Curb n Gutter

What Buyers Want

Highlights from NAR's Profile of Buyers' Home Feature Preferences

by Dr. Paul C. Bishop, Harika “Anna” Barlett and Jessica Lautz, NAR Survey Research

Times have changed for home sellers, and the housing market isn't what it was. Sales of both existing and new homes are down, price appreciation has fallen from its breakneck, double-digit pace of a year ago, and the supply of homes available for sale – housing inventory – is at record levels. The mortgage market is still recovering from the subprime fallout. While owners trying to sell their homes in the current housing "doldrums" certainly face challenges, home buyers benefit from an ample supply of homes and the opportunity to find homes with features and amenities that most closely match their needs.

So how can sellers "attract" buyers to their homes. One way is to make sure that homes listed for sale offer those potential buyers the features that they really want. NAR’s recent 2007 Profile of Buyers’ Home Feature Preferences looks at those home features considered important during the search process, the presence of those desired features in the homes purchased, and in those cases when the home purchased lacks particular features, home buyers’ willingness to pay extra for them. Below we present highlights from the Profile that address those issues.

 

Home Features Desired Most by Potential Buyers
The most desired home feature was central air conditioning, ranked “very important” by nearly three quarters of home buyers. An oversized (two-or-more car) garage, a walk-in closet in the master bedroom, and a backyard or play area were also rated as “very important” by at least half of recent home buyers.

Repeat vs. First-time Buyers. The preference for certain home features can differ based on whether a potential buyer is a repeat buyer or a first-time home purchaser. Repeat buyers placed more importance than first-time buyers on almost all home features examined, with the exception of proximity to work and a backyard or play area. The features repeat buyers were much more likely to desire than he first-time buyers included oversized garages, a walk-in-closet in the master bedroom and a separate shower in the master bathroom. Buyers of new homes were also more likely than buyers of previously owned homes to consider most home features, including many luxury items, to be very important.

Regional and Location Differences. The importance buyers place on particular home features also varies by region. For example, while buyers in all regions rated central air conditioning as one of the top two most important features, it was very important to over 90 percent of buyers in the South and over 80 percent in the Midwest, compared to 41 percent in the Northeast, and 59 percent in the West. Buyers in the South also placed higher importance on newly built homes, porches, single-level homes and monitored security systems. Buyers in the West had a higher-than-average preference for lawn sprinkler systems, fencing, patios, and oversized garages. Fully or partially finished basements were more important in the Midwest, and reserved parking in the Northeast.

Buyers' preferences also differ by the location of the home purchased, mostly based on the neighborhood features. Those who purchased a home in an urban area had a higher-than-average preference for being near public transportation, reserved parking, and proximity to work. Suburban home buyers indicated a higher preference for oversized garages, walk-in closets, and new homes. Buyers in rural areas were more likely than average to prefer wooded lots and a water treatment or filtration system.

Preferences by Age. Home feature preferences also vary by age of the home buyer. For example, among older buyers, features such as a walk-in-closet in the master bedroom and a separate shower enclosure in the master bathroom were more often viewed as very important; and a backyard or play area, and proximity to work and schools were less often considered as important among these buyers. Buyers over 44 years old had a higher preference for single-level homes than the younger buyers. Buyers aged 55 or older were more interested in homes that are cable or satellite TV ready, equipped with a lawn sprinkler system, and on a flat lot. Buyers over 64 years were more likely to prefer sidewalks and an air filtration system, and less likely to prefer fencing and porches.

Features in the Home Actually Purchased
Home buyers consider many features as important when searching for a home, but they sometimes need to make compromises when actually purchasing a property. Among recent home buyers who considered each of the features examined as somewhat or very important, the home purchased most likely included cable-satellite TV readiness, high speed Internet access, central air conditioning, an oversized garage, and neighborhood features such as proximity to schools, to a park or playground, and to shopping. Among the desired features least likely to be present in the home purchased were an intercom system, a water treatment or filtration system, homes with handicap accessibility features, and extra-wide doorways.

Repeat vs. First-time Buyers. There are differences on what features buyers comprised on depending on whether they are repeat purchasers or those buying their first home. Repeat buyers were more likely to purchase a home with most of their preferred features, including many luxury items. Compared to first-time buyers, they compromised most on neighborhood features, such as proximity to work, a park or playground, and public transportation. Buyers of new homes did not make many compromises on the size or luxury items, but mostly on neighborhood features.

