Hello!

Here is the pod cast of my latest forecast for the year!  Great tips here for sellers and buyers.  For more information for your specific situation, give us a shout!  

Why Has Zillow Decided to End the House Flipping Business Program?

This post will at times get a little technical about the "insides" of what's it's like to be working with sellers *before* they list their houses, and it should be noted, that it's an opinion piece.  (Although I did read the full Zillow statement yesterday and there are numerous supporting statements in it.) I think, though, they also left a lot of stuff out (that they'd rather not talk about), and I'm speculating here as to what that is.

On the surface - to wall street types and others - it was a marriage made in heaven.  Zillow, creator of the "Z-estimate", and owner of one of the biggest advertising platforms for houses, would use their estimate power to buy houses direct, fix them (or not) and then flip them for a profit, largely by their own expertise and - importantly - cutting out the real estate agent, to make the process more easy for home owners. Genius, right? I had to answer a lot of questions about "was Zillow going to put me out of business" and the like.  And every time I was asked, I laughed, and usually answered, "Let's see if they make money at it first".  

The issue, you see, cut right to the heart of Zillow's z-estimate.  I know (most professional real estate agents as well!) that Zillow's estimate of a homes value has a LOT of blind spots (especially in places like Massachusetts, but I'm sure it doesn't work as well as they need it to everywhere).  If you're going to be buying (and flipping houses), you need to know what they are worth.  That is a huge starting point. Here's what else you need:

1) You need to know what it's going to be worth when you sell it

2) You need to know how much you're going to spend in fixes and carry costs

3) You have to do all that stuff while doing for less than half the average broker commissions in the area

4) You have to make *enough* money to make it worthwhile.

Guess what? Each of those is HARD.  It is easy to say - from Wall Street, or Seattle - that home buying and selling with the traditional real estate agent model is inefficient.  And expensive.  And unnecessary.  But now with Zillow's announcement - a company that has spent hundreds of millions trying to prove this - we can definitively say it's not nearly as inefficient as Zillow (and others!) think. Let's talk about why. 

Three's a Crowd

When you buy and sell a house, there are two primary cost sharing parties involved.  Buyer and seller.  The real estate agents protect and aid both parties for a fee.  Most agents work alone, under a brokerage, and have (relative to a large corporation) minimal costs.  They use personal cars, personal phones, and tend to stick to their local area, reducing travel time and other overhead.  

How does adding a company (will all the overhead and bureaucracy of a corporation) make this process more efficient? You wouldn't expect it to.  Generally, larger companies need to benefit from economies of scale to offset the additional expenses of "being big", which is why manufacturing is hard for start ups and good for corporations.  But what economies of scale are to be gained in buying houses? Can you save money on recording fees and title companies? Carrying Costs? Reduce fix or update costs? In most cases, the answer is no - these are fixed transactional costs, and there's no large company on the other then to leverage for "bulk pricing" - just independent contractors and governments that are working on fees that most feel are too low already. 

Here's another way to look at it.  When a seller sells a house, they pay their end of the recording fees, the full carrying costs (usually because they are living there), and the listing agent fees.  The buyer takes on the buyer's fees, and the buyer agent fees (yes, I know the fee comes out of the seller's net, but a more accurate accounting is the buyer is paying for the buyer agent fee*). This is all straightforward stuff.  So how does it look when Zillow (or Open Door, or anyone else) does it?  

Well, then you have the seller to Zillow transaction, and then the Zillow to Buyer transaction.  You now have 3 parties, and two transactions, instead of 2 parties and one transaction.  Is this easier for the seller?  I guess so, you don't really have to worry about the buyer not getting financing.  But is this more efficient on paper? It doesn't look so, and it's hard to figure out where any savings are coming from.  Oh, there's no agent! Well, sort of. 

Where did the Real Estate Agent Go?

We'll talk about the "ideal" situation first, and then the "less ideal but closer to actual".

Ideally, for Zillow, the goal was to buy the house direct from the seller based on their pricing model (no agent) and then sell it direct (no agent) on their website.  Selling direct is also called For Sale By Owner, or FSBO, and historically  FSBO's tend to sell about 5% less than they should.  Let's say Zillow was able to cut that in half - 2.5% - they still have to do an extra transaction for 2.5%. And that is to break even.  Ultimately, they probably need to come up with profits (which was the goal) and that's after they pay all the expenses.  (Zillow regrettably axed 2000+ employees who were working on the flipping of homes). 2.5% on a 400,000 house is 10,000. Let's say a goal of profit being 10,000, (frighteningly small) and internal expenses of 10,000, and transaction costs of 10,000.  That's $30,000 of costs that need to be covered, and only $10,000 of room to do it with.  This is starting to not look like a good business, where you lose about $20,000 on each "flip."

The less ideal situation is that Zillow was still paying buyer agents to sell the homes they bought.  So much for the 2.5% saved!  AND, they were also paying agents to come in and tell them what to pay for the house (they didn't trust their computers, and wisely).  These things just make the "theoretical" margins smaller and smaller, and increase the chance you'll never make any money. And the agents?  They haven't gone anywhere.  They are on both sides of the deal, as before. 

What was the plan to make money? 

Most of the talk about getting rid of agents was just that - talk.  It played good on Wall Street, sounded good in the media, and resonated with folks.  But it wasn't the plan.  The plan was to screw sellers.  We've already done the numbers.  Zillow (or any other home buyer), needs at least 20,000 to cover expenses and profits (it's probably more like 30,000), and no buyer is going to pay "extra" for a house.  Buyers pay market.  So where was the money coming from?  

Sellers.  You have to get the purchase price down by your profits and expenses. Just like professional flippers, the money is made at purchase - not at the sale.  That means you have to get the sellers down to a profitable price.  There are many agents (and others!) who have always offered you cash for your home.  But there's a catch - you get convenience, but you don't get market value for your home.  Zillow offered nothing different, except in situations where they overpaid - and took the loss at sale (65% of all their sales were underwater according to various media outlets).  Here's how the conversation goes:

Seller:  What will you pay me for my house?

