Timing is Everything
Selling a house is a significant life event. You've poured time, effort, and maybe even love into your home, and now it's time to find the perfect buyer.
But when is the "perfect" time to sell?
Conventional wisdom might point towards spring, but the real estate market can be nuanced. Let's delve into the pros and cons of selling your house throughout the year, helping you choose the strategic moment to maximize your return.
Spring: The Perennial Favorite
Spring has long been considered the prime selling season, and for good reason. Here's why:
Increased Buyer Activity: Warmer weather and longer days often lead to a surge in buyer activity. Families with school-aged children are particularly motivated to find a new home before the next academic year begins.
Enhanced Curb Appeal: Spring's blooming flowers and freshly cut lawns create a visually appealing backdrop for your property. Open houses feel more inviting with windows open and natural light streaming in.
Favorable Market Conditions: Historically, spring has seen more listings enter the market, but competition can be fierce. However, a healthy balance often exists between supply and demand, leading to potentially higher selling prices.
Downsides of Selling in Spring:
Higher Competition: As more buyers are active, you'll also face more competition from other sellers. Standing out and getting top dollar might require extra effort in staging and marketing.
Potential Delays: Bidding wars and multiple offers can extend the selling process, which might not be ideal if you're on a tight timeline.
Summer: Hot Market, Hot Weather
Summer offers its own set of advantages and disadvantages:
Strong Demand: Summer often sees continued strong demand from buyers, especially for properties with desirable features like pools or backyards.
School's Out: Families with flexible schedules might be more available for home viewings throughout the week.
Vacation Season: During peak summer months, some buyers might be focused on travel and leisure, potentially reducing overall activity. This is usually true come August.
Things to Consider Before Selling in Summer:
Regional Variations: Summer activity can vary depending on your location. In warmer climates, buyer interest might remain consistent throughout the year.
Listing Fatigue: Potential buyers might start questioning the reason behind the delay if your house lingers on the market during the hot summer months.
Fall: A Time for Balance
Fall can be a strategic time to sell, offering a blend of benefits:
Reduced Competition: The initial flurry of spring listings has subsided, and fewer sellers may be on the market.
Serious Buyers: Buyers still actively searching in the fall are often highly motivated and ready to close deals.
Beautiful Backdrop: Fall foliage can create a stunning backdrop for listing photos and open houses, adding a touch of seasonal charm.
Potential Challenges of Fall Selling:
Shorter Days: Decreased daylight hours can limit open house times and may require additional lighting for evening showings.
Holiday Distractions: The upcoming holiday season can sometimes distract potential buyers. However, serious buyers might be more flexible with viewing schedules during this time.
Winter: The Unexpected Contender
Winter often gets a bad rap in the real estate market, but there can be strategic advantages to selling during this season:
Reduced Competition: The pool of sellers shrinks significantly in winter, making your listing stand out.
Motivated Buyers: Serious buyers actively searching during winter months are likely highly motivated and ready to move quickly.
Negotiation Power: With fewer listings on the market, you might have more leverage when negotiating the final sale price.
Keep in mind:
Weather Conditions: Winter weather can make it difficult to showcase your home's exterior in its best light. Ensure proper snow removal and maintain clear walkways for safe viewings.
Limited Showing Times: Shorter daylight hours can limit showing times. Be flexible and accommodating with potential buyers' schedules.
Beyond Seasons: Factors to Consider Beyond the Calendar
While seasonal trends are significant, other factors can also influence the best time to sell your house:
Market Conditions: Is the local market experiencing a seller's or buyer's market? A strong seller's market might encourage you to list your house at any time of year.
Your Needs: Are you on a tight timeline or flexible with the closing date? Spring or summer might be better options if you need to sell quickly due to increased buyer activity.
Home Preparation: How much work is required to get your house market-ready? If minor repairs or cosmetic updates are needed, factor in the time it takes to complete them before listing.
As always, if you have questions or if you’re thinking of buying or selling a home, reach out and let’s chat.
UNDERSTANDING THE NAR LAWSUIT
The NAR Settlement and Misinformation
On March 19, 2024, NAR (National Association of Realtors) announced that they had entered into a legal settlement related to an antitrust lawsuit last fall.
