In the San Jose/South Bay real estate market, in the month of April, one the most repeated phrase has been "there are multiple offers, about 15 offers on the home currently". There was one instance where one of my buyer clients was competing with 20+ offers and about 3-4 offers were all cash investor offers. What happened?
First and foremost, as I consult with number of my buyers, it's very important to remember that real estate market is cyclical. This means, the market is always fluctuating, going from buyer's market to seller's market. Currently, it's the right perception that it's a seller's market. Let's define that term - a seller's market means that there is less than 4 months of inventory on the market. And yes, in most cities in Santa Clara County, there is less than 2 months of inventory. In some desirable neighborhood, there is less than one month of inventory.
But, is it really a seller's market where seller can get anything? The answer is, yes, but it must appraise and close!
One key difference on the traditional perception of seller's market versus buyer's market that most media does not explain is that this market is significantly different than the boom market of 2002-2005 in that appraisal condition is based on real market value or comparables in the area. In another words, with a financing offer, which is still the prevailing purchase method, the home must appraise. For example, if a home's market value is around $425,000; a financing purchase can offer to pay for $450,000 to "beat competition" However, it may not appraise. In this case, either a renegotiation happens or the purchase will fall apart. With cash offers, even though there is no financing restrictions, inspection contingency still comes into play.
So, what does this really mean?
Buyers: tread carefully and persistence is key. Have your agent scout information on the competition - is it worth your time? In some instances, I can help clients beat out competition; however, there are also times when it may not be worth it to pay extra to compete. Bottom line, both agent and the buyer(s) need to do the homework to determine if it's worth it to pay extra and if so, how much extra.
Sellers: pricing strategy really matters. When working with your agent, be sure to take advantage of the up trending market. Price it correctly will get you multiple offers, which plays into strength in negotiating. However, tread carefully. Don't let the 7, 10, 20 offers fool you into believing you can get the moon. Remember, the best offer may not be the highest priced offer - financing comes into play. Have your agent check the validity of the pre-approval letter. Do the homework will save you from potential headaches down the road.
Bottom line: Doing the research and homework up front is important. Having accurate data and information will go a long way in succeeding this market.