How Buyers, Sellers and Developers Are Reacting to Today’s Market > Texas Gulf Coast Real Estate

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How Buyers, Sellers and Developers Are Reacting to Today’s Market
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Important Advice for Buyers, Sellers, and Developers Based on our Research of the Texas Coast Real Estate Market

The Bottom line:
Texas has the strong market fundamentals of sustainable economic and population growth - combined with migration to the coastal areas from within and outside the state.

As we and many others predict, we are headed for a boom on the coast very soon, with a huge pent up demand. Only buyer hesitancy from the woes of California, Florida and a few other states are holding buyers in a wait and see mode for now.

Even today, the Texas Coast is Doing Well with Motivated Resales and Spectacular New Products. New residential home developments, with their inherent level of uncertainty, are having the most difficulties.

The Buyers

"Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming financially independent. For real estate is the basis of wealth." - Theodore Roosevelt

Buyers are being driven by mainstream media’s - persistent downbeat attitude towards the current status of the domestic real estate and financing markets. With a constant barrage of articles exclaiming it is a “buyer’s market” or exhorting whether or not the real estate market has “bottomed out or not”.

This is causing many to take a wait and see attitude - yet creating a huge pent-up demand. The largest we have seen. Mostly from Baby Boomers near retirement who can 'afford' to wait, as they have no pressing need to make a move.

With so many motivated sellers today, It is only common sense for them to try to obtain the best deal possible on a certain piece of real estate.

Buyers are taking more and more time and looking at far more properties than in a normal market. Realtors report showing many more houses and locations in a single day than normal.

This reflects the buyer’s mindset that bargains exist in the current market that were unavailable a year ago. The buyers appear value driven within generalized locations. In layman’s terms they are looking for a bargain.

The Sellers

The sellers are trying all means to attract buyers who are ready to buy and able to close. In the existing home market price is the leading method of attracting buyer’s attention and sellers in many markets are decreasing price when interest wanes.

Sellers are taking longer and harder look at low ball offers and paying closer attention to selling prices in their location. Who didn’t already know price and location are the major concerns to the buyers.

Sellers are recognizing the fact that they are in competition with other sellers in the area and without substantially lowering their sales price are adding perks otherwise not offered. New paint, carpet, and landscaping are just a few of the items being used to improve apparent value in sale property.

Sellers are more often than not looking for pre approved buyers before getting into serious price negotiations. One real estate firm has even gone as far as having their pre owned listings inspected and is offering a home warranty package with the sale. Sort of like a Certified Used Car.

One underused technique that can help sellers today is to offer some form of owner financing or lease purchase.

The Developers

"What a man has to do to become rich in America is find out where people are going, get there first, and buy land." - Douglas MacArthur

The Well Financed:
Many developers are going forward business as usual, full steam ahead seeming indifferent to lagging sales.

These developers are financially able to wait out the market. Many see the lagging sales as an opportunity to turn their attention to completing amenities such as club houses, pools, tennis courts well in advance of single unit sales.

Some developer’s haven’t even seen a slowdown due to the unique aspects of their developments.

Texas coastal high rises are an example of this type of developer.

Also the new urbanism developers are busy completing their additional amenities such as stores, and other commercial space unique to their total community vision.

The Near Finished Development

A second set of developers are sitting on near completed or completed developments with numerous lots for sale.

These developers have cut or eliminated in house sales staff and office personnel, cut deals with local Realtors to handle sales and are in a position the wait out the downturn.

The Developers in Trouble

Meanwhile other developers are in dire financial straits and unable to complete the amenities to attract the buyers to their developments.

Those in this position are cutting office personnel, slashing advertising budgets and basically praying for relief or a miracle. Those that are financially able will weather the storm. Those that are not will go under, some already have.

When questions arise as to a developers ability to continue the development it is often the last breath of the development.

Promised swimming pools, club houses, landscaping and other amenities remain on the drawing board and this is all too apparent to buyers who will look elsewhere.

Watch this short video about real estate market cycles for a great explanation about today's market: click here to watch video

Advice to Buyers

Buyers are finally being able to take advantage of cooling trends in previously hot markets. Multiple offers are no longer being thrown at sellers as soon as the For Sale sign hits the front yard.

So how do you know what shape your market is in? Economists believe that real estate is closely tied to employment, so if you’re in an area of growing employment such as Southern California and parts of Texas, don’t expect to see double-digit depreciation anytime soon.

In areas such as the Midwest, where auto manufacturing is king, prices have fallen sharply and will likely continue until the industry rebounds.

