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The Sweet Spot for Move-up Buyers

The peak home-selling season may have ended, but there some buyers are just getting started: those looking to sell their home and trade up for a bigger one, most likely outside the city. That then leads you to wonder: Is now a good time for these buyers to start their search? And what does this uptick in move-up buyers mean for the market?

Movin' on up Homeowners in many areas in Massachusetts who bought just before the housing bust had little opportunity to move up to a larger home in the recent years. Underwater on their mortgages, these homeowners were stuck for years waiting for their homes to appreciate.

The good news is that a significant number -- 18.5 million homeowners, or 40% of all folks with a mortgage -- now have at least 20% equity, according to the latest real estate numbers from Massachusetts Association of Realtors.

That's because prices in the first seven months of this year increased faster than in any year since 2004, when the real estate bubble was inflating, as proven by the latest September Home Price Index by Case-Shiller. Now many once-stuck owners can jump back into the housing market and move up to a larger or better-located house.

While exact data on move-up buyers in the state is hard to come by, the share of first-time buyers has been declining, dropping to 28% of purchases in August from 31% in August 2012, while at the same time sales have surged by double digits, according to the National Association of Realtors. Given this data, it does appear that second-time-around buyers are becoming a bigger part of housing sales as home prices and interest rates have started to rise.

For many move-up buyers, the price of the house they want is going up, but so is the house they currently own. Moreover, because buyers have more money to put down and are less sensitive to interest-rate upticks, they can afford to wait until the right house comes along.

While many homes at a lower price point were getting multiple offers, a home priced around $400,000 had plenty of interest at its open house, but no one eager to make an immediate bid. This is because some home shoppers may be waiting for more inventory. With the number of homes available for sale limited, there's far less for move-up buyers to choose from. So, while selling their starter home may be easy, finding a place to move into is much less so.

To be sure, a lot of high-end inventory was taken off the market in the first half of the year. In fact, sales of existing homes priced at more than $1 million surged 37% in the first half of 2013 -- triple the growth of the housing market as a whole.

The return of move-up buyers is good for the market as a whole as it brings more homes to the market, particularly much-needed starter homes, as these buyers trade up. It's also a good sign for the broader economy since it's a clear indicator of a healthy and sustainable recovery is increased housing turnover driven by trade-up buying, which is more or less discretionary spending. These buyers are typically more responsive to market conditions and financial incentives than anyone else.

Move-up buyers: Know the difference in listing agreements Before you buy your next home, you need to sell the one you have. Here's a little refresher course in the types of listing agreements that your agent might ask you to sign, and what they require of you, courtesy of the Federal Trade Commission's real estate glossary.

real estate terms boston massachusetts Boston international real estateDo you know the difference?

  • Exclusive right-to-sell listing: Under this listing agreement, the property owner appoints a broker as the exclusive agent to sell the property on his stated terms, agreeing to pay the listing broker a commission when the property is sold, regardless of whether the buyer is found by the owner, the broker or another broker. If a second broker finds the buyer, then the commission is divided between the two brokers.
  • Exclusive agency listing: This more limited listing agreement specifies that the listing broker acts as exclusive agent to sell the property for the owner but may be paid a reduced commission -- or none -- when the property is sold if, for instance, the property owner finds the buyer. The commission is divided if a second broker finds the buyer.
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