With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL
In this week’s Real Estate Roundup with noted real estate agent, Terry Story, a 31-year veteran with Keller Williams Realty, Steve and Terry discussed the projected future housing supply and demand situation and also talked about how to handle some potential problems that may confront either buyers or sellers.
Future Housing Supply And Demand
Steve asked Terry to repeat some numbers on housing supply they’d discussed in a previous conversation about how the aging baby boomer generation is likely to affect the available housing inventory. Terry stated, “From 2007 to 2017, roughly 730,000 homes were put on the market—per year—by seniors over the age of 60. Now from 2017 to 2027, we’re expecting 920,000 per year, and then from 2027 to 2037, the projection is 1.17 million homes being put on the market each year.”
Steve observed that would represent a 20-30% increase in the number of homes available per year and noted that should solve the current problem of a rather tight housing inventory. Of course, the potential effect on home prices is always dependent on how the available supply matches up with demand. Steve reminded listeners that Florida’s population continues to grow, with the number of new people moving to the state each year roughly equal to the population of the city of Orlando. He stated, “So, if demand continues, then prices will stay firm, even as these new homes become available. However, if you’re in a marketplace where the population experiences a net reduction, then that could put pressure on prices.”
Dealing With Problems—Buyers And Sellers
Steve next turned the conversation to potential problems that either buyers or sellers can run into. He posed a hypothetical question to Terry: “The contract is written and then there is a gap between that time and the actual closing date, and inspections take place and so on. Here’s the question. Is it okay for the buyer to move in before closing? You’re the seller, they need a place to stay, and you want to be a nice guy.” Terry’s answer was categorically, “No.” The reason behind her answer is that there are just too many things that can go wrong. For example, what if something breaks before the closing date? Whose responsibility is it? Another potential problem is buyer’s remorse. The buyers move in and then decide they can’t live with the barking dog next door and want out of the deal.
There are potential legal issues as well. Terry explained, “Technically, if you think about it, with a pre-occupancy, you’re a tenant. So, you really should have tenant insurance, and the owner needs to switch their policy to a landlord policy.” She also offered one real-life nightmare experience from letting the buyer move in early. “You get very ambitious buyers that just moved in the house and they want to do renovations, even though you haven’t closed yet. They decide they’re going to rip out the kitchen. This is a true story. It happened to me. Of course, you know the worst happened—their financing fell through.” The bottom line for sellers is: No matter how much you want to be a nice guy, don’t allow your buyer to move in before closing.
Steve posed another question to Terry, one about a potential problem for a buyer. “Let’s say you’ve signed a contract to buy a new construction condo unit. You’ve made all the required deposits and are six months from closing. Then you suddenly find out that you have to relocate for your job. What can you do?” Terry’s answer was, “Here’s the bottom line. You have a contract. That’s the key word, and you have to abide by the contract and what it says. Now, in this particular scenario, you’re thinking you could somehow get out of it. But I can tell you from experience that builder’s contracts don’t have exit strategies. The only exit strategy I can see would be to go back to the builder, talk to him and see if there’s any empathy there.
If the value of the condos has risen significantly and he feels quite strongly he could quickly resell it, maybe he will allow you out.” She also noted that if that’s the case, that the value of the condo has significantly increased, then the buyer may just want to sell it themselves and pocket the profit, although, of course, they can’t do that until after they’ve actually closed on the property. Steve made the clarifying note that there’s no way for the buyer to sell or assign to someone else the contract to buy. He also noted that if the builder is willing to let you out of the contract, you should make sure he’s not charging you any out fees.
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Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 31-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: Always nice to have you in the studio.
Terry Story: Thank you.
Steve Pomeranz: Okay. Last week, we were talking about baby boomers aging out, as they say.
Terry Story: Yep, aging out. That’s the way they put it.
Steve Pomeranz: Aging out. Okay. So we have always talked about how difficult it is, how there is not enough inventory versus the demand. But as the baby boomers do get older, there’s going to be more supply, and we quoted some facts, statistics, and projections last week. Let’s re-quote those really quickly so we can get on with the conversation. Go ahead.
