It’s been a little over a week since I suggested that the seller’s market we’ve experienced in Metro Phoenix for the last ~2years might be cooling. As of yesterday, Michael Orr, Director of the Real Estate Center at the W.P. Carey School of Business at ASU and the guru behind all real estate stats in our area, has declared, “We are now in a confirmed buyer's market with the Cromford® Market Index dropping below 90. Demand is weak with the Cromford® Demand Index at 78.7, its lowest level since May 2008.” He goes on to say, “Supply is not high, but it is growing fast and the Cromford® Supply Index stands at 87.7, its highest level since July 2011.”
This means, buyers will have some room to breath a little easier and sweat a little less this spring. Last year, if you didn’t come prepared with a fully complete AAR Prequal letter (not the one your bank gives you which most of the time isn’t worth the paper it’s written on), a statement showing that you had your down payment ready and weren’t ready to move on a dime, it often meant you sat on the sidelines watching all the pretty houses go by.
This year, if you’re a buyer, you may just be in the driver’s seat. So, here are some tips to get the most of this ride:
1- STILL have your prequal letter ready- Just because there may be fewer people to compete with, do you really want to risk the chance that your dream home might get stolen away by the other buyer, who really did have all of their ducks in a row? Besides that, even if there is no one else, nothing is a bigger letdown than getting all excited about finally being able buying your home in DC Ranch just to discover you really can’t afford to buy it after all…
2- Ask for the kitchen sink- Don’t be afraid to ask for personal items like furniture, the fridge, washer/dryer, patio furniture, wall-mounted TVs or A/V equipment, etc. Be sure to include language in the contract to suggest that said items are included with the sale at no additional cost. Just know that if you’re using financing, the appraised value will have to be for the full purchase price.
Last year, I listed a gorgeous condo in a high-rise in Mid-town Phoenix. My seller really wanted to sell, but due to the amount he owed, he couldn’t sell below $X. When a buyer came along, he just wanted a deal, even though we were priced a bit on the high side.
The compromise? The out-of-state buyer would have had to furnish the place from afar and wasn’t thrilled about making the effort, so he asked my seller to include the living, dining & bedroom(s) furniture in the sale. My seller who was already lukewarm on his mostly Ikea furniture purchases and had a love-hate relationship with his living room couch was more-than-willing to comply.
3- Ask the Seller to help pay for your closing costs- If you’re a first time buyer and are stretching to be able to afford a home, asking for this money may be the difference between eating ramen noodles and tuna fish sandwiches for a few months after closing and having a reserve cushion to sit on.
Talk with your lender about what these actual costs might be and make sure that you do not exceed the total amount (excluding your down payment). If you do, you might forfeit the difference between the negotiated amount and the amount of the costs, which is a huge bummer to give up free money.
Sadly, I recently watched a buyer in Arcadia do this. We discussed the total cost of obtaining financing and asked the lender to detail these costs before we negotiated a seller credit towards the buyer’s closing costs. He didn’t have the time to verify all the costs prior to negotiating the credit and was willing to walk away from the difference as a result, but it was still difficult for me to watch knowing it was easy to detail this amount and thus, completely preventable.
4- Ask the seller to front the appraisal cost- This can be a tricky one to use, but is a good one to have in your back pocket in a market where the asking price may not be in line with market values. I’ve had buyers with appraisal problems a few times in the last 6 mos. Fortunately, the sellers were willing to reduce the price.
However, not every seller is willing to do a price reduction. While you won’t get stuck buying a home for more than it’s worth, you may have to eat the cost of the appraisal, which can range from $300-500 (or more!). It really stinks when you know you will turn around and spend money again for the next home’s inspections and appraisal.
By asking the seller to front the money for the appraisal and offering to reimburse him/her upon the home appraising for at least the contract sales price, you give yourself a little piece of mind that you aren’t throwing away good money and you really make the seller “put their money where their mouth is”.
I did this once on the sale of my own home in NE Phoenix. I was confident that the home would appraise, but the buyer who had been burned twice prior was not willing to risk paying for a third appraisal to have issues. It worked out just fine, when the home was appraised and the buyer felt as though he no longer had to keep throwing money away.
5- Ask for seller repairs in the initial offer- While it’s pretty customary for some repairs to be requested/completed after the home inspection turns up deficiencies, asking for repairs or improvements that you know need to be made up front can defray the cost of making the repair down the road.
Think along the lines of repainting the interior, replacing flooring, changing countertops, replastering pools and things that are obviously out-of-date, eyesores or deferred maintenance. A word of caution, items that still work or that are old (like heating/cooling systems, roofs) can be a slippery slope. Just because it’s old, doesn’t mean it doesn’t work and many sellers who swear that these things are maintained will fight tooth and nail not to have to touch them.
One way to get the seller to agree to make these repairs? Include estimates- actual costs for the work to be done and include the specifics of what you want. Sellers who have access to a home equity line or cash on hand may be able to make these repairs pretty easily. Ask that they be completed shortly before close of escrow, to give the seller piece of mind. Some repairs, like termite treatments, may be able to be billed directly to escrow so the seller never has to make a payment- the cost is taken directly from the sale profits.
6- Don’t be afraid to move on to the next home- Many sellers are still uninformed about the recent changes in our market. While you may LOVE that home and can envision weekend parties and holiday dinners there, sometimes sellers aren’t in the right mind to actually sell their home. When this happens, instead of succumbing to ridiculous terms, it's better to just find another, and trust me, there always is another.
It just may not be worth the brain damage to buy a home from someone who is truly not prepared to sell for a reasonable amount or reasonable terms. Don’t threaten to walk-away and keep hanging on- make good on your promise. You never know- that seller just may come calling again…
While all of these tips are helpful to make the most of your home purchase, you still want to be informed about what’s going on in the market and in your neighborhood with statistics (see my Market Stats page for the latest from our MLS) and have good representation. I’ve seen a lot and love lending wisdom to my buyers. Remember, I’m only a phone call away when you need me! Happy home buying!