Flipper/Zillow:  $420,000.

Seller: But my house is worth $450,000! 

Flipper/Zillow: Maybe, but we will take all the risk, let you close when you want, and pay cash. 

Seller: That's great, but 30,000 is a lot of money.  No thanks, I'll take the 30,000. 

I mean DUH!  Almost everyone wants the money!! It's a lot of money!!  In fact, Zillow stated that 90% of all "serious" home sellers weren't interested in Zillow's cash offer.  I bet the numbers were even more brutal when you start counting the "non-serious" sellers. I bet for every 200 inquires, they probably got one house to buy.  Which house?  The house where they mis-calcuated what it was worth, and paid the seller too much.

Home Sellers Aren't Stupid

Do I really need to point this out?  Home sellers have generally good ideas about what their house is worth.  They pay attention.  Most are close.  On average, they tend to overvalue their house a bit, because most of them love their house, but they generally don't grossly undervalue it.  And they get second (and third) opinions often, and they generally demand information to help them piece out the puzzle and make sure they have it right.  Sellers can do math.  And if you have an inefficient model that is going to take money out of a seller's pocket,  they are going to figure that out, and not do business with you. 

Ultimately, that is what today's announcement says.  Despite all the criticism that Real Estate Agents often get, the fact is we are pretty efficient at what we do, and we deliver more value than most other models (currently all other models!). Is there a faster, better, cheaper way to sell a house?  I'm not sure there is, but I spend a lot of time thinking about it.  Zillow did too - and spent hundreds of millions of dollars hiring very smart people and putting a plan into execution.  They failed spectacularly.  My clients are very happy with the value they get on the purchase side and the sale side.  I help them make and save money, with the largest single investment most of them will ever have.  The advice I give is hard to standardize, because people and houses are all custom, and the deals we do are custom.  People value real estate agents because the advice we give isn't generalize, it's specific to their purchase, and their sale. As long as that remains the case, computers are going to have a hard time catching up.

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*Really, the buyer pays the fee.  If the buyer doesn't buy the house, no fee is generated.  It's the buyer's money that allows a fee to be collected, as such he is equally responsible for payment. 

Massachusetts Spring Housing Forecast for 2021

Normally, I'd be writing this in January, cause normally the we already would have a good indicator of what the match between buyers and sellers will be.  Not the case this year!  I expect there to be some big changes as we go through the months.  Let's look at some of the major factors that will likely affect the housing market this year. 

COVID

I mean, duh, right?  Honestly, it's the elephant in the room, and all the items that follow are one way or another CCOVID related so let's break them down. It's just too big an element to talk about effectively in one fell swoop, you've got to break it out.

Vaccination Progress of COVID

As of this writing, over 10% of Massachusetts has had one shot, about about 3.5% have been fully vaccinated.  We're up to about 40,000 shots a week, and figuring they will be split 50/50 for the next month or so, that means about 600,000 additional people will be fully vaccinated in the next four weeks.  That means we'll be over 13% vaccinated, which isn't super impressive except that teachers, healthcare workers, and the most vulnerable will be by and large fully vaccinated.  If J & J gets there one shot dose out then those numbers move up even quicker - more supply, and just the one shot means we could be looking at doubling the current rate of vaccination by late April.  But even without the J & J kicker, hospitals will be safer, schools could be back to in person learning - things that start to pave the way to feel safer.  And the bigger kick of all will be that the mortality rate will drop very quickly.  Roughly 60% of all deaths are those who will be vaccinated by the first or second week of March, and if we have the same success rate as Israel, virtually none of them will die.  That probably sounds too good to be true, but I think news like this is going to break through at some point, as it becomes obvious just how effective the vaccines are. 

Seasonal Decline of COVID

If you haven't noticed, cases are dropping dramatically across the country.  It's official - the dreaded second wave has passed, although so far the media coverage has not been particularly robust.  At their peak, we were seeing 250,000 cases a day in this country, but now we are down to 100,000.  Still a lot, but down a massive 60% in just over a month. That means hospitalizations and deaths should fall too, but a similar 60% we hope, which would be around 1200 a day, or around where they were in August. Hospitalizations are down in every single state in the country, which I find quite remarkable. That's without vaccines-  it should be noted that cases have been falling far faster than any effect from the vaccines.  Why is a rather big mystery (nobody is out there in the media/medical community explaining the sudden drop in cases that I can find).  There is a little talk (in the NY times, but not a lot of details) saying that the drop means we might be approaching herd immunity (again, not well explained), but if that is the case then we will likely see continued improvement in the numbers especially as the vaccination rates climb.  If you look at some states that peaked early (Illinois), the rates are down about 80 percent, and if the rest of the country follows suit, that would be great.  Really, this is all good news, and if the best case presents itself, March could be a month where sentiment turns. 

Kids Return to School

Hey, this is a big one. Don't dismiss the size of the impact that this will have on EVERYTHING, housing included. First, it will feel a lot more normal, but second - and most importantly - the number of parents who will suddenly have extra time to either look for a house or plan to sell one will go up sharply.  I know in the fall I was spending at least 18 hours a week on the kids and school (on top of my job), and I'm still around 6-7.  That is a huge amount of time.  This will also help if sports pick back up.  When will this happen? Unsure.  March, maybe.  April maybe.  But if there are problems, they'll go right back to remote or hybrid for the rest of the spring.  So it is a huge thing to watch, but very uncertain at this time. 

Overall Market Factors

Interest Rates

On the flip side, if the COVID numbers improve, I expect interest rates to move higher.  How much is the big question, but I think they will quickly get to 3.5% on a 30 year - perhaps higher.  Those are still great rates - but they will diminish quite a bit of buying ammunition for buyers and that will put a hard cap on prices.  Buyers are completely stretched at this point, and any movement in interest rates will change what they can afford. 

What Will Happen To the Springtime Housing Market?

I think it is a given that all of these factors are going to happen.  The question is when, and do they all happen at the same time, or do they space themselves out.  Ultimately, it will probably change the timing of how things play out, but probably not the magnitude. 

