Fredericksburg Texas

Offers of “seller financing” (a/k/a owner financing) have been popping up more and more in ads listing Fredericksburg, TX real estate for sale.  What can this mean for a  buyer or seller?

For a seller, it is a way to differentiate your offering to the buying public.  While it can often be interpreted as a “hint” that you are “motivated” (not always a good card to play), in today’s challenging market, who cares!  If you weren’t “motivated” your property wouldn’t be on the market in the first place.

Savvy seller’s have learned that an offer to finance a buyer’s purchase of your property can be a nice way to bank some cash (down payment), receive a pretty good return on your investment (the interest rate charged) and retain the possibility of regaining ownership of that property in the event a buyer defaults on the note.  The keys, of course are the creditworthiness of the buyer and the negotiated down payment (generally 20% or more) and the interest rate (typically, slightly higher than published mortgage rates).

Of course, a creditworthy buyer will compare your terms to that they might receive from a financial institution.  It is likely that (all things being equal) they will opt for bank financing.  In the current lending environment, however, potential buyers with available cash and “decent” credit (i.e. not “sterling credit”) may not have the option of shopping around for financing.

The questions a seller must ask when considering this are:  Do I need 100% of my cash now?  What will I do with that cash if I get it all now?  Do I have a mortgage to pay off?  Will a buyer’s down-payment pay off my current mortgage? What kinds of competing returns can I receive on my funds?

The bottom line for seller’s is that the option to provide financing to a potential buyer sets you apart from the competition, expands your pool of potential buyers and allows you options on handling your sales proceeds.

 A buyer considering negotiating for seller financing faces many questions.  First and foremost is whether or not the financing offered is competitive with other, more traditional, lenders.  Be sure to factor in fees, points and all the other miscellaneous fees lenders charge when comparing the bottom line. ( e.g. a seller typically won’t charge an “origination fee” so common to “traditional” lenders).  The savings can be significant.

As noted, a buyer today with less than perfect credit often will not qualify for the low rates advertised (without paying substantial “buy-down” points, etc.) and seller financing may be a very legitimate (or only) option.

Flexibility and creativity are keys in selling (and buying) real estate in our current market.  Fredericksburg, TX is no different.  Be sure you work with an agent that is familiar with the ins and outs of all aspects of these important transactions.

The information presented below is complied from data sourced via the Gillespie County Multiple Listing Service.  The tracking historical sales data is grouped into categories that include:  ”Residential”, “Rural Subdivision Lots/Tracts”, Acreage, Farm/Ranch” and “City Lots”.  These categories are further defined by “area” (e.g. in town, out-of-town/county).



While it can be difficult to portrait a true “apples to apples” picture of current real estate sales, the numbers speak for themselves as categorized.  A lot can be read “between the lines” when discussing these figures, if you would like more detailed information on these summary comparisons, feel free to contact me at your convenience.

1st Quarter-2009

·      Residential-City (Fredericksburg, TX) -  The total number of homes sold in the 1st quarter of 2009 declined 32.3% from sales reported in the 1st quarter of 2008 (31 in ‘08 and 21 in ‘09). The average price of a sold property declined 22.26% ($254,144 in ‘08 vs. $197,562 in ‘09) and the average number of days-on-market (DOM) has increased an average of 16% (174 in 1st qtr. 2008 vs. the current 202 days). The total dollar volume of homes sold declined 47.34%. Notably, the average list price to sale price ratio (LP/SP) has remained statistically unchanged.

·      Residential-County (Gillespie) - The total number of homes (w/acreage) sold in the 1st quarter of 2009 declined 68.75% from the sales reported in the 1st quarter of 2008 (16 in ‘08 vs. 5 in ‘09).  The average price of a sold property declined 28.15% ($301,031 in ‘08 vs. $216,300 in ‘09) and the average number of DOM has increased 25.3% (229 in ‘08 to 287 in ‘09).  The total dollar volume of homes sold has declined 77.55%. Notably, the average LP/SP ratio has remained statistically unchanged (93% vs. 93%).

