Buyer Strategies in a hot Seller's Market- Pt II

Real Estate Agent with The MJKelly Team BRE#: 0645724

Buyer Strategies in a Multiple Offer Marketplace—Part two:

Buyers are in a beauty pageant every time they make an offer on a home. Your Realtor’s goal? You clutching a big bouquet, adorned with a tiara and doing that “wave” while clutching your accepted offer! So how do buyers win the Beauty Pageant?   More of that to come but first a revisit of the current marketplace.

The above graph shows a new record for median home price here in Sonoma County, "the Wine Country". We'll see if it stays in this rarefied area as inventory increases during the spring. But it is indicative of scarcity and how demand fuels the median home price. In the summer of 2010 one month had 2200 homes for sale. Summer of 2013? A tad under 700 homes. Today? Early spring of 2017 a meager 600 homes for sale. The formulae: scarcity of product + low interest rates + demand = a “Seller’s Market”.  We are in “Multiple Offer Land”. Your offer to a seller may result in; acceptance, multiple Counter offers to all or select offers or perhaps just a shotgun “highest and best” counter offer. How to respond to this and how you can safely shorten your timelines for inspections, appraisal, etc. thereby garnering that big winner’s bouquet is our discussion for today.

Multiple counter offers can be responded in many ways. “Highest and Best” (H&B) came into our Realtor vocabulary when banks where selling their foreclosed home inventory. This simply meant multiple counter offers went out with just these words; “Submit your highest and best offer”. In other words-time to put up or shut up. Why this strategy? Obviously to garner more money for the Seller but also to give you time to sharpen the facets of YOUR offer. The following techniques can also be used when presenting your offer initially. First off a buyer does not have to offer more money in an “H&B” scenario. If you feel your offering price is solid then think about the following: Increasing your deposit, shorten or eliminate timelines/inspections (be very careful giving away your due diligence periods), shorten escrow, more cash down if you have it, and if you have more cash then stating in your response, “Should appraisal be less than required for loan approval, buyers will make up the difference in cash”. Let’s explore these options advantages and pitfalls.

Sellers love and adore big, fat juicy deposits. Realtors like 3% of the agreed upon purchase price as a total deposit. The California Association of Realtors (CAR) has 3% of the agreed upon purchase price designated as “liquidated damages” for contract default.  (Buyer Alert! Check with your attorney as to the “Liquidated Damages” clause of the CAR purchase contract in regards to your deposits).  This 3% can include an initial deposit and an increase once all “contingencies to the offer” have been removed. $500,000 purchase price deposit total is $15,000. If you have the cash and a big down payment consider an eye-popping deposit. $50,000? How much is enough? Your Realtor can advise you. Sellers want to work with serious buyers- It’s an attention grabber. 

This next technique is controversial. Realtors want a buyer to be fully aware of the condition of a property they are purchasing. So the idea of shortening inspection time frames or foregoing them altogether can be fraught with peril-no one wants to buy a pig in a poke. To reiterate—Sellers love clean offers with little if any contingencies. Realtors at the very least want buyers to have a pest inspection and contractor’s home inspection report. If the listing agent had these reports done previous to placing the house on the market think of using these reports to determine the overall condition of the property. As a buyer you want the pest report to have a “Certification” that the house is free of any “active infestation or dry-rot”. A Home Inspector’s report provides details and depth as to the overall condition of the home’s components and some have a “summary” section of work needed on the Home.  You should have a contractor read over both reports.  Let these reports guide your offer. Your level of sophistication as a Buyer will dictate your level of confidence in using this technique. If you're not comfortable with this technique then order new reports. Keep your physical inspections as part of the offer.  But if you are satisfied with the existing reports then consider waiving your physical inspections as a part of the offer. An offer with no physical inspections impresses the Seller and makes the listing Realtor smile.

Shortening your escrow period is also a good strategy if your lender can perform. BIG caveat here: make sure your lender has a proven track record when dealing with multiple offer situations. If you are a cash buyer then no problem.

Lastly, Making up the difference, if any, in the appraised value and purchase price by bringing in more cash. Your sales price is $500,000, appraisal comes in at $475,000. You need to add cash to the deal to make up the $25,000 shortfall. You are over-paying in the judgment of the appraiser if you go forward. However, you may feel the home’s features and amenities are worth the additional money. Your Realtor will explain the comparable sales and how the appraiser arrived at his/her valuation. Could be the appraiser is not familiar with the area or the comparable sales. New appraisal guidelines mean outside appraisers are coming into our area. These appraisers may need data to acclimate them to our marketplace. A Realtor friend removes the lockbox from the listing when he gets an accepted offer. He states all parties must call him to access the property. This means the appraiser will be meeting with the listing agent upon inspection. My Realtor friend presents all viable comparables for the home justifying the sales price.  Remember, it is your call to make up the difference in cash. If you don’t feel comfortable about this technique then move on. And that’s the same for all the other techniques mentioned above. Your comfort level and ability to sleep at night is of utmost importance. Consult with your real estate team to determine the best course of action to take. You the buyer call the shots.

Comments (2)

Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Mike, that is a healthy price point, and had a client that TRIED moving back to Santa Rosa, but got too expensive.  His house will be ready end of May.

Apr 21, 2017 07:01 AM
Mike Kelly,CRS,CIPS
The MJKelly Team - Santa Rosa, CA
"One of Sonoma County's Natural Resources"

Joan,  Affordability is the biggest loser in this type of market. Back in 2007 our affordability got down to 10%, 1 in 10 could AFFORD to buy our homes BUT we had all that dumb money seeking all those speculative buyers and they fued it to the collapse. Now it will be interesting to see what gives firs-affordability or prices.

Apr 21, 2017 09:56 AM