by Huntington Beach Realtor – Scot Campbell – March 19, 2013
It is best to have accurate expectations in approaching the current housing market as a buyer. Multiple offers are now the norm, but what does that mean as a buyer?
Be prepared to write many offers!
When 20 offers are generated on a home, only one is able to proceed to escrow; 19 others have to move on. I hear every week of buyers who have written a purchase contract on more than 15 homes. There simply is not enough inventory to satisfy the number of buyers waiting to purchase. When that happens, every home is like a mini-auction. We hear reports of people camping out for a week to purchase new homes. It is a very deep seller’s market where they get to call all of the shots.
There is also a ton of cash in the market, currently a third of all transactions.
Some buyers are borrowing the cash from reserves, or a parent, and a couple of months after closing are obtaining financing. Why?
1) Cash is easier.
2) On a cash transaction, a lender cannot muck up a deal a week before closing.
3) With values rising so fast, appraisals have been an issue as many appraisers are using dated short sales and bank repos as comparables for today’s transactions. Necessarily, the appraised values are not today’s value.
4) Cash buyers do not need an appraisal and often eliminate the appraisal contingency in their offer.
5) Home Sellers who have multiple offers for a home at or even well above the asking price will NOT lower their price $10,000, $20,000, or more below the list price just because an appraiser chooses to value the property for less than the contract/list price. Cash offers do not have such problems.
A buyer should approach the purchase price very carefully, knowing that they will be competing with many others who are going to be just as thorough. Homes ARE selling for more than the asking price; and, depending upon the property, way over the asking price. Pouring over most recent sales is essential, but factoring in pending sales is even more important today.
Many homebuyers in today’s market have seen every recent closed sale and know more about home values than the appraisers who work for the lender.
In addition to the home value considerations, I advise that buyers look at the complete monthly payment and stay within a comfortable range. The emphasis should shift from the price being offered to the monthly payment that will be paid every month of every year.
How does the monthly payment compare to renting in terms of cost and lifestyle. Is the total payment affordable?
Consider the comparable sales, and the monthly payment, and then decide how much to offer on a home. Homebuyers should not over-pay for a home based on comparable sales nor should a homebuyer purchase more home than they can comfortably afford.
So how does a buyer with a loan even the playing field in today’s market? Let me review the basics first:
1) Change your paradigm on the term “home appraisal”. The fact is, today’s appraisers do not value homes as an “estimate of fair market value”… instead the value is a number which is derived from a convoluted set of rules resulting in “value opinions” which often have little resemblance to what buyers are willing to pay.
2) Obtain a full pre-approval for a loan with 5%, 10%, 15% and 20% down.
3) Print bank statements to document the source of down payment and closing cost funds
4) Work with a professional, experience Realtor who knows the market area.
5) Have your Realtor set up an automatic home search for you which will notify you of homes which meet your parameters in the neighborhoods you are considering.
6) Identify specific floorplans and locations in the neighborhoods you like and request that your Realtor contact all home owners who currently own the homes you like to see if they would consider an offer.
Here is the trick which will help level the playing field for you:
Understand that the only way to improve your chances of getting your offer accepted is to prove that you are willing and able to pay over the appraised value if necessary:
If you have 10% to put down on a house, get approved for a loan with 5% down. When you make your offer, indicate that you are willing to pay 5% over appraised value (not to exceed the contract purchase price).
If you have 20% to put down on a house, get approved for a loan with 15% down. When you make your offer, indicate that you are willing to pay 5% over appraised value (not to exceed the contract purchase price). If you have
If you have 25% to put down on a house, get approved for a loan with 20% down. When you make your offer, indicate that you are willing to pay 5% over appraised value (not to exceed the contract purchase price).
I am sure you are starting to get the idea. Understand that there are multiple buyers who want to purchase most of the listings in the market right now. If you offer the same price as the other highest offers, certainly you know that you are not “over paying for the home”. But, the only way you are going to get it is to show the seller that you are willing and able to close the sale even if the appraisal comes in low.
The savvy seller agents understand that many buyers who offer well above asking price intend to lower their price to the appraised value… and these agents are tired of seeing those transactions fall through. Your offer will be well received if you state that you are willing to pay above appraised value and you prove that you can close regardless of an appraisal which comes in 5% below the contract price.
Clarification: If you have been outbid on properties lately, I think you understand the difference between “over paying for a home” and “paying above appraised value”.
I am not advocating that you pay a price which is higher than the market value. If you are a buyer making an offer on a home today, you know that your offer is not above market value… or you would not have submitted the offer. The above technique will allow you to be the buyer who purchases the property at the same price as a cash (or high down payment) buyer will likely pay anyway.
Good luck and happy home shopping.
For questions about buying and selling real estate in Huntington Beach and Coastal Orange County, contact Scot Campbell.
He is the President of The Scot Campbell TEAM at Coldwell Banker-Campbell Realtors in Huntington Beach, CA.
He has been a licensed broker for over 22 years and has brokered over 1000 homes and just about every type of transaction imaginable.
Read his profile and client reviews at www.ScotCampbell.com
He can be reached at 714-960-0700 at the office, 714-336-0394 on his mobile number or via email at Scot.Campbell@ColdwellBanker.com