The most likely case is we start to see some houses come on in mid-March, or late March, and catch up a little bit with the delayed inventory cycle we are seeing.  There is so much pent up demand, however, that these homes will be very tough for buyers to get. They will sell quickly, and many buyers are not looking at the value they are getting, and the unwary will probably overpay for this bunch.  Things hopefully will smooth out by April, and I'm hopeful by May a lot of the steam will come out and we can have a productive late spring.   It is certainly possible it all happens a month later, or even two months later, but I'm pretty sure May will be quite busy.  Sellers would be wise to target earlier - not later - and buyers should be patient in the early go.  Which will be really hard! But they should.

An Educated Home Buyer is a Happy Home Owner. Read On!

• Practical steps to declutter your home and have it show it’s best!
• How can I buy an auction property if I don’t have cash?
• Are one bedroom condos or homes a good investment? It depends.
• Have a home? Quick 10 ways to save money!
• Can I win my bid war by dropping contingencies, and should I do that?
• Prices and assessments are up! Do you need to file an abatement?
• Upgrading a bath? Handy idea book here with many options to think about!

About Matt Heisler

Matt Heisler is a real-estate professional and owner of this website. He has been selling homes in MA for buyers and sellers for over 20 years. He is an expert in foreclosure purchases, short-sale purchases, short-sale sales, buy and hold investing, fix and flip investing, and of course traditional residential home sales. He is happy to take questions as they pertain to real estate on Title V, Radon, Termites, Sump Pumps, Roofs, Foundations, Wells, Septic Systems, Cash-Flow, Staging, and a host of other housing issues. As a Vanderbilt University alumnus, he is proud to serve his local community.

*All information is posted in good faith and is assumed to be reliable, but may rely on third party information sources.

Home Prices Reflect Supply and Demand

What is more American than home ownership?  Not much, maybe apple pie and hot dogs, but home ownership consistently is a big part of what most people think of as the American dream. 

Since it's something almost everybody wants, it can be hard to get.  But is it any harder - or more expensive - that it was 10 years ago? 25 years ago? 50 years ago? Longer? Let's discuss.

There's a few things that we need to get straight, off the bat.  It's basic economics stuff, but you can't really have a discussion about pricing without looking at the economics of the housing market.  Even though it's basic, some of the discussion is going to, uh, go against the grain of the popular rhetoric of affordable housing.  We'll get into why also, but first - the economics.

Sometimes, when my customers complain about the cost of housing (hey, I do it too!), they'll ask me: Why is it so expensive? If I've learned anything, it's that the mystery of house prices isn't much of a mystery.  It's supply and demand.  Many of the towns inside 128 are built up - the supply grows, but not very fast, as there aren't "easy" places to build - and with limited supply - and population growth - you have a recipe for upward prices.  That's how it works in Eastern Massachusetts, and the proof is in the prices.  In places where you don't have population growth or plenty of supply you generally have very cheap houses! In Springfield, MA, you can get an young home, about 1800 sq feet, for about 200,000.  The mortgage on that is about $1300/month or so, meaning you'll need to make about $4000/month to buy it - or about $50,000 a year.  That certainly seems affordable.  The same house - in Wellesley for example, but there are certainly other places - is probably about $1 Million, and the mortgage on that is probably going to be about $4000/month (depending on what you put down), meaning you'll need to make about 14,000 a month or close to 150,000 a year. The hard part is getting the deposit too - about $200,000 or (more likely) $300,000 or more.

Once you understand that it is supply and demand, you're forced to answer a basic question.  Who is buying these expensive houses? Answer: Someone.  And, far more often then not, they live there.  Single Family house prices are high enough in almost all places that they don't make a lot of sense to rent out - and make even less sense to be vacant.  So what you have is homes that have been bought, by people who live there, who in all likelihood have a mortgage, and whose income and debt levels have been validated by a third party.  What that means - is they can afford it. And that leaves us with the final, inexorable economic conclusion: Housing is affordable. 

Housing is Affordable? What?

Yes.  I'll say it again: It's affordable.  I know this sounds like lunacy, but if housing wasn't affordable, the houses wouldn't (in fact couldn't!!) be bought.  But they are being bought, and banks are loaning people money to buy them.  This isn't like 2005 where a substantial portion of the buyers couldn't afford the homes - it is no mean feat to get a loan today, and the era of easy money hasn't returned.  Banks are picky - super picky- and the owners can afford what they are borrowing. And don't try to sell me that a very few super rich people own all the housing and the rest of us just rent!  The graphic at the top shows that home ownership is about 70%, which is higher than it has been historically. 

Let's look at this another way.  If the houses weren't affordable, who could buy them?  Well, they wouldn't be bought.  And then we would have lots of houses on the market.  And prices would fall - until they were affordable again, and then prices would stop falling or go back up.  I know what you are thinking.  Matt, do you have any evidence to back this up? 

Yes.

What is this chart?  Well, this chart uses data reflecting household income, interest rates, and historical housing costs to determine how expensive a house was - or is - looking at the mortgage payments they were making relative to their household income.  (Most of this data comes from the St. Louis Fed, and is easily searchable on line). Note on the data at the bottom!

That was a mouthful - so what does the chart say?  Well, in 1990, household income was about 69,000 on average in Massachusetts, and the average house price was about 305,000.  Since interest rates were 10%, we can guess most homeowners mortgage payments, which in this case were 26,100 per year (not per month!!).  From there, we take what was going to the bank and divide it by total income and we get the House Payment Ratio - or how much of your income was dedicated to a house.  In 1990, it was 38%.  Which, historically, was about average! (Banks typically target 40% as the upper limit, so these numbers make total sense in that context). Things got really bad in 2005, as home prices exploded due to the "easy credit" I've already talked about.  No surprise, that ended in disaster.  Today, with the record low interest rates, home ownership has still continued its fall from the 2005 peak, and while while more expensive than the 1990's, isn't really that much more.  It is up quite a bit from the go-go 80's  - clearly a time of transition from saving to investing in housing, and a marker of another way the consumption economy changed during that time period.

