2008 November | Sacramento Real Estate

This Thanksgiving…

It’s not just turkey day, folks! And I thought I would come up with a few things that home buyers, home sellers and homeowners could do this Thanksgiving to brighten up the holiday spirit and also achieve their goals regarding their houses. Ready? Here we go!

For Home Buyers

Thanksgiving and other holidays are great times for home buyers, particularly because of all the visiting involved. The next time you are visiting one of your family or friends’ homes, be sure to get a good look around the neighborhood. The holidays are a good time to get an idea of what the neighborhood is like because people like to make their homes look the best around this time of year. The lawns are usually mowed and decorations have been put up. If even around the holidays the homes look derelict and abandoned, you will know what to expect. So, leave your house early, take that extra drive around the block (or two) and see if you can picture yourself in a place like this.

If you’re house-hunting, it also wouldn’t hurt to pick up a flyer or two while you’re out in a place you like. Take down addresses to follow up on later. Don’t worry if you think you can’t get that one particular home. Your mission at this point should be to get a feel for the locality, not fall in love with a specific home.

Ask your hosts questions! Find out more about what’s important to you. If you want information about schools, ask parents that live in the area, if there are any at the Thanksgiving dinner. If you tell your hosts you are looking for a home and love their neighborhood (especially if they’re relatives – and you’re on good terms!) they can do a little real estate scouting for you. I’ve had innumerable relatives and friends show up at Open Houses I have held at listings over the years. Enlist the help of your friends, and who knows, you might end up being neighbors!

For Home Sellers

The holidays can be hard on home sellers. Leaving a home where you have good memories can be a bittersweet experience and then to have to throw holiday get-togethers in a home listed for sale can make things pretty tough. But – as many Realtors® will tell you – there is no need to hold off on decorating the place or getting in the mood of the holidays. If this is to be your last Christmas or Thanksgiving in this home, make it a great one. Besides, homes look even more inviting and warm when decorated. I would hold off on the Halloween decorations, but Thanksgiving’s warm and earthy tones are always pleasing to the eye. So go ahead, get into the holiday spirit.

As a home seller, making a home look warm and inviting can have another effect – it will distinguish the house from the bank-owned homes out there, something I have been advising home sellers to do for a while now. Not every buyer is interested in the cheapest house out there and owner-occupied houses are still selling. Make your buyer feel, er, at home, so to speak.

That being said, you might have to make a few adjustments. Potential home buyers are notorious for wanting to show up at odd times to view the home – in the middle of dinner, say. Feel free to let your Realtor® know if you will be having friends over on Thanksgiving day and keep the day to yourself. But, be sure to keep extra flyers on hand and in the listing box. Chances are, there will be visitors to your neighbors’ homes and if your house has especially great curb appeal, they will want to know more. Don’t let the potentials leave without at least a flyer to follow up on later. This might be the day someone decides to buy your home!

For Homeowners

As a homeowner, real estate news has been bad for you lately. All around, property values seem to be falling and you are probably eyeing that foreclosure down the street with some mixture of sadness and hate. If you feel like giving something back to your community and neighborhood you can head over and mow the lawn for that sad little REO. It might help the entire block look a little more kept up and might help the foreclosure sell – which in the long run can be good for your own home.

If the giving spirit doesn’t move you enough to head over to someone else’s home to mow the lawn, remember that the way you maintain your own house can affect property values on your street as well. It is sometimes a fortunate – and sometimes an unfortunate – reality of real estate that your neighbors literally cause the value of something you own and maintain to rise or fall. So it is almost your responsibility to take care of your house.

Okay, enough preaching. You know what I mean. Thanksgiving is the perfect holiday to take care of the little things that need fixing – check your smoke detectors (preferably before buying that huge Douglas Fir Christmas tree!) fix the leaky faucet and the other annoying little tasks that come with homeownership. I’ve learned it helps to set aside a day to take care of the maintenance issues. Then I like to bake cookies and sit back and enjoy the work done. The next day it’s decorating time! This is a great time for homeowners to enjoy their home, and not just for its financial value, but its emotional appeal as well. Take pleasure in its warmth and make some great new memories!

Well, that’s it from me for this Thanksgiving edition. I’m headed out of town to visit relatives. But if you’re considering buying a home this holiday season, you can always email us or call us and we’ll help you reach your goals! Have a happy Thanksgiving!

Rosemont Real Estate Market Update: October 2008

Rosemont has entered some stability between last month’s and this month’s numbers for real estate sales and prices, but with 46 bank-owned homes still on the market (that’s only a one-month inventory, by the way) and 112 active short sales, that serene surface could change. The short sales are the real concern right now because they make up 22 or 14.3 months of inventory depending on how you look at them.

Sold price per square foot has dropped 32% over last October from $194.53 to $132.39, but not much from last month’s $134.76. The average sales price has fallen 33.8% from last October’s high of $287,494 to $190,234 this last month. Median price has also fallen 36.6% year over year from $288,250 to $182,666.50.

