PRICE, CONDITION, LOCATION

Even in the midst of a hot real estate market, local agents and brokers say, buying and selling a home still depends on the same traditional factors

 

It’s so hot, brokers and agents say, that newly listed properties are inspiring bidding wars, cash offers and same-day sales. Buyers are being advised not to get their hearts set on their first choice — or even on their top five.

That’s certainly the case in close-in Northeast and Southeast Portland, anyway.

When Catherine Butler and her sisters recently put their longtime family home on the market, they received five offers for the bungalow located just off Southeast Division Street. Every offer was for more than the asking price, and each came with a personal letter from the prospective buyer. The Butlers sold their house for about $50,000 more than they had asked.

But for neighborhoods considered in real estate parlance to be “further-out Portland neighborhoods” — like Lake Oswego, West Linn and Wilsonville, for example — things get a little more complicated.

“There’s no comparison here to how frenzied that market is,” says Joe Menashe, managing principal broker at Realty Trust Group. “We’re still relatively tame.”

Tame, yes, but not tepid by any means.

The Portland Business Journal recently ranked Lake Oswego’s 97035 Zip code at No. 17 in its list of Portland’s 25 hottest neighborhoods for sales, with 174 homes sold in the second quarter of 2015. West Linn, grouped in with Lake Oswego in the 97068 Zip code, climbed to number 13, boasting 203 home sales. With 154 sales, Wilsonville’s 97070 Zip code made the list at number 23.

All three cities made strong showings on another of the Business Journal’s lists, too — Portland’s 25 most expensive neighborhoods, ranked by Zip code:

• With an average sale price of $710,489 in the second quarter of 2015, Lake Oswego’s 97034 neighborhoods nabbed the top spot;

• West Linn/Lake Oswego’s 97068 stood at No. 12, with an average sale price of $481,033;

• Lake Oswego’s 97035 was ranked No. 17, with an average sale price of $427,479;

• And at $410,350, Wilsonville’s 97070 area was right behind at No. 18.

The average sale price for all Portland-area homes in the second quarter, the Business Journal says: $357,899. That’s up 7.4 percent from the second quarter of 2014, according to the Standard & Poor’s/Case-Shiller home price index.

Those numbers are reflected in figures released this week by Guild Mortgage, which has three branches in the Lake Oswego area. The mortgage market is booming, the company says, especially in the Pacific Northwest, where its loan volume during the first half of 2015 increased by more than 123 percent over the same period in 2014.

Other local mortgage brokers report similar results.

“The job market has improved, so people are able to buy more expensive homes,” says Charles Nay, Guild’s Northwest regional manager. “Seattle and Portland have had excellent economic growth. Both are currently seller’s markets and real estate agents are seeing bidding wars on existing homes.”

For example, Harnish says, homes priced under $500,000 could be on the market for seven days or less, “as long as conditions are right.” Homes with million-dollar price tags are staying on the market longer, he says, some for 30-60 days or more.

And that’s as true in West Linn and Wilsonville as it is in Lake Oswego.

Supply and demand

In many respects, the local real estate market is being driven by the basic laws of supply and demand. Amy Bell, a realtor with Windermere Stellar, says there is currently only two and a half months’ worth of inventory in West Linn, for example.

“That’s quite low,” Bell says. “So right now, the average is about 7 days on the market. What I’m seeing is that if the home is properly prepared and priced right, it will go within days.”

Roger Arndt, a realtor with Windermere Bridgeport Realty Group, says low supply is driving the market in Wilsonville, too.

“If you look at under $300,000, there’s only four properties on the market,” Arndt says.

Part of the reason for the low supply is a dramatic shift away from new construction. Menashe says that before the economic downtown in the mid-2000s, half of the sales in the Portland metro area were new homes.

“The competition of new construction versus pre-owned homes really balanced the market a lot,” he says. “But now you don’t have that inventory of new-construction homes, so supply and demand is taking over. Demand is higher than the supply. That’s why we’re seeing the tri-county area increase so quickly in pricing.”

Lingering effects of the Great Recession are also playing a role, Menashe says.

“There’s a lot of things that have to recover,” he says. “One is consumer confidence. Another one is the tightening of credit. All these kinds of things are causing inventory to be low, because a seller is reluctant to put their home on the market if they don’t know where they’re going to go.

“In the meantime, he says, “we’re building up an enormous pool of buyers. And the inventory isn’t keeping up.”

Nevertheless, the basic rules of real estate still apply and location continues to play a big role in the market, according to Menashe, who says there is at least one part of Lake Oswego that’s “performing like Mt. Tabor and Hawthorne.”

“In First Addition, there are multiple offers,” he says. “And it’s not days on the market — it’s hours on the market.

“It is kind of a unique neighborhood in Lake Oswego,” Menashe explains. “It has a very high walk score, so people can walk to shopping and restaurants. It’s similar to Irvington or Hawthorne in that it’s a little bit of a lifestyle purchase. So we’re seeing a lot of people buy properties in First Addition and remodel them and flip them, because there’s a high demand to be in this area.”

Other Realtors second the notion that lifestyle can’t be discounted as a motivating force.

“I tell people that if they build a Starbucks down the street, your house goes up by $10,000,” says Marcia Kies, principal broker at The Hasson Company.

In general, though, most Lake Oswego realtors say they don’t run into multiple offers on every listing — although they are hardly unheard of.

“Where we’re seeing multiple-offer situations is in the lower price categories, or for homes that are priced well in a great location in good condition,” Harnish says. “That’s where the market will react to it. To see multiple offers, (a property) still needs to fit the criteria. You want those three factors: price, condition, location.”

It’s common for Menashe and his agents to recommend that buyers interested in a property likely to have multiple offers consider submitting a backup offer.

“It’s a good strategy right now, because of the pressure buyers are feeling to write offers over the asking price,” he explains. “Because of that, there’s a lot of buyers remorse that can happen, and we’re seeing a high incidence of withdrawn offers.”

It’s another byproduct of low inventory and high demand, Menashe says.

“It’s kind of like when you’re bidding at an auction — that same kind of feeling, like, ‘Gee, did I bid too high?’ After a while, getting the house is more important than what you’re paying for it.”

Harnish agrees.

”Buyers are emotional no matter what,” he says. “A real estate purchase, unless it’s an investment, has got a lot of emotion to it. The market is dictating a sort of feverish mentality.”

Getting creative

That mentality has convinced some buyers that they need to do something out of the ordinary to make their offer stand out.

“There are strategies,” Menashe says. “Sometimes it works, sometimes it doesn’t, but there are ways to kind of craft your offers so they can be a little bit more appealing for a seller. We’re definitely finding buyers are starting to get a little bit more creative.”

Menashe shares one of his agents’ more unusual stories:

“A buyer noticed that the seller had pictures of a dog in the house,” he recalls. “He learned from the listing agent that the dog had been put down recently, and by coincidence, the buyer had the same breed.

“Now, buyers who write letters to the seller aren’t unusual,” Menashe continues, “but this letter was different. This letter was written from the perspective of the buyer’s dog. And the dog was saying what a great yard it was, how he sees himself frolicking in this yard, and how he just really would love to call this house his home. The seller bought it hook, line and sinker, and accepted the offer.

“There’s a lot of creativity coming out of this market,” Menashe says.

Some of that imaginative thinking might be the result of a market that is seeing a huge infusion of cash offers, leaving the more traditional buyers — those who will be depending on mortgages — with the sense that they’re playing on an uneven field.

“A lot of cash has been injected into the market, at every level,” Harnish says. “The economy’s better, the stock market’s strong, people may have just sold their home for more and are cashing in on a downsize. Rates are still low, but the theory of taking advantage of that is being thrown out the window.

“It’s been interesting,” he says.

To a degree, buyers’ new-found creativity often depends on how much risk they can absorb, Harnish says.

“Maybe for a very competitive property, the buyer says, ‘I want to just waive that right to rescind my offer based on the seller’s property disclosure,’” Harnish says, “thereby waiving their five-day grace period. It’s riskier, but it puts the buyer in a better position.”

Another option is working with the seller as they relocate.

“Maybe you know the seller doesn’t know where they’re going, and rather than having a typical closing date, maybe the buyer gives the seller an additional month to live in the house at no cost,” he says.

Arndt says his office has increasingly been considering advising buyers to use “escalation clauses.”

“That’s a strategy now that’s coming into play that basically says ‘I will offer you $2,000 more than your highest offer up until this point,’” he explains. “The difficult thing there is you’d better be sure you qualify for that.”

Although the need for increased ingenuity can make a realtor’s job more interesting, not everyone is happy with the perceived power imbalance between buyer and seller.

“There was a time you could leave a negotiating gap that was lighter than it is now,” Kies says. “I don’t like one-way streets. I like where buyers and sellers have to be a bit more polite to each other.”

How long will it last?

Amid all the tales of a real estate feeding frenzy, however, is this truth: Not every seller has a success story to tell.

“People think, ‘Oh, my house hasn’t sold in a couple weeks, there must be something wrong with it,’” Kies says. “No. There are all these things going on. Some of it’s just human nature.”

Some of it might be the increasing number of homes coming on the market on a regular basis, she says. And some of it might simply be due to the time of year.

“It’s funny, it seems like since the beginning of August things have slowed down immensely,” says Chris Schetky, a broker at Windermere Cronin & Caplan who represents Lake Oswego properties. “Historically, that’s probably what happens. It just seems like between vacation in August and school starting back up in September, this time of year tends to be a bit slower. But it was crazy before that.”

Kies agrees. “I’ve always seen a few more price reductions in August,” she says.

Whether this is a normal seasonal trend or a sign of a slowing market remains to be seen, Menashe admits.

“The question is, will the appreciation rate start to slow down?” he says. “Will there be another bubble? These are the only things we don’t know right now. What we do know is that it looks like this market will be with us for probably another 12 months.”