Note, particularly, that when housing got historically expensive - 2005 - we had a housing crash, lots of availability in housing, and prices pulled back.  So yes, I have the evidence to prove that housing is affordable - more affordable than anytime in the last 15 years in fact.

It Might be Affordable, but It's Still Expensive

What most people mean when we say housing isn't affordable is that it seems to be expensive.  And there are several reasons for that. Again, all based on economics.

1. In general, interest rates have only gone down from the peak in the late 1970's.  This has resulted in prices moving much faster than inflation. Mortgage payments haven't changed nearly as much (adjusted for inflation), as noted in the chart above.
2. Banks has increased, on average, the term of most loans to the full 30 years. Longer terms means that buyers can afford more house.  It is "cheaper" in terms of monthly payment, to buy a house with a 30 year mortgage than a 20 year mortgage or a 15 year mortgage. 
3. Banks have increased the amount of DTI (debt to income) that homeowners are allowed to carry over the decades.

Add it all up and the average homeowner is usually paying more of his/her paycheck as a percentage to housing costs than ever before.  With healthcare, student debt, and daycare also reaching higher and higher levels, there just isn't as much left over as there might have been years ago. Basically, you can afford it, but it ain't easy.

What Can Everyone Do to Make Housing more Affordable?

In general, if you want housing to be the best investment you can for yourself, buy a little less house.  This is SO HARD to do - but most financial advice website will support this notion.  Of course, it only works if you reduce the term of your loan (or increase your payments) to really knock down the interest.  That advice applies to normal times - not now - as rates are so low that it may not make sense to go smaller. 

What Can Governments Do to Make Housing more Affordable?

Ah yes!  Our elected officials!  What can they do? Believe it or not, there is very little they can do. And the things they can do - they probably won't - because they are hard to sell (they are easy to do, however). 

Much of the discussion of governments and affordable housing has to do with increasing supply. Changing town zoning, incentives for builders, and building more apartment buildings and condos. Folks, look at the chart.  It doesn't work.  They've been doing this for 30 years - and it doesn't work.  Housing prices will follow household income and mortgage rates. Simple as that. (And don't get me started on 40B, which is majorly problematic)

But Governments CAN do certain things.  Things that banks won't like - but might improve people's wealth in the longer-term. What are those things?  Glad you asked.  

Eliminate the 30 year-fixed reverse amortized loan. 

Why eliminate the mainstay of American Household financing?  Because this was a loan designed for people that didn't move - ever.  That isn't the modern day world!!  In today's world, people move - often every 5-12 years - making a 30 year product that  pays 2/3 interest in the first 5 years a raw deal.  These products are great for banks - but bad for homeowners.  If loans were shorter - 20/25 years or simple interest - it would be more reflective of what today's home owners need.  You don't get something without nothing though - either of these would make loans MORE expensive.  By a lot. And that would be deeply unpopular, because people are bad at finance.  But eventually (in fact quite quickly*) housing prices would come down to adjust, and everyone would win.  The benefit here is that people would build equity in their house much more quickly, which would allow them to maintain the house, and use the equity for when times are tough. Most homeowners who have been in a house five years or less don't have enough equity to do either of those things.

Data Notes:

Fed Data:

Household income and home prices are for Massachusetts only - not the entire US.

I had to estimate Massachusetts Household income for 1980 and 1975 based on trends in the US Household income. That data was really hard to find.  

*Ideally, you could just knock a year off of the mortgages every two years.  29 year loan, 28, 27...  In 10 years you're at 25 term loans, without much market wrecking.  Similarly, you could create hybrid 30 year products that covert to simple interest in 8 years, then 6 years, then 4, until they were entirely simple interest.  

An Educated Home Buyer is a Happy Home Owner. Read On!

• Practical steps to declutter your home and have it show it’s best!
• How can I buy an auction property if I don’t have cash?
• Are one bedroom condos or homes a good investment? It depends.
• Have a home? Quick 10 ways to save money!
• Can I win my bid war by dropping contingencies, and should I do that?
• Prices and assessments are up! Do you need to file an abatement?
• Upgrading a bath? Handy idea book here with many options to think about!

About Matt Heisler

Matt Heisler is a real-estate professional and owner of this website. He has been selling homes in MA for buyers and sellers for over 20 years. He is an expert in foreclosure purchases, short-sale purchases, short-sale sales, buy and hold investing, fix and flip investing, and of course traditional residential home sales. He is happy to take questions as they pertain to real estate on Title V, Radon, Termites, Sump Pumps, Roofs, Foundations, Wells, Septic Systems, Cash-Flow, Staging, and a host of other housing issues. As a Vanderbilt University alumnus, he is proud to serve his local community.

*All information is posted in good faith and is assumed to be reliable, but may rely on third party information sources.

In most years, there are super hot spots where getting a property is a challenge. This year however, those hot spots have basically been everywhere - coast to coast.  While eventually much of this will moderate through price increases, in the short-term it makes sense to discuss escalation clauses: What are they, How do they Work, and Should I Use an Escalation Clause in a home purchase contract. 

What Are Escalation Clauses

Many of my clients have heard the term Escalation Clauses, but they aren't sure how they work.  The easiest way to explain them is in the context of what a traditional offer might look like.  In a standard or traditional offer, the contract simply says the buyer offers to pay the seller a fixed number - let's say 400,000 for instance.  That is pretty simple and clear to understand.  An escalation clause, however, assumes that there are going to be multiple offers, and then the purchase price is written as: Buyer offers to pay the seller (X) over the highest offer. On a home of $400,000, X would typically be a number between 2 and 5K.  (It's not usually $1! It's not the 'Price is Right' people.)  This means, in practice, that as a buyer you don't really know what you are offering on the house.  Ultimately, what you are saying is no matter what someone else offers, I'm willing to pay more.  Even so, this won't guarantee that you'll get the house.  I've had listings that have received multiple escalation clauses - and only one person can get it.  (Usually the offers have different escalation bump amounts (So bigger is better!) or have other factors that allow a seller to choose the best offer).  

