The classes teach about finding a house, home inspections, costs that new buyers face over the first few years of ownership, plus types of mortgages and how to improve a credit score to qualify for one.
Over the past eight to 10 months, Cunningham said, the courses have had to dig deeper into what to expect in the market as the buying process changed, with multiple bids per property now common and the average sales prices in southeast Michigan reaching 102.7 percent of list price.
“A lot of homebuyers feel like they have to move fast,” she said. “We encourage them to really think about their money and is it really worth paying over asking.”
The alternative, she added, isn’t often what they want to hear: “Maybe they’ll realize now is not the time to purchase.”
Be rock-solid on the financials. Know numbers might change.
Any offer that will be considered seriously by a seller will be accompanied by either a promise of all-cash at closing, or the buyer getting a mortgage.
Cash may be king, said Carol Trowell, a Realtor at Dupont & Associates in Detroit, but buyers are getting homes with mortgage preapprovals.
“Not pre-qualified,” she emphasized. “Pre-approved, so the bank only needs the appraisal (to finalize the loan).”
However, the eventual mortgage is not based on what a buyer agrees to pay, but the appraisal, which is a bank-ordered analysis of a home’s value.
Lenders will only write a loan up to a percentage of the appraised value, Trowell said. That would be 80 percent of an appraised value, leaving the rest to be covered in the down payment, if buying with a conventional mortgage.
If a home appraises for less than the accepted offer, there are a few options: a buyer can bring extra cash to close the deal, a scenario that possibly already is part of the contract, if an appraisal waiver is written into the offer; or a seller can reduce the price down to the appraised value. Neither option may make both sides happy.
“There’s a tightrope that we have to walk with this,” Trowell said.
Experts said experienced real estate agents can help buyers and sellers navigate that at the offer stage — directing buyers to keep an offer realistic and guiding sellers to accepting the offer that is most likely to withstand the appraisal challenges, rather than the highest one.
One other thing to note, Realtors say: Terms for FHA and Veterans Administration mortgages may look favorable to a buyer when comparing them to a conventional mortgage, but many sellers won’t consider them this summer due to risks that something will emerge during approvals to stall the sale.
“Sellers are not interested in a low-down payment loan,” said Heath, the Gaylord Realtor. “They’re not completely shut out, but, man, they’re having a more difficult time.”
Think about value in a different way
For buyers, even in this market, just getting a house could be worth it, even if they have to stretch their finances and know their price exceeds appreciation metrics.
But in the bigger picture, experts are looking at price escalation and what it means to both the market and longer-term values.
It’s possible that prices are at peak right now, meaning that buyers may not be able to resell homes at similar prices if values decline.
Another part of a decision about buying at peak market is anticipating how many updates a house will need and how the cost of the changes will add to the total investment into the property.
One thing to keep in mind: The pace of price increases is not the same as the value increase that appraisers see. Those professional analysts of real estate value track price trends over time, and it can take time for that data to catch up to scenarios like dramatically rising sales prices.
Kurt Schmerberg, an owner of Affinity Valuation Services in Washtenaw County, said most of that area’s agents are pricing homes at a reasonable level, knowing buyers will bid it up.
However, he said, those higher offers can result in a distinct mismatch between the appraisal and the sales price. Not all buyers will be comfortable with that dynamic — and appraisers can feel the same way.
“We can’t find that value in the marketplace,” Schmerberg said of his analyses when people agree to pay well over listing price. “It’s not there. When those sales close, wherever they close, … it artificially pulls everything up.”
Pete Hendershot, also an appraiser at Affinity, gave an example of a house that sold in Ann Arbor for about $940,000, after it was listed for $899,000. Two years earlier, it had sold for $800,000.
However, Affinity’s analytics show the appreciation over that time period in that portion of the city is about 6 percent, not the 18 percent reflected in the sales price.
“We’re required to do a three-year sale history for every property we do an appraisal on,” Hendershot said. “In that situation, we have to disclose what those people did to the house to take it from $800,000 to in excess of $900,000. And they didn’t do anything. They just lived in it.”
First, for anyone determined to buy now, more new listings should enter the market this fall. Some will reflect sellers who may have been on the fence over the last few years recognizing they have the opportunity to cash-out for prices higher than they’d ever considered, said Heath, the Gaylord-area Realtor.
Also in play is the July 31 end of the national moratorium on foreclosures on single-family homes that was implemented during the pandemic, Heath said.
National data this month from the National Association of Realtors showed 3.76 percent of U.S. mortgages, or 1.9 million homeowners, are in forbearance, or behind on mortgage payments.
Most people who had to halt mortgage payments due to financial issues have made arrangements with their lender to add payments to the end of their mortgage term, refinance or sell the property and pay off the loan.
So while some new listings from foreclosures are expected to cover the inventory gap between new listings and potential buyers, the expected increase in lender-owned sales is not expected to either come in a wave or push prices down dramatically.
“They’re smart sellers,” Heath said of the lenders that will turn to foreclosure sales. “They’re not going to flood the market.”
Most expect mortgage rates to increase, which will reduce affordability for borrowers.
The National Association of Realtors said the 30-year fixed mortgage rate is likely to be about 3.5 percent by the end of 2021, up from 2.78 percent in late July, and the inflation rate to average 2.7 percent in 2021, despite going over 5 percent this summer.
Experts also have a range of opinions on when the market could stabilize once the traditional “summer lull” period passes.
Trowell, the Detroit-based Realtor, said she believes some of the buying frenzy could level off by spring 2022.
Others say that the availability logjam that keeps sellers from listing will continue, due in part to new home construction also catching up to demand.
“We’re not going to get out of this,” said Schmerberg, the appraiser, “until there’s an abundance of new housing or something in the economy that puts a damper on demand.”