·      Lots-City (Fredericksburg, TX) - The total number of lots sold in the 1st quarter of 2009 declined 82.35% from the sales reported in the 1st quarter of 2008 (17 in ‘08 vs. 3 in ‘09).  The average price of a sold lot declined 69.22% ($91,679 in ‘08 vs. $28,217 in ‘09) and the average DOM has decreased 70.6% (255 in ‘08 vs. 75 in ‘09).  The total dollar volume of lots sold has decreased 94.6%. Notably, the average LP/SP ratio has decreased  by 4.3%.


Note: these figures can be slightly misleading as the volume sold so far in 2009 is statistically insignificant and not readily comparable to 2008 volume. 

·      Rural Subdivision Lots/Tracts - The total number of acreage lots sold in the 1st quarter of 2009 declined 71.4% (28 in ‘08 vs. 8 in ‘09).  The average price of a sold acreage lot declined 26% ($171,702 in ‘08 vs. $126,925 in ‘09) and the average DOM was statistically unchanged.  The total dollar volume of acreage lots sold declined 78.87%.  Notably, the average LP/SP ratio has decreased by 3.37%.

·      Acreage, Farm/Ranch (All MLS Counties) - The total number of properties categorized as Farm/Ranch sold in the 1st quarter of 2009 declined 58.82% (34 in ‘08 vs. 14 in ‘09).  Average prices and DOM tend to be less significant in this category as the properties offered and sold vary tremendously. Most notably, total sales volume has decreased by 61.41% from 1st quarter 2008 vs. 1st quarter 2009.

Amid the primarily bleak news continuing to pour forth about the state of our economy, we are beginning to see glimpses of ‘good” news that could herald the stirrings of a recovery.  Oops, hold on.  Scratch that.

News reports today are that the recession is catching up with Texas and that more “pain” is forecast.  Economists are predicting that unemployment could rise to as high as 8% statewide.  Gillespie County is reporting record high unemployment (a relatively respectable 4.3%) and all sales indicators for Fredericksburg TX real estate continue to give heartburn to people like me.

Of course, these are the same economists that utterly failed to “predict” the current mess we find ourselves in so I tend to take all their current predictions with a grain of salt.  These folks are about as reliable as weather forecasters in my opinion.  I have learned to go with what I see first-hand.

I’ll spare you the frightful statistics on sales, price reductions, etc. and simply say that it is a terrible time to be a seller of real estate but a pretty good time to be a buyer.  Financing is available, tax incentives are huge (for 1^st time buyers, anyway), sellers are “motivated” and inventory is plentiful.

Be forewarned; however, that agents all over town are psyching their sellers up for the “selling season”, that “traditional” time it is believed that the market is strongest (March to mid-summer).  I predict that the pace of price reductions will slow noticeably as false hopes are re-infused into the Fredericksburg market and sellers are encouraged to “hold tight”.

Being the contrarian, I would opine that now is the best time to put your best price forward, to jump ahead of all the other competing properties.  Arguably, “the season” does bring out more buyers and today’s buyers are incentivized in ways they haven’t been before (e.g. low interest rates, fear of other investment vehicles, tax credits, etc.) so why not take advantage of that as a seller?

Buyers in this market are all about “deals”, perceived or otherwise.  If you truly want to sell, you have to stand out.  Standing out today is all about price, price and price. The buyers are there, you just have to get them off the fence.

Buyers, you will be lured off that fence in various ways so be patient, but be ready.

Real estate has always been a great hedge against inflation and other economic woes.  While real estate may have led us into the current mess, it is also what will lead us out of it.  Values in Gillespie County/Fredericksburg, TX/the Hill Country have held up very well (thank you very much) and should be seen as a sign of the inherent and unchanging desirability of our little corner of the world.

With year-to-date Fredericksburg, TX real estate sales falling so far below the same figures from this time last year, it is interesting to note the “buzz” being proclaimed about the number and pace of price reductions on listed properties.

I continually hear from clients, etc. that prices must finally be falling as so many listings are being touted as “REDUCED”.  Is a price reduction truly relevant if the property was, a) overpriced to begin with, and b) still over-priced?

While many agents were quick to begin suggesting more realistic pricing for their clients, a lot of sellers have resisted the advice and insisted on prices that do not accurately account for current market conditions.

Less informed (or less scrupulous) agents will happily accept a listing at an unrealistic price just to “have the business”.  Hidden is their assumption (hope) that they can subsequently have the seller lower the price over the term of the listing.

