In A Hot Housing Market, Contingencies Are Out And Bidding Is In
Can you call it hot housing karma? It’s the mojo that comes around when you sell a house well over asking price after struggling to find a house somewhere else within your price range in this crazy real estate market.
Karen Campbell has lived in Bloomington-Normal for 20 years and owns a two-story, four-bedroom, two bathroom house with a nearly-finished basement and two-car garage in the Park Place subdivision. She wanted to put her house on the market more than a year ago, but then the pandemic hit and the real estate market dried up.
“No one was moving anywhere. People were refinancing. People were doing home improvements. They were saying, ‘You know what, if I can’t leave my driveway, let’s just fix up the house,’ and that’s what they did," she said.
Fast forward a year later, Campbell started realizing how crazy the market is, not only in Bloomington-Normal, but in Indiana where she hoped to move to be closer to her grandchildren. After trying to line up appointments to see homes, she learned over and over again, the properties already were sold by the time her realtor reached out.
“To have them swiped out from under me before I could even see them was exasperating. It didn’t seem like they were taking offers. It seemed like they were taking bids. I thought to myself, ‘Do I make an offer on something I’ve never even stepped foot in?’”
It got so frustrating that Campbell wound up deciding to build a home. She landed one of the last lots in a new development in a senior lifestyle community. It’s six miles from her grandchildren and has walking trails and other amenities, but it won’t be built until November, and that’s without delays.
“At least I know where I’m going, I know what it’ll look like, I’ll know where the furniture I have will go,” she explained. And the price is locked in.
On the flip side, she has decided to put her house on the market for just three days this week, and she’s taking bids until 1 p.m. Sunday. So, ironically, Campbell will benefit on the sales end of this never-before-bidding war type of market.
“For the buyer, it’s a nightmare. For the seller, it’s a pretty nice thing," she said.
While some buyers are bidding on and buying homes sight unseen, Campbell is still sprucing up her home for its listing and virtual tour. She wants buyers to fall in love with the house the way she and her husband David did. He passed away from cancer five years ago.
“I’ve loved living in my home," she shared. "I’ve had some amazing life events happen in this home. I feel like the steward of this home and I am just a person who cannot leave it, knowing there’s something that I know about, undone.”
Campbell is optimistic she’ll get more than her asking price because a neighbor across the street sold her home after simply calling a real estate agent to inquire what she might get for her house. Boom! It was sold the next day without even putting up a for sale sign.
One other selling point for Campbell: Her house is close to the Rivian plant.
“I am just a hop, skip and a jump away from Rivian, so if there’s a Rivian person out there looking for a home, I think I have a really good shot at being considered because I am so close. You don’t have to drive through town to get to work every day,” she points out.
Penny Wilson, past president of the Mid-Illinois Realtors Association, said there is pent-up demand, in part, from renters who have been working from home and, in some cases, their children have been with them learning remotely. And now they’ve decided they have to have more space.
“They’re just ready, and with the low interest rates that’s really spurring them on. With the low inventory, they have to be quick and ready to purchase and have their pre-qualified purchase letter so they know what they can buy,” she observed.
Current Association president Brandon Schaffer agrees.
“They want a little more space, they want some green space, and a garage and a driveway," he said. "These people are well qualified but the inventory is so minimal for what they’re looking for.”
In fact, buyers should be getting pre-qualified with the intention they might have to bid up to $20,000 over asking price, according to Wilson.
“We are seeing 10, 15 and even $20,000 over asking price offers, so they have to be ready to purchase for a little bit more or to put a little bit more down.”
So what’s this competition doing to the first-time homebuyer? Shaffer said government-backed mortgages that often are needed for first-time homebuyers are a little more challenging now. But he said many of those buyers have been squirreling money away.
“We’re seeing a lot more first-time homebuyers who’ve qualified for a conventional loan because they haven’t gone anywhere for a year. We’re seeing cash like we’ve never seen it before. But think about it: We didn’t go out for entertainment, we didn’t go out for dinner, we didn’t go on trips, we didn’t do anything. So we’re seeing, statistically, more cash available. The first-time homebuyer is probably more ready now than we’ve ever seen before.”
Investors also are coming in with all-cash deals, buying up properties they can then rent.
Appraisals are now reflecting the market shift
So are appraisals coming in too low for what’s happening in the McLean County market? Wilson said that was the case early on, but not so much now.
“Now that we’ve had so many homes close now in the higher market, I think the appraisals are coming back better.” The average home sale price is up a little more than 34% from a year ago, with the average newly-built home coming in at nearly $300,000 and existing homes have an average price of $171,542.
Most deals are done these days without contingencies that rely on the sale of a buyer’s current home, or on a would-be buyer getting a loan.
According to Shaffer, “A majority of contingencies; hard to get those through.”
Wilson agreed. “The cleaner the offer that doesn’t depend on this, this and this, the better.”
How often does sentiment play into a sale? There are cases of would-be homebuyers writing heartfelt cover letters to sellers when they put in their offer. Wilson said she recently had a seller upset that the highest offer came from an investor who planned to use the home as a rental.
“I said to them, ‘Well, a buyer is a buyer and it was the best offer with the best terms so you can’t regret that going forward. Would you like to see a family in there, loving the house as much as you did? Sure, but maybe a renter will do that as well.’”
Schaffer doesn’t have data on investors versus individual owners represented in sales figures. But he said anecdotally he’s hearing investors are buying up duplexes that tend to have more flexibility in allowing rentals. With the price of lumber up by as much as 375% from a year ago, investors are no longer buying homes to flip them.
Typically, house flippers are looking for a deal when they buy a fixer-upper to get a good return on their investment. “Now is not the time to get a deal,” Shaffer said laughing.
But he said with such limited options, some first-time homebuyers are now more willing to buy a fixer-upper. In the past, they might have held out.
“Now they’re thinking, ‘That might not be so bad. I get a yard, I get a garage, I’ll put a little sweat equity into it and all of a sudden, I’ve got a great home.’”
Do sellers need an Open House?
An open house can be a great way to generate interest in a home. But it can also attract a lot of the so-called Lookie-loos who aren’t serious buyers, but just like to snoop. Open house events also can suck up a lot of a Realtor’s time and energy — something that’s also in short supply in this untamed housing market.
Wilson said it’s a conversation to have with sellers. Open houses were a must during a time when the average home sat on the market for three to four months; now the Realtors Association says the average time on the market is nine days.
“You might be able to get the same level of interest by setting up times to show by appointment,” she said.
People who are immuno-compromised or have underlying conditions have been clear they don’t want an open house during the pandemic. But Wilson hopes the days of the open house don’t go away forever. They are a marketing tool for agents, after all.
“That is a good way to engage with other people and get other clients to walk through the door,” she said.
Downtown condo development?
There are 640 residential units in downtown Bloomington, which is roughly bounded by Locust Street to the north, Prairie Street to the east, Lee Street to the west, and the Warehouse District to the south, according to a 2019 inventory conducted by the city's Economic Development Department.
With limited housing available, will that bode well for converting downtown space in Bloomington or Normal for condos? Schaffer said the agents he’s talking with who are helping newly arriving transplants for Rivian, or the expanding Ferrero plant are looking for single-family homes.
“Condo dwellers who are coming from metro areas are so excited to have some space and some land. They’re converting to single-family home buying because they don’t have the opportunity in a downtown metro area to own a single-family home at this price point," he said. "So if you're moving from California, New York, Chicago or even Texas, many times you’re a little overwhelmed for what you can get value-wise compared to where you came from and all of a sudden, mowing a lawn is a very attractive benefit.”
The new Trail East building in Uptown Normal will have apartments, but the rest of the building will house offices for Afni, Farnsworth, an ISU business incubator, and a yet-to-be-named international tech company, plus a local foods marketplace and Windy City Wieners.
The Ensenberger building in downtown Bloomington has the largest number of condos and to date is about 75% sold, with two more sales pending. Wilson just closed a deal last Friday for a condo in the building. Sean Caldwell, a realtor for the building owner, said at one point recently he had six pending sales — a big difference from recent years when he saw maybe one or two sales during an entire year.
“Now with the injection of not only retirees and downsizing empty nesters, the younger professionals (from Rivian) are adding in to make for an even more interesting and diverse group of owners. It’s so cool to see,” Caldwell said.
What pandemic trends will stick around?
Real estate agents who never really fully embraced technology have been forced to do so.
“Now you’re doing Zoom virtual tours, you’re doing FaceTime tours with people in other states, you’re doing 3D virtual tours so that the public can look at the home from the safety of their own living room at 2 in the morning. Technologically, the industry has changed for good and will only become more technologically advanced as we move into the future,” according to Shaffer.
Wilson doesn’t see the hot housing market melting down any time soon. She said closing dates will continue to get pushed back as lenders work to catch up or as sellers struggle to find their next home. In fact, she’s doing some deals with buyers providing free "leasebacks" to sellers, or offers for sellers to remain in the homes between one to six months after closing — free of rental charges or for a nominal fee.
One enticement she will never include in a deal is allowing buyers to waive an inspection. Wilson said that’s never a good idea and certainly not worth a buyer getting stuck with a home that has, for example, severe structural problems, costing thousands of dollars and lots of heartache.