Regional Differences. The likelihood that a preferred feature is present in the home purchased varies by region. Desired features much more likely to be present by region included intercom systems, hardwood floors, bay windows, skylights, proximity to public transportation and reserved parking in the Northeast; a water treatment or filtration system, an intercom system, and homes more than 100 years old in the Midwest; a tennis court, being near or on a golf court, porches, and a monitored
security system in the South; and lawn sprinkler systems and fencing in the West. Among the desired features, the ones much less likely to be present in homes purchased in each region compared to the national average were lawn sprinkler systems, fencing, patios, and new homes in the Northeast; lawn sprinkler systems, fencing, and monitored security systems in the Midwest; proximity to public transportation, fully or partially finished basements, and intercom systems in the South; and usable/ accessible attics, wooded lots/trees, and whirlpool baths in the West.

Age of Buyer. Recent home buyers aged 25 to 44 purchased a home with most of the features they desired. As the age of the buyer increased, the likelihood of compromises increased, particularly among those aged 65 and over, and especially on neighborhood features. For example, less than 50 percent
of buyers 65 or older purchased a single level home, despite ranking this feature as important.

“Will Pay for AC”
Home buyers value some features so much that they reported being willing to pay more for a home if that feature was present. The most frequently reported features for which buyers would be willing to pay more included central air conditioning, walk-in closets, hardwood floors, high-end kitchen appliances, oversized garages, and patios. The least frequently mentioned features for which buyers would pay extra included homes that were more than 100 years old, a tennis court, a sloping lot, being on or near golf course, and handicap accessibility. Home buyers who purchased a home without a valued feature were willing to pay the most for a waterfront property, typically an extra $4,760; a home less than 10 years old, typically an extra $3,800; and fully or partially finished basement, typically an extra $2,970.

Among buyers who purchased homes below and above the median price, the rank ordering of the features for which they were willing to pay extra changed little. However, there were significant differences in the amounts that buyers would typically pay for some of the features. For example, buyers of homes below and above the median price were willing to pay the most for a waterfront property; but among those with homes priced below the median, the typical extra amount was $3,360 and $8,240 among those homes priced above the median. For a cul-de-sac lot, and proximity to shopping or public transportation, those buyers with above median priced homes were willing to pay almost twice as much as those with homes below the median price. For features including central vacuum, high-speed Internet access, and intercom system, there was not much difference in the extra amount these two groups of buyer were willing to pay.

What Does It Mean to REALTORS® and Their Clients
The information provided in the Profile provides insights into the priorities of home buyers. For instance, sellers considering putting their home on the market may want to consider what “buyer preferred” features might be added to the home before it is listed. By so doing, the home could attract more buyer traffic, and likely increase the sales price. REALTORS® who are working with clients to sell homes can more accurately determine the “value” of each home feature and thus determine a proper listing price. The data and analysis in the 2007 Profile of Buyers’ Home Feature Preferences is another tool for real estate professionals to use as they market their clients' homes to potential buyers.

Just the Tip of the Iceberg on Mortgage Fraud in Minnesota

Here is the first story I have finally seen on a problem that has been taking place in our Twin Cities market for the past year to year and a half.  This is only the start, there are hundreds of these homes that have been purchase with inflated prices that have been represented as "Investments". 

Mortgage scam nets $3 million

A former Prior Lake closing agent has been charged in an investigation of 60 transactions with inflated purchase prices.

By Jackie Crosby and Jim Buchta, Star Tribune

Federal investigators are probing a multimillion-dollar mortgage scheme involving inflated real estate prices, according to court documents, and industry leaders believe the case is only part of a larger problem.

The investigation concerns more than 60 real estate transactions in Minnesota, all of them involving Jill Lehn, a former mortgage loan closing agent from Prior Lake.

Between December 2004 and August 2006, Lehn prepared loan documents that overstated the purchase price of the properties and concealed the overpayments from lenders, according to the U.S. attorney's office in Minnesota.

The scam, uncovered by the Internal Revenue Service, allowed buyers to pocket the difference between the actual purchase price of the property and the inflated mortgage amounts. In all, buyers netted more than $3 million in fraudulent payments. Lehn was the buyer in a half-dozen of the transactions.

