Sellers' market leaves Twin Ports buyers biting nails
Hazel had no complaints. It's a roomy, four-bedroom house with cushy new carpeting. And what's all this talk of space for toys?
Granted, the 3-year-old didn't have the same list of questions her parents did. Tyler Franzen and Sarah Hakel are the ones who have to cut the check, after all.
Amid the freshly painted walls and new kitchen at this Rolling Green gem in Proctor, Franzen noted: "The only thing I don't like is the price."
That's the phrase heard 'round the local real estate world this summer as too many buyers compete for too few properties, causing both prices and frustrations to rise.
"We're seeing a lot of multiple offers, a lot of properties that are selling for more than list price," said Century 21 real estate agent Steve McConnell. "I wrote around $1 million worth of contracts in the last 10 days, and every one of them we lost — and every one of them we offered at or above list price."
With the job market humming, lenders as lenient as they've been in a decade and rising interest rates all drawing more house hunters, McConnell calls it a "perfect storm" of "pent-up demand."
For buyers, that leaves little room to hesitate or come in too low. The wrong move can make the difference between a dream home or a nightmare in a market like this.
It's a delicate dance, and in Duluth the tempo is getting faster and faster.
Scouting it out
It took just one glance for Chad Watczak to determine this one was a flip. The Edina Realty agent had shown the Proctor house before, and with a $70,000 price jump in less than a year, he wondered how much the seller was taking advantage of a hot market, and how much work had actually gone into it.
It was a little of both.
"Oh wow, it really is completely different," he said as he surveyed the transformed floors, walls and kitchen.
While Franzen and Hakel were pretty pleased with the space and the updated features, Watczak said there would be little room to squeeze any more value from the home — and it would probably sell close to the asking price of $250,000.
"It's all but tapped out."
Driving to Observation Hill in Duluth for a second showing that July evening, the family found a better bargain — complete with accompanying quirks.
"This worries me, if when we go to sell it..." Franzen trailed off, looking at the narrow and tall 1890s-vintage house overlooking the water.
The couple is relocating from the Twin Cities for Franzen's new post recruiting for the Minnesota Army National Guard; Hakel starts work next month as a school-based therapist at Carlton High School.
With the market, with where they are in their lives, now felt like the time to jump into homeownership. They went out to dinner to mull whether to put an offer on their first home.
"That one, even though I feel like it's overpriced — you're paying for what you get, and you're paying for more of a living room, a kitchen, newer appliances," Franzen said about the Proctor property.
"I feel like this one," Hakel said about the house on Observation Hill, "would be better for two people. If there's a kid, where is the kid going to play?"
It turns out Hazel does get final say.
With eight other offers on a $100,000 house, Gage Hartman was confident he could get his client in the door with a $112,000 bid.
"We didn't even make second place," Hartman said, shock lingering in his voice.
Most years this is a common occurrence in sought-after neighborhoods like Lakeside and Congdon. But this house was in Lincoln Park, which has not been immune to the feeding frenzy driving prices as high as they've ever been.
The median home sale price in the Duluth area was $175,000 in June, tying the record high set last summer, according to Lake Superior Area Realtors.
What's more, the average time a house is on the market has reached its lowest point in more than a decade, and sellers are bargaining down less than they have in years.
That kind of atmosphere, coupled with a boost in the sheer number of potential buyers, causes bidding wars. And if three offers come in, "two people walk away unhappy," said Re/Max agent Tom Acton of "Ask for Action Acton" fame. "After that happens three, four times they start to lose faith. And I understand that."
"We kind of take on the role of counselors," said Hartman, no stranger to both success and sadness in the real estate world.
While the Twin Ports is certainly in a textbook sellers' market, sellers are getting a little too confident in the value of their home and the patience of buyers, several agents told the News Tribune. Hartman said a home listed at $315,000 had a $311,000 offer come in. After the owners rejected, no one else came knocking. They had to relist the property at $299,000.
Still, many homes are sold just days after getting listed, if not the same day. Acton said if the price is right and the home is in good condition, it's as good as gone — for now.
"I'm having this conversation with sellers right now: If you want to sell your house, don't wait. This market is not sustainable. It may go on for a year, it could go on for another two years. Something will happen."
Even if home prices have been rising, the cost to finance one has remained historically low for years. That era of easy money is coming to an end.
"With lower unemployment and economic recovery, the Federal Reserve is making rate adjustments now to prevent inflation," said Deb Otto, Duluth Market president for Alerus.
From the bank's conference room overlooking Superior Street — or what's left of it — Otto and mortgage banker Rod Kinnee explained that it's still a good time to be a buyer despite the looming yet limited interest rate increases.
"We're still in a historically fantastic interest rate environment," Kinnee said, since rates are hovering around 4.5 percent and shouldn't rise much above 5 percent by the end of the year. Still: "Buyers are trying to act as quickly as possible."
Even a half-percent increase can move a monthly mortgage payment out of reach for some buyers — especially those with student loan debt.
"I see that as one of the biggest differences in my office in the past five years, the amount of student debt people are coming to my desk with, negatively affecting their ability to buy a home," Kinnee said.
Plenty of potential buyers think student debt disqualifies them from getting a mortgage, but that isn't so. They might just need a little more help than other buyers, Kinnee said, and a little extra education.
"A lot of people still think you need 20 percent down to get into a home, and that's not the case. Many people walk out of my office surprised at the fact they can be approved, the fact it might only take so much down payment and that they might be able to get assistance for that through a number of programs."
Sarah Hakel and Tyler Franzen — and don't forget little Hazel — decided to put an offer on that Rolling Green house in Proctor. It checked all the boxes. It had the right feel. It was within reach — until it wasn't.
Their offer was not accepted. The search continues.
On Thursday the couple toured a handful of properties in Carlton County — some in need of help, some meticulously well-kept. They were drawn more toward the latter, especially a nearly flawless three-bedroom ranch-style home on a handsome lot in Esko that is still on the market, miraculously, for less than $240,000.
They had saved the best house for last.
"I think I've made up my mind," Franzen said, and Hakel had, too.
So they put in their second offer — hopefully their last, hopefully a smooth ride to closing, hopefully the last time they'll have to say, "This is the one."