On the surface, escalation clauses sound like an aggressive buyer strategy to put them in a great position to buy a home.  In practice, however, there are often issues with these strategies. 

How Escalation Clauses Do and Don't Work

Most buyers assume that when there are multiple offers, most of the offers look "like theirs".  If a listing does get 4-10 offers, many of them do tend to look similar.  But there are always offers that have major differences, and those differences are often crucially important and can affect how "reasonable" your escalation clause looks in hindsight.  OK, that was really vague, lets see if I can make it more concrete.   Some buyers are competing in a market with a lower LTV (Loan to Value) which means as a percentage they are borrowing more.  This is very common in the starter market, where we see a large number of buyers with 3.5 or 5% down.  Very often, these buyers will lose repeatedly in a super hot market to buyers with a more significant down payment (as they should), and quickly they develop a new strategy to win the listing - overpay.   In this market, I have seen buyers with low LTV offer 15% higher than the listing price in an attempt to win the bidding war.  Some sellers and seller agents will look favorably on these offers, but these offers always come with mortgage contingencies, and the plan here (on the buyer's end) is to let the bank's appraisal play referee and come in and knock the price down.  It's a high stakes game of poker for these buyers, hoping that a month into the transaction the seller will be willing to reduce the price significantly in order to keep the deal together, otherwise the seller will blow up the whole transaction and start with someone else. 

Another way offers can differ is with by reducing the number of contingencies.  Typically, there are three main ones, the home inspection, the appraisal, and the mortgage contingency.  Offers that look similar in price can often be separated by certain buyers that have waived some  - or all  - of these contingencies.  

The bottom line is, when you have a pile of offers, they don't all look the same, and some are going to have higher prices to cover up other weaknesses.  When you put in an escalation clause, however, you are often giving the seller the best of both worlds - a higher price, and a stronger offer.  You should know going in that you are probably "over offering" what you need to in order to win.

And, as noted above, an escalation clause isn't a guarantee.  If there are multiple escalators, you could lose.  In addition, the complexity (and risk) of a buyer getting buyer's remorse is significantly higher, and long-time listing agents know this.  So jaded they are about escalators, that some listings agents will advertise that they will discourage their seller from taking any offer with a escalation clause in it.  This means as a buyer, you should remember to ask the listing agent about their feelings on  escalation clauses - otherwise you could be taking yourself out of consideration.

Should I Use an Escalation Clause in A Home Purchase Contract?

I generally advise my buyers not to use escalation clauses.  Not knowing what you are going to end up paying is a sure way to start heading down the buyers remorse pathway. Even so, there are exceptions.  Here are the reasons you may want to think about using an escalator.

A) You know it's going to be competitive or hyper competitive

B) You need a house soon, or you're going to be homeless

C) You recognize you won't be able to get a similar house; it's perfect for you

D) You have the financial flexibility to put more down if the house doesn't appraise at the final purchase price (and it may not). 

You'd want at least 2, and probably 3 of these conditions in place.  Most of the time, it makes much more sense to have a productive discussion about what the value of the house is to you, and to offer that price - without an escalator- as a number you have confidence around. In addition, making your offer stronger in other ways - fewer contingencies, aggressive dates, more money down - is often a key deciding factor for quality offers.  Although some sellers will only focus on price, most listing agents know that an offer strength is much broader than just the top line number. 

An Educated Home Buyer is a Happy Home Owner. Read On!

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• Can I win my bid war by dropping contingencies, and should I do that?
• Prices and assessments are up! Do you need to file an abatement?
• When you sign your offer, you’re promising a lot of things unless you legally exclude them. Don’t get surprised!

Hello!

If you're being sent to this page, it's because you asked me when you can expect to get paid.  I get it - it's been two months and you've waited long enough.  However, I don't usually know "exactly" when you'll get paid, because there are multiple scenarios and I simply don't have the funds yet. 

Below, I cover the three most common scenarios - but there are others! - and I'll write about them in a little detail here.

First things first, things don't get going until there's a closing.  In Massachusetts (and probably most states) it is technically illegal for the funds to be paid until the closing is on record.  Usually, agents are paid out of the escrow funds held at the listing agency.  Those are kept in a separate account (again, by law), so the first step is they need to move post closing to a commission account.  This is easy if it's the first scenario, where the buyer has all the commission funds in escrow, which is the first path in the image below.

The listing agency transfers the money, and writes the check to the listing agent, and then writes the check to the buyer agent's Brokerage (not the buyer agent!).  The buyer agent's brokerage has to wait for the (usually) postal mail to arrive (2-5 days), and then they deposit that check, which needs to clear (0-8 business days, depending on the bank). Then the buyer brokerage can write the check to the buyer agent.  That means it can often take 10 days from closing to get paid - and sometimes longer.  Some listing agencies (often the really big ones) have to send checks to central clearing houses which can REALLY slow things down.  

That is the easy scenario of course.  The hard one is when the listing agency has some funds, but the rest of the funds are at the closing table.  This is the middle scenario in the image below.  Usually what happens is the closing funds are sent to the listing agency and deposited.  Just as the scenario above, this can take about 5-10 days.  At that point, the top scenario is followed, resulting in another 5-10 day delay.  Here's a situation spelled out that could take 20 days.

1. Closing attorney sends funds to listing brokerage (5 days-  no mail on Sunday)
2. Listing brokerage  deposits check (1 day to deposit, 5 days to clear)
3. Listing brokerage sends funds to buyer brokerage (3 days)
4. Buyer Brokerage deposits check (1 day to deposit, 5 days to clear )

And that's when everything goes right, and no one is missing any paperwork (I am often chasing other brokerages for commission statements and W-9's)

The clearing of checks really slows things down, and when someone uses overnight mail it speeds things up, but it is not uncommon for closings on a Friday not to have anything mailed until the following Monday or Tuesday.  

