Duplex Chick

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Today’s real estate market is kind of like my favorite pair of jeans. 

You probably have a pair too. The kind you wear regularly; because they’re comfortable, easy. They always feel good.

But if you’re anything like me, there are times they aren’t. The waistband is suddenly tighter, somehow slightly uncomfortable. And I can’t remember where I overate, stopped exercising or fell off the healthy wagon, but I know, without question, things have changed.

The belt of the Twin Cities real estate market is getting a little tighter too. With active listings down 21.2 percent from last year, buyer’s are finding it harder to breathe. It’s not their imaginations. The supply of inventory has dropped from 10.5 months to 7.2 months. A balanced market, where everything’s even between buyer and seller, occurs at 5 months.

And that number may not be far off.  The 1,012 signed purchase agreements for the week ending August 22, 2009, is a 23.7 percent gain over the same week last year. In fact, that week represents the 59th week of the last 60 with a year-over-year increase.

This duplex market seems to be packing on the pounds as well. There was a 26 percent increase in the number of pended sales from the same stretch last year, resulting in an average off-market price that was a whopping $20,012 higher than last year’s.

Of the 2009 properties that received offers, 26 percent were owned or negotiated by real people, as opposed to lending institutions. Last year for the same week, banks sat at the table on 96 percent of the transactions.

The amount of new inventory that came on the small multifamily market may result in us splitting our pants altogether in the not too distant future. The number of new listings for the week was down 43 percent over last year. Meanwhile, the percentage of those new listings that will be lender mediated held relatively steady; consisting of 66 percent of the new inventory as opposed to last year’s 69 percent.

While all of this is wonderful news for sellers, it should serve as a warning to buyers too. Start getting your excercise by running around looking for duplexes; before you can’t get your pants on at all.

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From time to time I have clients ask about purchasing a duplex that’s For Sale By Owner (FSBO). 

This makes sense. After all, can’t they save a lot of money?

Honestly?

No. In fact, it may even cost them money.

Most FSBO’s want to save  the commission they would pay to the broker of an agent who represents a buyer. They would rather put that money in their pocket.

So, instead of a buyer getting professional advice and representation from a Realtor, he pays the equivalent of the commission to the seller, yet receive none of the benefits of the agent’s counsel.

Let’s say a duplex is listed on the Multiple Listing Service for $200,ooo. In order to be featured there, the listing agent’s broker agrees to pay a portion of the sales price to the broker of the agent whose client buys the property.

While commissions vary, in the Twin Cities they seem to average about 2.7 percent. On a $200,000 duplex, this represents $5400 for the buyer’s agent’s company.

Won’t the seller pass all that money he’s saving on to the buyer? Probably not. After all, if he was willing to part with it wouldn’t it have been wise to expose his property to a much larger pool of buyers on the MLS?

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One of the most confusing things for many buyers looking for a Minneapolis duplex is how a property can appear to be available on whatever web site they’re using to search the Multiple Listing Service (MLS), yet when they ask me to set up a showing, I tell them it’s sold.

How can a duplex still be “for sale” but be sold?

Well, it comes down to where the buyer and seller are in the process of negotiating an offer.

In today’s market, there are two types of sellers; an individual or corporation who may sell the duplex without consulting an outside party, and a short sale, where the seller must also come to terms with the bank that holds their mortgage.

Regardless of the type of seller, when a buyer submits an offer on a property, she does so with certain contingencies. 

For example, a buyer will most likely make the purchase contingent on her ability to get a loan. If she can’t, she may cancel her purchase. 

Thanks to sellers requiring buyers to provide proof they can financially qualify to buy the property by submitting a pre-approval letter with their offer, most buyers are able to get a loan and the transactions goes forward.

However, a buyer may make the purchase contingent on a home inspection. During a limited window of time, she can hire a home inspector to come in and check things like the furnace, the roof, water pressure and electrical circuits, as well as ask to review copies of the leases.

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Remember the movie The Incredible Shrinking Woman?

