Thursday, June 2, 2005

Greenwich Real Estate Market Explained

People Are Talking…

By ROBERT J. SHILLER

The home price boom in the U.S. has had a peculiar form since it began in the late 1990s: Home price increases have been getting stronger and stronger each year, year after year.

According to the inflation-adjusted Case-Shiller home price index from Fiserv CSW, Inc., real U.S. home prices, after falling 0.5% in 1996, rose 2.1% in 1997, 5.4% in 1998, 5.4% in 1999, 5.8% in 2000, 5.8% in 2001, 8.1% in 2002, 8.5% in 2003, and 11.2% in 2004. Each year over nearly a decade was as strong as, or stronger than, the year before it. Other bubble countries, the U.K. and Australia, have not shown this pattern: Growth rates of home prices have been slowing there for years now.

The upward pattern is a little less regular but even more striking in some U.S. cities. In Los Angeles, real home prices, after falling 2.7% in 1996, rose 4.1% in 1997, 10.3% in 1998, 4.5% in 1999, 7.7% in 2000, 7.9% in 2001, 16.9% in 2002, 19.2% in 2003, and 23.2% in 2004.

It doesn't take a lot of expertise to see that there is a trend in home price growth rates in the U.S., and nothing could be more natural than to extrapolate this trend. Just last month sales of existing homes set another record. So why not jump into investments in the real-estate market now?

There is nothing clear on the horizon to break the trend. Of course, the Fed has been raising rates, but it has been doing that for almost a year now with little effect. When they raised rates in 1999 and 2000, and when they cut interest rates drastically in 2001, there was no noticeable effect on the trend in home prices either.

Are those experts preaching efficient markets and diversification just hopelessly naïve? What concrete reason is there not to invest heavily in real estate? Many of us, in fact, are kicking ourselves for not exploiting this obvious investment opportunity years ago.

The biggest uncertainty, for many of us, is just that this pattern of home prices looks like a mass-psychological phenomenon called a bubble. The trend is creating the trend, as more and more herdlike investors notice the trend and pile into the market. If that is what is happening, it can't go on forever. We worry that if we invest in this market, it will be just our luck that it will be a sign that we are among the last investors doing this, and that the market will turn suddenly afterwards.

Some experts are saying that real-estate markets never change suddenly. Actually, what they are saying is only a half truth. Real-estate markets tend to be uneventful from year to year but sometimes do change very fast. Real home prices in Sydney, Australia, rose 12.8% in 2003 and then dropped 2.5% in 2004, a pretty sharp bursting of their bubble. We have seen that sort of thing happen in the U.S., too. Real home prices in high-tech San Francisco rose 26.5% in 2000 and then fell 5.7% in 2001, when the stock-market tech bubble crashed.

Prices quickly rebounded in San Francisco after 2001, but we have no assurance that they will rebound the next time. There is also a lot of historical precedent for gradually sagging real-estate markets. The first half of the 20th century was a time of generally falling real home prices, and real home prices fell over a third in the 50 years from 1894 to 1944. Looking forward, as long as home prices are high relative to construction costs, home builders will have an incentive to increase supply. Home price increases have been fast outpacing construction cost increases during this boom.

So, a sharp reversal in the uptrend in home prices, followed by years of sagging home prices, is certainly a real possibility.

What makes for sudden sharp reversals of trend and sudden drops in home prices? There is no received doctrine among the experts on this point, basically since there are not many major real-estate bubbles to study, and the few that we do have to look at have more special events as part of them than we can possibly sort through. With so many relevant economic factors, it is too easy for economists to overfit their models and delude themselves into thinking that economic fundamentals explain everything, with no need to resort to investor psychology.

But prices in speculative markets are ultimately determined in people's minds, by what they are willing to pay. If people change their minds, prices can change instantly and dramatically. Something has been going on in the minds of Americans that has been leading to an ever-strengthening housing market starting in 1997. That something can change.

