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Home Buying in a Competitive Real Estate Market

Author: Lauren Nemeschansky
Home buying
Competitive market, Home buying, Real estate agent

"Buying a home in a competitive market, including “insider secrets”

The Santa Clarita real estate market has changed from a balanced market to one where inventory is limited and demand for housing is exceeding the number of homes available for sale. The days of a buyer being able to place lowball offers on several “foreclosure” or bank owned properties where typically one or several of the offers would be accepted are behind us. Banks are working harder than ever along with the US government to decrease the amount of foreclosed homes being placed on the market in an attempt to further stabilize and increase the current real estate market. Short sales, while still a difficult and often painfully slow process are becoming more streamline as improved policies are being put into place. Home sellers are beginning to place their homes on the market for sale because they realize that they now have less competition from the foreclosed properties that were previously pulling down their property values. These “standard sale” homes are attracting multiple offers from both traditional buyers who are trying to get into a home with the excellent mortgage rates and terms that are available and from investors who see real estate investing in a now “rebounding” or “increasing” market as an excellent investment and the best alternative compared with other investment opportunities available.

Desirability of the home will be key in determining whether the house will attract multiple offers or sit for a long time on the market. Homes that are in good locations, well maintained, highly upgraded although this is not always a requirement, have desirable floor plans and basically have that “wow factor” when you walk inside can be expected to bring multiple offers. On the other hand, a home that is in a less desirable location, has an awkward floor plan, and is not well maintained will often sit on the market for quite some time without receiving an offer. Basically, if you are shopping online for your home and a beautiful and well priced home is found, it is logical to assume that the same house you found is also found by almost every other home shopper in that same price range who is looking in identical neighborhoods.

A buyer can either decide to go after a less desirable home, avoid a bid and make the needed improvements to turn the home into a turn key home with the money saved. This strategy has worked for many of my Santa Clarita buyers who bought the “diamond in the rough” and after a bit of money and elbow grease ended up with a fantastic home. It is important to assess the costs of making the improvements and weigh them against the price of a home which is move in ready. A good fixer will still attract bids so while you would bid lower so that you have money for improvements, if there are other offers on the property you would still have to bid a price which is competitive with the others, or offer terms which would be very accommodating to the seller such as a rent back giving them time to move, if needed. While the different home sellers are all stressing different factors as being important in choosing the “winning bid” for their home, there are still certain basic strategies a savvy buyer can do to help the odds of getting the home that her or she desires in a competitive situation.

A common misconception is that an all cash offer will be accepted even if the bid is considerably lower than an offer where the buyer is using a loan . That is usually not the case, either way the seller gets cash in the end of the transaction whether it be from the buyer’s private assets or a lender from the buyer’s loan. Of course less can usually go wrong with a cash deal than a loan so if the two offers are equal in price the seller will typically choose the cash offer but if that is not the case the higher bidder will prevail. Certain types of loans do carry a higher risk of not being fully approved than others. Typically a larger down payment will have less lender restrictions than a loan with a smaller down payment. It is sometimes helpful if the buyer does have some extra cash assets but is choosing to go with a smaller down payment type of loan, such as FHA or VA, to let the seller know that if there is a problem with those loan restrictions they would be willing to come in with a larger down payment if necessary. Another helpful tactic similar to this would be to offer a higher earnest money deposit also called good faith deposit, to the seller . I have seen sellers choose a different buyer with all else being equal because a particular buyer offered a low earnest money deposit. This would have to do with convincing the seller that you are willing to “go the extra mile” and have conviction to purchase the home.

The goal of getting your offer accepted above all others would be best accomplished by convincing the seller and his or her agent that you are both serious to do whatever it takes to complete the sale and that you and your buyer’s agent are easy to work with. The first step would be to choose a good and well respected buyers agent . This does not mean that your agent should be the biggest agent in the area, sometimes that can work against you since the “biggest” is usually not the most accommodating nor easiest agent for the seller or listing agent to work with, egos run high in the real estate business. An experienced local and full time Realtor who is part of the community and has a record of making many sales transactions and more importantly has closed most of his or her transactions once started would suffice. This is not a good time to employee cousin Joey who makes one sale a year or a “cut rate” firm who gives very little attention to its customers where the agents are usually not well respected in the real estate industry. Sometimes offering a fast escrow with a short contingency removal is helpful. This shows the seller that as a buyer you are serious and will not back out of the sale. The contingencies to be removed quickly, in 7 or 10 days would usually be your home inspection and loan appraisal. Ask your agent what you can do to convince the seller that you are a “reasonable person” and that you will be “easy and amicable” to work with during this real estate transaction. Often times it’s the small things you and your agent can do that will push the tough decision about which buyer to choose in your favor.

This bit of advice is a true “insider secret” which many buyers will resist accepting but it is usually very true. In a multiple offer situation for a very desirable home, give your best offer up front, don’t wait until sellers ask for “highest and best.” This situation is commonly misunderstood by buyers. I have seen this misunderstanding harm many buyers many times from my position on both sides of the fence as a listing agent and as a buyers agent. Many buyers lose out on their “dream home” even after increasing to a high bid after “highest and best” is requested, because a competing buyer had come in right from the “get go” with a higher and better offer which usually implies strength of conviction to the seller. Often the request for “highest and best” is merely a formality that the listing agent does as a courtesy and often at the request of the multiple buyers agents to help them convince their buyers to increase their bids, although the seller has already pre-determined who they would like to choose as the buyer of their home. I have seen sellers choose the buyer who did not offer the highest price after highest and best counters are sent out because they already had formed an “emotional attachment” to a particular buyer. I also have seen sellers offer the home to the original choice buyer, if they meet the new highest bidder’s price, rather than sell it to the new highest bidder. This practice is quite common, I believe any experienced Realtor has seen the same types of situations occur quite often.

In following the “emotional attachment” rule, anything a buyer can do to help the seller make that attachment and choose them is worth the extra effort in doing. I am an avid believer in letting the seller know something of a personal nature about the buyer and their reasons for wanting to purchase the home. It is often helpful to send a letter of a paragraph or two telling the seller about your family, how their home would be a good fit for your family. Explaining how much you like and appreciate what they have done with the home etc. Often times this letter will help the seller to choose your offer above the other many impersonal ones. Realize that selling a home is a very difficult and emotional situation for a seller and they often feel better to know that they are selling their home to a person who will enjoy it as much as they did. Sometimes it is nice to include photos as well.

Remember that when purchasing a home in a competitive market there are factors that are sometimes out of your control but there are also many factors that are within your control that can produce the results that your are attempting to achieve in your home purchasing ability. I have seen veterans using 0 down VA loans beat out cash buyers on multiple bid situations because they showed kindness and concern for the seller, made a personal connection, in one situation the seller was a widow of fellow veteran. I have seen buyers with smaller down payments and slightly lower offers win bids because they accepted a home “as is” and was willing to do the repairs themselves which did take a bit of elbow grease but was not very expensive. It is important to “think outside the box” with your Realtor to find a way to “make it happen” rather than just putting in repetitive offers and giving up hope.

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REMAX of Valencia
27720 Dickason DR #232
Valencia, Ca 91355

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About Lauren

REMAX Real Estate Agent
Lauren Nemeschansky is a REMAX
Real Estate agent serving
all of Santa Clarita,
Valencia, Stevenson Ranch,
Saugus, Canyon Country,
Newhall and Castaic.
San Fernando Valley and Los Angeles
HAFA short Sale Expert
CDPE certified real estate agent
M.S. Degree from California State University, Northridge
Real Estate License DRE#0172935: