Sunday, June 2, 2013

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 or by phone at 941-681-0312. See him on the web at

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