In December, Lehn pleaded guilty to one count of wire fraud and one count of money laundering in U.S. District Court in Minneapolis. She is awaiting sentencing.

Chris Galler, senior vice president of the Minnesota Association of Realtors, said in a recent letter to members that he expects "a series of arrests" in the next month or two resulting from investigations into the Lehn case by the FBI and the Department of Justice.

"We don't know how widespread [mortgage fraud] is, because finding one person leads to another and to another," Galler said Monday.

Pat Martyn, executive director of the Minnesota Association of Mortgage Brokers, said there have been hundreds of complaints of mortgage fraud to organizations statewide.

Martyn confirmed that he and other association members have met with representatives of the U.S. Department of Housing and Urban Development, the Minnesota Department of Commerce and the FBI to discuss the problem.

"I have no doubt from all of the information that there's a serious fraud problem in real estate markets in Minnesota," Martyn said. "And we must address this with enforcement agencies but also with a legislative approach."

Several bills aimed at the mortgage industry are expected to be discussed in the Legislature this year, including measures sponsored by Minnesota Attorney General Lori Swanson and the Commerce Department, which regulates mortgage brokers.

Bill Walsh, a spokesman for the Commerce Department, described mortgage fraud investigations as a "web that just keeps unraveling." He said the agency issued 25 subpoenas in connection with those investigations over the summer.

"These are new, sophisticated crimes where everyone in the transaction is involved," Walsh said.

Mortgage fraud has been identified by the FBI as one of the fastest-growing white-collar crimes in the United States.

The vast majority of cases involve deals among industry professionals and financial institutions, according to the FBI. Many include misrepresentation of the borrower's information and inflated appraisals to make up for the lack of a down payment or to generate more cash from a deal.

In 2005-2006, the Twin Cities had the 10th-highest incidence of loan fraud nationwide for loans delivered to Fannie Mae, the government-sponsored mortgage company that finances one of every five U.S. home loans. The most common scams involved misrepresenting borrowers' identities or credit histories.

The boom market in real estate in recent years helped create more opportunities for illegal activity, with much of it passing undetected until loans started going bad. In recent months, mortgage delinquencies and foreclosure rates have skyrocketed.

Mortgage originations peaked at $3.9 trillion in 2003 with an increase of more than $1 trillion in volume that year alone. The unprecedented increase in loans also brought new, inexperienced lenders to the market.

Since being confronted by FBI officers in August, Lehn has been cooperating with investigators. She said she wants to warn others not to be tempted into circumventing laws.

"I'm trying to make the best of a bad scenario," she said. "I made a mistake. I bucked up, I'm paying the price. I can't be mad or disappointed at anybody but myself."

Lehn prepared the sham documents while working out of the Bloomington office of First Advantage Title Co. The company was unaware of her illegal activities, she said, and no other employees were involved.

Buyer Representation?

The most common misperception it seems in real estate is Buyer Representation.  Most people I speak to, even past clients say "What is a Buyer's Agent?" and "Why should I hire one?"

Think of it this way, your new home is very likely the largest purchase you will make in your life.  Wouldn't it pay to have an experienced professional working on your behalf to negotiate and keep your best interests protected?  Look at it this way, if you needed to go to court for a legal matter, chances are the first person you would call is a lawyer to represent you right?  Hope fully the following will give you a better understanding of how you benefit from a Buyer's Agent.

  What is a Buyer Representative?

  A real estate buyer's representative represents the buyer who is purchasing property in a real estate transaction.  Research by the National Association of REALTORS has shown that when a buyer's representative is used, the prospective buyer found a home one week faster and examined three more properties than consumers who did not use a buyer's representative.

The buyer's representative works for, and owes fiduciary responsibilities to, the real estate buyer and has buyer's best interests in mind throughout the entire real estate process.  A buyer's representative will: 

Evaluate the specific needs and wants of the buyer and locate properties that fit those specifications. 

Assist the buyer in determining the amount that they can afford (pre-qualify), and show properties in that price range and locale. 

Assist in viewing properties -- accompany the buyer on the showings, or preview the properties on behalf of the buyer to insure that the identified specifications are met. 

Research the selected properties to identify any problems or issues to help the buyer make an informed decision prior to making an offer to purchase the property. 

