Originally written on 5/23/13 and updated on 4/2/14.
With the spring market fully underway and the real estate seemingly moving on to greener territories, many buyers in specific areas are finding themselves getting priced out of homes that they easily afforded last fall or just unable to get their offer accepted due to competition from other buyers, unless they're willing to consider just grossly overpaying for a listed home (which by the way, is not a foolproof tactic either...). If you are looking anywhere in Arcadia, Arcadia Lite, parts of the SE Valley, parts of central Scottsdale and many other locations, this may be what you're seeing. What's a serious buyer to do?
For starters, recognize that the "good" homes (the ones everyone wants, that sell in days) are limited and that you're probably not going to get the deal of the century. For many buyers moving here from other states, the sticker shock alone of some areas and the realization that the Phoenix/Scottsdale Metro area is no longer "ground zero" for the foreclosure crisis (and really hasn't been in years) is half the battle. The next step is to figure out what do you really need to pay (not what you want to pay) to get into a home that you will be comfortable in and can afford. Then, follow these 8 tips and make your purchase a reality:
1. Be prepared to actually complete the purchase
Think like a Boy/Girl Scout. If you are ready to make a move on a dime, when the time comes... you can move on a dime. Sounds overly simple, but you'd be surprised how many would-be buyers are sort of ready and just leave a few details out. Those few missing details can be the difference between getting the home you want and watching someone else snatch it right from under you. If a seller is faced with multiple offers, those that have all the details complete up front are likely given more consideration because those buyers are probably more likely prepared to execute a contract and complete the purchase. Make sure:
- You have a fully complete prequal letter if you're using financing
- If you aren't using financing and are paying with CASH, you have proof of funds to verify the cash
- Said prequal letter hasn't expired (they do have an expiration date)
- Have your down payment money ready and liquid
- If you're renting, you are either prepared to pay for both a mortgage and a lease or you have the ability to exit your lease
Work with your REALTOR and/or lender to make a list and check items off so that you are ready to act quickly.
2. Be REALLY familiar with the area where you want to buy and what homes are selling for (not the asking prices)
If you regularly see homes listed for $300,000, but they sell for about $250,000, you know that there will be room to negotiate. On the flip side- if you see homes listed for $150,000, but selling for $160,000 or more (which is often the case in N Phoenix and the Southeast Valley, among other areas), be prepared to dig in and pay over asking. How do you get your hands on this info? YOUR REALTOR. MLS is a powerful tool, but even my FREE ARMLS SEARCH TOOL won't give a potential buyer that kind of access. You have to enlist the help of a professional, like me. All of this data is available and can be provided to you- all you have to do is ask. Then, when the next home comes up, you'll easily know 1) how the home compares to what's sold & 2) whether you're going to have to pony up and pay more or whether you have room to haggle. You should know what the last home(s) that you didn't get ultimately sold for because this info will help you on the next go around.
3. Know who the seller is and what their motivation is
Different sellers have goals for different reasons. Sure they all want as much money as they can squeeze out of you, but the motivation will be different. Investors who are flipping the home (fixing up and selling for profit) want to sell as fast as they can to move on, so a quick sale is more desirable to them, especially if they're financing the home and/or improvements. Families who are moving up or down, may want to make sure that the neighborhood where they raised their kids (like Arcadia, for example), will stay just as fabulous as they think it is. So, they may be less likely to want to sell to an investor who will come in and rent out their home. Homeowners who aren't actually homeowners, but are the executors of an estate or the heirs of a property may have zero personal attachment to the home and just want to sell it fast so they can move on.
Having these details will help you know which points you can play to for your own advantage. Again, your realtor should be able to help you with this by 1) extracting info from the list agent and/or 2) finding this info through public records. I do this all the time for buyers before writing offers.
4. Send a letter about you and your family (or other occupants) along with your offer
Building off of point number 2., if you know the seller may have some personal attachment to the home or neighborhood, having the comfort that the buyers coming in behind them may be using their home for the same reasons as they had their home can be a huge incentive to pick one buyer over another. As corny as it sounds, it has worked for me again and again during multiple-offer situations and instances where seller and buyer are FAR APART on price. Mind you, if you are buying a bank-owned property (there are still a few here and there), they will not care what your situation is. They fall into the category of having zero personal attachment to the home.