The settlement was earth-shaking news for those in the real estate industry. For others, the news may not even have registered.
Either way, one thing was evident - most news media did a horrible job covering the story. As a result, there is much confusion, misinformation, and even fear.
So, in this blog post, I hope to help clarify what’s going on and what this might mean in practical terms going forward.
What is the NAR Settlement All About?
NAR is the national professional association for the real estate industry. It is the nation’s largest trade association, with just over 1.5 million members.
Last fall, NAR was sued in federal court in Missouri. The lawsuit (Burnett v. National Association of Realtors et al.) involved how real estate brokerage commissions are negotiated and structured.
The primary issue was a charge of antitrust violation due to perceived price fixing. In other words, the lawsuit was about real estate commissions.
In October 2023, the jury sided with the plaintiffs, finding that NAR and several large brokerages engaged in price fixing and conspired to inflate seller commissions.
How Do Real Estate Commissions Currently Work?
If you have recently bought or sold a house, you likely know that real estate agents usually get paid by commission—a percentage of the property's sales price.
Commissions are negotiable, and the market has supported commission rates of around 6%. That amount is usually split between the listing agent and the agent who brought the buyer. So, each agent gets 3%. However, each agent’s broker takes part of that 3%, so the agent typically sees less.
Remember that commission rates vary by region and the price of the property being sold.
The 6% commission is usually paid from money set aside from the seller’s sale proceeds. This means that buyers usually don’t pay their agents directly or negotiate their agent’s commissions.
Why have we done it this way? For two reasons:
1) Buyers are usually tight on cash given the downpayment, earnest money, and inspection and appraisal costs. Asking them to front the money before closing isn’t realistic.
2) Sellers offered a 3% commission to the buyer's agent to entice agents to show their house. In other words, the commission offer is meant to motivate the buyer's agent to help sell the property.
To help clarify this, most home buyers don’t have much available cash, so sellers offer to pay the buyers’ share of the commission as an incentive.
Not offering to pay the buyers’ share of the commission could, therefore, be a disincentive - resulting in fewer buyers coming to see the home. That could slow the sale and hurt the price.
The Role of the MLS
The multiple listing service (MLS) is a national network of private, regional computer databases with which agents “list” houses for sale. In other words, this computer network is how agents talk to one another.
Only licensed agents can post a listing on the MLS and access a listing’s full details.
Currently, the MLS shows agents the commission amounts offered by the seller. This is done through fields that only agents can see.
MLS rules are partly based on cooperative brokering and, therefore, cooperative compensation.
Many MLSs more or less require that the seller offer compensation to the buyer’s agent. Thus, the current commission system.
There’s an essential item to note here—the buyers don’t negotiate the commission paid to their agent. Keep this in mind as we continue our explanation.
Back to the Antitrust Lawsuit
Now, recall that last fall’s lawsuit was about antitrust issues. What does this mean?
In legal terms, a trust is another word for a monopoly. A monopoly is a business with excessive market control regarding the supply and price of a specific good and service.
Monopolies aren’t good for consumers or even the businesses themselves over time. Therefore, we have Federal and State antitrust laws to prevent and break up monopolies.
The jury in the NAR lawsuit agreed with the plaintiffs that current commission structures and practices violate antitrust law due to price fixing.
The jury awarded $1.8 billion in damages and required changes to how commissions will be negotiated going forward.
NAR settled this lawsuit and proposed changes to how it uses the MLS and structures and negotiates commissions.
Let’s explore what these changes might look like.
What’s Likely to Change in the Near Future?
First, we must remind ourselves that the court hasn’t yet accepted the NAR settlement proposal. Even if it is, the proposed changes won’t go into effect until the middle or end of July at the earliest.
So, what looks likely to change? Reading the terms of the NAR settlement and factoring in the thoughts of industry experts, the following changes appear likely:
1) Any agent working with a buyer will need to enter into an agency contract with them, and this agreement will also indicate compensation amounts. (We already do this in West Michigan.)
2) The MLS will no longer show agent compensation, commission amounts, or terms.
What won’t likely change? For now, the following will probably remain the same:
1) Sellers will still likely fund the buyer’s agent commission since it’s in their best interests to do so and will help the sale.