Having said that, you should know that as an agent myself, I know the waiting can be hard.  At Heisler & Mattson Properties, we clear checks immediate and often write commission same day we have funds.  This includes when we send checks to buyer brokerages.  Although many agencies may give you the run around, that doesn't happen here. 

The last situation is becoming more common, but it still isn't common.  The closing attorney, occasionally, will write separate checks to both agencies if they are owed funds.  This is significantly a faster way to do things than path #2! But in Massachusetts, technically it is not the way it is "supposed" to be done.  

Spring 2020 Real Estate Newsletter 

I hope this newsletter finds everyone safe and well. It certainly has been an interesting spring to say the least, so far, and I'm getting a lot of questions about what is going on in the market, so I thought I would take a moment to discuss the current trends that we are seeing, so people can assess what makes sense for them.  

Interest Rate Impacts

Normally, interest rates drive a big chunk of purchase behavior in Real Estate.  I'm going to start with this part as it affects all the other sections. People keep an eye on rates and often make decisions around the rates that are available.  Rates have gotten very low, touching or even exceeding the rates available during the financial crisis.  They weren't very high to begin with, but it's hard to argue with these rates.  I have - on occasion - seen 30 year mortgages with a 3.0% rate for purchases on conforming mortgages, and some 10 year ARM's have dropped below 3.0. With many economists predicting a rise in inflation, locking in these rates for a longer term is an insanely good idea.  I do not know if inflation will pick up, but I do think that it will pick up when people least expect it, as that is the way of things.  There are a number of arguments for and against the rise of inflation, but the bulk of inflation arguments is around the influx of money into the world financial system.  The arguments against inflation are the past 20 years, and the low inflation rates that have persisted despite several periods of significant monetary injections. 

Links: I linked an article from Barrons about potential inflationary environments.  But there are lots of others. 

Current Real Estate Market for Home Sellers and Home Buyers

When the stock market crashed, I got a number of calls from buyers and sellers that were in process.  They all wanted to know, how will this affect the market?  I suspected that there would be fewer buyers, but also there would be fewer sellers, and only if there was a big imbalance between the two would there be a big change in market prices.  So far, that suspicion has been largely held up.  We have seen the sub 500 market stay quite brisk, as more sellers and fewer buyers have stayed away from that market.  Although things are moving slower (home selling in a weekend now take 8 days or so), there is good traffic and quick transaction for many homes in this price range.  This makes sense, many people in this price point "have to" move.  The higher levels of the market, mostly with people who "want to" move, has seen fewer buyers, but there are still more buyers than there are sellers.  Overall, I'm not seeing a lot of different price action.  I see most homes selling where prices were 3-5 months ago, and no real change, but there is still a lot of pressure on prices on the lower end.  To see examples, you can check my recent reports in Milford, and here in Natick. It is worth noting, however, that the prices in the most expensive towns were under pressure before the pandemic, so it is hard to see if this is a continuation of the trend or a true pandemic impact. Maybe a bit of both.

There have been some changes, to be sure.  If you'd like to talk about what we can do for your situation, please call, but note generally in this market we are doing the following types of changes.

Open Houses: No longer a group activity, OH are being broken into individual appointments, usually about 15 minutes or so.  Handwashing before and after is also a common approach, and of course the state's Mask order remains in effect.  Basically, most showings are now private showings, and seeing a home is more complicated, but by and large folks are having success with this.  

Depending on each home, certain additional precautions can be made, whether you are showing to sell or purchasing.  It's the new normal!  Overall though, I think agents and agencies are doing an excellent job coming up with new parameters for keeping things going.  Everyone's risk level is different, so these solutions won't work for everyone, but for a lot of people, they can keep things moving. 

Links: Previous blog article on COVID market impacts, and two market reports published here on the blog. 

Current Real Estate Market for Investors

If home purchasing is driven by interest rates, real estate investing is even more so.  Right now the inventories for investment property are extremely low until you get far out into the suburbs of Worcester and prices for investment property are at huge jumps over last year (in Worcester county) and remain at very optimistic levels for for counties to the East.  When I say optimistic, I mean at the prices they sell, it is hard to generate meaningful cash flow for the risk incurred, and that landlords are betting on rents rising at a good clip over the next 2-3 years.  With rising unemployment, and a large rental base that was getting priced out of the market inside and around 128, I think that there could be a significant migration out of these areas impacting rents - as is typical in economic downturns.  If your income isn't going up, then you move, and try to control your expenses.   While this is probably a positive for properties 50 miles or more away from Boston, the impact inside that radius is unclear.  It is certainly possible, if the economic impacts of the pandemic continue, that over-leveraged investors may have to sell some inventory.  Right now, that inventory would likely be gobbled up, but a sustained increase in selling would impact prices in this part of the market.  Any obvious drop in rents would do it also, but either of those are likely months away at this point.  In the meantime, with the drop in interest rates, I expect to see continued pressure on this segment.

Think about Remodeling

If there are DIY (do-it-yourself) projects you've been putting off, now is a great time to do them.  Painting rooms, changing knobs or fixtures to give places a fresh look can all be done.  It isn't clear when the economy will open up, but if you have a vacant house to fix, this is a great time to hire contractors.  Generally, their business has been hit hard, and although I don't see prices for work dropping yet, you should be able to find generally responsive contractors while business is off.  If you have a tenant move out, it is a good time to consider renovating your apartment for this reason.  If you have questions about how to get creative here, contact me and we'll see what we can come up with. 

Just for Fun!

I am usually taking my own advice, and I just recently finished a trim up grade in my dinning room.  I added Board and Batten - a type of wainscoting - and it came out pretty good!  Here is a link to the whole project, with before and after pictures, tools needed, and cost information.  This is a style that has been getting more popular, and you'll probably see it when you're out and about! 

https://www.heislerandmattson.com/blog/board-and-batten-diy-project/

Board and Batten DIY Project Easy Trim Upgrade

There are lots of ways to do board and batten.  Board and Batten is a type of trim that is often found in dining rooms, on stairways, and in mudrooms.  It's not nearly as common as standard wainscoting, and bead board is easier to do, but if you're looking to add punch, board and batten is a great way to go.  So!  If you new to the trim style vocabulary, here are some quick examples for you.  