Terry Story: So 2007 to 2017, roughly 730,000 homes were put on the market by seniors over the age of 60.
Steve Pomeranz: Okay.
Terry Story: Now from 2017 to 2027, we’re expecting 920,000.
Steve Pomeranz: That’s per year.
Terry Story: Per year, per year. And then from 2027 to 2037, projection of 1.17 million.
Steve Pomeranz: So those are like 20 to 30% increases, basically, in the amount of available homes per year.
Terry Story: Per year.
Steve Pomeranz: That’s a lot.
Terry Story: Correct.
Steve Pomeranz: Okay, so that’s probably going to relieve the inventory problem.
Terry Story: Right.
Steve Pomeranz: But it also has meaning for home prices.
Terry Story: Absolutely it does.
Steve Pomeranz: That’s what I want to get to this week that we didn’t get to last week.
Terry Story: Sure.
Steve Pomeranz: So we live in South Florida. We live in Florida, and for the most part, we have net new people moving down into this state every single month.
Terry Story: Right.
Steve Pomeranz: It’s a lot of people right now, too. Oh, you know what it is? It’s the size of the city of Orlando every year.
Terry Story: Wow. Okay.
Steve Pomeranz: That’s a statistic I remember.
Terry Story: We need more people to expire.
Steve Pomeranz: Easy, girl. Okay.
Terry Story: I need more listings.
Steve Pomeranz: Always selling at any cost. Yeah. So if demand continues, then prices will stay firm, even as these new homes become available. However, if you’re in a marketplace where population experiences a net reduction, then that could put pressure on prices.
Terry Story: That’s correct.
Steve Pomeranz: Yeah.
Terry Story: So prices would fall.
Steve Pomeranz: Yeah. So you have to kind of take a look. So if we were in the rust belt, for example, where people are not moving to-
Terry Story: Right.
Steve Pomeranz: Well, maybe by 2020-
Terry Story: Maybe 2037.
Steve Pomeranz: 2037, they will. Who knows? But it’s Florida and Arizona is probably a pretty good case that people will still be searching out the sunshine unless we have tropical conditions.
Terry Story: Right, unless we have these flood problems that are projected due to climate change and more like Venice.
Steve Pomeranz: Yeah. And also unless the mid-Atlantic becomes tropical or sub-tropical like Florida.
Terry Story: Or an asteroid hits Florida.
Steve Pomeranz: I guess we’re done with this conversation. All right, let’s move on. So I love these, The Real Estate Survival Guide, and I know we’ve talked about this subject before, but I wanted to repeat it and do it again. So I mean, you’re doing this on a day-to-day basis. So you experience the contract being written and then there is a gap between that time and the actual closing date, and inspections take place and so on. So here’s the question. Is it okay for a buyer to move in before closing? If you’re a seller, they need to have a place to stay. You want to be a nice guy.
Terry Story: [crosstalk 00:03:44] Yeah.
Steve Pomeranz: Tell me about that.
Terry Story: Nice guys always lose out. So there’s so many variables and reasons why you shouldn’t. First of all, something breaks. Who broke it? Who’s responsible?
Steve Pomeranz: The seller or the move in person.
Terry Story: The person who moved in or the owner because technically the owner still owns the property. So, for example, if the sink starts-
Steve Pomeranz: Yeah, leaking.
Terry Story: … leaking.
Steve Pomeranz: Did you break the sink? Did you-
Terry Story: Did you break the sink? Right. So that can get ugly, and liability. Who’s taking on the liability? So technically, if you think about it, a pre-occupancy, you’re a tenant. So you really should have tenant insurance, and the owner needs to switch his policy to landlord policy. These things are real and things do happen.
Steve Pomeranz: Okay.
Terry Story: “I didn’t notice that before.”
Steve Pomeranz: Oh, those are the-
Terry Story: “Oh, I didn’t notice that.”
Steve Pomeranz: That the pool was cracked.
