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The Fed, plus understanding buyer screening practices

December 15, 2017
By BOB and GERI QUINN - Homing In , Cape Coral Daily Breeze

The big news in the housing market this week will be the two-day Federal Open Market Committee meeting, where it is widely expected that the interest rate on the ultra short-term Federal Funds Rate will be raised by one quarter of 1 percent, or 25 basis points, for the third time this year. Since this column was written prior to this meeting, the results from this meeting will be known when you are reading this. The Fed Funds Rate is the overnight lending rate between depository institutions, so even though it is not the interest rate that is used for directly setting mortgage rates, it sets the tone for interest rate policy. This FOMC meeting will also mark the final news conference for outgoing Federal Reserve Chair Janet Yellen, who is being replaced by Jerome Powell in February. Powell, who has served on the Fed's board for five years, is expected to follow the same path as Yellen, and continue with gradually raising interest rates in 2018.

About a year ago, a lot of housing market experts were warning that home buyers should buy a home as quickly as possible because mortgage interest rates were about to take off higher, when the Yellen-led Fed raised interest rates in 2017. The experts were also saying that anyone planning to sell their home, should move quickly to get it done because higher interest rates would lead to higher mortgage costs for buyers, which would weaken the housing market and result in lower home prices. In theory, this is all correct, but as we have pointed out during the year, theory does not always play out in the real world.

Back on April 7, in our column titled, "And now for something completely different," we discussed the shift in The Fed's interest rate policy to a rising interest rate scenario and outlined a variety of potential outcomes. We also went back in time and reviewed some of the steps The Fed took during the wild financial and housing market crisis, and how they were able to manipulate mortgage interest rates, which are supposed to be "market-based" rates, and not under The Fed's control.

One of the potential outcomes we covered in that column was that as The Fed raises short-term interest rates, it is not uncommon for longer-term interest rates to flatten out and even decline, which seems to be the case so far. Last week, according to mortgage giant Freddie Mac, 30-year fixed rate mortgages were at 3.94 percent, which is down from the 4.13 percent rate at the beginning of 2017. Back in April, we also pointed out that as The Fed tries to emerge and unwind from some of the massive and unprecedented policy moves over the last 10 years, there will likely be a lot of moving parts as they attempt to return back to normal, so we will plan to get back into this topic again during 2018.

Now let's move back to something completely different for the remainder of this week's column.

Setting realistic expectations to our current market conditions and common practice standards with both homebuyers and sellers is one of the many important components involved in the process of buying or selling a home. The better prepared and more informed you are about our market and what you can expect from the other side in the transaction, the more likely you will be to have a positive experience and avoid unexpected surprises.

In working as listing agents with clients who are selling their homes, we find it is not uncommon for a seller to get frustrated with various aspects of the home selling process. One area of frustration can be with showing appointments. This is when the seller is asked to leave their home for a period of time so a prospective buyer and their agent can take a closer look at a home by taking an in-person tour of the property. Although this should be a positive event for a seller, in that it meets an objective of attracting buyer activity to their home, the reality of the situation is that your home may not always be shown to someone who is either capable of buying it, or who is even interested in buying it right now or in the future.

What do we mean by that? In our market, it is pretty common for a seasonal renter, or someone who is in town on vacation for only a week or so, to want to go out and look at some homes, so they can get a better feel for what is available in their price range. In many of these cases, they have decided to move here, but need to head back north to sell their existing home over the summer, with plans to come back as a cash buyer the following fall. There are also situations when a buyer's agent will want to show their client a particular home to help the buyer realize they are getting a good value on another home, or vice versa. In both of these cases, the buyer may be looking at your home, with no intention of buying it.

Since it can be a lot of work keeping a home in peak showing condition, and it may often be inconvenient for a seller to make adjustments to their life around showing appointments, many sellers will inquire about the screening process for the buyers coming into their home.

The pre-screening of a potential buyer is handled by the buyer's agent, and to a large extent there are no set standards in place for pre-screening. There are, however, well known common sense guidelines for a buyer's agent to follow before driving someone all over Cape Coral to look at homes. But, with over 7,000 licensed real estate agents all trying to make a living in Lee County, some agents do a better job of pre-screening buyers than others. At a minimum, the process should include making sure the identity of the buyer has been verified, along with adequately pre-qualifying a cash buyer, or making sure the buyer is pre-approved with a lender for a mortgage, before taking them out to look at homes.

The listing agent is responsible for getting with their seller to set the guidelines for showing appointments, along with certain other requirements, which are then included in the confidential agent instructions in a Realtor Report available to a buyer's agent in the Multiple Listing Service. The seller may also choose to set additional pre-qualification requirements to be met by a buyer, before allowing them to come into their home for a showing appointment, in hopes of narrowing down their showing appointments to only the most serious buyers. However, this practice is more common in the higher-priced, upscale luxury market, so creating more hoops for a potential buyer to jump through is not a normal expectation across much of Southwest Florida, and it will most likely make it more difficult for a seller to attract a buyer to a more typical Cape Coral home.

(Some of the information contained in this article was obtained from various outside sources, which are believed to be reliable, but not guaranteed, and it is subject to change without notice. The Quinns are a husband and wife real estate team with the RE/MAX Realty Team office in Cape Coral. They have lived in Cape Coral for over 38 years. Geri has been a full-time Realtor since 2005, and Bob, who also holds a Certified Financial Planner designation, joined with Geri as a full-time Realtor in 2014. Their real estate practice is mainly focused on Cape Coral residential property and vacant lots.)



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