Here are some general points a buyers needs to consider to obtain the best deal in a market shifting to their favor:

Location- Buyer should follow Theodore Roosevelt’s advice and seek real estate in an emerging market. Location plays a significant role in determining a properties present and future value. Buyers should avoid developments with surroundings in a substantially lower class of properties. A fine mansion next to an airport will always be a house next to an airport despite its grandeur or amenities.
Human nature- the biggest problem for sellers and buyers to overcome in a changing market. Prices stagnate or drop a few percentage points and it’s amazing how different buyers and sellers react. Sellers still think their house is “special” and immune to the market. Buyers figure every seller is about to be foreclosed on and make ridiculous low-ball offers. Smart buyers do their homework, know what size home they need, how much they can afford and then search the market for what they want and negotiate fairly.
Pay close attention to the dollar per square foot cost of the property. Subtract the cost of the lot from the sales price and determine the cost per square foot of the home situated thereon. If you can build a new home for the same price you may want to consider doing just that.
When you make an offer, know the recent comparable sales; Make an offer $10,000 to $15,000 under what the last one sold. Even in this market, if you insult your seller, they won’t want to deal with you. Sellers know what the last one sold for. You want them to at least look at your offer.
Get Prequalified for the mortgage- This is the number one area that will get a sellers attention. If the seller knows that any concession on his part will lead to a prompt closing he will be more motivated to discuss price and concessions. This only makes sense. Why would a seller want to argue price with a person if he is unsure if the buyer can even buy the house to begin with?
Multiple Listing Service (MLS) properties usually state what the seller owes. If not, your agent should be able to track down the figures. There’s a big difference in negotiating with an owner who owes more than the house is worth and one who has a lot of built-up equity.
After 45 to 60 days the seller is usually absolutely sick of keeping their house spotless and sick of people walking through. This is when a seller may be the most anxious about selling their house as traffic to their house has likely fallen sharply.
Unless you’re incredibly handy and have time and cash, go after houses that are as updated as you can afford. This is easier to do in a stagnant or falling market and fixers uppers aren’t usually discounted enough to be worthwhile.
In a tighter market, it’s not too much to ask the seller to add the closing costs to the price of the house. It’s better to put 20 percent down and add the closing costs to the loan than put 15 percent down and pay the costs upfront.
Items to ask for that shouldn’t offend sellers are paying for new kitchen appliances or washer and dryer. Most sellers will be willing to do so to close the deal. Ask sellers to pay up to the first year of homeowner association dues.
New home buyers in new developments should makes sure amenities are completed by the developer. If not completed, check the developer’s reputation with other home owners. If any doubt in your mind whatsoever exists make your contract contingent on the completion or fix a hold back amount of the purchase price to be refunded in the event the promised amenities.
Make sure to look at the big picture. In changing markets you should be planning to stay for at least five years, so don’t get caught up in a $2,000 price difference. Remember, the goal is to get the house you want to live in for some time, not to impress friends with how you worked the previous owner. Use the Internet at your fingertips to research your desired area. The Internet should be your starting point and contains volumes of information.
Buyers should look for properties in emerging markets. Look for our June Article on Locating and Profiting from Emerging Markets, detailing population shifts, employment, new developments and amenities to look for and hot locations on the Texas Coast.

Sellers Advice:

Select the best Realtor available in your area. Check to see who is closing the most homes. Ask around the neighborhood. Can you find your Realtor’s offerings on the INTERNET or in the local papers? Internet presence is the number one most important tool especially in the second home market where buyers come from all over the country and the world.
Price your house within the parameters of current comparable closings. While you may be in love with your home, buyers see it as another house in the neighborhood they are looking in. It must be priced within the market. You can bet buyers will be looking at comparables and if your home is noticeably higher priced there had better be an obvious reason. If your house is priced excessively it will also diminish the value of your MLS listing as many agents will avoid showing the property if it’s priced way over market.
Make sure house has curb appeal. Tend to that landscaping, painting and carpet cleaning.
Ask you Realtor to help you “stage” your home or hire a professional home stager to make recommendations. You may love your moose head on the living room wall of your beach house but that doesn’t mean anyone else will. Your home should mirror a buyer’s vision of the home and area. On the beach nautical themes and colors will invoke the dream home vision of the buyer much faster than your particular preference. Ask yourself, “does my home look like what a normal person envisions when he thinks of a beach house/second home.” If it doesn’t then seek help to correct your homes staging.
Consider owner financing or rent to own/lease purchase type of arrangement.
If you are trying to “flip” a house or lot bought at pre-construction prices do not list the property with the developers, because it’s a conflict of interest as developers want to sell their property first and will not give your property the necessary focus to sell it until they have sold all of theirs. They are not sympathetic to you as in their minds they are the ones that gave you a good deal in the first place and now you are competing with them for buyers.