There is a widespread perception that something big and exogenous has to happen to break the bubble. People say: Sure, after the real-estate boom of the 1980s, Los Angeles home prices fell 41% in real terms between its peak in late 1989 and its bottom in early 1997, but that was a time when the defense and aerospace industries were contracting in Southern California. They say that contraction is the real explanation of the price drop there.

Special factors may help explain the most extreme price declines, but talk and high prices are the main things that end bubbles. The intensity of talk about the high prices right now is enormous, suggesting an emerging change of public thinking that may signal the end of the bubble.

A similar volume of talk occurred in Australia in late 2003, almost exactly when their housing boom ended. The peak of newspaper articles about the housing bubble in Australia was in September 2003, when the IMF's September World Economic Outlook described an Australian housing bubble and when the Australian Treasury warned of a housing bubble. This was after the Reserve Bank of Australia had been warning of a housing bubble for a year.

Such talk from authorities hasn't happened in the U.S. until now. On May 16, five Federal agencies including the Federal Reserve issued new guidelines for home equity lending, where, they said, lending standards "have not kept pace with the product's rapid growth." On May 20, Federal Reserve Chairman Alan Greenspan said that we are in "a lot of local bubbles" in markets for homes. The volume of public talk about the housing bubble set a new record in May.

Forecasters are naturally wary of predicting turning points. The upward momentum in home price growth rates has been so strong that it seems to be a slam dunk to forecast major home price increases again for the rest of this year. Maybe that is the right forecast. But, beware.

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Greenwich Real Estate - Buying A Home - Find Homes In Greenwich At InsideGreenwichRealEstate.com

BUYING A HOME:


1. Making the Decision to Buy:
The decision to purchase a home is often driven by the need for more space, the need to move to a new location or simply the desire to change one's life style. If you are unfamiliar with the area to which you are moving, the REALTOR you choose must make an effort to introduce you to the characteristics of the community and help you decide if this is a good match for your needs. Within any community there are variations by neighborhood, and these should become clear to you as you are shown properties in the community. By giving your REALTOR feedback, you can make the search process more efficient. If your REALTOR learns that you do not want to buy in a particular neighborhood, he or she will not show you properties there and will concentrate instead on those areas which interest you.


2. Selection of a REALTOR:
The selection of a REALTOR in a community such as Greenwich is made easier by the presence of the Greenwich Multiple Listing Service. Almost every real estate agent in the community is a member of the Greenwich MLS, which gives each REALTOR access to every property listed by every office in the membership. Therefore, it is not necessary to seek the services of more than one REALTOR.

In your selection of a REALTOR, you should look for someone with whom you are compatible. When you initially meet with a REALTOR, whether this is someone to whom you have been referred or someone you have randomly chosen, you will be asked to sign a buyer authorization form. Required by state law in order for the REALTOR to show you properties, provide you with information, and negotiate on your behalf, this agreement will state the time frame during which the agreement is in effect, the kind of property it covers, and the area of Connecticut in which it is effective. If you are uncomfortable making a commitment to a REALTOR, ask that the time frame be limited to a day, a week, a month or any time frame which you feel you need to determine whether you would like to work with this person. When you ascertain that the relationship is compatible, you can sign an extension of the time frame.

Since every REALTOR has access to the same properties through the Greenwich Multiple Listing Service, there is no need to use the services of more than one REALTOR concurrently. In fact, doing so can cause confusion to you and your REALTOR. Be sure that you have specifically described what you are looking for in a property and ask your REALTOR to introduce you to properties which most closely meet your criteria. Give feedback on properties that you are shown, so that your REALTOR can continue to refine the picture of what you need. If your criteria changes, communicate this to your REALTOR. For example, if you decide that a particular style of house does not fit your needs, let your REALTOR know so that houses of that style are no longer shown to you.

