Navigating a Sellers Market as a Homebuyer

Haute Realty’s Mona Barnett quoted in a  local mortgage blog!     Posted by with Bay Equity Home Loans on April 21st, 2014

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Today’s home buyer faces unique challenges in our Metroplex. Dallas is apparently the place to be, as indicated by the housing inventory shortage, causing multiple offer situations to be commonplace. If you’ve been home shopping for any amount of time, this isn’t news to you. And if you’re currently shopping or considering buying a home soon, then THIS ARTICLE IS FOR YOU!

Navigating what’s considered to be a seller’s market can seem like a daunting task for a home buyer – especially if you’re a first-timer. While the market has definitely shifted in favor of the seller, it’s a great time to buy considering current mortgage rates and the likely continuation of value escalation… meaning that even if you feel like you have to “over-pay” for the house of your dreams today, it’s likely to be worth even more tomorrow. Of course, no one can guarantee property value trends, but most anyone with any experience or knowledge of the industry agrees now is a great time to buy, IF you can win a contract bid.

I’ve spoken to a few of my favorite, very successful agents in our marketplace for some solid feedback on how they’re helping their clients win bids and, conversely, how they’re representing their sellers. This is especially important to know as a buyer, because in order to win, you must be thinking about things from the seller’s perspective and appeal to their greatest needs.

Here are a few points all of the agents seem to agree on:

“It’s not necessarily all about the money. JP Paccinini of JP & Associates Realtors says, “Actually in multiple offers the list price will generally be very close among the serious buyers. Most offer 1%-3% above list price, anything more and a good listing agent knows you will have appraisal issues and that value won’t be justified anyway. A couple of factors are: 1. Who is the buyer’s agent and are they professional, courteous and knowledgeable? i.e. Are we going to have a smooth transaction or this agent a prima donna know-it-all? 2. How strong are the buyers, i.e. who is putting more money down and who has the best financing options? (Typically in order Cash, Conv, FHA/VA last). 3. Who is offering the best terms. Often a flexible closing date or a lease back can carry so much weight. Remember the sellers – they are most likely buyers as well. And finally, I have seen sellers take thousands less when a buyer presents a “Dear Seller” letter (family portrait included).” JP also says, “I would say at least a quarter of the multiple offers are not selected based on highest price.”

Mike Schmitt of White Rock Lake Real Estate, LLC says, “The best creative strategy I know is to be their first and, depending upon the property, bid over list price. Sometimes that causes appraisal problems so if the buyer has a large down payment and can pay over appraised value that helps. Also, having the least amount of contingencies helps.”

“Offer to buy the house AS-IS. While you will still have it inspected, you make your offer valid with no requirement of repairs” says Mona Barnett of Haute Realty in Dallas. She continues, “Try a waiver of the right to terminate because of an appraisal coming in low, this special provision recently won my seller!” Committing to paying the negotiated price regardless of appraised value gives the seller peace of mind that their numbers won’t change at the last minute.

“Consider ALL aspects of the contract from the seller’s perspective,” Kevin Caskey of Dallas City Center Realtors says, “You must look at everything to determine which offer truly benefits your seller the most. There are many factors in addition to sales price…option fee amount/time, closing date, cash vs. financing, their choice of lender, amount of earnest money and down payment, to whether they are using a reputable agent/brokerage that doesn’t stand in the way of a deal coming to fruition.”

So, according to some of the experts who will be helping sellers decide whether to accept offers, here are the basics:

Pick your agent wisely. The seller’s agent probably has had past dealings with your agent if they’ve been around any amount of time. Check references, because if the seller’s agent doesn’t like working with your agent, they’re likely to consider other offers more seriously. Make sure they have a VERY professional demeanor and stellar communication skills. Any of the agents I’ve quoted here are serious professionals that will help you (their contact information is available with hyperlinks above or listed below). If you haven’t selected an agent, feel free to call on me for a recommendation… Since 95% of my business is referred by real estate agents, I have the scoop on the best ones!
Choose a lender that has a proven track record. Most agents know the benefits of a good lender and will advise their seller accordingly. (This is where I come in!) The reputation and performance history of lenders throughout the Metroplex is a topic of discussion amongst realtors, so if you select one that has had issues in the past within the realtor community, they’re sure to tell the seller and advise accordingly!
Make your offer serious and flexible to the benefit of the seller.
Leaseback options – as long as 30 days – should be standard and assumed in this market. Quick contract close dates are always appealing to the seller, but be sure to include the lease-back option!
Higher earnest or option fees, shorter (or even NO) option period. 5 days or less is recommended.
If you’re offering over asking price, make note that you’re willing to pay the difference in cash if the house doesn’t appraise. (remember that this is over and above your required down-payment for financing)
Offer to buy the house AS-IS with no repair requirements.
Include a “Dear Seller” letter, ideally with portraits. Make sure you’re doing all you can to appeal to their emotions and explain why you love the house and why they can feel good about selling YOU their home.
Make an offer that is serious. Low-balling is a thing of the past. Most listings have multiple offers and usually end up over asking price. If you’re buying in this market, remember that you’ll likely have to pay AT LEAST asking price. (Remember, current market prices are increasing every day. If that trend continues (and I expect that it will), you won’t be underwater for long, even if you pay over current appraised value.)
Consider larger down payments or even paying cash if that’s an option and remember that the TYPE of financing noted on the contract can have an impact on the seller’s decision. Most agents agree that the best terms for the seller are (in this order) 1. Cash, 2. Conventional financing, 3. Government (FHA/VA) financing. (I’ll be writing a follow up post to agents to help dispel the notion that FHA/VA financing isn’t JUST AS GOOD as conventional, but that’s another topic altogether – for now, we’re focusing on the general consensus to help you win the bid!).

Ultimately, just remember that the typical goal of the seller is to sell their home for the greatest profit, in the shortest amount of time with little to no risk of the buyer not following through, all while giving them the greatest amount of flexibility on moving and situating their lives and being the least amount of headache from contract through closing with a buyer that they feel good about emotionally. Oh, yeah, they want their cake and to eat it too! If you can hit all those points, then you’re likely to win the bid and the house of your dreams!

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