There are fewer protections for cash buyers

spare change

Paying cash for a house makes the whole process faster, easier, and less expensive.  Partly because there are fewer protections. An appraisal is not required and neither is any kind of an inspection. To be eligible for most types of financing a house has to be “livable”.

Mortgage lenders protect themselves and by extension the home buyer.

Having a complete home inspection is important. Cash buyers rarely have the property appraised but they could.

The financing addendum will usually give buyers an out if they can not get the loan to pay for the house. They get their earnest money returned. Cash buyers may end up having to forfeit their earnest money if something goes wrong and they can not close.

Cash buyers should make sure there is a title company involved in the purchase and buy title insurance. Working with an experienced real estate agent is recommended.

All cash sales are becoming more common and account for at least 25% of purchases.

Mid-August real estate market

The local housing market has slowed up a bit. In the last two weeks, we were able to negotiate lower prices for our buyers on inspection contingent offers. Back a decade or so ago most offers on homes for sale were lower than the asking price. In the last five years, or so buyers who offered less than the asking price rarely got a shot at buying the house. Sellers did not need to negotiate because they had multiple offers or they could even wait a day or two for a higher offer.

Right now there are houses that have been on the market for a while. Some of them had gotten offers but for whatever reason, the buyers backed out. Now is the time to buy those houses and for buyers to negotiate more favorable terms. We are still experiencing a strong seller’s market but it is a little less ridiculous than it was a month or two ago.

Newer real estate agents might not be used to negotiating. That is something I use to my advantage.

We are also seeing more cash buyers and right now in St. Paul people who own single-family houses that they have been renting out are selling due to the stringent rent control laws. Many of these houses will go back to being owner-occupied, which will be an opportunity for some, while at the same time reducing the number of houses for rent which will cause rents to go up.

There is a 1.3 month supply of housing in St. Paul

During a balanced housing market, there is a six-month supply of housing for sale. During a buyers market, the supply skews to

Purple Cone Flower

a supply that is greater than six months. During the housing crash which was a strong buyers market at times, there was a 10-month supply of housing on the market.

During a strong seller’s market, there is less than a six-month supply. Right now in St. Paul, there is a 1.3-month supply which indicates a strong seller’s market.

Some parts of the country might be experiencing a balanced market or even a seller’s market but that doesn’t impact the strong seller’s market in the Twin Cities.

During sellers, market houses sell quickly, and often they receive multiple offers. Look for prices to continue to rise this year due to the high demand for housing.

Housing supply is a measure of how long it would take to sell all of the houses that are on the market if buyers keep buying at the same rate.

Most of the news about the real estate market comes from the coasts and may not apply to our local market in the Twin Cities.

July home sales by neighborhood

This time I am comparing the buyer’s market of July 2011 with the seller’s market of last month (July 2022). I am doing this because I don’t think we all understand what a buyer’s market looks like.

Right now we are experiencing a seller’s market in St. Paul and in the metro area. Home prices are rising. There are still more people who want to buy residential real estate than there are people who want to sell real estate.

Overall sale prices in St. Paul were higher than asking prices and on average it took 18 days to sell a house in July which is actually up part of a day from June.

The number of houses on the market is almost exactly the same as it was last July which is up slightly from June.

July home prices
Table showing home sales prices by St. Paul neighborhood

Here is a look at home sales and prices by St. Paul neighborhood in July 2011.  This is what a buyer’s market looks like.

Home sales
July 2011 St. Paul home sales

The numbers in both tables are from the NorthstarMLS which is deemed reliable but not guaranteed. The number represents a high percentage of the total number of single family homes sold in St. Paul.

2011 was the year that local home prices hit bottom.

For more local numbers check out Local Market Conditions & home prices

Not All home upgrades have the same return on the dollar.

In most cases, homeowners can sell their house as it is without any upgrades. I always recommend cleaning and some fresh paint and fixing plumbing leaks and electrical problems. If the water is old and rusty it is best to replace it before putting the house on the market.

No two houses are the same and home buyers are unique too so there isn’t any hard and fast rule as to what kind of payback, if any,  there might be on a specific upgrade.  In general smaller improvements tend to pay for themselves.  Examples include exterior doors, a new backsplash, some new light fixtures and some new kitchen appliances.

Here are some numbers from the National Association of Realtors:

Home improvement
Recovery on remodeling costs

Even though it is true that the kitchen will sell the house home sellers usually spend more than they get back. It is very easy to spend too much on a new kitchen.

I encourage homeowners to look at pictures of homes in the neighborhood that have sold in the last couple of years. If the current kitchen is typical for the housing style and neighborhood it doesn’t need an upgrade to sell the house. If the kitchen is below average for the area and the housing style then an upgrade might be needed.

Price reductions are back

In the last week, more than 60 St. paul homeowners have lowered their asking price. Sometimes homes sell quickly with multiple offers after a price reduction which will drive the price up.

It is possible to get an offer for less than the asking price accepted. It should be a good offer as far as the financing and the terms and on a house that has been on the market for a month or so.

Next week I’ll have some numbers for July home sales. The numbers will show that the number of homes on the market it up slightly and that houses are on the market for one or two more days before they get an offer.

Some of the news regarding the real estate market that I am seeing on the national news doesn’t reflect the local market. Higher interest rates are keeping some buyers out of the market but there are still more than there are houses for sale.