It is a REALTOR's responsibility to inform you of any material facts about a property which he or she knows. These facts would be things such a condition of roof, presence of wetlands on a property, a known change to a road which will impact the property, etc. It does not include information about the seller's reason for selling, who the neighbors are, etc. Your REALTOR may not know everything about the property's condition; that is why you will have a building inspection done before signing the contract to purchase.

When you have developed interest in a particular property, your REALTOR will be able to provide information about comparable sales in the area to help you determine value. Your REALTOR can arrange for you to visit the local schools, obtain information about programs available in the area and help you select the appropriate property.


3. Mortgage Pre-Approval:
You will contact a mortgage company or banking institution to understand what purchase price might be correct for you. Further understanding of your financial situation will allow the lender to issue you a "Pre-Approval" letter which stipulates that you have been approved for a mortgage up to a specific dollar value. This is a valuable asset for you during the negotiation process. If you are not familiar with the names of lenders in Greenwich, your REALTOR will be able to provide you with that information.


4. Finding the Right Property:
The search for your new home is truly a joint effort between you and your REALTOR. Be as open with your REALTOR as possible about your likes and dislikes. It is very important to tell your REALTOR what you like about each house you visit so he/she will begin to understand what you are looking for in the home you wish to buy. Between your input and your REALTOR's professional skills, the search will narrow until you ultimately find the "right" property for you.


5. Making an Offer to Purchase:
Once you have focused on one or two properties, your REALTOR will be able to provide you with market data on recently sold properties. This information will help both you and your REALTOR formulate your offer. Working with your REALTOR, you will be able to determine where you would initially like to start with your offer price. You should then develop a set of strategies, each dependent upon how the seller responds to your offer, so you do not end up "reacting" to any counter offer made by the seller.
The offer may include, but is not limited to the following:
  1. The Opening Offer Price that you are willing to pay.
  2. Financial Contingency requirements, amount of your mortgage and date by which you will receive a written commitment.
  3. The Closing Date upon which you will take ownership of the property.
  4. Inspection Contingencies (building, radon, lead paint, termite, well, septic, survey, etc.) usually termed "all physical inspections".
  5. Other Contingencies, if any, that are to be identified and included in a Contract of Sale along with dates if appropriate.
  6. Identification of the Inclusion and/or Exclusion of any "personal property" (washer/dryer, etc.).
  7. The date you will sign the contract and give 10% of the purchase price as earnest money.

This complete offer is then presented by your REALTOR to the Listing Agent for the property. The seller may respond in any one of the following manners:
  1. The seller may totally reject your offer without giving any counter offer.
  2. The seller may counter your offer with one of their own.
  3. The seller may accept your offer as it was presented.

Once a verbal agreement has been reached, a written "Offer to Purchase" is prepared by your REALTOR outlining the terms agreed to by you and the seller. This document is then transmitted to the Listing Broker and the attorneys of record.


6. Finalizing your Financing:
After an offer has been accepted by the seller the lending institution you have chosen will require an appraisal on the property to be mortgaged. The institution will send one or sometimes two appraisers to do a thorough inspection of the property to determine whether the property will qualify for the desired mortgage. Once the institution agrees to finance a particular property, they will issue a commitment letter whereby they agree to provide a certain dollar mortgage at a specific rate for a specific time and the buyer is assured the financing is in place.


7. Utilities and other details:
Your REALTOR will remind you about two weeks prior to closing that the appropriate utilities and services need to be notified in order to transfer the accounts to your name. These include, electric, gas, oil, propane, telephone and refuse. They may also include pool services, yard maintenance and more. During the same period the seller will be contacting the same providers to discontinue the same services. This transition needs to go smoothly to protect you from having to pay a "connection or hook up fee" because the service was completely terminated. Your REALTOR can help you with this, but the companies now require the new homeowner to initiate requests for service.


