (no doubt about to be adjusted some more) made a married couple immune from paying taxes on the first $500,000 in profits made on the sale of their family home, and you didn't have to buy up, you could sit on the money and rent, or sail around the world. For the last six years, has this IRS reg has not been much of an issue for my clients.





I have had dozens of clients who thought of their home as a piggy bank. Whenever they needed some cash—for a vacation, a new car, a wedding, they would simply refinance. These are the Americans who today are either trapped in a house that has lost significant value, who have lost their home, or who have seen the future and decided it will take too long just to get back to even—and so to give the keys back to the bank makes sense to them. Just yesterday a woman I know who lives in a home that is way too big for her told me she, “hates the house and would sell it,” if she could break even, “but I won't give it away!”

  
 
Which brings me to the pent up demand for homes and the built up desire to sell. A new survey released just this week revealed that 33 percent of people currently searching for a home have been on the hunt for more than a year, and that the vast majority of them are willing to negotiate with sellers and make compromises to find their next home.

Since the decline of the housing market in 2006, many would-be sellers refrained from putting their homes on the market due to reservations about decreases in home values. As the real estate market recovers, the number of homes available for sale remains a challenge for the industry. Listed inventory in April is approximately 14 percent below last year,  which underscores the dramatic reversal of the previous years’ buyers’ market status. With an increase of buyers coming into the market, the lack of available homes for sale has presented challenges for first-time and move-up homebuyers.

For the last few years, many homeowners have been hesitant to list their homes due to unfavorable economic conditions. Today, the recovery in housing continues to gain momentum, and with so many buyers in the market who are competing for so few available homes, it is a great time for sellers to speak with a real estate professional about the advantages of listing their home. There are plenty of buyers--some serious, some opportunistic shoppers--in the market who are actively making offers, but due to low inventory and many houses receiving multiple offers, bidding wars are becoming more common.

Offers are being made, but sellers are not looking for bottom-feeders. So not all of the offers are accepted: 42 percent of those searching for homes have made an offer in the past six months yet only 11 percent have had their offers accepted. Current homeowners looking to buy are more than twice as likely to have their purchase offer accepted as those who rent (15 percent vs. 6 percent). However, renters are nearly three times as likely as homeowners to report that they made an offer but couldn’t agree on price. (Remember renters may be former homeowners with bad credit due to a foreclosure, who want a creative deal. Rent with option to buy is a favorite just now.)  
   The recovery has transformed the mindset of many buyers and sellers who grew accustomed to the always going up market we saw for years. We're now in a situation where buyer confidence is building back up and demand is strong. As the survey indicates, sellers are now in a more favorable position.

Buyers are willing to make compromises to find their next home. With competition stiff among buyers, many are willing to make compromises on both the home itself and in the negotiations with the sellers in order to get their offer accepted.

The top compromises they’d be willing to make include being flexible with the closing time; purchasing the house as-is; and putting more cash down than they had planned. Others would compromise on amenities/features, including a built-in pool; an updated kitchen (e.g., stainless steel appliances), and walk-in-closets.

It's nice to see compromise in real estate, when both the buyers and the sellers expect too much, everyone is disappointed. Maybe we are entering a period of adulthood. Buyers understand that they will take ownership of a home that might have some flaws, while sellers will have to accept less money than they had hoped. But with this compromise we can go forward.


Dane Hahn is a real estate professional serving the Sarasota and Charlotte county areas. He can be reached at dane.hahn@gmail.com or by phone at 941-681-0312. See him on the web at www.danesellsflorida.com.