Elyse Umlauf-Garneau is a Chicago-based freelance writer and former senior editor with REALTOR® Magazine.
Ways to Deal With Affordability Challenges
Expensive markets present big problems for buyers. Here's how some real estate professionals have helped their clients become home owners, despite high prices.
March 1, 2006
With escalating housing prices during the housing boom of the last few years, there’s no bigger challenge in some real estate markets than affordability — or lack thereof.
The issue is the most apparent in California, where average home prices in some cities top $1 million.
Practitioners who work in high-priced markets need to find innovative solutions and funding alternatives to help get clients into homes. Here are some tips from real estate professionals who have overcome such hurdles with their buyers:
- Come on strong. In recent years, many practitioners have become adept at contending with affordability problems and multiple offers. The key is to present the strongest offer at the best price, solid financing in place, and no contingencies, if possible, says Wendy Furth, ABR®, CRS®, a broker with RE/MAX Olson & Associates in Northridge, Calif.
- Escalate the issue. Although not legal in all states, escalation clauses have been an important tool to JoAnne Poole’s clients vying with other bidders for affordable homes. Essentially, the clause tells sellers that if they receive an offer that meets or beats your client’s offer, the offer can be increased in increments ($2,000, for example, and capped at a certain dollar amount) if the seller receives higher offers. “Offering sellers price increases to net them more than other contracts makes the buyers’ offer stand out,” says Poole, CRS®, PMN, broker-owner of Poole Realty in Glen Burnie, Md., and the 2005 president of the Maryland Association of REALTORS®.
- Find alternatives. For buyers facing an affordability crisis, Furth often suggests they consider modular homes. Many communities have gone upscale and feature tennis, golf, and other amenities. “They’re a creative solution, Furth says. “Buyers build equity and gain tax write-offs.” One drawback of most modular homes is that you’re typically buying the home and not the land underneath it. But Furth says these homes are still an asset that’s likely to appreciate and can be a stepping-stone to move up to another home in the future. House-rich, cash-poor seniors also can benefit, especially if they’re selling their existing home at a profit and paying cash for a modular home.
- Get help. You can give your buyers an edge by staying abreast of housing assistance programs. Many local REALTOR® associations in California, for instance, offer buyer-assistance programs. Also, corporations frequently help employees, and special mortgages are available to police officers, firefighters, and teachers in some places.
Tim Muetterties, broker-owner of Realty World Muetterties & Associates in Arnold, Calif., refers clients to the Calaveras County Housing Assistance Fund administered by his local REALTOR® association. The program, part of a statewide assistance program, helps buyers with down payment and closing costs.
At listing appointments with sellers of affordable properties, Muetterties discusses the program and asks sellers to consider giving HAF participants first dibs on the property. His office has executed two such deals. “It may prevent sellers from getting a few thousand dollars in an overbidding situation [bidding over asking price], but some people are understanding and want to help,” he says.
In Florida, where affordability challenges are increasing, Sherrill Danielson, GRI, a broker with ABC Realty of Ocala in Ocala, Fla., maintains an up-to-date portfolio of homebuyer-assistance programs and even tracks Habitat for Humanity programs that allow qualified prospects to use sweat equity to get a home. “If you have that information on hand, you’re ahead of the game,” she says.
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