Yes, Mr. and Mrs. Seller I Will Give You My First Born Male Child If You’ll Let me Buy Your Lovely Home!

Unfortunately, this is how many buyer’s feel during the drafting of their offer in a multiple offer situation.   Writing a winning offer usually involves having the highest price.  However, we all have heard of offers being accepted that didn’t have the highest price or even the “best terms.”  How much should a buyer offer for their home?  Does the buyer realistically have the money to compete?  How can a buyer package an offer that will get them the home and not bankrupt their future?

Unfortunately, when the seller underprices a home, offers come in from buyers who realistically can’t afford that home.  This creates added pressure on qualified buyers to increase their offer price.  In an appreciating market, if a house is priced in line with recent sales, it might receive 4-6 offers.  But when it is underpriced… by say 5% (or more),  there usually are many more offers.  These additional offers create a frenzy, substantially inflating the home’s final sales price.   That is why so many agents recommend a low list price.  Price em’ low and watch em’ go!  Buyers can combat this somewhat by doing their homework.  Learn the recent sales prices for homes that are comparable in style, size, location and condition.  Try to find out how the transactions went down.  Were there six offers with one clearly overpaying or where all six close in price/terms?  Try to learn everything about the offers on the homes that are currently sale pending.  These offers and how they were packaged will give buyer’s their best market information.

More often than not, buyers involved in multiple offers are not including a financing contingency in their contracts.  Buyers better be comfortable that the property will appraise at or above its purchase price or they will need to increase the down payment to match the appraisal shortfall. 

Typically a buyer will also need a substantial down payment.  The reality is that seller’s prefer an offer that has at least 20% down.  Anything below 20% down makes the buyer look weak and anything above 20% shows good financial strength but may not be necessary.  Note:  One strategy that we’re seeing more and more of is the use of writing in a large down payment into the contract (say 40 % down, 60% financing) and then once the loan is in place the buyer uses a smaller down payment (20% down, 80% financing) to complete the transaction.  This gives the appearance of financial strength, yet allows the buyer to maintain cash reserves.   Note to buyers: make sure that what ever one writes into the contract, one can perform.  Otherwise, one could be in a heap of legal trouble.  Can you say fraud!!! I can hear it now… “Honest Judge,  it was my agent who told me that it didn’t really matter what I wrote in as my down payment.”

Lastly, one should include a 3% initial deposit check with the offer.  This is the minimum that a seller will look for as a deposit.  On the flip side, I’ve seen huge deposits, non-refundable deposits and even option money used as a deposit.  It depends on how desperate the buyer is and how “desirable” the home is.  Buyers should make sure that any representations about finances can be backed by third party sources.  Include a pre-approval (not pre-qualified, which means nothing in the real world) letter showing a loan committment from a reliable lender.  Not your cousin who also happens to do loans part time!  Unfortunately, experience has proven that I’m not a huge fan of online lenders.  Most (although not all) of the deals that we see go bad are from online lenders.  Most (although not all) tend to be online lenders not being able to meet the deadlines written into the contract and/or who never really had the buyers pre-approved in the first place.  This is when we have to pull in our local ”brick and morter” lenders to close out the deal.   Include bank statements and/or a bank letter indicating where the souce of the down payment is coming from (ie. that the buyer doesn’t have to liquidate 100,000 shares of “fly-by-night” web company to make the transaction work”).  If a buyer has done the above, he/she just might make it past the first cut. 

Great news! We found the perfect house… Bad news, so did 15 other buyers – Now what?

Recently, I’ve been involved in several multiple offer situations with my buyers.  Each time is an opportunity for my clients to become happy homeowners or one step closer to having the life completely sucked out of them.    Here are strategies that buyers can use to try to get that dream home without giving away the house.  Hold it……you can’t give away something that you don’t have yet.  Focus…. O.K. back to multiple offers strategies for buyers.

When a property comes on the market, immediately contact the listing agent or homeowner (if they are representing themselves) and ask when offers will be addressed.  Will they take a pre-emptive offer?  A pre-emptive offer is just that, pre-empting the offer process by attempting to get your offer ratified before the rest of the real estate world wakes up.  It appears that some agents (funny, it always appears to be the same agents) list homes that are priced way below the recent sales comparables.  This usaully happens in an appreciating market.  This also ensures a multiple offer situation.  Hmm … mighty suspicious.  I find it odd that, even if the Seller would take an offer immediately, the Seller has gone on vacation and/or had to visit their dying aunt and/or they themselves have just passed away and the executor is unavailable. 

Financing -

Get pre-approved  on your loan prior to looking.  Its pretty basic stuff.  But you would be surprise that even today, many buyers assume that since they checked their credit online and were told that they could get a loan, they were good to go.  They were “pre-qualified and would work out the details” once they found the ideal home.  Well, after losing their first “perfect” home to stupidity, having a loan committment from a reliable lender is starting to sink in.

99% of all local listings will have some sort of disclosure package about the property available to prospective buyers.  READ IT and SIGN IT!!  It should include the mandatory disclosure documents as well as a property inspection and termite inspection.   Additional inspections may also be included.  If anything looks odd or you don’t understand anything, have it checked out by professionals.  “But Dave, offers are in two days.  We don’t have the time…we work.”  This typically is the largest investment that one will ever make.  Make the time.  At least contact the inspectors, call the city, verify school attendance boundaries (which are changing as I type), check the Meagan’s law website (if you dare).  Remember to check about the home’s current condition as well as for future use.  Do you plan on building a two story?  If so, is the home in a single story overlay zone?  Does the C, C,& R’s restrict two stories?  What are the design and building codes?  Find out as much as you can before you commit your money.

 Next time …… part 2  Packaging the offer.

Los Altos Real Estate market continues to Sizzle, especially if you’re a Seller!

Well, here it is mid June.  School is out.  Families are starting to take their vacations and those who aren’t, their kids are running around having fun and creating havoc.  In Los Altos, our immediate real estate market continues at a heated pace.  But in other areas (mainly south and east) we are seeing signs of the traditional early summer slowdown.  Currently there are 42 active homes for sale in Los Altos with another 40 under contract.  Over the last three months we’ve seen approximately 50 homes each month come on the market and about 50 homes sell, although not the same homes.   Many homes are selling with multiple offers and for much more than the original list price.  The average time it takes to sell a house is about 20 days with the average escrow period also around 20 days. 

On the flip side, it appears that there are some houses that just will never sell.  They’re the same old dogs that stay on the market for what seems like an eternity.  There are 7 homes that have been on the market for over 80 days and 3 have been on the market for over 130 days.  These homes are listed and re-listed with apparently nothing done to the home’s condition and/or its price.  Just relist the house and shazaam it will sell!  I don’t think so.  One would think that Sellers and/or their Agents would get a clue that there is something wrong with their marketing efforts if their home hasn’t sold in 3 or 4 or 5 or 6 or “fill in the blank“ months.  Statistically, if it takes on average 30 days to sell a home in Los Altos and your home is on the market for 4 months….  Hum, I wonder what’s wrong? 

An unintentional side effect with these ”vintage” or “career” listings is that they skew the statistics that everyone (including me) love to quote when we analyze the market.  If  5%-10% of active listings have been on for an eternity, the average days on the market doesn’t really reflect the true time it takes to propery market and sell a home.  I would argue that these homes aren’t really for sale because they aren’t at a price point (given all other factors) that a sane buyer would put an offer in.   Then again we’ve all heard stories about a few insane buyers out there.