Year-over-year, the number of single family homes for sale in Middlesex County increased by a normally substantial 30%, but as we said last month, the big jump is more a reminder of last year’s terrible winter than a representation of what a fantastic spring we’re having. With sales on the rise from last year (by 23%), but down from February (by 14%), we’re paying most of our attention to the jump in inventory. It seems that this year’s increase in demand has not gone unnoticed, and it has given homeowners the confidence to enter the market and list their homes for sale. But even this notable rise in inventory is not enough to keep up with demand, illustrated by the sheer volume of bidding wars in the area.
In March, 54% of the offers our team wrote ended up in bidding wars with prices literally rising before our agents’ and clients’ very eyes. While bidding wars are great for sellers, they can be very stressful and frustrating for buyers. One of the problems is that appraisers just can’t keep up with the increasing purchase prices driven by all this demand. Buyer, seller and their agents agree to a purchase price based on the best and most recent comps. Appraisers sometimes come in from out of town, and aren’t tracking the local market on a day-to-day basis like our agents are, so they often choose different comps, or don’t make some of the necessary price adjustments that agents have considered, often resulting in a low appraisal. Since the seller knows he left three or four other close offers sitting on the table, it’s usually the buyer who has to bring the extra cash to the closing table if he wants to keep the deal together, or another buyer will.
To make matters worse, Boston has a relatively long closing cycle, with 45 to 60 days being the norm. Sold prices aren’t reported until a deal closes, so even the newest comps appraisers have to work with are already two months old and not in tune with the hot market. Because our agents are working in the same neighborhoods week after week, writing several offers a day, they have a very close pulse on home values and the market as a whole.
Back in mid-March, Peter Phinney, an agent on Redfin’s Boston team, helped his clients win a bidding war against three other offers on a house in Jamaica Plain. Their winning offer was $16K over the asking price, and Peter hand-delivered it to the listing agent before the open house had ended. “We all knew that the appraisal could be an issue, and indeed it came back $10K under the agreed upon purchase price (but still $6K above asking). The problem was that there really were no good comps for this home. There just hadn’t been enough sales nearby in the last twelve months,” Peter said.
The buyers’ mortgage broker, Sofia Travayiakis stepped in and got in touch with the listing agent to go over the appraiser’s comps one by one. Because Sofia is a well-respected local lender who knows the market, she was able to help both sides agree to a $10K price reduction to meet the appraisal value and get the loan approved. Peter emphasized, “The take-away here is that in a market this competitive, appraisal issues are becoming more and more common, and it has simply never been more important to choose a strong local team that can work together to advocate for you from beginning to end.”
For a complete picture of the Boston area market’s most recent stats and trends, download the Redfin Market Report here: Redfin-Boston-Real-Estate-Market-Report-March-2012.