After being exposed to a mix of household chemicals, the lead character, played by Lily Tomlin, inexplicably begins to shrink. This, of course, baffles everyone involved.

Kind of like the Twin Cities housing market.

Amid reports of a glut of foreclosures on the horizon, and an uptick in foreclosure notices, the Minneapolis Area Association of Realtor’s Weekly Market Activity Report notes shrinkage.

For the week ending August 15, there were 25,765 active listings on the MLS; the least since 2005.

There were 1,630 new listings for the week; the fewest since 2002.

And, there were 1,026 signed purchase agreements; the most since 2005.

Over in the duplex and small multifamily market, new listings were down 42 percent from 2008. The percentage of those new listings that will involve a lender in the negotiations lost an inch as well, dropping 1.5 percent year over year.

Unfortunately, pending sales lost a little altitude also; experiencing a 35 percent decline week over week. While I can’t prove it statistically, I believe this may be a result of a lack of inventory for owner occupants to choose from.

While the average off market price for the week was a healthier $112,620, it still trails last years average sales price for the week which was $133,130.

The good news is the percentage of bank owned or lender mediated properties that left the market appears to be stabilizing; up just 1.7 percent over 2008.

We’ll hope for a growth spurt next week.

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On my way in to the office, I pass several auto dealerships.

This morning, I couldn’t help but notice big rows of older cars line up along the back of the lots;  the clunkers brought in as the part of the government’s “cash for clunkers” program, which ends tonight.

There were a lot of them.

I wondered what the weekend was like for the car dealers; whether they’d had a chance to sleep or eat, and if they had a line of people waiting to talk with them.

And when I read Ken Harney’s column in the Washington Post questioning whether Congresss would extend the $8000 first time home buyer tax credit, I imagined a line of buyers at the door of local real estate broker’s offices as the November 30 deadline approaches.

There are 14 weeks left. As most real estate transactions take, on average, 45 to 60 days to close (six to eight weeks),  there are, for all intents and purposes, just six weeks to go.

I realize that sounds like a lot of time. However, anyone who’s been out there looking can tell you, good properties can be hard to find.

So will Congress extend the deadline like they did with the clunkers program? Hard to tell. They have plenty on their plate already when they return from summer break; including the not-so-small matter of  health care reform.

According to Harney, there are already bills pending in both the House and Senate to extend the credit for another year.

Meanwhile, Senators Christopher Dodd (D-Conn) and Johnny Isakson (R- Georgia) are co-sponsoring a bill that would eliminate the income restrictions on the credit, raise it to a maximum of $15,0000 and extend it to all home buyers.

It all sounds exciting. However, it’s important to remember the tax credit ultimately ends up costing the government lost revenue. As the federal budget is already deeply in the red, there may be more than a little resistance.

So are they going to extend or expand the credit?

Don’t count on it. It is Washington, after all.

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Well, there’s a headline I didn’t think I’d be writing any time soon.

So why is it a great time to sell?

If your expectations are realistic, here are six great reasons.

1. Shortage of Inventory – While it may seem as if there are a glut of “for sale” signs hanging in yards, the reality is, there are far less of them than there were this time last year. In fact, inventory on the MLS is down year over year by more than 20 percent. This means there are fewer properties for buyers to choose from (a phenomenon my clients and I are experiencing.)

2. Buyers With a Deadline – Thanks to the $8000 first time home buyer tax credit, buyers in the marketplace have to take title to a property no later than November 30, 2009.  This means they are extremely motivated, knowing full well they don’t have the luxury of time.

3. Short Sales Take Too Long – There are many lovely duplexes on the market right now that, were they not short sales, would be sold. The time between writing an offer on a short sale and successful negotiations with the bank is, more often than not, well over three months.

Of course, if a first time home buyer commits to buying a short sale duplex, she may or may not close in time for the tax credit. As a result, many buyers and their agents are reluctant to write offers on those properties.

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I saw a Oujia board in the closet of a foreclosure I showed recently.  I should have gone right out while I was thinking of it and bought one.

It might help me make sense of the numbers for Twin Cities duplex sales in the Market Activity Report for the week ending August 8.

The number of bank-owned listings new to the market dropped 20 percent from the same stretch last year. Whether this is a reflection of a shift in the market, or last winter’s foreclosure moratorium is a mystery.

Overall, the number of new listings for the week was down 15 percent.

The number of properties that received purchase agreements for the week was up 29 percent over last year. Unfortunately, the average off market price dropped from $147, 210 to a meager $88,021.39.

Both year’s transactions consisted of 89 percent lender-mediated sales.

MAAR reports that the single family housing market saw a 9.5 percent drop in new inventory for the week, while there were 15.2 percent more purchase agreements signed.

A balanced market occurs when there is a 5 month supply of inventory available. Right now, we have a 7.2 month supply; down 31.4 percent from the 10.5 month supply seen at this time last year.

Will things be different next week?

Ask the Ouija. Yes? Or no?

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Clients often ask me what a neighborhood is like.

I would love to answer. But I can’t.

Federal and state fair housing laws prohibit Realtors from commenting on any sort of demographic information, whether it’s factual or perceptual.

Further regulations prohibit Realtors from engaging in anything that could resemble “steering”, which is a practice of directing a client toward or away from a property in any sort of discriminatory manor.

So, wink, wink, nudge, nudge, can’t I just give clients my opinion?

Nope.

Not that I don’t have plenty of them.

But I try to base my opinions on facts, and when it comes to things like crime statistics and addresses of registered sex offenders, I don’t have them.

The police do.

And believe it or not, if you ask them their opinion of a given neighborhood or street, they will tell you. In fact, in the case of both Minneapolis and St Paul, the latest crime statistics are posted on their web sites.  If you’d like even more up-to-the-minute data, you can call and ask for the SAFE officer in the neighborhood police precinct.

If you look at the maps or call, you might be surprised.

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There was a quiet bit of good news for Minneapolis duplex buyers in the mortgage market this week.

PHH Home Loans and two of its mortgage insurance companies removed the “declining market” label from the Twin Cities.

For the last couple of years, lenders deemed a metropolitan area a “declining market” if the Federal Housing Finance Agency Home Price Index saw a slide in value of, basically, one percent or more. In other words, if the average home price drops, it’s a declining market.

Understandably, banks are reluctant to lend money on a duplex that’s going to be worth less money one year from now. As a result, if a property is in one of these markets, an appraiser may flag it as such. This has, has often resulted in owner occupant buyers who intended to use conventional financing being required to bring more money to closing table for a down payment.

This often meant a 20 percent down payment on the duplex they wanted to live in. Needless to say, this additional cash requirement was a deal breaker for many.

Big deal, right? Just use an FHA loan.

Well, remember those FHA red flags?

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Sometimes government rules and regulations just don’t make sense.

Take, for example, the city of Minneapolis’ rule on the number of unrelated people who can occupy a rental unit.

If a property has a zoning designation of R 1-3 (residential 1- 3 units), a maximum of three unrelated people can live in each of the units.

The number of bedrooms or amount of square footage in each is irrelevant. In other words, if you own a duplex with a five bedroom unit, you can only have three unrelated people living in it.

If the multi-family property is zoned R 4-6, however, you can have up to five unrelated people in each unit; even if there’s only one bedroom in each apartment.

Of course, if the other people occupying a unit are related by blood, marriage, or adoption, an R 1-3 property can house the family plus two unrelated people.

In a R 4-6 zoned multi-family building, a family can have up to four unrelated people living with them; again, regardless of the number of bedrooms in the apartment.

What happens if the city discovers there are more residents than allowed in a duplex? The landlord can lose his rental license.

So if you have a Minneapolis duplex, say, by the U of M or in Uptown with a couple of four bedroom units, how can you make sure you’re in compliance?

Get your tenants to marry or adopt each other.