Advice to Developers

"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks." - Warren Buffett

Finish your planned amenities at all costs. If your development promises a swimming pool then build it. Nothing will stop new home or lot sales faster than the lack of promised amenities or the general perception that they will not be completed.
Spend effectively and reduce costs. Invest in Internet sales and advertising to replace in house office personnel costs and print advertising. Use INTERNET marketing to determine where clients interested in your development reside. Concentrate INTERNET advertising on those key areas.
Reduce your pre-construction sales that are now your competition. Help early speculators that bought lots at a discount sell their lots. Nothing is worse than having competition in your own subdivision with people selling lots for less than your asking price.
Review your competitors and make sure your property has enhanced value over and above the rest. If not then create more value by adding amenities to the property or the homes.
Keep the existing development residents happy. Nothing is as devastating to sales as having a neighbor complain to prospective purchaser about the projects warranty work, employees or broken promises.

Next month our main article will be about emerging markets and their importance to Buyers, Sellers and Developers. Please feel free to post any comments below, we would like to hear your opinion or issues on this.

Comments

By Deborah Yao, AP Business Writer @ Saturday, May 24, 2008 12:19 PM

Sinking Housing Market Maroons Some Homeowners in Unfinished or Empty Projects.

As America's housing market has foundered, homeowners who bought into newly rising projects at just the wrong time have found themselves marooned in stalled, abandoned or largely unoccupied developments with little place to turn, placing a strain on them and municipalities forced to pick up the pieces.

Experts say it's one of the least examined aspects of the housing downturn, and one that has struck many parts of the country, from areas like Las Vegas, which experienced rampant speculation and overbuilding, to cities where construction was more restrained such as the Jersey Shore and Philadelphia.

Like abandoned and foreclosed homes, unfinished houses and projects are not merely community nuisances. They also contribute to the glut of inventory dragging down the market.

By American Shore and Beach Preservation Association @ Tuesday, May 27, 2008 7:41 AM

Beaches are the leading tourist destinations in the United States, according to numerous polls conducted over the years, including polls by USA Today, Washingtonpost.com and TripAdvisor.

180 million Americans make 2 billion visits to ocean, gulf and inland beaches each year. This is almost twice as many visits as those made to properties of the National Park Service, Bureau of Land Management and all state parks and recreation areas combined.

The 2 billion beach visits also dwarf the 138 million visitors to all theme parks in the U.S. combined, including properties owned by Disney, Six Flags, Universal, SeaWorld, Busch Gardens, Paramount and more.

Beaches are a large component of America's economy. Overall, U.S. beaches contribute $322 billion to the national economy each year, according to figures from the Clean Beaches Council and the U.S. Department of Labor.

For more information about the economic value of your beach, visit www.asbpa.org.

BySeeking Alpha @ Wednesday, May 28, 2008 9:13 AM

New Home Sales rose 3.3% in April. Had we gone into a coma in 2003 and just woken up today, we might look at these headlines and think things were pretty good.

But While New Home Sales did rise 3.3% in April, it was a month over month comparison. The real story is that sales declined 42% year over year.

By David S. Jones, senior editor, Real Estate Center at Texas A&M University @ Wednesday, May 28, 2008 9:25 AM

Texans Hold the Winning Hand in the High‐Stakes Real Estate Market.

Affordable housing is the state’s ace in the hole in the predicted future highstakes real estate version of Texas hold ‘em. In fact, the state’s leading expert on residential real estate is betting housing affordability will be the “most significant growth stimulant” for Texas over the next 25 years.

“Texas is the most housing‐affordable, high‐growth state in the nation,” says Dr. Jim Gaines, research economist for the Real Estate Center at Texas A&M University. “So far, skyrocketing home prices common to fast‐growing states like California and Florida have not occurred in Texas.”

Gaines says housing affordability is just one card in a deck stacked in the state’s favor. The other winning cards include lower cost of living and cost of business, greater employment opportunities and an appealing lifestyle.

“Events and circumstances point toward a Texas‐sized boom between 2008 and 2030,” Gaines writes in the latest issue of Tierra Grande magazine, a periodical sent to all the state’s real estate licensees. “The state’s population and economy — as well as its housing and commercial real estate markets — are poised to explode in volume and prices.”

By The Economist @ Thursday, May 29, 2008 4:21 PM

The American consumer, once a bulwark against economic malaise, is increasingly reluctant to spend.

An index of consumer confidence compiled by the Conference Board, a New York-based research group, hit a 16-year low.

Americans have not been as worried about the future since 1978. The labour market is weak, with continuing jobless claims at a cyclical high.

Home prices are still falling, except in a few markets like Texas.

And the Federal Reserve reports that banks continue to tighten their lending criteria.

More Americans worry about inflation, which could deepen these problems. Such negative consumer sentiment indicates that real spending is at risk of starting to decline for the first time since the recession of 1990-91.

