The Perfect Offer...Or Cash is Still King

From where I sit as a REO Listing agent in the Hemet - San Jacinto Valley the California REO Market is finally starting to heat up.  OK, it may not be sizzling, but I have seen more action in the last week than in a long time - both with buyers and my sellers.

Desperate buyers are still struggling to get into escrow to take advantage of the $8,000 tax credit that is scheduled to be pulled off the table for any escrows that don't close on or before November 30^th, 2009.  That's only 61 days from now and our average time in escrow here in Hemet - San Jacinto, CA is currently 52 days for FHA loans, which are most of the first time homebuyers.  My thought with the decline of the program escrow may get a bit busy toward the end of next month,

Not long ago the banks would come back with "highest and best" giving prospective homebuyers the opportunity to come back and up their offers in the hope of beating out the competition.  It was not uncommon for five or more buyer to bid up to an additional 5% - 8% and even 10% over their earlier bids that were already over list price.

Well, laws changed.  Policies changed and most importantly the appraisal process changed dramatically this summer.  As a result of these changes, the banks found themselves going through the expense and trouble of renegotiating contract after contract.

So, now the banks are getting smarter.

No longer am I, as an REO Listing Agent, asked to solicit ‘highest and best'...the banks just want best!  What this boils down to is the banks are satisfied with the list price as an appraised value - that is why they spend all the money on BPO's and appraisals before the property is ever listed in the MLS.  So the value is a non-issue.  Write your offer for list price.

What Else Can a Buyers Agent Do?

When educating your buyer clients, you as their agent, have a responsibility to educate them on the market condition and changes as they occur - not 3 months later.

The best offer is for all cash.  No surprise, but more often than not most first time homebuyers don't have that much cash available.

A year ago we had a ‘Down Payment Assistance" program where it was almost expected for the bank to contribute 3% towards the buyers closing costs.  Often times these costs were stacked onto the offer price, so in theory it was just a paper drill.  Well those days are gone and to be honest, buyer should not be asking for any cash back from the seller towards closing costs or other concessions.

Listen, I understand that not everyone has a pile of cash to pay for all of this stuff - but at the risk of sounding politically incorrect let me just say that maybe it isn't time for your buyers to buy a home then.  Home ownership is not for everyone and it is not a right.  Whatever you do, don't call me and plead your clients case as if they are entitled...not if you want my help.

The next step to strengthening your offer and looking better than all the others hovering in the pack is to not ask for any money for repairs and waive your inspection contingency.  Check the house out when you write your offer.  Then while you are waiting to process the paperwork, bring in your father-in-law, your brother or hire a professional inspector - but due you diligence early on.  Remember, you want your offer accepted...not negotiated.

Banks are starting to get away from home warranties.  Not sure what happened, but I'm guessing that one of the banks got sued by someone who bought a REO home with a warranty and then there was a condition that was not covered...so I'm betting that the homebuyer might have been an attorney and turned around and sued the bank on some sort of ‘implied warranty' causing the bank to undertake some expensive repairs.

So do everyone a favor, just factor the three hundred bucks or so into your offer and pay for that yourself.  It's $300 - don't turn that into an issue - be better than everyone else and get your offer accepted.

Same theory goes with the termite inspection.  These are NOT required by many lenders...unless they are in the contract, than the underwriter wants to see the report and clearance.  Especially if you are buying a home that is only a few years old.  I have yet to see any termite damage in a home less than 5 years old.  If you are wanting to buy an older home for sale by the bank - then get your diligence done before you ever go into contract...make it clean.

Now you Know What NOT to Do...What Can You Do?

If your buyer can't come in with all cash - up the ante.  Increase the Ernest Money Deposit to the full 3.5% that they will need for an FHA Loan.  This shows the bank you are serious.

Nearly every offer I see has a personal check.  So, what is better?  How can you separate yourself?  How about a Cashiers Check?  Absolutely and deliver it to the Listing Office.  Let them know you are serious and not shopping for any house that will take them.  Put your money where your offer is...in the hands of the listing agent.

Increase the total cash down, as well.  Just because the minimum buyer contribution for an FHA Loan is 3.5% there is nothing that says you can't put down 4%...5%...or, (oh my gosh, do I dare say it) 10% or MORE!  Stretch - no one ever said buying real estate should be easy...and if they did say it, they are not in business today!

The next thing you can do is get a GOOD LOAN.  Lets be brutal here folks, FHA Loans and FHA Buyers are at the very bottom of the food chain.  After Cash comes a good Conventional Loan with a hefty 50% down payment...even a 30% or 20% gets lots more respect than a government subsidized loan that rarely requires a single months income out of the buyers pocket.  So I'll say it again...STEP UP and SHOW ME THE MONEY.

After the Conventional(even a 10% down Conventional loan ranks much higher than an FHA, VA or other exotic loan).are all of those exotic programs that give the seller the impression that they will take longer to close and that the buyer has the benefit of free taxpayer subsidized money and therefore they can or should be putting more skin in the game because it is just too easy for these buyers to get up and walk away (and it happens all the time).

The other big issue with FHA, VA and other exotic loan programs is they often require the seller to do some pretty expensive repair work, which is not adjusted for in the purchase price.  The banks really would prefer to sell their inventory "AS-IS"

Other than cash buyers; it is understandably hard for a first time homebuyer in the Hemet - San Jacinto, CA Valley to meet all of these requirements.  Please use this as a guide to best position your or your clients offer if you are serious about wanting to buy a new home in this or any other competitive real estate market.

Until Next Time, Have a Blessed Day,

John Occhi, Hemet CA REALTOR®

 This blog and the contents written here is the intellectual property of John Occhi, Hemet - San Jacinto Valley REALTOR® in the South West Riverside County region of the Inland Empire of Southern California.  The views and opinions expressed are just that - views and opinions of John Occhi and those who comment.  Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance. 

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