8. The Contract:
The seller will instruct their attorney to draw the Contract of Sale to include the terms agreed upon. Your agent will ensure that, at the same time, your attorney receives the necessary information so that he/she can begin their work and be prepared to receive and review the contract. Your attorney will review the contract from your perspective and insure that your interests are protected (such as including stipulations for delays, searching of Title, type of Title to be conveyed, cleanliness of the premises at the time of closing, etc.) The timing of this, dependent upon the complexity of the terms, should all take between five to ten days from accepted offer to signed contracts. You will normally be expected to submit an escrow check in the amount of 10% of the total purchase price (made out to the seller's attorney) with the signed contract.


9. Closing Day:
On the day of your closing, you and your REALTOR need to perform one last walk through of the premises. Together you will look to insure the property is in the condition is was when you signed the Contract of Sale. You will verify that the items to be included are present. You want to make sure the house and grounds are as specified within the contract and most important that there are no defects visible now which were previously hidden.

You (or in your absence, you power-of-attorney) will attend the closing - primarily to sign appropriate documents and deliver checks for appropriate amounts. If your situation dictates, you may actually meet with your lender immediately prior to the time of the closing to sign your mortgage papers. Between your REALTOR, your attorney and your lender you will be advised ahead of time of all the costs and fees associated with your closing.


10. Typical Home Purchase Costs:
  1. Points or loan origination fee.
  2. Adjustment of interest on loan from date of closing.
  3. Title Insurance (one-time fee required by banks).
  4. Credit check.
  5. Bank appraisal.
  6. Attorney's fee.
  7. Survey fee: If the property has not been surveyed, the lender to Title Insurance company may require a registered survey or plot plan showing the location of the dwelling(s) and the boundaries of the property, as well as easements and rights of way.
  8. Recording Fees: The buyer usually pays the fee for legally recording the new deed and mortgage.
  9. Homeowners Insurance: Proof of a current policy is necessary at closing. Adjustment costs paid to the seller at closing (where applicable)
    1. Buyer's share of pre-paid property taxes.
    2. Heating oil or gas remaining in tank(s).
    3. Association dues.
    4. Sewer service charge.
  10. Inspections made of the property (normally incurred prior to closing) which may have been performed at the request of the buyer, pest, structural, radon, lead based paint, well, septic, etc.
  11. Private Mortgage Insurance (PMI) if financing more than 80%. Tax escrow, if necessary.

Greenwich Real Estate - Selling A Home - Greenwich Homes For Sale At Inside GreenwichRealEstate.Com

SELLING A HOME:


1. Selecting a REALTOR:
Choosing a REALTOR is the first step in the home selling process. The selection of a REALTOR in a community like Greenwich is made easier by the presence of the Greenwich Multiple Listing Service. Almost every real estate agent in the community is a member of the Greenwich MLS, giving each REALTOR access to all properties listed in the MLS. You could start the search by asking your friends or your attorney to recommend a good candidate for you. Although a Real Estate company's reputation is important, your relationship will be with the Agent himself/herself. The REALTOR you choose should be a full time agent with broad experience and total knowledge of the market.


2. Preparing Your Home for Sale:
Everything in your home needs to be looked at through the "eyes" of the buyer. Your REALTOR should be able to help you with this. They will suggest things to be done to the property to ensure the highest price, such as painting (interior and exterior), removing valuable objects and "decluttering", having the windows washed, gutters cleaned and making other minor repairs that may be necessary. You should expect your Agent to be very frank with you about what your home may need to facilitate a timely sale.


3. Documents and Marketing Program:
Once you select a REALTOR you will be requested to sign a listing contract, a Greenwich MLS data input form, a State of Connecticut "Residential Property Condition Disclosure Form", and a U.S. Environmental Protection Agency Disclosure Form regarding lead based paint hazards (for properties built prior to 1978). Your Agent will review these documents with you, and if you care to seek legal advice, then do so before signing. Selling your house is disruptive and can be intrusive into your every day life, but your agent will work hard to minimize this.


