Saturday, March 28, 2015

The Strongest Offer Isn't Always the Highest Offer

Sometimes a seller is faced with the desirable dilemma of having multiple offers on their home. Initially the tendency is to think the highest offer is the best. Generally that would be true, but not always. If the seller is trying to move to a new house they are purchasing they have to think about the big picture. If the sale fails, then that could cost them money on the house they are moving into or even cause that sale to fail. Sometimes the best offer is the one with the least obstructions. That all cash offer with a five day inspection period and two week close might work better for the seller than a USDA financed offer with a ten day inspection and a 60 day close that's $5,000 higher and right up against the buyer's maximum approval.

Usually the highest offer is the one the seller takes but there are times when a "cleaner" offer that is a little less money is the better route for the seller. In this seller's market, buyers should try to structure their offer to suit the seller's needs. The buyer's agent is well advised to talk to the seller's agent a try to figure out what the seller is looking for in an offer. Not so much the dollar amount but the terms. Sometimes sellers have a natural inclination to refuse to pay closing costs for a buyer. Even though an offer can be structured to net the seller the same amount he wants, some sellers have illogical or emotional reasons for not taking a particular offer that is otherwise very strong. In a multiple offer scenario the buyer may not get a second chance to present the best offer possible or to modify terms to suit the seller's idiosyncrasies.

In this fast selling market buyers need to be thoughtful about their approach to an offer.

Friday, March 20, 2015

External Issues need Special Attention

Sometimes a seller has a home that is facing external issues beyond his control. These can be neighborhood issues, location, busy street, crowded, noisy, overlooking industrial area, etc. There is nothing the seller can do specifically to change these external problems. If these problems existed when he bought the house then it is likely the price was reflective. The seller probably got a "deal" on it when he bought it.

Sometimes these external issues develop over time. Maybe a busy new shopping center was built down the street recently and that has created a negative vibe that wasn't there before. Regardless of what the external issue is sellers affected by them need to give special attention to their home to make certain the negative external issues are offset by positive internal value. Internal value comes in the form of the condition of the home and the presentation of the home.

Sellers faced with external negative value should prepare their home for the market by fixing most of the easily visible problems. A fresh coat of paint inside and out could go a long ways towards bringing internal value. Staging the house by eliminating unnecessary clutter and keeping it spotlessly clean will do wonders to overcome external problems.

The external problems will likely be noticed BEFORE the buyers ever enter the property. First impressions can be hard to shake off. It is critically important to show tremendous value once the buyer is inside the house. If they walk in and go, "Wow! I wasn't expecting this to be so nice inside..." the seller has done a good job at overcoming the external negatives.

Regardless of efforts to shine light on the positives the external issues are sometimes too great to completely overcome without a price advantage. But even if price is used to cover the gap, the nicer that home looks and feels the more money it will fetch.

The first and foremost thing to address is the front yard and entry to the home. The external issues have already been seen as the buyer approaches the home so having that front yard really sharp and clean will take attention off the external and put it on the value of the home itself. It is equally important that the buyer walk into the home and see as nice a presentation as possible. This takes their attention away from the negative and delivers a warm and desirable feeling of 'home'.

If the buyer has driven up the street and seen the external problem, then they already have reservations about the property. When they arrive up front the curb appeal is more important than ever. If the curb appeal is bad as well as the external you have two of the proverbial three strikes already in place. Sellers don't want to be facing an 0-2 count before the front door even opens, if you'll pardon the baseball parlance.

Have a landscaper spruce up the front yard. Make that entry and first room look as nice as possible. We all know that ultimately kitchens help sell homes, but if the house has some downside before the front door opens, then that first entry point becomes equally critical as the ever important kitchen!

Sellers need to overcome external problems and surprisingly, they can be overcome without too much time or expense. Failure however to compensate for external problems will result in the only other solution, a lower price or less favorable terms.

As the market continues to enjoy the upswing in prices, buyers can even seek out homes that have external issues and use those to leverage a better "deal". Of course the buyer ultimately has to be willing to tolerate those external problems.

The bottom line is that external issues need not be a break point for the seller. A little care and attention can save the seller a lot of heartache and maybe a whole lot of cash as well.

Friday, March 13, 2015

Buyers Need Their Loan in Place First!

I have a listing, a gorgeous 2200 square foot home in a neighborhood full of kids built in 2004. The price is right and it has been very busy with showings and offers. Funny thing is that three times this property has had offers that either failed to close or were withdrawn due to financing issues. Even though buyers are "pre-qualified" they should be "pre-approved" before making an offer. But even pre-approved can be tricky especially if the buyer is right up near their maximum borrowing limit. One of the three was due to the proceeds on a contingent sale falling short of the lenders required down. That was an unusual issue. The other two however were pre-approved borrowers that were likely riding right up against the max credit available trying to buy this home. As a listing agent I have the duty to get as much out of the buyer as possible and to help my seller pick the strongest offer. Even due diligence however can become moot when the buyer is pushing the limits of financing.

