Hot Housing Market Calls For Cool Negotiating Skills

Housing markets in parts of the U.S. are rife with volatility, as sellers push prices up and buyers throw caution to the wind in trying to win bidding wars.

“It’s fast, it’s hot … but the sales always have complications,” said Barb Jandric, president of Berkshire Hathaway (NYSE:BRKA) affiliate Edina Realty.

Sellers and buyers must understand financing shifts, new appraisal rules and how marketing choices can affect a sale. And if your market is one of the hottest, you’ll also need to learn the ins and outs of managing multiple offers.

How frothy is the market? According to the National Association of Realtors, sales of existing homes rose in June to their highest rate in eight years, and their median price hit $ 236,400, which is 6.5% higher than in June 2014 and past the peak median price of $ 230,400 set in July 2006.

But chief economist Jonathan Smoke said he sees “no evidence at this time” of the outlandish speculation that drove the last real estate boom and then bust. In this market, “increases in home prices have been driven by tight supply and high demand,” Smoke said, with financing remaining conservative.

However, “individuals’ equity position is improving — so more people will be able to sell their homes and that will free up existing inventory,” said Bruce Zipf, president and CEO of NRT, a Realogy Holdings (NYSE:RLGY) subsidiary.

Lending Lag, Appraisal Anxiety

Experts say that along with a boost in first-time buyers — who make up 30% of the market after falling to 28% in 2014 — tight credit markets have made FHA financing a bigger factor.

In the first half of 2015, FHA loans accounted for 22% of all condo and home purchases made with financing, up from 19% in 2014, according to real estate data provider RealtyTrac .

In those markets where the number of FHA loans are higher than average, patience is required.

“Government loans take longer,” said Dave Liniger, CEO of Re/Max (NYSE:RMAX). Experts say to plan on a 60-day escrow for a buyer with FHA financing, as opposed to 45 or 30 days.

Once an offer has been made and accepted, the lending bank will require an appraisal. This process also has changed in the wake of the last real estate boom and bust. To avoid undue influence, appraisers now are randomly assigned from a lenders’ approved pool.

However, the new process hasn’t been without its challenges. Real estate agents complain that sometimes an assigned appraiser from outside of an area is “appraising outside his or her range of knowledge,” said Liniger.

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