JAN 2023

Friends,

The last three months have felt a lot like drinking water from a fire hose.

I have toured over 65 properties, hosted six open houses, gotten lost inside a Toll Brothers mansion, and have managed to get a few offers accepted.

Every day I try to stump Martin Bouma with questions about the Ann Arbor market, and every day he proves that he is the G.O.A.T.

In the spirit of Martin and I’s daily ritual, every month I’ll be answering questions from friends and clients about what I’m seeing on the ground as a local realtor.

Let’s dive into the “Highest and Best” Mailbag - January Edition.

Brian,

We are seeing fewer bidding wars, which means fewer insane offers that include waived or “informational only” inspections.

Here are some wild stats from the height of the bidding wars era.

From Oct 2020 - Oct 2022, there were 590 single family home sold on Ann Arbor’s West Side. 349 of those homes were sold within 7 days of hitting the market, with the average selling price at 5.84% above the listing price. This means a house listed for $400,000 sold on average for $423,360.

Fastforward to Oct 2022 - present, and the numbers tell a completely different story…

There have been 47 single family homes sold, with the average days on market now up to 32. In Q4 of 2022, the average home sold for 1.16% UNDER the listing price, a 7% swing from the previous two years.

All that said, buyers will continue to encounter multiple offers on hotter properties, especially if sellers deliberately set a honey trap by listing a home under market value. My advice in those situations would be to gather as much data as you can from your realtor to determine what you think is a fair value, and be honest with yourself about how much you are willing to pay for it.

One more note on this, I would never advise a client to waive their inspection rights. If you are looking for ways to make your offer more attractive and show the seller that it would take something major for you to back out, you might consider offering to waive inspection concessions up to $5,000 - $10,000 in cumulative repairs. Even then, that should be a last resort tactic. Other than having the highest offer, buyers can strenghten their offers by having rock solid pre-approval letters from local lenders, assure a timely turnaround when it comes to inspections and closing, and by being reasonable while negotiating with the seller.

Colleen,

Tell me you live on the West side of Ann Arbor without telling me you live on the West side of Ann Arbor lol.

Let’s tackle these one at a time, starting with Orangeburg.

Orangeburg piping became popular in the late 1940s, after a nearly decade long supply chain crunch caused by WWII that made cast iron and other metals very scarce. This paper machet like piping is made from layers of ground wood pulp fibers compressed with and bound by a water resistant adhesive then impregnated with liquefied coal tar pitch. After widespread reports of drainage issues, tree root penetration, and other failures due to the weak material, most communities banned Orangeburg piping by the mid 1970s. Ann Arbor banned it in 1970.

Because the bulk of the homes in the classic West Side neighborhoods were built between the 1940s and 1970s, it’s always a good idea to have a sewer scope done as part of your due dilligence when buying a home. The average shelf life for Orangeburg piping is about 50 years, making it a true game of hot potato. Unfortunately, some neighborhoods will not allow home owners to replace the piping until it fails, a controverial policy to the say the least.

Foundation issues are a little more straight forward. Cracks in older Ann Arbor homes happen for the following reasons.

Many homes in our area were plotted on clay soil. The problem with clay? At the time of construction, the foundation materials used were more pourous, and did not seal in the same way that newer technology does today. Here’s what our friends at Foundation Systems of Michigan tell us:

Soils rich in clay and silt have the greatest potential to damage a foundation. Clay absorbs water easily, expanding in volume as it becomes more saturated. So-called “expansive clays” can cause foundations to crack, heave and shift.

When clay soils dry out, they shrink and crack, leaving gaps around a house where water from the next storm can penetrate easily and deeply to repeat the expansion cycle. Clay-rich soils usually cause more foundation damage by expanding than by contracting.

The best thing to do if you find an issue with your foundation is to address it immediately. The more severe the issues get, the more expensive it becomes. Your $3,000 problem can become a $80,000 problem faster than you think.

So, what is radon? From the state of Michigan:

Radon is a colorless and odorless gas that comes from the soil. The gas can accumulate in our home and in the air we breathe. Radon gas decays into fine particles that are radioactive. When inhaled, these fine particles can damage the lung. Exposure to radon over a long period of time can lead to lung cancer.

Ok, before you panic and check into a hotel while you wait for an inspector, here’s some reassuring news. Lung damage from radon exposure in a home does not happen overnight.

Testing for radon can take as little as 2-7 days, and if your home does exceed the recommended threshold, having a mitigation system installed will only cost you around $800 - $1500.

I believe the approved TC1 rezoning will have a big positive impact on the residential homes in the surounding neighborhoods of the Maple / Stadium corridor. In case you missed it, the city council has given the green light to gradually transform this strip mall laden 210 acre pocket into a downstyle development with less vehicle traffic and taller buildings. This new measure will add as many as 190 new properties.

Why is this good news for Jake?

Creating a more vibrant and walkable / cyclist friendly district will make this area more desirable for prospective buyers, who ultimately determine the value of homes. This new development will be a huge step in bridging the gap between downtown and the Maple / Stadium, an unspoken line of demarcation for folks shopping for a home on Ann Arbor’s West Side.

