sellers market

Here’s why you’re not winning in multiple offers

by John Rice

Some offers are better than others. Some people think it is all about who makes the highest offer but there are other things to take into consideration.

Here is the hierarchy of offers:

  1. Cash offer.
  2. Conventional loan with large down payment.
  3. Conventional loan with smaller down payment.
  4. FHA/VA loans. (Because the appraiser for these loan types does a minor assessment of the house. If the condition does not meet minimum standards set out for each loan type, the Seller HAS to do the repairs in order for the Buyer to get their loan.)
  5. Any loan with down payment assistance where there are two loans that have to go through two different underwriting guidelines.

Then there is the offer amount:

  1. Offer over list price.
  2. Offer list price.
  3. Offer less than list price.

Then there is the home inspection. Three choices there:

  1. No home inspection at all.
  2. Buyer does home inspection but won’t ask for repairs. Will either accept the house or walk away.
  3. Buyer wants to negotiate repairs with Seller.

Then there is the appriasal:

  1. Buyer will cover any possible gap between sale price and appraised value in cash.
  2. Buyer won’t cover any possible gap between sale price and appraised value in cash.

Then there is the Buyer’s lender:

  1. Buyer will use a local lender that every realtor knows does a good job.
  2. Buyer will use a non-local mortgage company.
  3. Buyer will use a local lender that every realtor knows preapproves any buyer with a pulse.
  4. Buyer will use a bank that begins with the letter C that everybody knows will be difficult to work with and that it is unlikely to close on time.

Then there is the closing date and when the buyer can move in the house:

  1. Buyer’s realtor found out when Sellers want to close and put that date on the offer.
  2. Buyer’s realtor doesn’t know to ask this and that it can really help make their client’s offer more attractive.

Then there are contingencies:

  1. Buyer has no contingencies.
  2. Buyer needs to close their old house first in order to buy the new one.
  3. Buyer needs to sell their old house first in order to buy the new one, meaning it currently may not be on the market and definitely doesn’t have a contract on it.

Then there are closing costs:

  1. Buyer will pay their own closing costs.
  2. Buyer needs Seller to pay some of their closing costs.
  3. Buyer needs Seller to pay all of their closing costs.

What are your numbers? If you are a 1 in all of these, go out and make your offer. You will probably get the house. If you are a low number in any of these, best of luck. If you are the bottom of any or all of these, then you are wasting your time. Sorry, but you are. You are not going to get a house making an offer less than list price with an FHA loan, wanting to negotiate repairs with the Seller and needing to close or sell your old house.

Now that you know all the things a listing realtor is thinking about when they process all the offers, do what you can to make your offer the best it can possibly be. If you are doing a conventional loan and think you are going up against other cash offers, maybe waive the home inspection and offer to let the seller stay in the house briefly after the closing? If you have to close on your old house to buy, make your offer the highest one they get (realize too that moving twice costs money and it might be cheaper to pay the most for a house verses paying to move twice, live somewhere temporarily and then look for another house which will have gone up in value while you wait.)

When I moved in 2012, I was up against 4 other offers. Two of them were cash. That was unheard of back then but common today. I knew I couldn’t compete with cash so I went a little over the list price, waived the home inspection and offered to let the Sellers rent back from me until they found their new house. This was appealing to them since they had not found their new house yet.

Why now is the best time to buy all year

by John Rice

At the risk of sounding like the stereotypical realtor who is always saying that now is the best time to buy, it really is the best time to be a buyer since before COVID hit.

Why? Lots of reasons but the biggest single reason is that we are seeing more listings hit the market at a time when most everybody who was going to buy a house in 2021 has already done so. If the market were a restaurant, picture that time when you walk into a very popular place that is hard to get into at noon, but you have arrived at 12:45 and there is plenty of seating.

This won’t last long though, which is why I think now is a great time.

I put on a new listing for $185k last week. We had tons of showings, some interested buyers, but only one full price offer. That hasn’t happened all year. One of the agents that showed it gave me some feedback. She said that her buyer opted to buy another house that was closer to her grandparents whom she took care of. I read that and I was a little shocked. It was the first time in the past two years I have seen where a buyer had a choice between two houses. Lately the choice has been the one house on the market or waiting for the next new listing.

The week before that, I put 3 new listings on the market. Granted all sold the first day, but two of them sold for slightly less that the list price and only got one offer.

I think the market will remain strong for years to come. It might not be the frenzy we have seen but there is no doubt we will have more buyers than sellers for quite some time. We will see what next spring brings. That is usually when we see prices got up the most. That is why I think between now and late winter might be the best shot you have for getting a house!

Are prices going to drop?

by John Rice

I’m reading a lot of headlines and seeing YouTube videos about the market crashing.

Is it going to happen? Short answer is NO.

Is the market slowing down a little right now? YES. It always does this time of year. People go on vacation and those with kids like to be in their new home before school starts. I always like this time of year because I can catch my breath and enjoy a break before it picks back up a little for the rest of the year. When I go to a track and I get used to doing 120 MPH in a straight, hopping on the interstate on the way home and doing 80 feels slow. Right now we are all so used to a crazy fast market, that even a strong but not super strong seller’s market feels like a major slow down.

Are we seeing more houses come on the market right now? YES. I think this is because all the sellers who would have sold during COVID now feel it is okay to put their house on the market. We started seeing more listings hit the market after the vaccinations rolled out. This makes me think that the sudden increase in inventory hit all at once. We will see if it keeps up. Really though, I sort of hope it does. I would love to see a balanced market where there aren’t 5 offers the first day on the market for a loser house and 15 offers the first day for an HGTV worthy house. Simple economics tells us that as long as there are more buyers than sellers, that it will remain a seller’s market. As long as it is at least a balanced market, meaning supply is equal to demand, prices will remain the same.