Pre-approvals differ from pre-qualification in that a pre-qual is based off verbal or online questionnaires about income and expenses with a soft credit pull. Approvals have the income documents in, full credit pull, and a computer underwriting approval in place. The pre-approval is conditioned upon the buyer maintaining their credit standing, down payment, and rates remaining favorable. If the borrower is trying to buy a house right up against the maximum amount approved, then it is real easy for that approval to go away if anything changes in the buyers financial situation of if rates have a negative fluctuation.

Back in 2012 when housing prices were at or near the bottom, I found that buyers were very cautious. It seemed like nearly every buyer was looking at houses well below the lender approval amount. As a result I had almost every single deal close once past the inspection period. These days it seems buyers are pushing things right to the ragged edge. That could be due to the sharp rise in prices. Let's face it, three years ago I could put a buyer into a nice clean livable house in a solid neighborhood for well under $200k. Frankly, $150,000 bought a great starter house. Those $150k homes are over $200k now, and that means buyers are pushing the financial envelope a little harder these days.

Seller's need to be diligent with the financing contingency and make sure the borrower is really approved and that they have a loan lock in place as soon as possible after the inspection period. Buyer's need to be sure to avoid adding any new debt during the entire home buying process. Buyer's also need to be vigilant in protecting their credit score as a drop in score may cause a "hit" to rate. If the buyer is up against the ceiling that slight 1/8th hit could crash their deal.

My experience has been that buyer's approved from large online national mortgage companies are far more likely to crash than those using a major or local bank, credit union, or local mortgage company. It seems like the online companies use best case scenario tactics to lure buyers to them. That best case scenario often does not materialize and the buyer is left with no loan after spending money on an inspection and maybe an appraisal as well.

Lenders are the most important piece to buying a house unless the buyer is using all cash. The best agents have one or more trusted lenders that they know will give their buyer solid approvals and offer the highest chance of a successful closing.

Buyers should to some extent shop offers between lenders but understanding that most loans are ultimately underwritten by the same small group of investor's standards. FHA and VA approvals should be very similar across all lenders. Fannie and Freddie loans will also be pretty close on approval amounts. The difference between lenders will usually fall into the fee category. This is where a buyer can shop the deal around. I have found that after the strict regulations imposed following the market crash that most local lenders fees run pretty darn close. Sometimes one bank may offer a program or an underwriting exception that might help a buyer get a house. Any claims of getting a significantly larger approval amount however are likely bogus.

This is a seller's market and buyers need to be ready to close. The loan and proper down payment need to be in place before buyers submit an offer. Buyers are risking the expense of inspections and possibly appraisal when making an offer so having the loan solidly approved just makes sense.


Friday, March 6, 2015

2015 Becoming a Serious Seller's Market

I wrote this post late last year that 2015 could be the last chance to snatch up a "deal". Things seem to be leaning towards a full throttle seller's market. There are still great opportunities to buy but mainly due to great interest rates. Remember buying a house in an appreciating market means that equity grows faster.

Originally posted 12/26/14

That headline should have got your attention. We have seen modest to robust appreciation across the USA over the last two years in the real estate market. The mortgage rates have been ranging from really low to ridiculously low and the economy has been slowly moving towards full recovery.

This has kept real estate as a value. Prices have run from the basement in 2010-11 rising to the point now that they are about where they were in 2007-08. Rates are the real story however. They unprecedented long run of sub 6% rates has kept housing active despite and overall economy that has run from dismal to fair.

2015 could represent a turning point however. If this economy gets into full swing, we very well could see the Fed back off the loan guarantees and rates could end up where they really should be in the 6% range. Coupled with the last two years of appreciation that would move the home affordability index much higher and lock out many buyers that can buy today but couldn't with 6% mortgage rate.

As an FYI 6% is still a very good rate and well below the 50 year historical average of 6.8%

Buyers should take care of their finances and get ready to buy in 2015 if they want to secure a housing "deal". The deal may not be so much a price deal but a rate deal. I have said it many times before and I will say it again here, rates kill buyers much more than price.

2014 has shown us that the entry level clean house was king. These little 1400 square foot 3 bedroom 2 bath homes have pushed up towards the $200,000 in the local market while just 10-15% percent more money buys a house nearly twice as large. These low rates have brought out the entry level buyers in force. Any upward movement in rates will "thin the herd" at the bottom and that could mean a serious appreciation slowdown at the entry level. I have seen the starter houses already showing signs that the economic ceiling has been reached. The middle however should continue to move up in appreciation with a modest but healthy rate of growth.

The real estate market doesn't just move in broad based motions. There are subtle differences for neighborhoods, price ranges, style, etc. Prices can be moving up in mid size house while remaining flat at entry level. That is my prediction for 2015 if we see interest rates move up into the 6% range. The market a few years ago allowed two minimum wage earners to buy the median priced home in our local market (Washington minimum wage at $9.32/hour). That is off the table now and that means a lot of buyers can no longer afford a house. This is why the bottom of the market has seen a leveling on appreciation. As the economy ramps up, middle income earners are getting back on the job, better wages, etc. that will help push the gap between entry level and mid-level back into proper proportion.

I believe the value proposition for 2015 will be in the upper middle and lower high end homes. Locally that means $350-500k. That is probably where the "deals" will be found. I am no Nostradamus, but that is where things appear to be headed. 2015, it's time to jump in.