When an agent suggesting realistic prices competes for a listing with an agent suggesting less realistic pricing the “realistic agent” must fight the urge to “get the business” and tell a client what they want to hear to do so.  If, against their better judgment, they give-in and secure an unrealistically priced listing, everyone loses.

The agents lose because they then face the cost of advertising a property that won’t sell (as priced) and the sellers..well, you know.  Taking it further, an agent will logically focus their best efforts on listing that will actually sell and the natural tendency is to “forget about” the overpriced one. The disservice this provides a seller is truly unethical.

So, back to the price reductions.  We’ve seen over 200 so far this year (compared to about 35 or so this time last year).  Does a drop in “price” equate to a drop in “value”?  Remember folks, it’s all relative.

Let’s say, for example that I feel my home is worth $1,000,000 and I list it at that price.  The property tax folks may have it valued at $600,000 and my neighbor just sold a house very comparable to mine for $700,000. If I “REDUCE” my price to $950,000 is that really relevant to “market value”?  Hardly.

While a $50,000 price reduction may sound awfully good, if the home was over-priced to begin with, it’s really not that big of a deal.  Always remember, “market value” is defined as:

“The most probable price which a property should bring a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.  Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated: (2) both parties are well informed advised, and each acting in what he considers his own best interest: (3) a reasonable time is allowed for exposure in the open market: (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property unaffected by special or creative financing or sales concessions* by anyone associated with the sale.”-National Residential Appraisal Institute

In other words, a property is worth what some is willing to pay for it AND what someone is willing to sell it for. 

I’ve posted before on pricing in a down market (e.g get ahead of falling prices and you’ll be noticed first by the most buyers) and, let’s face it, the Fredericksburg, TX real estate market, while (relatively) healthy is in a “correction”.  Sellers shouldn’t be fooled in to pricing that ignores that reality.

Here are six things that buyers of Fredericksburg TX real estate need to know about the freshly enacted $8,000 first-time home-buyer tax credit that is a part of the $787 billion stimulus bill that President Obama signed into law Tuesday, 2/17/09:

1. Eight grand, new buyers: The tax credit included in the economic stimulus legislation is much narrower than the $15,000 credit previously proposed.  The approved credit is equivalent to 10 percent of the purchase price of the home–although it’s capped at $8,000–and applies only to first-time homebuyers and principal residences. But unlike an earlier $7,500 homebuyer tax credit, this one does not have to be repaid.

2. First time buyers defined: For the purpose of this legislation, a “first-time home buyer” is someone who hasn’t owned a principal residence for three years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you’ve owned a vacation home–but not a principal residence–within the past three years, you would still qualify for the credit.

3. 2009 buyers only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won’t be able to take advantage of it.

4. Income limits: The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit, that’s $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.

5. Refundable: Because the tax credit is “refundable,” qualified buyers can take advantage of it even if they don’t have much tax liability.

6. Recapture: Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, such as death or divorce.)

More “stimulus” for the real estate market is being outlined daily.  Apparently, on March 4, we will have more details on what types of mortgage, bankruptcy and foreclosure relief is planned with the goal of jump-starting the economy.

After just over a year of finally arriving into the 1980’s and instituting a key lockbox system for use by Fredericksburg, TX realtors, this grand experiment appears on the verge of failure. Readers may be surprise, shocked, humored or indifferent to learn that real estate practitioners in our fine community stubbornly adhere to an antiquated, inefficient and (borderline) reckless method of storing and distributing the keys necessary to facilitate the showing of real property listed for sale in Fredericksburg, TX.

To avoid the potential liability of revealing too much on how keys of listed property are stored, logged, tagged, distributed and/or collected, suffice to say that the stubborn reluctance to recognize the liability inherent with the various haphazard systems of key management employed by local offices would send any risk manager worth his salt into a major tailspin.

Having failed to make any progress with the “liability argument” much has been debated about the “efficiency argument” that holds in wonder a group of professionals who fail to place a value on the time it takes them to wander from office to office picking up and dropping off keys (not to mention the cost of the gas to do so), looking for keys that someone failed to turn in, etc.  Isn’t your time, effort and frustration worth anything to you? What is this saying to your clients?