2) Agents will continue to use the MLS even though the commission amounts and terms will no longer be published.
There are many unknowns. In particular, how sellers and their agents communicate and structure commissions remains to be seen.
What May Change in the Long Term?
The likely changes that are about to happen in the industry may have long-term effects. While it’s too early to make any predictions with a degree of confidence, the following could happen:
The MLS may substantially change or go away altogether
Commission amounts may slightly decrease
Buyers may attempt to purchase homes without using an agent to help them
The issue of house prices is looming large in the background. Will the above changes result in lower house prices?
I think that is highly unlikely.
Will the real estate industry collapse?
That, too, is highly unlikely, although changes are coming.
Wrapping Up
To sum up, the NAR settlement will lead to transitioning to a structure in which each agent’s commission is distinct and not inherently linked and in which both the seller and the buyer will be involved in the negotiations.
Remember, the settlement is not final and is still subject to court approval. Nothing will change until at least mid-July 2024. Further, NAR continues to deny any wrongdoing.
I am convinced there are strong reasons to be optimistic. The NAR settlement will likely bring about changes that will offer opportunities for growth and positive change within the real estate industry and benefits for our clients.
As always, feel free to reach out with any real estate questions.
Thanks for reading!
Current West Michigan Home Prices
MARCH 20, 2024
What’s the average price for a home in West Michigan? The answer might be a bit more complicated than it first seems.
What Area Comprises the West Michigan Housing Market?
Where exactly are we drawing the boundaries when discussing the West Michigan or Grand Rapids housing market?
For example, is Saugatuck in the West Michigan housing market? Or what about Cadillac?
When speaking of the West Michigan housing market, there is always some arbitrariness in determining the exact area. Here is my definition of our local market:
Holland north to Muskegon. Then, east to Greenville. Then, south to Ionia. Then, west back to Holland.
The area I just described would include Grand Rapids, Ada, Rockford, Caledonia, Wyoming, Kentwood, and so on.
What is an “Average” Home in West Michigan?
With the boundaries roughly settled, what constitutes an average home in West Michigan? Again, there’s plenty of room for difference of opinion.
Here’s my impression of an average West Michigan home: three bedrooms, two baths, and around 1750 square feet.
Median Price versus Average PricE
The median price is the middle value, meaning half the housing inventory in the area costs less, and the other half costs more. An average price, on the other hand, reflects a number that adds up all the sales prices and is divided by the number sold. Most real estate experts consider the median price a more accurate market picture.
So, what is the median house price in West Michigan? Here’s the number according to GRAR’s (Greater Regional Alliance of Realtors) February 2024 report:
$364, 745
In terms of general trends, home prices generally rise over time, but they do fluctuate in the short term. For example, seasonality plays a role: The median price in January will typically rise to a peak around June, then steadily fall back down again as it gets closer to winter.
As always, feel free to reach out with any real estate questions!
West Michigan House Prices - February 2024
MARCH 2, 2024
Looking through the recent real estate price reports, you’ll see that the average house price is around $359,000.
The reports vary somewhat, but most show close to that price range. Regarding the market area, we’re mainly talking about the Grand Rapids greater metro area.
What’s An Average West Michigan House Look Like?
What does an “average house” look like? An average West Michigan home has roughly 3 bedrooms, 2 baths, and around 1700 square feet. Obviously, prices and homes differ somewhat from area to area.
Most of my readers know that the West Michigan real estate market has seen several years in a row of strong price increases. We’ve more or less doubled the price of most homes over the past 7 years.
Is This a Good or a bad Thing?
Now, is that a good or a bad thing? It depends on who you ask.
The rise in home prices of the past several years has outpaced most salaries and raises. So, buying a home may be too far of a stretch if you're working-class. And the recent price increases don’t exactly help young people and young families looking for their first home.
What about homeowners looking to move? Won’t they cash in on the higher prices? Well, most home sellers also need to buy a new home, so the price increases aren’t really a benefit.
Is anyone benefiting from the price increases? Perhaps a few sellers who are looking to downsize. Oh, and yes, local governments that collect property taxes.
WHY ARE PRICES RISING?
