Fritz Pfister

Member brokers of the Capital Area Association of Realtors (CAAR) MLS reported a drop in home sales in May of 2007 compared to May of 2006. Closed home sales this May of 393 were down 14.3% from the 459 closed in May of 2006. This follows an up month in April where homes sales were up 7% over the previous year. There seems to be little rhyme or reason in the market activity.

The supply side of the local housing market continues at record levels, however did ease a bit in May. The 393 closed home listings were replaced by 633 new listings, down from 657 new listings taken in May of 2006. Home sellers continue to outnumber buyers 3 to 1 based upon the rate of sales in 2007.

The first five months of 2007 has closed home sales down by 111 or 6.5% from 2006. Two anomalies to note in 2007. Record supply versus weakened demand and the median home price is up 3.4% year to date to $98,800. Normally prices would fall under these conditions. Second anomaly; more home listings have gone under contract the first five months this year than last, however fewer have closed. Listings reported to CAAR as sold pending are up 3.9% or by 83, and closed listings are down by 111? This is due to an increased number of contracts failing to close.

The two primary reasons contracts fail to close are home inspections, and financing. In my opinion the problem with home inspections is systemic. Our system of negotiating the terms, price and conditions of a contract prior to the home inspection is the problem. Home sellers believe they have negotiated a price with the condition of their home already calculated in the price, however not in the eyes of the buyer. A home will never be more valuable in the eyes of the buyer than the negotiated contract price. If a home inspection discovers defects, or safety issues in the home, the buyer will request those repairs be made. Should the seller not agree to repairs or credit for repairs, the buyer voids the contract.

We have helped hundreds of our seller clients avoid this problem by having them pre-inspect their homes, curing any problems, and selling ‘as is’. We make a copy of the inspection report, along with any repairs made available for pre-approved home buyers prior to the offer. This eliminates having to negotiate the price of the home twice, and avoids unrealistic, or frivolous demands from buyers and their agents.

There really is not much excuse in today’s real estate market to have a contract fail to close due to financing. Our advice to our seller clients is not to negotiate a purchase offer without a bonafide mortgage lenders approval letter from the buyer. The issue here is the lack of experience by some agents, anxious sellers waiting for months to receive an offer, and sellers simply not educated in the selling process accepting offers without knowing the buyers capability to perform.

Certainly there are circumstances that occur following a contract negotiation that can cause a contract to fail to close. Buyer loses job before closing. The home does not appraise for the purchase price. The lender withdraws pre-approval based upon new information. There are a host of issues that can arise following contract negotiations that can cause the sale to fail to close. If you want to make God laugh, just tell him what your plans are! At this stage of the sale an experienced Realtor can help salvage the sale, while an inexperienced agent flounders at the clients expense.

The local housing market is not bad, and it’s not good. So far this year, it just is. Higher gas prices, and electric rates will impact some buyers. The unsettled state budget with state leaders taking anti- business tax positions, have the state’s economy unsettled as well. Hopefully a budget can be established that helps the business community create jobs, and not lose jobs. Either way business owners continue in limbo, and will not move forward until they know what the economic consequences will be to their businesses, created by the final budget agreement.

On another note there hasn’t been a year to year decrease in second quarter closed home sales in CAAR since 2002. The association brokers are currently 42 sales off last years pace of 1276 closed home sales in the second quarter.

Most home sellers probably don’t care what happens in the market, other than getting their home sold. They should care. The knowledge of market trends will help them make adjustments during their time on the market, that can help them to create a sale. Especially those home sellers that are not receiving timely advice from their agents.