The worst thing you can do in multiple offers

by John Rice

This one always drives me crazy. There are a lot of bad things to do during multiple offers when you are the buyer’s realtor, but trying to rush the listing realtor is the worst.

What I mean here is where a realtor sends you over an offer and puts something like a 2 hour deadline for acceptance. I get it. Their goal in this is to make you hurry up and accept their offer before another offer comes in but I have NEVER seen it work in their interest. It usually backfires.

There are three reasons why:

  1. Do you know what happens once that short time frame for acceptance passes? The offer has technically expired. I don’t know about other realtors but the last thing I want is for the listing realtor to think the offer I sent is dead because the time has past. In this market, I usually do the opposite. I know listing realtors are wanting to get several offers and it is common for a seller to not even review all the offers until 2-3 days after the listing went live. I like to give them plenty of time. Why? Because I know I am not going to get them hurry up. They are going to do whatever they want and I want my client’s offer to be valid whenever it is presented. I also want to come across like we will be easy to work with.
  2. It makes the seller not like you. This is an even bigger one. Nobody likes pushy people. We don’t like it when somebody keeps pushing their grocery cart too close to us in the check out line. We don’t like tailgaters when driving. And in the hottest seller’s market in all of history, we sure don’t like it when buyers try to exert some pressure on us.
  3. It makes you question their commitment. I recently had this happen to me. I got a really good offer on a listing the first day on the market. I told the realtor, who was also the buyer, that we were planning on reviewing offers on the following Monday. She pointed out that she had given us a two hour window. I suggested she extend that until Monday. She fought back and said she didn’t know if she was still interested in the house if she couldn’t buy it that day. That tells me two things about her. She was either bluffing or was serious. Both are bad signs to me. If she was bluffing, it tells me she is going to try to manipulate us through the entire sale process. If she was not bluffing, she probably wasn’t totally in love with the house and there was a greater risk of her backing out of the sale before it closed. I told this to the sellers and they agreed that the only way we were gonna sell the house to her was if her offer was the only one we got. Fortunately we got 3 other offers and I was happy to tell her she didn’t get the house…….and I did it before her precious deadline.

Does location matter any more?

by John Rice

I guess a lot of people think being a realtor is about opening doors and cashing checks. I guess there are a lot of realtors who think the same so that is probably the source of the perception.

You don’t need me to help you pick a pretty house. You don’t need me to be there to tell you what you like or dislike about a house. You don’t need me to find houses for you. You don’t need me to walk into the only room with a chandelier and announce it is the dining room. You don’t really even need me at all…….unless you view spending the most money you have ever spent as an investment that you know you will sell someday and want to maximize the return. Oh, I guess you also need me to make sure you don’t pay too much since you won’t really know if you overpaid until you go to sell it.

So here is a quick lesson on how I go about helping people pick a neighborhood. We have all heard that real estate is about location. It is, but I don’t think people really know what that means. I normally break down neighborhoods into 4 categories:

The “A” Neighborhood-These neighborhoods are the ones people know and love for a variety of reasons. Some might be close to something desirable, some might have a lot of charm, some might have lower crime. Almost all “A” neighborhoods have a good performing school district. These are the ones that people know by name. These are also the ones that will always be easy to sell in even a bad market.

The “B” Neighbhorhood-Is like the “A” but may not be as well rounded. It’s popular, but often viewed as an alternative to another “A” neighborhood that is close by.

The “C” Neighborhood-This is one that no buyer has ever mentioned as somewhere they would love to live. It is just average in everyway. Nothing really is wrong with it. Nothing is really great about it either. It is just a neighborhood full of houses.

The “D” Neighborhood-These are like the opposite of the “A” neighborhood. These are neighborhoods where 16 years worth of buyers have told me they DON’T want to live. It is often because of high crime in or around the neighborhood or due to a combination of poorly performing schools. Let’s face it, if buyer’s are telling their realtors they don’t want to live in specific neighborhoods, there’s your sign that it isn’t the best investment.

Why does this make any difference if you’ve found a pretty house you like in your budget? Shouldn’t you be happy just to have found a house in this crazy market? Isn’t finding a house in a less than popular neighborhood better than not finding a house at all? The answer to all of this is that it doesn’t matter at all when you buy the house. It matters a lot when you decide it is time to move on and you want to sell it.

Right now, let’s say there are 100 buyers in the market. There are 20 houses in each of my categories for sale. That means there are 80 houses for 100 buyers. Oh no! That means all 80 sell for at least full price in multiple offers the first day on the market.

But markets change. I am no doomsday person. I don’t think the market is going to crash. It will however, over time, swing back and forth between being a buyer’s market and a seller’s market.

This is what it looks like in a buyer’s market: There are 80 buyers in the market. There are 100 houses for sale, 25 in each of my 4 categories. How do you think this pans out? The “A” neighborhood houses sell first, then the “B” neighborhood houses, then the…….well, you get it. When there are more houses for sale than there are buyers, buyers get pickier. Buyers can’t be picky in today’s seller’s market but they will be able to again. I am sure of that.

My first house was in a “D” neighborhood. I was in my mid 20s and didn’t know anything. Like a lot of first time buyers, I was focused on just finding a house I liked. As I improved my house, I would look out my window and realize that I had no control over my whole neighborhood. Many of the houses around me were owned by investors. There was some crime. I loved the house but not the neighborhood. I sold it for about what I had in it, which meant I didn’t have a lot of equity to carry over to the next house. That is another reason to always pick a winning neighborhood. You will use the equity you’ve built in your old house as your down payment on your next house. You want to maximize that.

So do yourself a favor and always pick the best neighborhood in your price range.