By Jeff Balke
By Ben DuBose
By Ben DuBose
By Sean Pendergast
By Sean Pendergast
By Calvin TerBeek
By Jeff Balke
By Jeff Balke
We never expected to find a home as quickly as we did. When my fiancée and I started looking, we assumed we would casually search until after our wedding in October, then get serious. But as we watched interest rates slowly begin to tick upward, we decided to speed up the process. Even then, we assumed it would take weeks or months to find a home. How could we have known it would only take one day?
The Houston housing market is booming. Home sales have shot up by 28 percent in the past year, and prices have risen by 11 percent as of May. The combination of low interest rates (they are still historically low despite rising more than a point in the past two months) and still relatively low housing costs compared to most of the rest of the country — never mind a steadily growing economy and a rebound from the housing bubble of 2008 — is sending prices and sales higher than ever, fueling some concerns over a new housing bubble.
Real estate Web site Trulia recently reported that homes in Houston were as much as 2 percent overvalued in the current market but cautioned that this is simply a rebound, not another bubble, not yet.
"I don't think we are on the cusp of a bubble," said Sharon Wright of SSW Fine Properties, a 15-year veteran of the Houston real estate market. "I think [the market] is going to level out by the end of this year."
But with high home valuations come real problems for potential homeowners, like me. After finding a house we truly loved, we made an offer that was accepted. Admittedly, it was high (just over the list price), but there was another offer sheet on the listing agent's desk the day we made ours. Competition is intense, and it's not uncommon for agents to receive multiple offers for homes within days after they hit the market, particularly in desirable areas inside or just outside the Loop.
"The last three months — I've been doing this seven years — it has never, ever, ever been like this," said Michael Fischer, an agent with Champions Realty. "There's not as much inventory [as in previous years], and since the rates are low, the demand is just crazy."
Fischer even did something this year he'd never done before. He helped a buyer put a bid in on a home before Fischer had seen it.
We didn't go that far, but when our bid was accepted and the inspections cleared with few problems, we felt we were on our way to closing.
Until the appraisal came in.
Since the 2008 housing bubble, the federal government has tightened its restrictions on how lenders and appraisers work together. Before, lenders could handpick appraisers and let them know they wanted a favorable appraisal. Since the lenders were the ones ultimately taking the risk, houses were often overvalued, which exacerbated problems for home buyers during the recession.
Now lenders are randomly assigned an appraiser from an approved pool of companies. Appraisers look at home sales over the past year in the same neighborhood. They are looking for comparable home sales on which to base their appraisals. But the exploding housing real estate market in Houston has been particularly dynamic in the past six months, making it difficult for appraisers to find similar sales in that time period. The result can be an appraisal that comes in below the sale price and below what agents and buyers expect.
"The process has become very difficult for all of us," Wright said. "We used to go to the mortgage companies, they would have a select group they would choose from, and they would have appraisers that would know the area. Now we have appraisers from Pasadena going into Garden Oaks."
Taff Weinstein, a mortgage broker and the owner of First Imperial Mortgage, believes that there may have been some overvaluing of homes, but not enough for the federal government to impose the kinds of restrictions now seen in the industry. "The government thinks they are going to fix the problem," he said. "They went about it right with about 50 percent [of the changes], and the other 50 percent were out of left field that have not, and will not, fix the problem."
With the new restrictions, leasing agents must be particularly careful in studying the area where a home is being sold. They must find comparable properties sold in the past year to justify their list price. That can prove to be complicated if, in a neighborhood like the one where we were looking, there hasn't been a comparable sale in the past few months, when prices have been highest. Lenders will not give a loan for higher than the appraised price, so agents have an incentive to be conservative in their pricing strategy.
"You can't just throw [a list price] on paper and hope it sticks," Weinstein said.
Wright added, "You can get offers all day, but it doesn't mean it is going to appraise. The appraisers are not able to keep up with the increases."
If an appraisal comes in below the desired sale price, the difference must be negotiated between buyer and seller. Most of the time that is a relatively small amount, maybe 5 percent of the sale price, leaving room either for the remainder to be paid in cash by the buyer or for the seller to drop the price without too much pain. In our case, it was nearly 20 percent lower than the sale price, leaving a gaping hole of cash between our offer and the sale price.
Fortunately for us, our seller chose to compromise and we were able to come up with extra cash to make up the difference. But getting to that point was nerve-wracking and the fact that the process is so overwhelming didn't make it any easier.
As soaring home sales continue, buyers and sellers are going to have to be careful. With houses often receiving multiple bids within days of going on the market, it can be tempting for listing agents to price homes high and for buyers to be aggressive with bids, but if a house doesn't make an appraisal, it doesn't matter what the list price was or if the house would seem to be worth the money.
"I show [clients] the numbers [from the market analysis], and if [their desired list price is] too high, I tell them, 'You can put any price you want on it, but even if you get an offer, it has to appraise,'" Fischer said. "[Sellers] are taking a big gamble."
That gamble can result in big disappointment for everyone. In my case, the story had a happy ending, but getting there felt less like a fairy tale and more like a mystery novel.