The Current Real Estate Market
in Fairbanks – March 2011
Everyone is curious about our local real estate market and what is currently happening.
Four years ago this Fall, our market had a small crash. It was nothing like most areas of the Lower 48 experienced. So, most of what you may read about real estate and prices simply isn’t applicable to Fairbanks. Lending practices everywhere have tightened, so buyers who previously may have purchased a home for zero down (except for Veterans) or those with marginal credit normally cannot do so anymore. This is a good thing; however for sellers, it has limited the buyer pool, which can affect the prices of homes.
The small crash in North Pole was entirely different than in Fairbanks. Builders in North Pole had responded to the military’s request for 3- and 4-bedroom rentals (not sales) and they built many homes and put them up for sale. Unfortunately, since the demand was for rentals, the market was flooded with these homes. So, when our small crash happened, most lenders quit lending to builders who wanted to build spec homes in North Pole. Prices responded accordingly to the lack of demand and dropped quite a bit more percent-wise than Fairbanks homes. Since then, prices have been rising in the North Pole area, but in most cases aren’t as high as they were before.
In Fairbanks and surrounding areas (excluding North Pole), decently-built small homes priced $175,000 and under are, and always have been, a hot commodity. No builder has been meeting the great demand for these homes, so the prices didn’t drop like they did with other homes 3-1/2 years ago. Buyers in this price range and even more so as the price goes down definitely have to be prepared to act if a home hits the market as competition is extremely high.
For homes in the Fairbanks area over $175,000, buyers are still looking and acting but it isn't routinely as competitive as lower priced homes. The busiest season for sales starts now, in the Spring, and is strong up to late Fall. Up until last summer, I was still recommending to every seller who approached me to list that instead they considering leasing their home, as rentals command top dollar in Fairbanks. I prefaced that with: I do not have a crystal ball, but it was my guess that our market would still come back up to what it was 3-1/2 years ago. Buy Low, Sell High is a good phrase to remember. I no longer am routinely recommending sellers lease or rent their homes as the market has in most cases recovered nicely.
Selling a High-end Home in Fairbanks
- Will Value be Found?
If you have bought, sold or received professional advice about selling a high-end home in the Fairbanks area, you may be aware of problems with finding an appropriate appraisal value. To estimate and justify the value of a home in an appraisal, lenders usually require comparison of the home to three or more similar homes sold in the previous six months. While we have many beautiful, well-built, high-end homes in Fairbanks, there simply aren’t always plenty of recent sales from which to choose good comparables.
The rarity of high-end home sales can be a problem for both buyers and sellers. Once they have successfully negotiated a contract and sales price in writing, the buyer may seek a mortgage. Lenders offer mortgages based on a lesser percentage than the appraised value of the property. So, what happens if the appraiser cannot estimate the home’s value at or above the contract price? Oftentimes sellers will drop the price to match the appraisal; therefore it is prudent for sellers to be aware of recent comparable sales before they agree to list their home for sale. In some cases, buyers may agree to pay in cash the difference between the appraised value and the negotiated sales price. Occasionally a lender may allow a seller to give the buyer a second deed of trust if both parties are willing. Sometimes the parties agree to split the difference but if they can’t agree, the sale may fall through.
Homes selling for under $350,000 are fairly common in the Fairbanks area. At higher prices, sales become more rare. In the past two years in the Fairbanks (excluding North Pole) Realtors’ Multiple Listing Service, there have been only 33 sales of homes from $350-$400,000. Jumping up in sales prices ranging from $400-$450,000, there have been only 18 sales. There were only 8 sales of homes between $450-$500,000, and only 3 homes have sold between $500-$550,000 during that time period. To be comparable, recent sales should also be of similar size, construction type, age, location, et cetera, so you can see the dilemma. Our neighbors in Anchorage have so many more homes they don’t have this problem; however, one of our rare $550,000 homes up here would be worth over a Million down there.
So, what happens when a truly unique property is for sale here, one so majestic that on first view seems like a lodge and not a home? Often these homes have Alaska Range views or river frontage. The house might be a gorgeous custom log home or timber frame home, or perhaps a home that seems apparent when you walk through the front door that the owner has put a couple million dollars into its construction. Perhaps you are considering building such a home. What should these owners do? It’s good for buyers and sellers to be informed upfront that there will not be recent comparable sales in this case unless our market changes dramatically.
Usually these buyers are willing and able to part with plenty of cash on top of the appraisal, or they just pay 100 percent cash. Sellers also could owner finance if they have the flexibility and desire or offer a large second deed of trust to the buyers.
Buying or selling a high-end home in Fairbanks can involve difficulties in obtaining a desirable appraisal, but as long as buyers and sellers are informed ahead of time, there are many ways to make it work.