Failure on the liability and efficiency fronts turns us to the “leadership argument”.  Agents dropping the system cite spotty usage as one reason they are opting out of efficiency (in favor, as it were, of liability and inefficiency).  Our Board of Directors and Officers have within their power the ability to mandate usage of this system. They apparently prefer to build “consensus” and play politics rather than actually lead and make decisions that will protect the entire membership (despite themselves).

The failure to recognize liability, efficiency and/or leadership leaves us nothing left to play except, perhaps, for the “cost argument”.  Agents opting out of the system cite “cost” as a concern (along with the aforementioned lack of universal implementation).  We’re talking about $180/year per agent.  That works out to about $0.50 per day per agent.  Are they really saying they can’t see the wisdom in spending $0.50 per day to make themselves more efficient and to protect themselves and their loved ones from unspeakable liability?  Really?

When times are tough, people have a tendency to cut back on what they may deem to be “luxuries”.  Is a system that boosts efficiency and reduces liability a luxury?  Hardly.  Is $180/year going to break your bank?  Do the math folks.  Add up your time and the cost of your gas and multiply it by the number of times you show property in Fredericksburg, TX.  $0.50 per day…really??!!

Be on the lookout for a curious phenomenon to occur as 2009 progresses in Fredericksburg, TX.  As the economy stalls and leaders in Washington (and elsewhere) look for ways to stimulate both the housing markets and the overall economy, jobs will continue to be shed in the industries we’ve been hearing so much about.  What will become of the workers unfortunate enough to have been put out on the street as a result of these difficult times?

If history is any guide (and it usually is) a significant number of these folks will opt in try their hand at real estate.  The scandalously low barriers to entry in our profession make it all too easy for those scrambling to make ends meet (or those simply looking for a change) pick real estate as a target.  After all, how hard can it be?

Everyone knows a realtor (or 20) and most are easily seduced by the seemingly easy way we are all perceived to make the big bucks.  My hope is that those considering following this “easy money” will do a little homework before they get into a business that is a lot harder than it looks. They will be surprised and will perhaps have missed an opportunity to pursue something that may have been more to their liking.

The lure of being “self-employed” has its obvious temptations but it also carries the sobering reality of complete and total self-reliance. Not everyone’s personality and family/financial situation can bear the strains of no steady paycheck, no employer funded retirement, no paid vacations or sick days, etc.

For a myriad of reasons, folks seem to think that if all else fails, they’ll try real estate.  Again, how hard can it be?  I would ask any buyer or seller of property, however, if that is the attitude they want representing their (likely) most valuable asset.

Do you call the plumber fresh out of plumbers school out to diagnose and fix your pipes?  Do you want to be your surgeons very first quadruple bypass?  People look to experience in all things and should logically do so with real estate, but do they?  In many, many case the answer is (illogically) no.

The recent “boom” years in Fredericksburg, TX real estate saw the membership roles of our local board of realtors swell to a number that was roughly equal to having one realtor in membership for every one deal that was consummated.  With those numbers, who is getting rich?  Granted, as in most businesses, the top 20% of agents did 80% of the deals but how do you, the consumer, the buyer or the seller, identify the experienced and qualified agents?

Given that the growth in the heady times could have resulted from the lure of “easy money”, could my prediction of the growth in the number of rookie agents swarming to town in the “tough times” make any sense?  If you believe the media that economic recovery will have to begin with the housing markets and that any “stimulus packages” will be throwing vast amounts of money in that direction and for that result, then you can see why those looking for “change” may opt to find it in real estate. So, do you go with the rookie or with the pro?

Despite the plethora of bad economic news, 2008 saw real estate in Fredericksburg TX hold its own pretty well, proof that real estate markets are “local”.  This means that “national economic trends”  “U.S. Housing Statistics”, the “Case/Schiller Index”, etc. are composites of what may be happening in other parts of the country but they do not account for the specifics of actual activity in our little corner of the world.

That said, the following is a recap of the Fredericksburg Texas and Gillespie County Texas real estate market as evidenced by sales and listing data provided by the Gillespie County Board of Realtors Multiple Listing Service for the year ending December 31, 2008 as compared to the same period for 2007:

·      Residential-City - The total number of units sold in 2008 declined by 16.88% from 2007 and the total dollars sold declined by 18.72% ($37,211,150 in 2007 vs. $30,243,391 in 2008).  The average days on market increased from 146 in 2007 to 163 in 2008 (+11.64%) and the average sold price declined from $232,570 in 2007 to $227,394 in 2008 (-2.22%).  Hardest hit were sales in the range of $250-$500,000 where the number of units sold decreased by nearly 19%.

