Are you more likely today to advise a buyer to:
- buy now at speculator-elevated prices? (62%, 82 Votes)
- wait until after speculators leave the market and prices drop; or (38%, 50 Votes)
Total Voters: 132
Today’s narrow housing market moves fast and competition is fierce. But you already knew that — the real question is what to do about it.
In April 2013, 73% of buyer offers compete against other offers nationally, according to Redfin. It’s a crowded playing field, and not everyone is playing fair. Buyer-occupants have difficulty competing with cash-flush, asset-hungry speculators, most of whom are inexperienced syndicators with money to burn issuing securities.
If you represent a buyer-occupant in this environment, you know this all too well. So what can you do to increase your buyer’s chances and gain a competitive edge?
- Negotiate: contact the seller’s agent and find out what terms are most important to the seller. It helps greatly to know the seller’s agent personally.
- Inspect the property with your buyer, with the intention of their meeting and talking to the seller to build a personal relationship, returning again to further that bond.
- Submit your buyer’s offer in person, so you can personally present the best case for your buyer to the seller’s agent, and get a sense of the seller’s willingness to negotiate on terms.
- Don’t cram extra requests in your offer – once the offer has been accepted, you can always approach the seller about that personal item your buyer wants to stay with the home. Let the specifics come later, after the seller has agreed to sell to your buyer. Not pretty, but the nature of this market is often to bet.
- Honor the old adage of keep it simple stupid (KISS) by refraining from requiring little fixes (like a leaky faucet) in the offer. Don’t let these ancillary items derail your making a deal. Better you hit the seller with these items when your buyer gets the home inspection report.
- Exclude any appraisal or loan contingencies if your buyer has cash reserves beyond their down payment amount, even if they are going to finance the purchase.
- Include a substantial earnest money deposit to demonstrate your buyer’s seriousness, but limit their liability exposure to a few hundred dollars, never the deposit.
- Have the buyer’s loan officer contact the seller’s agent to vouch for the strength of the financing, if the seller’s agent wants it.
- Offer to get pre-approved by the preferred lender of seller’s agent.
- Include a personal and sincere letter to the seller if the buyer plans to occupy the property.
- Make sure the buyer’s proof of funds and loan pre-approval are current (within 30 days).
- Make the offer as strong as possible at a price the buyer’s won’t regret. Avoid the “we should have offered more” and “we offered too much” sentiments.
These are all ways you can increase the chance of a seller accepting your buyer’s offer. As Always, the steps you take to best represent your buyer will vary depending on their motivation for purchasing a home.
first tuesday insight
Today’s low sales volume yet competitive environment is entirely due to hyperactive speculators, a short-lived process. When you represent a buyer with small cash reserves or little flexibility for purchase-assist financing, consider counseling them to wait it out until the speculator presence shrinks or interest rates rise, as both inevitably will.
A bidding war environment, no matter the nature of the competing buyers, only benefits the seller. When buyers are foolish enough to compete against other buyers to acquire a property at a price beyond its fair market value (FMV), they make serious financial mistakes – primarily by paying a price that will not appraise. This is the opposite of a buyer’s ideal situation, which pits them only against the seller to negotiate the best price, not sparring with other buyers over the seller’s property.
A real estate transaction is about the interests of two parties only – one buyer, one seller. If otherwise, the prudent buyer walks away, until the buyer can return as the only bidder dealing with the seller. Third party distractions place the buyer at an unfair disadvantage, and seller’s agents very well know this.
Speculator activity will shrink later this year as home prices level out, then decrease. Price decreases consistently occur within 12 months after a continuing decrease in sales volume, and sales volume began a downward slip at the end of 2012 and that trend is with us to this day.
Since this sales pricing scenario for 2013 and into 2014 is foreseeable, buyers who feel intimidated by multiple offer situations have no good reason to be discouraged about future prospects and give up on home buying. What we have today is not the next big boom. Thus, buyers can afford to wait.
In fact, for buyers it will likely be more financially prudent to wait. A rise in interest rates axiomatically infers a financially equivalent drop in the seller’s pricing, since most all buyer-occupant purchases include funding by a new mortgage.
But then again, how many agents truly see bidding wars as a negative?
As competition pushes selling prices higher, agents “earn” higher fees. Better for agents, as the excitement yields ever more listings and buyers, and of course fees. Stability is lost to extreme volatility.
Agents typically cringe at the thought of counseling buyers to wait. They have been taught differently. The longer it takes a buyer to go to escrow – to buy – the less likely it becomes that all of the agent’s hard work and talent invested will actually pay off with a closing.
But isn’t it the buyer’s agent’s duty to give the client the best possible advice on timing the market and secure the best price attainable for their client?
So what do you think: advise a buyer to wait it out for lower prices when things cool off (as they always do, thanks to the Fed), or go with the flow and buy while the market is speculator hot?
Share your opinions in the comments below and let your voice be heard in the poll!
RE: Tips for buyers in a fierce seller’s market from the Washington Post