Terry Story: That the pool was cracked, or, “Wow, I didn’t realize,” and this is a real one on a rental, “I didn’t realize that the third bedroom didn’t have a closet.”
Steve Pomeranz: Oh.
Terry Story: I’m like, “Really?”
Steve Pomeranz: Oh, boy.
Terry Story: You were in the house three times and you didn’t notice? These are real.
Steve Pomeranz: Those have got to be the worst five words that a realtor, “I didn’t notice this before.” When you hear that, the blood must just kind of drain from your head.
Terry Story: Oh, and then you get very ambitious buyers that just moved in the house and they want to do renovations, so you haven’t closed yet. You don’t have the money and they decide they’re going to rip out the kitchen. Again, true story. It’s happened to me. And guess what? Of course, you know the worst happened.
Steve Pomeranz: What’s that?
Terry Story: They were denied finance.
Steve Pomeranz: The loan falls through.
Terry Story: The loan falls through.
Steve Pomeranz: Now what?
Terry Story: Now what? Oh, big trouble.
Steve Pomeranz: Wow. That is big trouble.
Terry Story: I mean, we were able to go to another lender and make it work. But can you imagine? Your house now doesn’t have a kitchen?
Steve Pomeranz: No. Also, buyer’s remorse.
Terry Story: Very true.
Steve Pomeranz: I mean, that’s a very simple … Do you experience … do you see that a lot?
Terry Story: Absolutely. “I didn’t know the neighbor’s dog behind me barks all night. I can’t live with this.”
Steve Pomeranz: Or, “I’ve been here a week now and these ceilings are just too low.”
Terry Story: Oh, yes. This is another common one. “I’m on the first-floor condo and the person above me walks all night and they walk like an elephant and I can hear them. I can’t sleep.”
Steve Pomeranz: Okay, so would you say categorically not a good idea?
Terry Story: Please don’t do it.
Steve Pomeranz: Don’t do it. Period. Just put the hammer down and say, “I’m sorry. I can’t allow that to happen.” Okay, here’s a real estate question, too. “Several years ago I signed a contract to buy a new construction condo unit. I have made all the required deposits and we are six months from closing. I just found out I have to relocate for my job. What can I do?”
Terry Story: Here’s the bottom line. You have a contract. That was the key word, and you have to abide by the contract and what it says. Now, in this particular scenario, he’s thinking he could somehow get out of it. I can tell you from experience that builder’s contracts don’t have exit strategies.
Steve Pomeranz: Right.
Terry Story: Now, the only exit strategy I can see for this person would be go back to the builder, talk to him, see if there’s any empathy there. If the value of the condos have risen significantly and he feels quite strongly he could resell it real quick, maybe he will allow you out.
Steve Pomeranz: So it’s a financial decision on the contractor’s part.
Terry Story: The builder’s.
Steve Pomeranz: Or the builder’s part, the builder’s part. And that is, “Look, no.”
Terry Story: The answer is no.
Steve Pomeranz: The answer is no. You can’t sell the contract to anyone and most of these-
Terry Story: You can’t assign it.
Steve Pomeranz: Right. And you can’t assign it as you’re saying. So you’re basically stuck. However, if the price has risen and the builder can resell a new contract for-
Terry Story: A lot of money.
Steve Pomeranz: … a lot more money, it would be worth it to them. But I would say in that case, if that’s true, make sure-
Terry Story: You should sell it yourself. Take the profit.
Steve Pomeranz: Well, can you-
Terry Story: Well, no you can’t-
Steve Pomeranz: You can’t.
Terry Story: … because you’ve got six more months [crosstalk 00:07:48].
Steve Pomeranz: No, no, but what you should do is make sure that he doesn’t charge you any out fees. You go, “You know what? You’re making a nice profit on this. Just I’m getting out even here.”
Terry Story: Right.
Steve Pomeranz: Okay. Very good. My guest, as always, is Terry Story, 31-year veteran with Keller Williams located in Boca Raton, and she can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.