Speed Sales: Prelisting Home Inspections Do the Trick

by Dan Steward, President, Pillar To Post

Not so long ago, home sellers were being bombarded with multiple offers. They didn't have to worry much about the condition of a home in order to ensure a smooth and quick sales transaction. In today's market, realtors are creating new strategies and are working even more closely with home sellers to sell homes quickly for top dollar. The biggest development in this area is realtors advising sellers to schedule a home inspection prior to putting their homes on the market.

A prelisting home inspection—one that is paid for by the seller before a house is put on the market—plays a large part in a buyer's decision to buy. It signals openness about the shape of the house and omits the possibility of unpleasant surprises that could potentially slow the sales transactions and bring the price down. In addition, realtors who require or recommend prelisting home inspections give their client's homes a marketing edge.

These inspections also give the discriminating buyer upfront information on the condition of the home, and in some cases, a preemptive seller's inspection means that repairs, such as a dripping faucet or roof leaks, will likely be fixed. The report also signifies to buyers that the sellers made all efforts to sell the house and cared about selling to somebody who was going to be satisfied with the condition of the home and the repairs made to it. With their own report, sellers can choose, for example, to spend a few hundred dollars fixing a faulty electrical problem that might otherwise result in a claim for thousands off the home price.

Some of the multiple benefits of recommending that a seller conduct a prelisting home inspection include the financial advantage for home sellers to make important repairs. Should a buyer request a specific repair as part of the sale agreement, the seller could easily be placed in the position of having that repair done at the last minute at a higher cost. Alternatively, if that buyer opted to negotiate the price downward due to a repair left undone, they may face typical decreases such as for every $1 of identified repairs, buyers ask at least double or triple that in a price reduction.

Savvy home sellers who, for example, learn through home inspection that portions of the roof need repair may opt to repair that section immediately. Paying $5,000 for the repair is far more enticing than reducing the asking price by $10,000 or more. Buyers typically expect a $2 to $3 price discount for every $1 worth of defects turned up by their inspector.

Most buyers think that buying a home is going to be a lengthy, complicated, and stressful process potentially lasting for months. The prelisting home inspection reduces the stress inherent in such a major transaction as all parties quickly gain a thorough knowledge of the home through a full written home inspection report.

It also reduces time spent on the negotiation process, as all information on the home is given upfront to the buyer. This limits the potential of any surprises and tells to the buyer that problems may have been found and were repaired so the house is in the best condition possible.

Prelisting home inspections are no longer a rarity; instead, they're becoming a valuable part of any seller's marketing. It's estimated that the number of homeowners choosing to conduct a Prelisting home inspection has increased to 85% in the last one to two years.

Sellers or realtors who pay for a prelisting home inspection know it's a small price to pay—average cost is $425—for a checklist covering over 1,500 items in a home. The result is that they're more prepared to sell the home quickly for the highest valuation and that home buyers are more receptive to enter into a sale because they feel comfortable with all the information on the home's condition being disclosed upfront.

2008 Market Outlook

Brought to you by CALIFORNIA ASSOCIATION OF REALTORS®

2008 HOUSING MARKET OUTLOOK

California experienced another year of weak home sales in 2007. Sales of existing detached single-family homes, which

declined 23.6 percent for the year 2006, were projected to decrease another 26.0 percent to 353,200 homes for the year

2007. Sales fell steeply in the last quarter of the year as the liquidity crunch severely constrained availability of funds for

mortgage loans. Monthly sales fell below 300,000 units on a seasonally adjusted and annualized basis, levels that had not

been seen in over 20 years.

Despite the decline in sales, the statewide median home price set a new record of $597,640 in April and remained near

record levels for much of the year. This was partly due to the downward stickiness in prices in a slowing market, but also

had to do with the mix of sales in 2007 compared with prior years. While low- to moderately-priced markets suffered

throughout the year, the high end of the market was somewhat more resilient and propped up the statewide median price.

However, with the onset of the liquidity crunch later in the year, that market segment saw weakness both in sales and

prices and forced the statewide median price below $500,000 in October and November for the first time since early 2005.

In general, lower-priced markets experienced large sales declines and weaker home prices as compared to higher-priced

markets in 2007. Sales through August for homes valued below $500,000 declined 24.6 percent year-to-date, and sales of

homes between $500,000 and $999,999 fell 24.2 percent when compared to 2006. By comparison, sales of homes priced

$1 million and above declined only 0.5 percent from the same period of last year. However, the liquidity crunch choked off

sales beginning in September, with the $500,000 to $999,999 market experiencing year-to-year sales declines in the

range of 50 percent through the end of the year, and the market over $1 million market showing year-to-year declines of

roughly 25 percent.

The housing market is unlikely to see significant recovery in 2008. A further six percent decline in sales is expected for the

year 2008. Peak to trough, annual sales are expected to decline 47 percent from peak levels of approximately 625,000

homes in 2004 and 2005 to 332,000 homes in 2008. Meanwhile, the statewide median price will show its first decline since

1996, with a projected 5.5 percent annual decline in 2008 to $536,500.

As the economy remains in the late stages of expansion with many mixed signals, economic growth for 2008 is expected

to be positive, but will be below the potential GDP growth rate of 3 to 4 percent. The California economy should grow on a

par with the national economy, with non-farm job growth increasing 0.9 percent, and unemployment rate approaching 6

percent in 2008.

Current market problems, however, have their roots in financing, not in weakening economic conditions. As such, this is

not like the situation in the 1990s. Market weakness will continue to be driven in part by the ongoing problems in the

subprime arena. Subprime mortgage payment resets are expected to peak in late 2007 and early 2008, so defaults and

foreclosures should crest later in the year before easing as the year draws to a close. This will continue to put downward

pressure on home prices, particularly in parts of the state that had a lot of new home building. Improvement in market

conditions is more likely in the latter part of the year, as mortgage problems begin to subside and as buyers and sellers

sense that home prices may have stabilized.

 

 

Wednesday, January 02, 2008