Thursday, February 28, 2013
Manhattan Beach-Beach Cities: 5 things to know when buying in a Seller Market
Not long ago the biggest issues buyers faced were deciding which property, out of the many choices available, would best meet their needs, trying to get a local appraiser who knew the Beach Cities market, waiting for the short sale lender to approve the price and hope the lender of their loan would not take forever to get it approved.
How times have changed... Today the most difficult obstacle facing home buyers in our local South Bay-Beach Cities real estate market isn't financing or lender approval of the sale or even the appraisal. The toughest issues are finding a property that is still available and figuring out how to get an offer accepted. It is not unusual for a well qualified buyer to spend months trying to buy a home because of the stiff competition.
While it is not unusual for luxury buyers to have 50%-60% down or pay all cash for a property, it is new for all segments of the market to have a high number of buyers with huge down payments or the resources to pay all cash. These ultra-qualified buyers make it very difficult for the well-qualified buyer to get an offer accepted. First time buyers with minimal down payments are being squeezed out of the market. When sellers have multiple offers to choose from it only makes sense that they will pick the one that has the best chance of closing and an all cash offer or one with a very high down and few contingencies will likely win the bid.
The last time I saw a market like this was in 2003-2004. While I doubt we will see the huge price increases that occurred then, prices are definitely on the rise. Overbids are the norm not the exception especially in the entry level in Manhattan Beach, Hermosa,Beach Redondo Beach and El Segundo. The competition is fierce at all market levels for homes that are priced near market value.
So what can a buyer do to increase the chances of getting an offer accepted? Here are 5 things that may make a difference.
1. Know exactly how much you can afford. If you need a loan talk with a lender. If you are paying all cash talk with your accountant. If you can only spend $900,000 don't look at homes that are over $1,000,000 with 8 offers and hope the seller will take less. The same principle applies if you can afford $3,000,000, don't fall in love with a $4,000,000 home. Staying on budget may mean lower expectations. In the long run living within your budget makes more sense then buying more home than you can afford and losing your home to the bank.
2. Have all your documentation in place. If you need a loan get pre-approved not pre-qualified. Have the lender run your credit and do all the verifications before you submit an offer. If there are errors on your report you want to fix them long before you are in escrow. You want the only condition to be finding the house and the appraisal. Having a large down payment increases your chances of obtaining a good loan at a great rate, however it doesn't guarantee it. You will still have to qualify for a monthly payment. If you are paying all cash be sure you have proof of funds ready for the seller to review. A future insurance settlement isn't proof of funds.!
3. Know the current market where you want to buy. If you are using information from 2012 you don't have the right tools to evaluate what a property is worth in today's market. You need to know what has been happening over the last 2 months to see where trends are moving. Pending sales are your best gage of the market. How long did the home take to sell? Were there multiple offers? Are there similar properties in the same price range or have prices increased? If there are 15 offers on a property then coming in $40,000 under the list price may not be a wise decision. However if the property has been on the market for 6 months with no offers then a lower offer isn't out of the question.
While you don't want to get caught up in the multiple offer syndrome sometimes your best strategy is to offer over the listed price. If you make this choice one of the things you should think about is... if you offer more can you find another property at the higher price that better meets your needs.. if the answer is NO, then offering a higher price may be a good solution to getting the property that you really want.
4. Don't panic...be patient! Even in this market the right house will come around but it may take time. Don't give up all your rights just because there are multiple offers and you are frustrated. If you are paying all cash or have 50% plus down then removing the appraisal contingency is not a bad idea. However it is not smart if you have 20% or less down and no extra cash to cover the shortfall if the appraisal comes in low. In this market most sellers will put the house back on the market instead of accepting a lower price due to a low appraisal. If you are obtaining a loan removing the loan contingency is not a good idea unless you can pay all cash. If you are not a contractor buying at lot value don't give up your right to inspect the home. Shorten the inspection period to 7-10 days rather than 17 but don't give it up. Even contractors can get fooled.
5. Find an agent you can trust.. You should have an agent who represents you.. the buyer. A good agent will save you money and steer you clear of many pitfalls. While it is legal to act as dual agent and the agent must give the highest fiduciary care to both clients; it can sometimes be difficult if a major problem occurs to make all parties feel their side is properly represented. It just makes sense to have an agent who works only for you. In California you can be represented by your own Buyers agent who doesn't work for the seller... although a buyer does owe a fiduciary duty to all parties as does the listing agent. In California agency is not dependent on who pays the brokerage fee.
Following these tips won't guarantee you beating out other offers but they will give you a better chance of getting the home you want.