Buyer’s Market? Think Twice and Consider the Facts!

The last few years of the market have caused many buyers to get in the mind frame that it is a buyer’s market. That the market needs them and that they are in control. I have had many buyers that do not want to acknowledge the shifts in the market. Traditionally, we would say it is a buyer’s market if there is greater than a 6 month supply in inventory. This is definitely specific to the area that you live in but here in the Sacramento area we are short of six months inventory. What does this mean? It means that we are in a seller’s market people.

Few Things to Consider:

1. Sale to List Price Ratio – This represents the average list price of a home compared to the final sale price. In a buyer’s market we would generally see the sale price well below or below the list price. This would signify saturation of inventory and sellers that have to adjust the expectation based on interest and demand. Currently in certain price points in Sacramento, especially those under 300K we are seeing the final sale price above list price. Why? Banks are listing the properties at prices that are extremely attractive and many buyers are battling for the home. Some homes have as many as 20 offers on the property. This creates an emotional bidding war and the home goes to the highest bidder (with the best financing or apparent financing). The price is then pushed up and the Sale to list price is effected.
2. Days on the Market – Just like Sale to List Price the average time on the market is a good indicator of who is controlling the market. The majority of the sales are selling with less than 90 days on the market. In a buyer’s market the sale time is extended and we see up to 180+ days on the market. The homes that are coming on the market are selling and there would be no reason they would not. Interest Rates are low and with the Tax Credit one would be foolish not to consider buying.
3. Months of Inventory – Late 2007 and early in 2008 we had as much as 11 months of inventory on the market. This is not the case right now. With less than six months of inventory on the market the seller’s are in control. With their ridiculous per diem charges for extended escrows to their choices of southern California Title and Escrow companies. The seller is setting the terms and the standard and with multiple bids they can sort through and pick the cream of the crop. That being said there are a ton of homes that are owned by the banks that they are not releasing to the market. There is enough inventory in the wings, in my humble opinion, to turn the market right back to months of inventory. The banks are holding it back so that they do not drive prices down by over saturation.

Questions I hear from Buyers:

1. The property is listed for 140K. Do you think that I can offer 135K and ask for 5% seller credit? – No! That property will at least go for 140K and many times more. The things that you must take into consideration are the days on the market, whether or not it is seller owned, bank owned or a short sale. This will make a difference and this will change the strategy. Short Sales tend to have less interest because of the time they take but they also have little flexibility in price and credit. Traditional sellers have a number they want and it comes down to a meeting of the minds and the banks are the game that I described above.
2. Can I write offers on several properties and take the one that gets accepted? – This is where I defer to the Real Estate agent. Agents are effective because they build a reputation with other agents. The better the reputation the better the odds that your offer would be accepted. If you are writing offers on properties that you really do not want you are wasting a lot of people’s time.
3. I am approved for 150K and I really like this property. It is listed at 155K do you think I can qualify? In today’s market climate I suggest that if you are qualified for 150K that you start your search in the 130K – 140K range so that you have room to be consider if you are asked for Highest and best. If you are pushing your approval amount you are putting yourself at risk. With the Volatility of the rates I would ask your Loan Officer to make sure that they have padded the rate on the approval to cover any swings. If your approval is a best case rate and your offer is accepted and rates have gone up you may not qualify or feel comfortable with the new cost.

In conclusion, if you are in the market to buy you must understand the climate that you are in and have reasonable expectations. My most recent closing searched for one year for the right home and my most recent contract wrote 40 offers before one was accepted. That does not sound like a buyer’s market to me. The good news is that you are going to buy at a Low Price with a Low Rate or so we hope!

* Much of the information provided is specific to certain price points and in certain geographic locations. Always consult your Real Estate Professional to determine your market conditions as they may vary.  Traditional Sellers may have a different experience and short sales have their own behaviors which we will examine in posts to come with a very Special guest. A local Short Sale Specialist. If the banks begin to dump the inventory that they are holding back we could see another swing. Stay Tuned.

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Foreclosures and Short Sales: “How to” remain Sane while waiting.

The market has brought us a unique opportunity to purchase Real Estate at a low price and low interest rates. This is an exciting time for a buyer to capitalize on buying not only a great home but also simultaneously make a prudent investment. Then what is the problem you may ask? With opportunity there will always be a challenge. The challenge that we face with the purchase of REO’s and Short Sales is the lack of a communicated answer. As Real Estate agents and Loan Officers we are waiting on answers from the banks themselves to see if they will agree to the conditions of our offer. They are waiting on answers themselves from the decision makers. This can be a frustrating process for the consumer because you are anxious to know if the house is yours.

Here are a few ways to remain sane while waiting on the answers:

1) Write the offer and forget about it – Many times when we make an offer on something we want to know right away whether or not it was accepted. This is not the case for a short sale and an reo. The answer can take days, weeks or months. Look at it as if you have planted a seed for a tree that you would like to grow in your backyard. You would not stand outside everyday staring at the seed waiting for it to grow. You would water it and go back about your business. Every now and again you would check to see how it was going but your expectation for a 1 year gestation was set from the get go.

2) Set realistic expectations for yourself – If you allow your self realistic expectations then you will not experience the let down of waiting for your answer. If you are going on a diet you should not expect to lose all of it in the first week. You set a goal to lose a 1/4 lb. a day and work towards it. When it does not go your way you still continue to implement the daily tasks and you refine the habits. Continue to look at other properties and continue to exercise all of you options. Don’t limit yourself to just this house.

3) Don’t Mentally Move In - This is a sure fire way to set yourself up for failure. If you mentally move in and the answer is “no” it will be very difficult to get up again. Nothing will compare to the house you lost. This is unfair to all the other homes on the market that are dying to have you as a home owner. I know that this is an emotional decision and I am not saying to not be excited but keep your cool until the offer is accepted.

4) 6 Months is not as long as 20 years – You have waited at least 20 years to start this process and many of you much longer. So do not get a head of yourself. Be patient just a little longer and you will reap the reward for at least the next 30 years in most cases. We can always talk about strategies that will help you to pay this off much quicker but for know let’s focus on the 30 years.

5) Do not try to understand the “logic” of the banks – The reasoning of the decisions of the bank one will never understand. They are many components that make up the decision of the banks and we cannot even begin to understand the first one of them. Give yourself a break and know that we will never get what they are doing and they are all in hot water. Decisions made when the wheels are falling off the truck are very difficult.

So just remember the five tips above anytime that you begin to get frustrated with the timeline of your offer. Tome is on your side and your team. Be more patient, more logical, less emotional, more realistic and without attachment more than the other party. We will guide you through the process.

As always thank you for reading,

Matt Freeman