4. Broker Open House:
The listing REALTOR of your property will schedule an Open House for the other REALTORS who are members of the Greenwich MLS so they may preview it. This helps REALTORS determine which of their customers might be interested in viewing your house. The Open House schedule in Greenwich is specific to certain times and sections of town allowing REALTORS to see as many Open Houses as possible in the given time frame. At the Open House the listing REALTOR will provide information, such as the listing itself and plot plans, and is available to answer questions about the properties.


5. Showing the Property:
The REALTOR will acquaint you with the various means by which a property can be shown. First, there is the installation of a keybox. This method allows the greatest access, because the only scheduling required is for the REALTOR showing the property to confirm with the homeowner that it is convenient to bring a prospective buyer over for a showing.

Somewhat more restrictive is the method by which the listing REALTOR alerts MLS members that a key to the property will be held at the listing office and a confirmed appointment would need to be made through the office.

The most restrictive method of showing is to require the listing REALTOR be present at the showing. This requires more scheduling between the homeowner, the listing REALTOR and the REALTOR who wishes to show the property to a client.


6. Considering an Offer:
When someone is interested in your property they will make an offer to purchase through their REALTOR. Your REALTOR will take you through this process. Some terms which may be included in the buyer's offer are:
  1. The offer price the buyer is willing to pay.
  2. The mortgage contingency requirements, amount of mortgage they are seeking and the date by which they will receive a written commitment removing the contingency.
  3. The closing date upon which Title and ownership of the property will be transferred to the buyer.
  4. A list of the inspection contingencies and when they will be lifted.
  5. Other contingencies (i.e. sale of home, etc.)
  6. Inclusions and/or exclusions of any "personal property" which may be a condition of the purchase.
  7. The date by which the contract will be signed and the buyer will provide 10% of the purchase price.
Once you and the buyer reach an agreement of the "terms and conditions" for the purchase, an "Offer to Purchase" is prepared by your REALTOR outlining the agreed upon terms. This document is then transmitted to the attorneys for buyer and seller.


7. The Contract Process:
The seller is responsible for having the attorney draw the Contract for Sale which will include the agreed terms and conditions. The buyer will normally be expected to submit an escrow check (made out to your attorney) with the signed contract, usually in the amount of ten percent of the total purchase price. The contract is typically a Greenwich Bar Association contract which will contain every detail and a schedule of inclusions and exclusions as agreed upon by both parties. The Seller Disclosure Form is also delivered as part of this package. After the buyers have signed the contract, it is returned to your attorney with the escrow check. Your attorney will then go over the contract with you and you will sign it.


8. Before Closing Day:
Near to the date of your closing the buyer's REALTOR and the buyer need to perform one last walk-through of the premises. Together they will ascertain that the property is in the condition it was when the Contract of Sale was signed. They will verify the items which were to be included are present. They will determine whether there are any defects visible now which were previously hidden. If any of these are found, you may need to be prepared to adjust for these costs at closing.


9. Closing Day:
You (or in your absence, your power-of-attorney) will attend the closing - primarily to sign appropriate documents and deliver checks for appropriate amounts. Between your REALTOR and your attorney you will be advised of all the costs and fees associated with your closing.


10. Costs Associated with Selling a Home:
Attorney's fee:
  1. Town of Greenwich Conveyance Tax ($2.50 per $1,000 of Sale Price). State of Connecticut Conveyance Tax ($5.00 per thousand up to $800,000 and $10.00 per thousand of $800,00).
  2. Survey Fee: If the property has not be surveyed, the Lender or Title Insurance Company may require a registered survey or plot plan showing the location of the dwelling(s) and the boundaries of the property, as well as easements and rights of way. This might fall on the seller's shoulders.
  3. Adjustment costs paid to the seller at closing (where applicable):
    1. Buyer's share of pre-paid property taxes.
    2. Heating Oil or Gas remaining in tank(s).
    3. Association Dues.
    4. Sewer Service Charge.