Multiple Offer Strategies for Palos Verdes Homes

Real Estate Agent with Call Realty Company

There isn’t a week, and sometimes a day, when I don’t learn something in this business.  Often it’s a lesson learned directly from a client.  That’s one of the great things about my business; I benefit from meeting folks from all walks of life and all professions.  It’s really quite remarkable and every transaction is different.  It’s what has made serving my clientele since 1980, truly a rewarding experience.

Even though, the lessons learned are sometimes learned the hard way. Let’s take for example the lesson I learned this week.  We’ve all heard the expression, “… when you ‘assume’ something, you make an a** out of ‘u’ and ‘me’” So true.  I made assumptions this week about what a client of mine knew and didn’t know and those assumptions led to my client not getting a home they really liked.  Let me share the “behind the scenes” set up here.

We’re in a market right now that is just abysmally undersupplied.  The price appreciation vector as a result of this undersupply is such (check my March 17 blog entry and scroll down to the bottom of the page for the chart depicting listing volume) that in my opinion, continued price appreciation is “baked in” to the market for quite some time. In fact if you read my April 8 blog entry, you will see why I believe this to be true.  At any rate, if you’re a buyer of real estate today in a market in which supplies are short, price appreciation trajectories are strongly positive, then you need to understand the choices you can make when your broker is completing the “RPA” (Residential Purchase Agreement).

As part of my customer service then, let me share some of the elements in the RPA that you, as a buyer, have to think about and if you’re a seller, what you too have to measure when studying offers presented to you.  As you read through the table, the first column refers to paragraphs in the RPA which you can check here For those of you reading this that are selling or buying now, this is critically important to understand.  If you know anyone that is considering buying or selling, please share this email with them.  Learn from my mistake!

But first, did you know that of the 61 Palos Verdes homes sold in the last 30 days 1/3rd of them sold for list price or over list price?!  For the last 30 days, here's the most frequent price ranges (go here to see the data and at the bottom of the page is a chart and link to homes now for sale in the most frequent Palos Verdes Homes selling price range)

Multiple Offers - Considerations for Buyers and Sellers

Paragraph # in Purchase Agreement Description Consequence
3A Earnest Money Deposit Needs to be 3%, less and you create question in Seller’s mind about your ability to pay and your liquidity.  We’ve always done 3% but I don’t want to leave a stone unturned in this discussion
3D Loan Amount Clearly Seller’s perceive a lower Loan to Value ratio better.  It alleviates fears of appraisal shortfalls, ability of a buyer to make up shortfalls by cash.  This is contradicted by a Buyer’s desire to leverage as much as possible.  In today’s transactions in the price levels we’re looking at, 35% down payment is bare minimum.  Yes, you can get financing with less down payment and a preapproval letter will speak to that but listing agents and sellers will always have suspect about 20-25% down.  This will be a choice to make going forward
3E Interest rate caps I’ve never included one in any of the offers I’ve written for you and the reason why is that I wanted to provide peace of mind to a seller that so long as you were qualified, no matter what the interest rate was, you would close.  If you put too tight of an interest rate here, let’s say 4.25, then if rates go to 4.250001, you would have an out to the deal, sellers know that and would tend not to choose you as a buyer
3G Price Well that’s the big one isn’t it.  You will always be faced with the choice of whether or not you want to write an offer at a price that will blow the competition away, and by definition that will tend to be a bit above market.  Do you accept that as an option with the knowledge that at least you won the property and in a market where inventory is so low that price appreciation is baked in to the market for another 3 years or so (based on past historical trends).  That’s a choice you will have to make on a house by house basis
3H Verification of Down Payment Must, must, must have ready to go.  The contract says you will tender that within 3 days of acceptance, but no listing agent will accept that.  Have with the offer
3I Appraisal contingency In an appreciating market like ours, with appraisers looking backward in time and old sales, there is a built in tendency for appraisals to come in less than purchase price.  Is the offer/purchase price one you’re happy with?  Then do you really care what an appraiser thinks?  You know what a property is worth to you, an option then will be to waive this contingency and of course this obligates you to cover the shortage with additional cash.  A lender will, depending on size of loan, lend 70-80% of purchase price or appraised value whichever is lower.  Do you have the cash to cover the shortfall?  If so, to make an offer stronger, a choice will be to waive appraisal as a contingency
3J Financing Contingency How confident are you, more importantly how confident is your loan broker at getting you approved for the loan?  Having a financing contingency allows a seller to infer that you’re not confident about your qualifications notwithstanding your preapproval letter.  A choice will be, in order to make your offer stronger, to waive the financing contingency.  Which of course has the consequence of, if not approved, loss of your earnest money deposit.  How confident are you?  Offers with no appraisal and no financing contingency often win the day, sometimes even a slightly lower price than the competitive offers.
7 Allocation of costs Sometimes buyers will choose to absorb costs normally associated with a seller’s side of a ledger.  This is a marginal issue.  Financing and Appraisal contingency along with purchase price have much larger weight
9B Seller remaining in possession There are times when allowing the seller to remain in the home for a short time after the close, is perceived by the seller as a great value and can compensate the seller for choosing you over a higher priced offer or an offer with otherwise better terms.  This is another choice which needs to be investigated with the listing agent to determine if there is a perceived benefit by the seller to remain in possession
14B1 Time to conduct due diligence This actually applies to any contingency.  The shorter the contingency period, the more you are willing to encumber yourself with the inconvenience of getting things done fast, the better your chances of winning the property.  No seller likes that due diligence period in which for days on end they’re wondering if they really have a deal.  Cutting this period down, creates well being feelings with a seller which in turn might be leveraged in negotiations to better terms elsewhere for you
22B Arbitration I will leave that to a discussion you may or may not want to have with an attorney to advise you.
1D Close of Escrow Intuitively, for most cases, a shorter escrow is perceived as better by a seller vs a longer escrow.  We all know “Murphy’s Law” exists and a longer escrow is considered by a seller, fertile ground for Murphy’s Law effects to happen.  With some sellers however, too short of an escrow may cause stress, so this is where we investigate with a listing agent, what a seller’s preference is.  This too then is a choice you will have to make as to length of escrow

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