Advise the buyer on structuring an appropriate offer to purchase the selected property. 

Present the offer to the seller's agent and the seller on the buyer's behalf. 

Negotiate on behalf of the buyer to help obtain the identified property -- keeping the buyer's best interests in mind. 

Assist in securing appropriate financing for the selected property. 

Provide a list of potential qualified vendors (e.g. movers, attorneys, carpenters, etc.) if these services are needed. 

Most importantly, fully-represent the buyer throughout the real estate transaction. 

  The Buyer Representation Agreement

It is important for the buyer to discuss the buyer's representative's compensation in the initial interview.  In many cases it is recommended that the buyer and the buyer's representative agree to the terms of compensation prior to viewing properties, and sign a written agreement based on those terms.  The agreement should spell out the responsibilities of both parties throughout the real estate process. 

In some states, legislation has been enacted to protect the buyer to the point that, absent a written agreement, the buyer's representative represents the buyer throughout the real estate transaction.  Consult your REALTOR for complete details when you begin the purchase process.   

MLS Data-Sharing Co-op Now Available: Access Active Listings Throughout Minnesota and Western Wisconsin!

The Twin Cities area REALTOR® Associations and NorthstarMLS have announce the release of the MLS Data Sharing Co-op. The Co-op is a cooperative effort among participating local REALTOR Associations from Minnesota and Western Wisconsin to share all Active listings among their participating members.

What does this mean to consumers?!  It means your Local Realtor can now be much more effective in representing you in a larger area.  Many Realtors find that they have many clients that may be searching for vacation property or investment property in other areas of the state or western wisconsin, but our ability to gather and disseminate information to our clients has been difficult due to the fact that our state has many different local Realtor Associations.   To give you an idea, here are the participating boards in the new MLS Co-op.

Participating Associations

• Duluth Area Association of REALTORS®
• Faribault Area Association of REALTORS®
• Greater Lakes Association of REALTORS® (Brainerd)
• Itasca County Board of REALTORS® (Grand Rapids)
• St. Cloud Area Association of REALTORS®
• Southeast Minnesota Association of REALTORS®
  (Albert Lea, Austin, Owatonna, Rochester and Winona)
• REALTOR® Association of Southern Minnesota
  (Mankato, Fairmont, New Ulm and Windom)
• West Central Association of REALTORS® (Willmar)
• Twin Cities Metro
  (Minneapolis Area Association of REALTORS®,
  North Metro REALTORS® Association,
  St. Paul Area Association of REALTORS®,
  Southern Twin Cities Association of REALTORS®,
  Western Wisconsin REALTORS® Association)
• Coming Soon: Lake Region Association of REALTORS® (Fergus Falls)

Now, you can use the Realtor of your choice, the one that knows you needs and wants and has the experience you trust to help you find the exact property you are looking for throughout MN and Western WI.  Happy Buying!!

Parks and open space increase value of nearby homes

Study in Washington County quantifies increased values

How much more are you willing to pay for a home near a natural area: a park or trails, for example, a wooded area, a lake or wetland? In Washington County it’s $15,000, according to a new economic impact report due out at year’s end.

It has long been suspected that residents of the Twin Cities area value open space and natural areas and are willing to pay more to live near them, but it hasn’t been quantified—until now.

The economic sense of preserving natural areas

Research commissioned by the Embrace Open Space (EOS) campaign confirms that property values are higher for homes located near public parks and open space and now, in Washington County in the east metro, we know how much higher.

“Minnesotans intuitively know that being near natural areas increases home values,” said Susan Schmidt, State Director for the Trust for Public Land (TPL).  “What this study does is put a dollar figure on the importance of natural amenities to home buyers. Higher home values, in turn, benefit local units of government.

“What it shows,” said Schmidt, “is the benefit and wisdom of investing in our region’s natural resources. Setting aside land for parks, improving water quality, protecting wetlands and wildlife, providing recreational opportunities—it all pays off, in terms of preservation, quality of life, and in actual dollars and cents.”

In the case of Washington County, the study evaluated home purchases between 2002 and 2005, and removed other variables affecting values such as floor area, lot size, and number of bedrooms, for example. The study found home buyers willing to pay $15,000 more for a home within 100 feet of a natural area.

When $15,000 in added value, per home, is applied to all homes next to natural areas throughout the county, the study concluded the total property value increase countywide amounted to $162 million.

