52 offers in less than 5 days, a unique opportunity for buyers and sellers

Buyers and sellers can both take lessons from a home in Huntington Beach that came on the market on January 13th, 2009. Less than 1/2 mile to the beach, over 3000 square feet, on 6500 square foot lot, and priced at $712,500. Based upon comps there is over $100,000 in equity in the property at that price. Recently I found that the property was on hold. I called the agent to get the details; he informed me that they had accepted an offer and that they were just waiting for the signed contract. I asked if they would be accepting back up offers and he said that he did not think that would be necessary and that he had 52 offers in less than 5 days. This property demonstrates the unique opportunity that buyers are faced with that is causing many buyers to get back into the market, properties down 20%+ from their peak and historically low rates. In addition, sellers that purchased their homes 10+ years ago are also presented with a unique opportunity, they still have lots of equity, rates are still low (bringing many buyers back into the market), and if they price their home correctly there are plenty of buyers!

52 offers in 5 days demonstrates one of the biggest challenges in today’s market, contrary to what most believe, it is not unusual for a properly priced property to get double figure offers in less than a week. When homes are priced appropriately for today’s market and they do not have any major issues such as foundation, structural, or other they sell quick and with multiple offers. It should not be a surprise, people still want to live in California, particularly in Orange County. Both buyers and sellers need to take note of this and use it to dictate there strategy.

First, buyers need to be able to recognize and take advantage of opportunities when they arise. In order to do this they need the following.

1) Write an offer quick when the right property comes to the market.
2) Hire a full time real estate professional that they trust (unless they have unlimited free time and access to all of the tools that the professionals do and have experience acquiring property in today’s market)
3) The willingness to take their agents advice. This occurs by listening to one’s agent, asking them questions, and trusting in their advice. Of course, a good agent will back their advice up with CMA reports and other market data that will support their advice. This is invaluable if one listens. Moreover, agents will tell you what today’s market value is and what the trends are for the community. Most agents will not speculate on what the prices will be in 6 months or one year from now. However, if you feel like they will be a lot lower and only want to buy based upon prices in 6 months to one year from now wait. It is very rare that a property will sell for more than 10% below market unless you are purchasing it all cash at the court house steps or there is something wrong with it. (I can help purchase properties at the court house.)
4) The ability and willingness to drop everything within hours to go and see an opportunity and write an offer
5) Ready to write an offer- The single biggest mistake that buyers make is waiting to write an offer when the right opportunity presents itself. If the property is right for you and a great deal, be rest assured others buyers will be ready to take advantage of the opportunity.
a. Pre-approval letter ready
b. Proof of funds ie. Bank statements that prove the buyers down payment is ready and in their account
6) Understand that banks have methods and procedures that they follow when selling property. One rule for most banks is that the home must sell within 10% of market value. As a result if buyers are not satisfied with getting a home 10% under current market value because they feel like prices are going to drop more than 10% they need to wait. In addition, buyers looking for elegant turn key homes must understand that most people prefer these types of properties, therefore, there is competition and with competition they will not get a steal.
7) Understanding that the best opportunity is not always an REO or short sale.

Where most buyers go wrong

Most buyers deal with a lot of unnecessary stress and frustration as a result of the following.

1) False sense of the market as a result of the media
a. Just as the media falsely led people into purchasing when they shouldn’t by creating TV shows about the vast amounts of wealth created buy purchasing real estate regardless of experience or fundamentals, made it appear that real estate would appreciate at 20% indefinitely, the media has made people believe that they can get homes for 30% below market value, in prime areas, and at the drop of a hat. Although this may be true in some areas, buyers looking in Newport Beach, Irvine, or other choice areas of Orange County need to recognize that in most of these areas the supply is less than 6 months, most homes are selling with 10% of the original asking price, and there is a lot of competition out there in the form of other buyers that want to purchase. A great deal in today’s market is 5-10% below current market value. Deals over 10% below today’s market value happen at auctions with all cash, when a buyer buys in bulk, or the rare opportunity when one can work with an equity seller that is extremely motivated and the buyer listens to the advice of their professional agent.

2) Think that a bank owned or short sale is the best way to acquire a property.

3) Waiting to think about it. Buying a home is the biggest decision of one’s life, it is important that when one decides it’s time to purchase that they have thought long and hard, created a budget, consulted with a lender, determined a comfortable payment and amount they want to spend on a home. In addition, it is important that they have decided where they want the home to be, size of the home, and the features of the home. Once a buyer has decided to purchase and made determinations about all of the other important aspects of the home and purchase that they are ready to react when the right opportunity comes along.

During the peak of the boom common sense dictated that a home selling for $650,000 and renting for $2100 was way over priced, that purchasing a home with a negative amortization loan was a recipe for disaster, that serial refinancing would eventually catch up to people. Moreover, common sense dictates that if prices are currently falling, even with interest rates historically low that when rates are forced up with inflation that prices will come down. That being said there is a big difference in the cost of a home if one has a 5% rate versus a 6% rate and even if history dictates that purchasing a home is historically best when rates are at the peak, most look at a home as more than just in investment and do not want to wait 5+ years for the possibility that rates will go to 9% and prices will come down.

Moreover, common sense also dictates that if there are 52 offers on a home that properly priced that there are currently 50 people competing for a home priced at $712,500, that needs work and will rent for somewhere in the high $3000 to low $4000 range. If we are going to achieve rental parity in California, it will happen as a result of a combination of factors and may not happen anytime soon.

Sellers can see this and know that there is a huge market of buyers out there ready to purchase their home if it is priced right for today’s market. As a result of the large number of ARM loans set to adjust over the next two years any buyer planning on selling in the next 3-5 years should not wait with the thought that they might get 2006-2007 pricing any time soon. Historically low interest rates will not last forever and although many are buying with plans to keep the house for a long time to come and take advantage of todays rates, it does not make sense to hold hoping for higher prices anytime soon unless you plan on holding the home for over 5 years. When the market starts to recover and inflation starts to catch up with us, the rates will rise and prevent major appreciation anytime soon. If you are planning on selling and definitely want to sell in the next 5 years it is advisable to list your home now, for a few percent below market, make sure it shows better than any of your competition, and use a professional agent that understands this market and is internet savvy.

In conclusion, there are a number of factors that go into purchasing and selling a home. One must be prepared for a challenging process when purchasing in today’s market. There are plenty of buyers out there and this market offers a unique opportunity for both buyers and sellers.