Here is a link to some standard wainscoting.  Chair rail at the top, and small pieces of trim, typically in a rectangle. 

https://www.pinterest.com/pin/91268329934244534/

Here is bead board (which i really like, but just didn't do here)

https://www.elitetrimworks.com/Beadboard-Wainscoting/

and here is board and batten (a high version):

https://www.bobvila.com/articles/board-and-batten/

My house has a fairly "blah" trim level, and as I update it I'm looking to add more punch.  Typically, dining and living rooms are where there is the most punch, so I started in the dining room.  I wanted to do something that wasn't too over the top, but would really add depth and character to the room.  I guess this is where we show the "before" picture.

Starting Trim Level

My home largely has 2.5 inch colonial trim.  Blah.  Here's what it looked like. 

Yep!  That's it.  2.5 in baseboard mostly buried by the hard wood floors.  Plain.  We can do better!

Things you'll need

I have a day job, I just do this stuff for fun (really), but I am pretty tool light.  This whole project was done without a miter saw (which would have made it easier), but you can really do a lot with a very simple tool set.  Hammer, finish nails, MDF boards for the baseboard and stiles, pine boards for the chair rail cap, liquid nails adhesive, caulk, a circular saw, a carpenters nail (for sinking the nail heads), and general paint tools.  I actually needed more tools just to get the baseboard out, but we'll get to that next. 

Remove ye' Old Baseboard

I noted a number of DIY videos where they do board and batten on top of the existing baseboard.  I'm going to tell you now, if that baseboard isn't at least 4 inches you'll never forgive yourself for not pulling the old stuff out.  For me, it wasn't an option.  I like demo anyway.  There was no saving this baseboard  - and you shouldn't expect to save yours - unless you can find all the nails and pull them out.  About 1/3 of the nails were below or at the hardwood floor level (the baseboard went in first and the hardwood floors second, but I prefer the other way!).  Anyway, there were a lot of nails, and they did a good job finding studs.  I found good success with a couple of crowbars, a stiff painters tool, visegrips and a hammer.  Basically, you want to use the painters tool to open a gap, and then work the crowbar in and just go up and down until it is loose.  Use the visegrips to pull out as many nails as you can before really trying to pull the baseboard out.  And be CAREFUL.  Don't screw up your floors.  Use a small block of wood under the crowbars when trying to lift the baseboard out, and don't pull on the baseboard so hard you hurt the floor (but in practice, the oak flooring is way stronger than pine baseboard!  My baseboard cracked and shuddered and then split, but it did come out.

I will share that this really was the worst part of the project.  Should be easy, but it's not. 

We can Rebuild It

Once the old baseboard is out, you've got a nice gap.  I know just what to put there. 

I used 5" MDF boards and they slid right in.  They were a shade thinner than the baseboard, but it was winter, and that is when the gap is at its biggest.  No need to angle cut the inside corners, just meet them up square, and we'll caulk 'em later. Then, using a level (not a tape measure!!), draw lines for your chair rail foundation.  This was 3.5" mdf board.  It's super important to make sure your baseboard and chair rail are level to the eye (NOT THE FLOOR), before nailing them off.  I did use a little construction adhesive for the chair rail, but not much - mostly nails in studs. (I used 2 inch finish nails, which is on the long side, but really helps in the corners to reach the studs).  Lastly, before picking a height for your top rail, do yourself a favor and make sure it's not at light switch height.  

So we are already looking better.  

Now the next part - if you're going to get it right - requires math.  I built a spreadsheet (thank you, day job) and measured everything carefully.  Note, I measured all the walls, and then adjusted the number of stiles (the vertical boards of board and batten) until most of the walls had similar sized gaps.  That's right, they aren't identical.  You're going to find that identical isn't possible, but if they are close, you'll never see that they aren't.   The other thing to keep in mind is that not all of the stiles are going to be over studs  - so you'll need to use real construction adhesive (like liquid nails) and not caulk.  Caulk won't hold long term, use the right stuff.  I used adhesive on all the boards, but I used more on the ones that weren't over studs, and less if I could use the stud instead. 

Yeah, I know.  But without this spreadsheet you are really guessing, and I have to tell you, that is a bad idea.  You can see all but one wall ended up with gaps that were within an inch of each other, which I was pretty happy with.  There's no right or wrong here, but you'll want your gaps around 15-25 inches apart. 

OK, all measured?  OK, wait.  It's a good idea to paint the wall between your chair rail and the baseboard now.  It'll save time later.  Not a lot of time, but some, and some is good.  I did it both ways, and it was definitely a little easier painting first. 

and with battens but no paint:

OK!  Believe it or not, we are almost there.  I used the same 3.5" mdf for the stiles, and you can see I always double them up in the corners, and made sure each wall abutted the trim with a stile. 

Adding a Cap Rail

The actual chair rail - which will sit on top of the top board- you can do all sorts of things.  I went simple, and just did a pine wood cap (MDF isn't really strong enough for the abuse a chair rail takes). 

I'm sure, at this point, you are unimpressed.  Well my wife sure was!  But that is what paint is for. 

Yep, a little paint will go a long way.  Oh, and for those that noticed, the plugs were updated also.  Now you can hire an electrician for that, OR, you can just do fancy covers, which I did for under $3.  Here's the cover: 

Yeah, that takes 10 seconds, and makes  a huge difference. 

OK, so BEFORE and AFTER (pictures of the same corner, but from different angles). 

Costs

So you might be thinking that this is an expensive undertaking.  Well, it's not.  True, if you get a carpenter and a painter you are probably looking at a couple of grand at least.  As a DIY, however, it's a no-brainer cost wise.  It was less than $200 in mdf/wood, a gallon of paint, $15 for nails, caulk, and glue. An amazing improvement for less than $300.  

If you have board and batten questions, please send them my way on the blog!

