Fritz Pfister

This past week contained some good news for a welcome change. The news wasn’t all good, but there was good news. Valentines Day marks the beginning of the Spring home selling season and usually runs through June. Local Realtors posted the best week of the year with 94 home listings going under contract. A welcome burst of sales activity.

The strong week boosted the number of sales pending for the year to 521, a dozen more than last year through the same time frame. The challenge will be to see how many of those contracts close. In a normal market 80% of sales pending close.

The main culprits that typically cause a contract to fail to close are home inspections revealing defects that the buyer and seller can’t agree upon a repair or a credit for repair, the buyer’s financing being denied, and the appraisal not meeting the contract price with buyer and seller unable to resolve the price differential.

The home inspection causing a contract to fail can be easily avoided if the seller is fully informed. I believe we have a flawed system locally. Under our system of selling a home the contract is negotiated including the price, and terms with the buyer’s inspection following the accepted contract. In my opinion this system allows buyers to make frivolous repair demands of the seller in order to get the home at a lower price. Something that occurs more times than not following an inspection. In most cases the seller gives in to the buyer’s demands in order not to lose the sale, especially when the market is soft.

It is a reasonable expectation by home buyers that everything in the home is functional and safe. Therefore I recommend to my clients to have a home inspection performed before they list their home, cure any defects and safety issues and then market the home as already inspected, with a copy of the report available for preapproved buyers and sell ’as is’. This is the only way a seller can avoid negotiating their price twice following a home inspection.

What if the buyer wants to have an inspector of their choice inspect the home? No problem. Give that buyer a 7 day first right of refusal to negotiate a purchase of the home. The buyer has a week to get an inspection, and when satisfied with the condition of the home can then proceed and negotiate the purchase. It’s a win win for both buyer and seller. The seller avoids being held for ransom by an inspection after negotiations were completed, and the buyer knows the condition of the home before they purchase the home.

How effective is this method of selling a home? Since I started the program two years ago over 100 of my clients have sold their homes ‘as is’. There is risk involved because ‘as is’ sends up red flags in a buyers mind, and jealous agents with an agenda may say, oh you don’t want to look at that house, it’s being sold ‘as is’. With the proper education of potential buyers through marketing, thanks to the Internet with 98% of those buyers utilizing the Internet, the fear of ‘as is’, and an agent with an agenda can be overcome.

Financing denial to buyers is a much more rare occurrence. This occurs most frequently with sellers that accept offers from buyers who have not been financially preapproved. Changing lending guidelines following a negotiated contract can also cause the sale to fail. An example would be the recent downgrading of Sangamon and Menard counties to declining markets by the private mortgage insurance industry. This classification requires higher credit scores to qualify for the loan, disqualifying some buyers. The buyer losing their job between contract and closing will also trigger a denial.

The appraisal as a cause of a contract failure will become more prevalent with prices declining in our market area. Prices fell 4.3% the second half of 2008 and so far in 2009 prices are down 8.9%. A large number of families have had their refinance applications denied because their appraised value has fallen below their previous appraised value, and will likely become a more frequent occurrence during a purchase.

 I asked a lender yesterday at a closing if they had experienced many short appraisals. They stated over half of their refinance requests short appraised however did not cause many denials fortunately, because most of the applicants had sufficient equity to close rendering the appraisal inconsequential. That is not the case with purchase contracts.

More good news was reported this week as the state of Illinois announced it was looking for 60,000 square feet of office space in downtown Springfield. This is huge, because for the first time in 6 years Springfield will be adding state tenants, and not losing them to the Blagojevich capitol of Illinois, Chicago.

Additional good news was the first time home buyer $8,000 tax credit contained in the stimulus bill. If you haven’t owned a home for 3 years, earn less than $75,000 as a single, or $150,000 as a couple then you qualify for a tax credit of 10% of the purchase price up to a maximum of $8,000. You must repay the money only if you sell the home within 3 years. This will help spur activity, however the congress missed the boat by not granting the tax credit for all home buyers.

The Springfield market has experienced 16 consecutive months of declining sales pending, this month has a chance to break that streak. As a result of this slower activity there is a great deal of pent up demand, those who would enter the market but have stayed on the sidelines. With declining prices, a tax credit for everyone would have become a much more meaningful stimulus. Regrettably congress didn’t see it that way, and now many, perhaps hundreds of families will continue to sit it out.

Make this a Better week from Fritz and Kristie Pfister and The Pfister Success Team of RE/MAX Professionals Springfield. If you are considering selling your home give us a call at 652-7653, and don’t let the slow economy scare you, this isn’t our first rodeo, we have been selling homes since 1987. Call 652-7653.

The opinions expressed are solely those of Fritz Pfister, and not RE/MAX Professionals of Springfield or RE/MAX International.