Consumers need to spend more on food and fuel. With disposable income strained by rising prices, they are travelling less and cutting back on purchases like clothing and consumer electronics.

Until most Americans see the housing crunch bottom out and can learn to adapt to higher food and energy prices, they will spend more time in Wal-Mart than in Tiffanys.

Americans shoppers are looking for bargains right now, from housing to consumer goods.

By INMAN NEWS @ Friday, May 30, 2008 12:43 PM

Much of the extreme home price appreciation in some housing markets during the boom, including much of California, Florida, Nevada and Arizona, now seems to have been driven by loose lending practices.

Other markets that didn’t see runaway price appreciation with strong economic growth and limited speculation, including parts of Texas, Alabama and Utah — have remained unscathed.

By From 2008 NAR Investment And Vacation Home Buyers Survey @ Friday, May 30, 2008 12:48 PM

The motivation to purchase an investment property or vacation home is influenced by a variety of factors.

Vacation home purchases are largely tied to lifestyle considerations; that is, households seek to own an additional home in a desirable destination.

While the potential financial benefits as an investment are considered, the purchase of a vacation home is a discretionary choice more closely tied to the utility that households enjoy from unfettered access to a second home. For buyers of investment properties, the potential financial gains are far more important; the purchase of a home is a dollars-and-cents decision resting in part on current cash flow from rental income and expectations of future price appreciation.

As earlier surveys have documented, the increase in home sales in 2003 and 2004 was driven at least in part by investors seeking to diversify their assets and generate income.

Both vacation home and investment property purchases declined more steeply than sales of homes for use as primary residences.

Vacation home sales decreased by 30.6 percent in 2007 to 740 thousand, dropping to levels consistent with the pace of sales earlier in the decade. Potential vacation home buyers may have chosen to delay a purchase given concerns about a weakening economy and uncertainties in the financial and mortgage markets. Weakness in the market was also reflected in a 2.5 percent decline in the median price to $195,000.

Investment property sales fell 18.1 percent to 1.349 million units in 2007, the second consecutive annual decline. The drop in investment purchases totaled more than 40 percent since peaking in 2005, no doubt a reflection of the greater difficulty in finding financially attractive investment properties to purchase in an environment of soft or negative price appreciation in some rental markets.

The results suggest that the elevated level of speculative home buying between 2003 and 2005 has diminished placing the market on a more sustainable footing going forward.

ByMichael Stuart @ Thursday, June 05, 2008 2:14 PM

In the down market, many housing developers around the country are moving away from mansions and going back to building affordable family homes that can compete with rentals

By Michael Stuart @ Thursday, June 05, 2008 2:27 PM

Homebuilder D.R. Horton states that the industry could face tough times until 2010

Don Tomnitz, D.R. Horton's president and CEO:
"2010 will be the earliest we get a more solid homebuilding environment."

Homebuilders are struggling to sell their homes at a time when many buyers remain reluctant to enter the market because they expect home prices to keep falling.

A glut of unsold homes has also hurt builders, forcing many to step up incentives and discounts, shrinking their profits.

Prices may still have more to drop in many of the hardest-hit markets, like Florida, California, Las Vegas and Arizona.

In some regions, the supply coming to the market from home builders is now smaller than the supply coming from foreclosures.

By Dr. Housing Bubble @ Wednesday, June 11, 2008 10:24 AM

It turns out that only 4 states out of the entire 50 states of our country make up approximately 50 percent of all distressed action!

Think about that. We’ve all heard that real estate is about location so we can assume that the same goes for foreclosures. Let us crunch the numbers:
(Properties with Foreclosure Filings):
California 64,683
Florida: 35,264
Arizona: 11,620
Nevada: 7,276
Total 4 States Above: 118,843
Total Nationwide distressed filings: 243,353

By Smart Money, Kedon Willis @ Wednesday, June 11, 2008 1:42 PM

Good Landscaping Draws in Buyers

In this challenging real estate market, curb appeal is particularly important for a home seller. Here are some tips for hiring a landscaper who will do a good job at a reasonable price.
• Review a portfolio. A neighbor’s recommendation is a good starting point, but it is also worthwhile to examine other jobs the landscaper has done and ask for references. Hiring someone who isn’t reliable, doesn’t finish the job or who uses unhealthy plants is a costly mistake.
• Consider maintenance. Asking for a low-maintenance design will ensure that even if the home owner isn’t able to spend hours on the task, the lawn will continue to look good.
• Know what good landscaping is worth. It can’t hurt to let a potential buyer know what the value of the trees and shrubs are. The North Carolina-based Horticultural Asset Management specializes in assessing the value of landscape plants. For instance, it puts the worth of a healthy 60-foot-tall European beech at $50,000.

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