·      Residential-County- The total number of units sold in 2008 declined by 9.47% from 2007 and the total dollars sold declined by 4.32% ($35,583,104 in 2007 vs. $34,046,128 in 2008).  The average days on market increased from 181 in 2007 to 199 in 2008 (+9.94%) but the average sold price actually increased from $374,560 in 2007 to $395,885 in 2008 (+5.41%).  This increased average can be attributed to a small spike in sales in the $750,000 to $3,000,00 ranges.

·      Residential-All- Combining the figures above to view the state of the residential market for all of Gillespie County (including figures for Fredericksburg) and the total number of units sold in 2008 declined by 14.83% from 2007 and the total dollars sold declined by 16.16% ($90,715,107 in 2007 vs. $76,052,419 in 2008).  The average days on market increased from 162 in 2007 to 183 in 2008 (+12.96%) and the average sold price declined from $263,707 in 2007 to $259,565 in 2008 (-1.57%).

·      Lots-City- Mirroring last years’ sales, 38 units were sold.  The average priced increased from $67,639 to $73,745 but the average days on market more than doubled from 164 in 2007 to 335 in 2008.  This is an accurate reflection of the fact that builders dramatically reduced their “spec” building efforts throughout 2008.

·      Land & Farm-All- Total unit volume decreased by 19.35% from 155 units sold in 2007 to 125 units sold in 2008 but the total dollars sold in this wide-ranging category only decreased by 3.40% (from $48,398,974 in 2007 to $46,754,249 in 2008).

All-in-all, not too bad!  My belief is that efforts made by the new administration in Washington combined with historically low interest rates will work to further insulate the Texas Hill Country (in general) and Fredericksburg Texas (in particular) from the woes being experienced in other troubled markets.

The perfect storm of buying opportunity is upon us here in Fredericksburg, TX.

Ignoring (for a moment) the fact that prices in our area have not fallen as might reasonably be expected, total sales volume for YE 2008 is off a whopping 18.7% from the same time last year (dollar volume of single family homes w/in the City of Fredericksburg), the spread between list price and sales price has widened and inventories are at their highest level in many, many years it is easy to make the case that “now” is the time to buy real estate in Fredericksburg and/or the Texas Hill Country.  Couple this trend with historically low interest rates and you have an attractive formula for successful investing.

Back briefly to prices not falling substantially.  Those conditioned by either experience or the media may reasonably expect that the real estate market disasters currently befalling most of the country are sure to happen here as well.  While I can attest that the local market is “correcting” it is doing so very slowly and fully reflective of the fact that local sellers simply do not “have to” sell.  Very few folks here are in trouble as evidenced by the near total lack of foreclosures and short sales.  As we are primarily a “discretionary market” buyers feel no pressure to buy in the Fredericksburg area.  Sellers who don’t have to sell and buyers who don’t have to buy equals the current market stalemate.

Though credit markets have reportedly seized up, that is not the case in Texas (in general) or the Hill Country (in particular).  Every lender I have dealt with states that they have plenty to lend.  Of course there are caveats such as tighter appraisal reviews and higher down-payment requirements…always a catch!  At present, a lot of the available funds are being sought by those choosing to re-finance that these ridiculous rates.

Buyers who chose to wait until prices come down more are (unwittingly) gambling that interest rates will hold steady (or drop further) as well.  While one never knows these days, it’s hard to imagine rates dropping any further.  What is not widely understood is the impact interest rates can have on the real monthly cost of homeownership.  Even 10% drop in home prices is immediately nullified by a mere one percentage point increase in interest rates on a 30-year note.

Fortunes have been made and lost by those attempting to “time” the peaks and valleys of real estate markets. Don’t let this historic combination of low rates, weak market demand and near record supply fool you in to thinking you should wait a little longer.  While I’ve predicted that prices may fall a wee bit more into the first half of 2009, interest rates are highly volatile and tend to rise a lot faster than they fall.  Don’t miss the boat!