Study may be expanded to other counties

The study of home values started with Washington County, with additional analysis likely in other metro counties. The research follows up on a survey conducted in 2005, which showed that nearly two-thirds of Twin Cities residents would pay between 10 and 25 percent more for a home that was within walking distance to open space.

“The economic impact report takes the research and evaluation to the next level,” said Jenna Fletcher, program coordinator for the EOS initiative.  “It’s our hope and goal, as we continue this work, that we provide residents, decision makers, local officials, developers and others with facts with which to make informed decisions about investment, acquisition and preservation of natural areas.”

Metro communities approved ballot measures

Washington County residents, in fact, were asked on the Nov. 7 ballot whether to authorize $20 million in bonds for environmental protection and preservation. The referendum passed, which will prompt a $12 increase per $100,000 in property value.

“No one much cares for the prospect of property tax increases,” said Steven Dornfeld, a member of the Washington County Parks and Open Space Commission, as well as the Metro Council’s Public Affairs Director. “But when you’re talking about the kind of growth that the county and region are going to experience in coming years, it’s a small price to pay to make sure we preserve the qualities that attracted residents here in the first place.”

County officials say the money will be used exclusively for purchasing and protecting land.

Two other communities, Andover and Plymouth, in November also approved bond measures to raise money for parks and open space acquisition and development. Since 1988, Minnesota communities have approved 22 conservation ballot measures of 27 proposed, raising over $111 million for land and water conservation. 

Across the nation on Nov. 7, according to TPL, voters in 23 states cast ballots on 130 different state and local conservation funding questions, and 102 – or 78 percent – were approved.

See the 2005 survey that launched the EOS initiative at the Embrace Open Space website. For a copy of the economic impact report due out at the end of the year, contact Embrace Open Space at 651-999-5306.

EOS is a collaborative working to increase awareness of the importance of natural areas in the Twin Cities region. There are more than a dozen participants, including the Metropolitan Council.

Greenspan Says the Worst is Over for Housing

Former Federal Reserve Chairman Alan Greenspan says that the worst of the housing adjustment is over and “sales figures have stabilized.”

He predicted that inventory levels will come down at a "reasonably rapid pace.” He also foresees housing price declines that will have an impact on consumer expenditures. “We haven’t see it yet,” he says.

Greenspan also announced he is preparing to publish an analysis of the effect of mortgage wealth on consumer spending. The paper will include data on gross equity extraction dating to 1968 and a more detailed analysis of data from 1991 to the present.

The thesis, he says, is whether extracted equity is "acting as a proxy for all types of financing of goods that would've been bought anyway."

Greenspan didn’t say when the analysis will be available.

-- Associated Press, Vinnee Tong (11/28/2006)

Rates Fall for Fifth Consecutive Week

The average rate on 30-year, fixed-rate mortgages dropped to 6.14 percent, down from 6.18 percent a week ago and 6.26 percent a year earlier. The 30-year fixed rate is the lowest it’s been since Jan. 26 of this year, according to Freddie Mac.

The 15-year, fixed-rate mortgage averaged 5.87 percent, down from 5.91 percent last week but up slightly from 5.81 percent a year ago. The rate is the lowest for 15-year fixed mortgages since Feb. 2, 2006.

The average five-year adjustable-rate mortgage rate was 5.95 percent, down from last week’s 5.99 percent but up from 5.76 percent a year earlier. The average one-year ARM rate was 5.46 percent, compared with 5.49 percent a week ago and 5.16 percent last year.

“Mortgage rates drifted lower this week, bringing long-term rates to levels below those of this time last year,” says Frank Nothaft, Freddie Mac vice president and chief economist. “Mortgage applications for home purchases in November have remained healthy, largely because of the drop in mortgage rates and a softening in home prices in some areas.”

Mortgage Rates Continue String of Declines

Freddie Mac reports a drop in the 30-year fixed mortgage rate to 6.52 percent during the week ended Aug. 17, marking the fourth-straight decline.

Rates are still 72 basis points higher than a year ago. A basis point is 0.01 of a percent. Five-year hybrid adjustable-rate mortgages, which carry fixed rates for the first 5 years and then float, fell 3 basis points to 6.18 percent. One-year ARMs declined 4 basis points to 5.65 percent.