Matthew,

I’m going to do my best to explain this, but also refer you to this explainer on the City of Ann Arbor website.

By law, the assessed value (State Equalized Value) is based on 50% of “fair market value.” In reality, this number typically lands somewhere between 40-45% of what the actual selling price of the home was. Why not just use 100% and reduce the millage rates to keep taxes approximately the same? That’s a question above my pay grade, but my hunch is that this system is a safeguard to keep property taxes from getting excessively higher, especially with newly passed millages.

During your research, you’ve probably come across the following anomoly. Two homes on the market for the same price in the same neighborhood, but the respective owners are paying drastically different taxes. This is because one owner may have lived there 20 years longer, and there is a “cap” on how much an existing home owner’s taxable value can increase. This number is either 5% annualy or the current rate of inflation, whichever number is lower. Because homes in Ann Arbor tend to appreciate about 9% year over year, this explains why long time home owners have such lower property taxes.

So what happens to your taxes when you buy a home from someone who has lived there for 30 years? When you sign a Property Transfer Affidavit at your closing, this triggers a new “uncapped” assessment which is based on the current State Equalized Value. For example, if the fair market value of your home is $400,000, your SEV will come in at $200K, which is the number used for taxes. After that, there will taxable value will be capped at a 5% annual increase / inflation rate, just like the previous owners.

In short, looking at what the previous owners were paying in taxes isn’t all that helpful. This link is perfect for property tax assessment and doing research on different cities and townships in Washtenaw County.

Michelle,

There are pros and cons to every season / cycle.

Inventory tends to be more lean from September to February, but there is also less competition in the marketplace. Things really pick up in Ann Arbor in mid March around Match Day, when medical professionals find out which hospital they will be working. Most sellers in Ann Arbor are acutely aware of this timing, and will list their homes accordingly.

From March to August, we see more inventory, but with fewer days on market, and more competition.

My advice for anyone thinking of moving in the next year?

1. Start studying the market now to figure out what location and style of home you like. Your realtor can help you with comps, but it’s good to start boning up early.

2. Meet with a lender as early as 3-6 months before you plan to actually buy. They will give you clarity on what you can expect your monthly payment will be, how much to save for closing costs, and walk you through any programs that might benefit you.

Hayato,

20 years is a long time, but I will point out some factors that bode well for property value in Ann Arbor.

1. The biggest drivers in our local economy are trending in a positive direction. U of M, the hospital systems, and tech firms have had a great decade of growth, and show zero signs of slowing down. Plus, Harbaugh is staying put, and that has to count for something.

2. Our city council is trending in the direction of being more receptive to new development. This should lead to an uptick in population growth, and will have a positive ripple effect for single family homes where the higher population density areas are being developed. (see Maple / Stadium Corridor)

3. Michigan is a climate haven in a warming world. With it’s track record on green initiatives, Ann Arbor is more likely to stay a step of ahead of othe cities when it comes to enacting more climate-friendly housing policies, which have a positive economic impact on the housing market.

Connor,

Seller questions are always welcome!

The average days on market really varies by location, price point, time of year, and state of the market. The good news is that we have more access to data now than at any time in history. My strategy is to identify at least 4-5 good comps in your neighborhood that are pending or have sold in the last 6 months, and use those numbers to help determine what price you can expect to fetch, and how long it will take to sell. Once you have an offer in hand, it can take anywhere from 4-8 weeks to get to the closing table, depending on the terms of the proposed contract.

As for pre-showing prep, my advice is to keep things decluttered, clean, and odor-free. It’s also helpful to take care of any minor defects like scuffs on the wall, busted window screens, etc. Lighting candles, plugging a Glade into a wall, or popping some cookies in the oven might read as desparate or that you’re hiding something. Best bet: pack up your nonessentials into the garage or basement, and hire a good cleaning service for $250.

Any good realtor will jump at the chance to demonstrate market knowledge and value, epecially when talking with their seller. It sounds like it might be a little late in the game for this exercise, but I always think it’s a good idea to give your realtor a homework assignment before hiring them. In your case, I would ask them to prepare a Comparative Market Analysis and lay out a strategy for setting a price, attracting buyers, and setting realistic expectations for when the home will sell.

I would also ask the agent to give you a tour of the house as if you were interested in buying. This will let you know if they see the value in the property and location, which is essential for listing agents.

If your listing agent is not providing you with this level of detail or higher, it might be time to find new representation.

Fun fact about The Bouma Group:

We have a dedicated listing department that can answer all your questions about listing your home.

Brian,

For a lot of people reading this, it might not be a good time to make a move. A better investment might be updating your kitchen or replacing the roof or furnace. Buyers are putting a premium on more turn-key homes since they are prioritizing their savings toward down payments.

Now is definitely not the time for lateral moves, but it might be a good time to level up if you have a lot of equity and want a hot deal on a home in the $800,000+ range.

This market is currently suited for first time buyers.

Why?

Read next month’s mailbag to find!