Overall, home prices have increased due to the fundamental dynamics of supply and demand. We’ve seen several years of low inventory and moderate to high demand. So, essentially, the market is driving prices and not some form of artificial stimulation.
WHAT TO EXPECT IN TERMS OF HOME PRICES?
I don’t have a crystal ball. But most of the reliable real estate economists predict modest price increases for the next 2-3 years, with the rate of price increases moderating.
Interest rate cuts would likely stimulate the housing market, which in turn might accelerate price increases once again.
Barring some national or economic crises, my best guess is that house prices will hold steady and/or modestly increase over the next few years.
As always, time will tell.
If you have questions about any real estate matter - reach out - I’d love to hear from you.
The Seasons & The Housing Market
February 16, 2024
The Real Estate Seasons of West Michigan
Most people are aware that seasonality affects housing demand and supply. Real estate sales generally increase in the spring and peak in mid-summer, with fewer sales in the winter months. Some of the seasonality of real estate sales has to do with the following:
The timing of the school year
The weather
Not wanting to move during the holidays
The West Michigan real estate is no different and tends to follow national trends. So, let’s take a closer look at the rate of real estate sales by season and see what the remaining seasons of 2024 might look like.
Seasonal Patterns of Real Estate Sales
In most regions, the number of home sales increases significantly in the spring, whether Phil the Groundhog sees his shadow or not. Specifically, sales activity between February and March typically increases by 34 percent while prices rise by 3 percent.
Sales continue moving upward in the following months, but interestingly, the busiest home-selling months are May, June, July, and August. The average number of transactions during these four months accounts for about 40 percent of the annual sales volume in most regions.
Among these four months, June is typically the peak month of home-selling activity. In contrast, the slowest months of selling activity are November, December, January, and February.
For households with school-aged kids, the reasons for moving in the summer are obvious — it is a traditional time to move to new school districts. Moving during the school year is too disruptive. Nevertheless, while school year timing matters for those with children in school, we see that households without kids also tend to move in the summer.
Weather plays a role in real estate sales. Fewer people want to look at houses in the snow and cold, and moving can be difficult with ice and snow on the ground. Home sales continue during the winter, but sales do slow in parts of the country that experience cold winters.
Finally, the holidays play a role in the seasonality of the real estate market. When you think about Thanksgiving and Christmas, most people think about those holidays at home with family. Few people want to have the hassles and upheaval of moving at Thanksgiving or during Christmas.
How Does West Michigan Compare?
Even with the national seasonal trends, market activity does vary somewhat from region to region. Here in the Midwest, our peak season is summer, and our summers are busier than any other region in the United States.
For instance, in the Midwest, sales in the peak season account for 60 percent of the year's sales, compared to 41 percent in other parts of the US. Overall, the West Michigan real estate market follows the national trends. Here are some seasonal facts about the West Michigan housing market:
June tends to be the busiest month for real estate sales in the Grand Rapids area
Sales start to slow Halloween week
August can vary year to year depending on when people take their vacations - the second half of August usually sees a dip in sales in West Michigan
Come January, we don’t see much sun or many home sales either
2024 is likely to see the same seasonal trends as years prior. However, one unknown variable could affect those trends - interest rate changes.
Waiting on Interest Rates
As discussed in last week’s blog post, changes in interest rates significantly affect the real estate market nationally and here in West Michigan.
For the past year or so, the Federal Reserve’s interest rate hikes have depressed the housing market. When the central bank hikes rates, it becomes more expensive to borrow money and, therefore, more costly to buy a home. Moreover, many sellers want to keep the low mortgage rates they secured years ago when rates were much lower than they are nowadays. If they're still paying off their mortgage, they don't want to give up that favorable rate.
The common expectation is that the Fed will likely lower interest rates by late summer or early fall. Any lowering of interest rates will boost real estate sales. Whenever mortgage rates dip, more buyers seek mortgages, regardless of average seasonal trends in the housing market.
Low mortgage rates are good for homebuyers. They’re good for sellers, too. Low mortgage rates mean a larger market of potential buyers, and that can lead to more competitive bidding.
Will that happen in 2024? Will June once again be our strongest sales month? Stay tuned - we’ll find out soon enough.
As always, I’d be happy to chat with you if you have real estate questions. Don’t hesitate to reach out.