Duplex Chick

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It’s easy to blame a long holiday weekend for many things: weight gain, too much shopping, and, even, perhaps, a case of sagging Minneapolis duplex sales.

Pending sales for the week ending November 28 dropped 27.5 percent from their mark for the week one year ago. 

This slowing in transactions also resulted in a slightly lower average off market price of $117,776, compared with last year’s sold price of $120,363. The good news is traditional sellers accounted for 20 percent of the properties that left the active roster this year, compared with just 13.79 percent one year ago.

Another encouraging sign is the trickle of new inventory coming on the market.

New listings for the week dropped 52 percent, meaning there are increasingly fewer properties for buyers to choose from. Of this new inventory, 38 percent was offered by traditional sellers. This represents a radical shift from last year, when 91 percent of the properties new to the market were lender owned or mediated.

The holiday season distracts nearly everyone, so it’s unlikely we’ll be able to glean any sort of real market knowledge until the new year.

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The other day a seller received notice one of his tenants is moving out. As his property is on the market, he asked whether it was more advantageous to a sale for the unit to be vacant or full.

The answer is full.

But isn’t it easier to show the property with no one in it? Doesn’t it show better?

Yes.

However, the benefits of it being occupied far outweigh the consequences of a vacancy.

First,  mortgage payments, taxes, insurance and utilities are all due whether the property is available for sale or not. As a result, it’s important the owner continue to generate revenue to cover those expenses.

Next, prospective buyers want to know not only that a property is appealing enough to attract tenants, but what the market value of that appeal is. If the rents are healthy, the property is a more desirable investment.  The rents that are reflected on the MLS are therefore actual, not a fantasy concocted by the listing agent and seller.

Many buyers also like to know they are going to have a revenue-generating property the minute they take ownership. A 100 percent vacant duplex means a new owner has to scurry to fill two vacancies before the first mortgage payment comes due a month later.

What if a prospective owner wants to live in a tenant occupied unit? This takes some forethought, but if there’s a possibility you many sell your duplex some time in the future, it’s a good idea to have a clause in your lease stating the tenant agrees to vacate the property for an owner occupant provided they are given appropriate notice.

Of course, if  your lease doesn’t have such a clause, you may need to visit with the residents to see if there’s an incentive that would entice them to move.

If they choose not to, the lease is a legally binding contract that both the seller and new buyer must honor.

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Would you pay more for a duplex if the previous owner had installed shingles with a 50 year warranty instead of a 30? Or how about if she upgraded the appliances, like the refrigerator, to a professional grade?

If so, how much?

One of the things most sellers find difficult to understand, whether they’re offering a duplex or single family home for sale, is many of the things that add comfort to their lives don’t add value to their property.

With single family homes, price is determined by comparable sales in the immediate area, number of bedrooms, baths, garage stalls, finished square feet and condition.

Duplex pricing, on the other hand, is determined by comparable sales, bedrooms, condition and, if you’re considering the property as an investment vs. your own home, the amount of rent.

Of course, nicer amenities attract more prospective tenants, which in turn helps you generate more rent. More rent ultimately helps increase the sales price of your property.

A refrigerator with an ice maker, on the other hand, won’t. In all my years as a licensed Realtor, I have never once heard a buyer say, “Ooh! An ice maker. I’m willing to pay $5000 more for that!”

Be cautious when you make improvements to your property. Updated kitchens and bathrooms always bring a good return, as does landscaping and a fresh coat of paint.

A faster microwave, on the other hand, does not. That is, if such a thing even exists.

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There are two phrases I hear over and over again these days: “When will the market rebound?” and “I’m going to wait until it does to sell/buy.”

Whenever I hear these words I always wish I had an answer to the first, because it would also solve the last.

The trouble is, absolutely no one knows when the market will rebound.

I’ve recently been more optimistic about a recovery in light of the foothold I see traditional sellers gaining in the small multi-family sector.

However, yesterday an agent who works primarily with foreclosures told me he is managing over 100 properties for a single financial institution. These are foreclosed properties, sitting empty, and deliberately being withheld from the market by the lender.

If he has that many, how many more can there be?

If you look for housing rebound predicitons among economic prognosticators, you’ll see dates ranging from the fall of 2010 to some time in 2013 or 2014.

This would be in keeping with recent history. The Savings and Loan Crisis of the late 1980’s resulted in a real estate crash in many parts of the United States. And by most accounts, the recovery took from 1989 to 1995 or 1996. In other words, six or seven years.

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Just when we thought the light might be turning green in the Twin Cities duplex market, statistics for the week ending November 21, 2009 continued to send mixed signals.

The average off-market price for the week was $123,244, compared to last year’s average sales figure for the same week in November, which was $103, 659.  This represents an increase of nearly $20,000.

Pending sales for the week were up 21.9 percent from last year as well. So too was the percentage of those transactions that represented traditional sellers; 21.9 percent this year, compared with just a 12 percent market share for the week in 2008.

It all sounds like a reason to put your foot down on the accelerator, right?

Hold off  a second. The number of new listings week over week was actually up 28.9 percent. Normally, this would be cause for alarm. However, as we have recently seemed to experience a shortage of inventory, this may help inspire buyers lurking in the market to act.

Traditional sellers also continued to show signs of gaining traction among new listings. Thirty-one percent of the week’s new inventory was also offered by traditional sellers, compared with 12.5 percent for the week in 2008.

Single family home transactions also sent mixed signals. The number of transactions was up 5.2 percent from the same week in 2008. However, sales have slowed considerably since the rush to beat the tax credit ended.