Most of us read the paper, watch the news on TV and pay fairly close attention to what is happening in the economy. Especially after what we’ve experienced in the last few years, many of us have become fixated on the economy and concerned how it might impact our lives.
In the real estate world, things changed radically during 2012. For the first few months of the year, there were a lot of homes on the market, foreclosures and short sales dominated the landscape and buyers were hesitant to make a decision. Buyers were able to negotiate decent discounts, ask for and receive closing credits and often got the sellers to make necessary repairs. It was pretty simple and certainly a buyer’s market.
Then one night the sun set and when we woke up, everything had changed. Inventory is at historic lows, the threat of the “shadow inventory” hasn’t materialized and even bank owned homes are few and far between. Combine those factors with the lowest interest rates in our lifetime and suddenly everything has shifted from a buyer’s market to a seller’s market.
What are buyers to do?
First and foremost they must be patient and thick skinned. This is no market for the timid or for those who take it personally. Expect to make offers on numerous homes without success before landing a home of your own. More than ever, you need to make sure that your realtor is very competent, extremely proactive and willing to move quickly when something attractive comes on the market.
For the buyers, you really need to know what you want, what variances you are willing to accept and have all your ducks in a row. This means your loan pre-approval must be current, your down payment must be available and you must be willing to make a fast decision. As quickly as homes are selling, if you hesitate, you will lose.
Lastly, you need to understand the dynamics of this market. In many instances, asking price really doesn’t matter. If the home is nice and in a good area, you should expect the sellers to receive multiple offers. When that happens, prices will go up. I understand that no one wants to pay too much, but holding out expecting a counter offer isn’t your best strategy.
I’ll give you a few examples.
We had a buyer offer asking price on a home in Gilroy that was listed for $569,000. The seller received four offers and chose one that was $10,000 higher. This same buyer offered $11,000 over asking on another home, which was the only home available in this area, and again was outbid. In both cases we advised a higher offer, but the buyer kept saying that they didn’t want to offer too much and expected a counter. In neither of these cases did the sellers choose to counter anyone, and instead took what they believed was the best offer.
Another buyer offered $390,000 on a home listed for $349,000. They lost the home because the seller feared that our buyers FHA loan and appraisal wouldn’t support their offer.
One family offered $30,000 over asking on a $270,000 home and was the successful bidder. The appraisal came in $20,000 short so they had to come up with more money and the seller agreed to a price concession.
There are a lot of ways to bring parties together and have a successful transaction. It all starts with a clear understanding of the process and the willingness to engage in a manner that has the highest likelihood of succeeding.
This is not a market for everyone. What we are advising is that buyers need to have all their ducks in a row as I stated above. Second, once you find a home that you really want, move very fast and offer the most you are willing to pay. I am not suggesting you offer more than you can afford and only you know those parameters. Do not expect a counter offer as that is not guaranteed. Third, expect to make numerous offers in order to get a home. Patience and persistence is what will sustain you in this market.
More than ever, it’s imperative to have a realtor that you trust. Competent realtors watch the market on a daily basis and know what it takes to be a successful buyer.
