Buyer Strategies for a Changing Market

Avoiding the Competition at all Cost

With all the headlines heralding the demise of the residential real estate market, you'd think that finding the perfect home at a rock-bottom price would be easy. Maybe in Kansas, but not in the Silicon Valley! Locally, many prospective Buyers have been frustrated to find that just when they finally find their "dream home" there are competing offers and they're forced to offer more than they’d like and still may lose out to the competition. What’s interesting is that while the market has slowed from the boom days and homes are now on market much longer than they used to be, some areas of the valley (and some price points) are once again experiencing multiple offers. Interestingly, many homes that receive multiple, competing offers often sit on market for days before those offers come in. So, here’s my Rule No. 1 for serious home buyers: avoid the competition at all cost! Easier said then done, right? Maybe not. Below are a few tips for Buyers hoping to buy their perfect home without overpaying in the current market:

1) Get your financing pre-approved. Not a pre-qualification which is useless, but a pre-approved loan. That means before you even begin to kick the tires on prospective homes, do your rate shopping, select a lender and loan program, fill out a loan application, submit proof of income and assets and have the lender run a credit check. The lender will then submit your loan package to the underwriter. In a few days you’ll be pre-approved and the lender will give you a pre-approval letter to attach to any offers you then decide to make.

2) Check listings daily. In any market the best listings will always go quickly. In this slower market though, quickly may mean a few days or weeks. Few agents are currently specifying offer dates, so for most homes it’s “first come, first served” meaning the first offer submitted that’s acceptable to the Seller will get the home. I’ll set up an automated listing alert customized with your specific search criteria which will e-mail you daily with all the new listings (and price changes) meeting your criteria. Then when something hits the market that looks promising, tour it immediately. If it looks good, write an offer, don’t wait around for your competition to discover it first. And don’t let the Seller hold an open house before writing your offer. Most offers on great properties come in immediately after the first open house.

3) If it’s a great house, write a great offer. If you write a great offer, there’s much less chance the Seller will counter you and open up a window for competing offers to slip in. A great offer doesn’t have to mean offering over the asking price. Remember that the offer consists of price and terms. Terms like a high initial deposit, low loan to value ratio, as-is, short contingency periods and fast close schedules are very attractive to Sellers and can often compensate for a lower price, particularly if the home is vacant or has been on market for some time.

4) Don’t worry too much about over-paying. Of course you don’t want to offer more than you can afford, but if your agent has pulled comps and verified that the home is priced at market, then offer the asking price if it’s the dream home you’ve been patiently searching for. This isn’t the time to try to save a few bucks a month on the mortgage payment. For one thing, the bank won’t let you overpay (if it doesn’t appraise for the offering price you can cancel). Also, the additional monthly payment amount is tax deductible at your marginal federal plus state tax rate, and risking a lowball offer is almost guaranteed to result in a counter which leaves the window open for a competing buyer to slip in and steal your dream home.

5) Don’t delay making an offer because you’re uncertain about potential repairs or problems. That’s what your inspection contingency is for. Even with an As-Is offer you still have inspection contingency rights so if you find something you don’t like during your contingency period, you can cancel and get your entire deposit back. The idea behind this is when you do finally find the perfect home, move fast, lock it up against potential competition for 7-10 days while you have your professional inspections done, and then move forward if you decide the home is in good condition. Even if you find expensive repairs are needed, you now have much more leverage because the Seller doesn’t want you to cancel since they’ll have to start the process all over with another Buyer who likely will have the same issue.

In summary, if you’re an investor looking for a good deal on a home you’re not going to live in, there are lots of great deals out there and you can afford to take your time and write low-ball offers. However if you’re a potential homeowner looking for that perfect home in the perfect neighborhood at an affordable price, you’ll have plenty of company. Try a few of my tips and you’ll be looking at your competition in the rear-view mirror!