“Help me help you” — protect your buyer from self-sabotage

Five common mistakes are responsible for buyers missing out on the housing deals they want, per a recent news report.

The top buyer mistakes are:

making only lowball offers;
taking too long to make an offer;
filling contracts with unnecessary contingencies;
failing to make a personal impression on the seller; and
neglecting lender pre-approval before looking for a house.

first tuesday take

This reporter missed the gravest buyer mistake of all: poor timing of the purchase.

A bounce in the bumpy plateau recovery occurred in 2009, and is again occurring in 2012. What buyers must recognize during these brief rises is that more than two parties frequently populate the bidding process — themselves (plus the seller) and a number of speculators and actual buyers looking for a place to live and raise their family.

Too often as a result of momentum in sales volume, an intrusive part of the bidding crowd is professional investors, also called speculators. These hot money handlers frequently come to a transaction with enough cash in hand to close the deal quickly and with few contingencies. Having paid a low cash price for the property, speculators hope to profit from rising prices paid in the future by the actual end users – buyer occupants and long-term investors.

Thus, prudent agents counsel their buyers to:

bid the fair market value (FMV) of the home they wish to purchase;
not expect the seller to hold the property on the market into perpetuity until the buyer’s hesitancy to purchase subsides;
compete with other offers by making a favorable impression and wooing the seller with multiple visits to the property and a personal letter attached to the offer; and
always get pre-approved (and shop around while they’re at it) for a loan if they want sellers to take them seriously.

Some buyers are hindered in the bidding process by their attempt to lowball the seller in auction environments. This dynamic exists going into 2012.

However, many encounter the more common obstacle of sticky pricing, the money illusion regarding past property values. In this case, the seller, if he is not a shortsale owner, is attached to the unrealistic selling price of yore and refuses to accept bids for the FMV of their home.

Additionally, buyers looking for a sweet deal on a shortsale must be aware the lender holding the mortgage must sign-off on the purchase price. Thus, negotiating the price in this context hinges less on bargaining with the seller than on satisfying the impersonal lender’s bottom line analysis.

Buyers must prove themselves ready and able to purchase the property by offering a price the lender will accept, typically the buyer’s agent’s broker price opinion (BPO). Backing up their financing-contingent offer to purchase with a loan pre-approval is part of being proving they are financially able to purchase.

Also, buyers set themselves apart from the crowd of anonymous offers (particularly those from speculators) with a letter to the seller. Gushing over specific features in the house and bringing more individual personality into the deal by submitting a personal letter often predisposes a seller to favor a buyer they know over the more impersonal, businesslike speculator simply trying to make a profit from the deal.