Your REALTOR can draft a nice letter and point out where you are in life, what you plan to do, how old your kids are, what your interests are and why YOU would be the perfect buyer for THEIR home. Be careful to include or omit info to put you in a favorable light to the seller (you will have to have a way to extract this info from the Seller or their agent). Your REALTOR should best be able to do this, but give them something to work with so they can paint a pretty picture of you. I've even seen pictures of family members (and pets) come through for a little extra icing.
5. Include a relatively large and/or non-refundable earnest money deposit
It's easy to spot a serious buyer. They are willing to put their money where their mouth is- usually speaking with their earnest deposit that is held at escrow during the purchase. An earnest deposit is considered "liquidated damages" contractually, so in the event the buyer breaches the contract, this money goes to the seller. Otherwise, it is protected with contractual language. Sellers don't want to take their homes off the market for buyers to "kick the tires" and maybe really buy the house. If they get an offer where the buyer is willing to make their earnest money non-refundable after inspections, it usually signifies that this buyer wants their home.
Employing this option MUST be worded very carefully though. You do not want earnest money to be non-refundable until AFTER inspections are negotiated AND all parties are in agreement. You also want to be very sure that you are willing to waive any remaining contingencies like financing (getting your loan) or appraisal (home appraising for at least the purchase price). If you write it up any other way, your hard-earned money could be at risk.
6. Include a "fast close"
When I say a "fast close", I mean that that you are willing to complete the purchase (AKA do all your inspections and complete any financing) as fast as you can. If: you plan to use financing, there is an HOA for the property you plan to buy, you plan on using funds that are not liquid (available cash), or you have some reason that could keep you from closing exactly when you say you will, be very careful about offering to close quickly. If you decide to go with this option and any of those previously mentioned items describes your situation, sit down with your REALTOR and any other parties who will be involved and make sure they understand what you are trying to accomplish and the time frame within which they have to perform. If they can't comply, skip this option or else, run the risk of losing your earnest money.
For instance, if you plan to get a home loan, make sure that your lender can meet this deadline given the processing, appraisal & underwriting that must be done to get the home loan. Most sellers do not like when buyers can't close when they say they are going to. In the Phoenix/Scottsdale area, a 30-day close is standard (unlike the northeast where 3-4 month closings are standard), so a fast close would be 14-days or 21-days. If there's an HOA involved, be aware that the HOA legally has 10 business days to respond to requests for closing documents. So, if you are offering a fast close, you'll want to see if a "rush" order can be placed AND if there are any fees to expedite the order.
7. Befriend the seller if you see them in the property
List Agents really don't like when sellers stay home for showings because 1) it can be awkward and 2) sellers frequently have "loose lips". Typically, the better the rapport, you can have with the seller, the better your odds are of building a strong connection with them, which if there are more than one offer that are pretty close in comparison, can sway the decision. You might mention how you love their choice of paint color in the living room or that you love their pristine, manicured rose bushes in the backyard. If you grew up in the same little town of 2,000 in the Midwest, or were in the same Greek organization or even just share a mutual love of rare citrus trees, these little things can make a seller more likely to take an offer that isn't exactly what they want. Unless you do something that really is offensive to the seller, this usually doesn't hurt.
8. Be the first offer on the table
The easiest way to beat out all the competition is... to not have any. As a list agent, I've seen homes sit on the market for months languishing because the seller won't reduce the price. Then, after a reduction EVERYONE rushes to the table. Why wait? Offer what you're willing to pay today, but be sure that you and your realtor have some pretty good data to show what the price would be. Chances are, the seller's agent already knows it and the seller does too. This data had better be pretty black and white, not what you hope and pray the seller/their agent will see.
True story- after much debate I wrote an offer on a home for a buyer. The next day when I called to confirm the list agent had received it, she said "Oh- did you see that I just reduced our price?". I had no idea, but because we were the first ones to the table, we did lock up the contract. I see buyers make this mistake over and over- waiting for the home to be the right price for them to make the offer. If a home is priced incorrectly, that is the worst thing to do, especially if the home is desirable and everyone else is waiting for the same thing to happen.
At the end of the day, there are ways to get your offer accepted to purchase a home, no matter how frustrated you may be with the process. You just have to be aware of all your options and do a risk/reward analysis to make sure that you aren't creating an unfavorable scenario yourself. Please call me with any questions and I'm happy to help you weigh the pros/cons if you're considering a home purchase in the Phoenix/Scottsdale, AZ area.
Happy house hunting!