Is there a downside to hot real estate markets?
Real estate investors, agents and home owners have been begging for a new housing boom for a while. We are already well into the recovery in many areas, and soon virtually all U.S. housing markets will be booming again. Some of the great side effects are bound to include rapidly rising home values and prices, increased deal flow and incomes and easier deals. However, those real estate agents, investors and other industry players that haven’t had hands on experience during these times could also be hit with some surprises which can cause major disruptions if they aren’t ready for them. Here are some of the symptoms of hot real estate markets to anticipate and to be ready to manage:
1. Increasing Competition
This one may not be a big secret, and is certainly affecting many already. Houses will receive more bids and workers will be a lot busier. The best way to combat this is being organized and ready to move quickly and decisively.
2. 90 Day Appraisals
With some exceptions, the last few years have seen real estate closings happen pretty quickly. This changes dramatically when you have to wait 90 days for an appraisal. Add to this – backups at lenders and deals can take a lot longer to close. Buyers and sellers need to be educated on this and start the process a lot earlier. Real estate investors need to stack up their pipelines even more than normal.
3. Sellers Become Unforgiving
During the deeply distressed days, there was more housing inventory than anyone could deal with and home sellers where extremely grateful for any offer that came their way. As this turns around, don’t expect any slack if you miss your closing date. In fact; expect to lose your deposit unless you have factored these items into contracts, for example by offering to pay a little more each day you run over your closing date.
4. Real Estate Agents Become Difficult
Sometimes it isn’t even the homeowners that are being difficult, but more often their real estate agents. They want their commission and if you are letting them down they’re happy to put another buyer on the deal ASAP. They also want to bullet proof their commissions as much as possible with large deposits, big down payments, few contingencies and more. This is when it pays more than ever to have your own real estate agent to go to bat for you, protect your rights and
5. Some Would Rather Keep Deposits Than Sell!
This may just be an assumption based upon past behaviors, but during the last U.S. housing boom there were certainly plenty of real estate investors, agents and buyers complaining that attorneys and builders in particular were derailing deals before closing after prices had increased significantly. Often times, they pocketed the deposits and the spread in new sales price. They made so much they cared little about the chump change spent in fending off lawsuits. Keep this in mind, keep your deals and contracts tight, and have a great real estate attorney on call.
6. Rising Interest Rates
Most consumers and industry workers have become immune to warnings of rising interest rates because they have been slow to come up. However, they are going to go up, and before the next boom really blossoms mortgage interest rates will have swelled significantly. This may be offset by other factors, but for those buying homes for the long run it may be a lot better to lock in low rates now.