The 10-year Treasury yield, the benchmark for mortgage rates, has fallen as well due to data that shows moderate inflation and weakness in the economy.

Source: Investor's Business Daily (08/18/06)

Inflated Real Estate Appraisals Under Scrutiny

Thought this was a good blurb on what has been happening around the Twin Cities area also.

Law enforcement officials are increasingly concerned about inflated property appraisals, especially in markets where home sales and price gains are declining for the first time in years.

Critics have long warned that many appraisals are too high because generous appraisals help mortgage loan officers and brokers, who often select the property appraiser, complete more deals.

Iowa Assistant Attorney General Patrick Madigan says many subprime loans involve inflated appraisals, and borrowers with credit problems are particularly vulnerable to default if they owe more than their homes are worth. He says the overstating of appraisals is "widespread" among loans to subprime borrowers.

Housing professionals note that the situation is worse in states like Florida and California, as home buyers in these pricey markets were forced to accept questionable appraisals in order to push their deals through.

Jacquie Doty of Freddie Mac predicts that inflated appraisals will lead to higher default rates in the coming years.

Source: Quad-City Times,John Heiderscheit (08/14/06)

Investments or Mortgage Fraud?

It has a been a while since I posted so I apologize for that, it has been a busy spring so far.  I have beeen hearing a lot of talk about large amounts of investors popping their heads out and acquiring new construction homes lately.  They are buying up existing surplus inventory as well as putting in orders for to be built homes.  What is wrong with this you ask?  Nothing, if an investor can make a new home work for an investment it is great for the investor, but there is more to the story.  As i understand it the investors are approaching the builders and negotiating a break on the home price in exchange for purchasing multiple homes, but after the price is agreed upon, the contract is writtne with a higher purchase price, usually $40-50,000 higher than the agreed upon price.  The intent is to work to get the home to appraise for as high as possible and then pocket the amount that is between the agreed upon sales price and the higher appraised value.  In many cases the buyer is purchasing 4, 5, even 10 homes at a time and taking a check back from closing for about $40-50,000.  That adds up to a lot of money.

What is wrong with buying a home for under value and putting a mortgage at the fully appraised value on the home?  Nothing, but 99% of the homes that are being purchased are being mortgaged much higher than the true value.  Maybe it would be easiest to give actual values.  I am an investor and I contract 5 homes to purchase from a builder that would normally sell for $350,000.  I negotiate to purchase these homes for $340,000 each, but then my contract shows that i am buying the home for $390,000, with $50,000 coming back to me at closing.  My appraisal amazingly comes in at the $390,000 price, even though there is no way the home's value is this high, since none of the other comparable homes have sold for this price range.  Now my loan goes to theunderwriter with the high appraisal and I purchase the homes for the higher amount, the underwriter only knows that the $390,000 is the real value since they have an independent appraisal that justifies it.  The loan close with 100% financing, i get a check for $250,000, $50,000 times 5, since I bought 5 homes and off I go to try to find a good income, bad credit buyer to sell this home on a rent to own contract. 

Hopefully that was clear enough to follow, if not let me know and I will expand.  This is nothing new, investors have been working this approach for a long time, the part that is different this time is that their is a group of professionals involved in most of these purchases.  Usually a Mortgage officer, a particular Appraiser, and the same Title Company, this allows the process to flow smoothly since the same people know how the whole game works and can work to get all parts taken care of quickly and cleanly.  That is the problem.   Over-appraising these properties to allow investors to purchase the homes and get their cash back quickly is bad enough, but look at the long term ramifications of this activity.  In a year or two, when we have hundreds of these homes back on the market at an inflated price becasue the tenants are not able to get their own mortgage to purchase the home from the investor like their contracts states, the tenant will walk, the investor will need to sell the home, and chances are, the current mortgage on the home will be higher than the current market value.  Tough to sell if you owe more than it is worth.  And when the home doesn't sell, chances are it goes back to the bank because the holding company, a company set up by the investor to own the properties, folds and walks from the property.  And the cycle ends with lots of foreclosed homes on the market being sold for under market value to "move" the properties, and the homeowners on the same street that bought their home the right way, just lost value in their home....sucks to be them.

Just to let you know, I do not have any hard data to support this, this is only report of a "buzz" I hear in the industry, and it concerns me.  Let me know if you have heard the same thing.