Matt

The Milford Mass Homes For Sale Market Report and Statistics

May

We are definitely ending strong on this cycle of reports.  Milford shows one of the healthier price trends, both with buyers paying more, and sellers expecting more.  No inverted price curve we're seeing in many higher priced towns. It took a long time for Milford to get going, but it has plenty of mojo now, as buyers look for value, and find it in Milford. 

Can’t see the chart? You can find it Here .

The HSI chart is only slightly less positive.  Here, transactions haven't fallen off - they've held steady - so this market seems less at risk of a pullback to me.  Milford is busy and productive. 

What should potential home buyers do in Milford?

Like almost everywhere else, buyers will find reduced competition - but very little to choose from.  Milford is a large town and yet the number of homes for sale is terribly low.  You can blame COVID, but sellers are staying away from this market.  Only time will tell how many sellers return when things open up, and if the buyers will follow in the same or similar numbers. 

Find Your Next Home or Check out the Competition!

• Sign me up for Automated E-mail Alerts of New Listings in Milford!
• Show Me Milford, MA Homes for Sale
• Is this an OLD report? Get Updated Info.
• Reach me to be your Milford MA Realtor

What should future home sellers do in Milford?

I mean - look, the data says sell.  Top prices, limited competition.  I know it's tough out there, but nothing ventured nothing gained.  This might be the best chart in the pile, and if I was selling, it would be hard for me not to give it a go now - before every other seller figures out what's up. 

Milford Homes For Sale and Sold Market Statistics - MLS Data

• The Milford “Home Seller Index” (HSI): 310 Last Report: 272
• There are 19 homes currently listed as For Sale by Home Sellers.
• In Milford there have been 146 houses sold in the last 6 months, and 87 homes sold in the last 3 months.
• The Average number of Days on Market (DOM) was 41 days for the last 6 months of SOLD homes In Milford.
• Homes for sale that are currently on the market have been looking for a buyer for an average of 75 days (the homes currently for sale).
• The amount that was paid by Home buyers in Dollars per Sq. Ft. averaged 205 (vs. 199 in the last report)
• Current home sellers are looking for $ 221 /sq foot
• There was an Average Sold Price of $396,954  .
• Milford, MA, has 0 properties advertised as lender owned or foreclosure (typically foreclosure) .
• There are 0 properties advertised as a short-sale is going to be needed by the lender.

All raw data are for Single Family Houses and based on data in MLS. Matt’s HSI is proprietary*, and is designed to offer town-by-town information, instead of large scale trends. *That means you won’t find it anywhere else. Take that, Case-Schilling!.

Top Reads at Heisler & Mattson Properties

• What are the Massachusetts tax rates for each town and city from most to least?
• Thinking of building your own home? Should you use 2x4 or 2x6 construction?
• Can I get a home seller to pay my closing costs?
• I like this house, but should I buy a home with electric heat?
• I’m not sure what to do, this home has a failed septic system. Can I still buy it?
• How do I know if the potential property I’m buying has a wet basement
• How will COVID-19 affect Real Estate? Will the coronavirus make it a buyer’s market?

The Marlborough Mass Homes For Sale Market Report and Statistics

May

Marlborough looks like a carbon-copy of Hudson - maybe a little better, but still very similar.  The two neighboring towns often have similar data, as home buyers shop them together.  Good strong selling and asking lines here. 

Can’t see the chart? You can find it Here .

We do see, however, the same fault lines.  Transaction volume has dropped over 30%.  Inventories are at the lowest ever (a drop from 150 homes to only 30).  This makes the market looks strong, but prices should be going up much higher much faster - and they aren't - showing that demand isn't strong enough to push up prices. 

What should potential home buyers do in Marlborough?

Home buyers should know there are few choices in Marlborough, and the good ones will bring competitive situations.  While overall activity is down, there are so few choices, the buyers that remain are still fighting over them. 

Find Your Next Home or Check out the Competition!

• Sign me up for Automated E-mail Alerts of New Listings in Marlborough!
• Show Me Marlborough, MA Homes for Sale
• Is this an Old Report? Get the latest!
• Reach me to be your Marlborough MA Realtor

What should future home sellers do in Marlborough?

Home sellers, like in Hudson, are seeing record prices.  They should think strongly about selling in this market, COVID or not.  The buyers are mostly undeterred, and with record low mortgage rates, it is a great time to sell. The process is different, but prices and demand say sell.  

Marlborough Homes For Sale and Sold Market Statistics - MLS Data

• The Marlborough “Home Seller Index” (HSI): 348 Last Report: 268
• There are 19 homes currently listed as For Sale by Home Sellers.
• In Marlborough there have been 142 houses sold in the last 6 months, and 70 homes sold in the last 3 months.
• The Average number of Days on Market (DOM) was 24 days for the last 6 months of SOLD homes In Marlborough.
• Homes for sale that are currently on the market have been looking for a buyer for an average of 53 days (the homes currently for sale).
• The amount that was paid by Home buyers in Dollars per Sq. Ft. averaged $222 (vs. $212 in the last report)
• Current home sellers are looking for $ 229 /sq foot
• There was an Average Sold Price of $440,135 .
• Marlborough , MA, has 1 properties advertised as lender owned or foreclosure (typically foreclosure) .
• There are 0 properties advertised as a short-sale is going to be needed by the lender.

All raw data are for Single Family Houses and based on data in MLS. Matt’s HSI is proprietary*, and is designed to offer town-by-town information, instead of large scale trends. *That means you won’t find it anywhere else. Take that, Case-Schilling!.

Top Reads at Heisler & Mattson Properties

• What are the Massachusetts tax rates for each town and city from most to least?
• Thinking of building your own home? Should you use 2x4 or 2x6 construction?
• Can I get a home seller to pay my closing costs?
• I like this house, but should I buy a home with electric heat?
• I’m not sure what to do, this home has a failed septic system. Can I still buy it?
• How do I know if the potential property I’m buying has a wet basement
• How will COVID-19 affect Real Estate? Will the coronavirus make it a buyer’s market?