Obviously, foreclosure sales have a lot to do with the price declines. 12 times the number of foreclosures sold last October sold this October. I know, I know – but the sentence is meant to sound confounding. If you want confounding stats, here are the numbers: foreclosures are up by 1150% and short sales up by 1200%. That would be 50 foreclosures (69.4% of all sales), 13 short sales (18.1% of all sales) and 9 non-distressed homes (12.5% of total sales) selling in October 2008.

Unit volume is up by 125% – more than double the number of homes sold year over year. Inventory in Rosemont is at 4.3 months (based on the last year) and 3.1 months (based on the last 6 months.)

What are Contingencies?

Sometimes, Realtors® seem to speak a language all their own. I still remember being a new Realtor® and being completely confused during an office meeting with the acronyms: RPA-CA, CMA, WPA and so on. What in the world did it all mean? And now, I’ll be talking with clients and then look up into their bewildered eyes. Oops, I guess I commit the same cardinal sin: speaking in Realtor-tongue.

So, Just What the Heck are Contingencies?

Dictionary.com defines a “contingency” as a “dependence on the fulfilment of a condition.” In other words, as a home buyer your offer is contingent upon the fulfilment of certain conditions you write into the contract. If any of the contingencies are not fulfilled, according to the terms in the residential purchase agreement, you can back out of buying the home and take your good faith deposit with you. So a contingency is what in the past used to be called “a weasel clause,” as in something that gave you the opportunity to weasel out of escrow in case something didn’t go the way you wanted.

Today, the real estate transaction is less scary to the home buyer. Contingencies are already written into the printed contract used by Realtors®. If you wish not to have contingencies in your escrow, you have to (literally) sign them away.

Specific Contingencies & the Contingency Period

The RPA-CA (Residential Purchase Agreement or Offer or Contract) includes the following contingencies: inspection (and disclosures), loan and appraisal. The first seventeen days of escrow by default is called the contingency period. It is during this time that you will get the opportunity to clear the above contingencies. The home buyer receives all disclosures, schedules inspections, gets a loan and the lender clears the appraisal. If anything is amiss, for instance – if the potential home buyer cannot get a loan, he can walk away from the transaction and get his good faith deposit back from the title company where it is deposited. The same is true of the appraisal, something most home buyers worry about. If the home that the buyer is buying does not appraise for the price on the contract, the lender will, of course, refuse to lend that amount to close. Thus, the buyer can then either choose to cancel escrow or drop the price. Of course, all changes must occur with both parties’ permission.

I also have to mention that with the huge number of bank-owned homes on the market lately, the contingency period has suffered a bit of a contraction. A strong offer during the real estate boom years used to mean a 14 day contingency period – shorter than the 17 default days offered by the purchase agreement. Today, banks are reducing these days even further. I once saw a counter sent by the bank to my clients with the total contingency period shortened to just 10 days. While this reduction limits the number of days the property stays off the market (in case the escrow were to fall through and the house needed to be put back on market) with tougher lending guidelines and escrows and appraisals taking longer, it does severely limit buyer’s rights and can potentially put them in a difficult situation should the lender want more comps or another appraisal, for instance.

How Contingencies are Removed

As with all contractual agreements in California, this too must be removed in writing. At the end of the contingency period, the listing agent will usually ask for this form from the home buyers. It is usually up to the buyer’s agent to keep track of the total contingency days and remind the home buyers that they should remove the contingencies. If they do not, the listing agent can serve them with a “Notice to Perform.” Usually, this means that if the buyers do not remove contingencies, the seller can assume that the escrow has fallen through and – after returning the buyer’s deposit – can put the house back on the market.

Consequences of Removal

Home buyers should be careful, however. Once these contingencies are removed, it is assumed that escrow is going to close. Also, by removing contingencies, the buyers have now handed over their good faith deposit. If – after written removal of contingencies – the home buyers default on closing escrow the sellers retain their good faith deposit as liquidated damages. This default on buying the home could be for any reason, even if their loan fails to go through at the very last minute.

As such, many home buyers will “forget” to remove contingencies in writing. The jury is still out on whether in this case they should get their good faith deposit back. I’ve heard both sides of the story.

Do Contingencies have to Exist?

Contingencies are in place to protect the home buyer. Some people have asked me if there need to be contingencies even if they are making an all-cash offer and the escrow period is greatly reduced. I believe it’s always a good idea to keep contingencies. As a buyer it is your most important asset in buying the home. A lot can go wrong with an escrow, even if you are absolutely certain you will buy the house and do not need a loan. The disclosures could reveal something, or the inspections might find something you would not want to live with. In such cases, the home buyer is relieved to know that he can still cancel escrow and not have lost his deposit. Even if the escrow period is greatly shortened, leave time for inspections and disclosures. Cash escrows can close in two days – yes, I have seen them – but it’s still a good idea to extend that to at least a week and keep three days to clear inspections and disclosure reports. Contingencies are a home buyer’s best friends. Don’t scorn them.

Pollock Pines Market Update: October 2008

Since I’ve met quite a few home buyers from Sacramento interested in buying a vacation home in the Pollock Pines area, I feel the need to include a market update on the real estate goings-on uphill. So here it is!

You probably know this already, but it’s not a bad time to buy a home in this area if you can tolerate snow. 6 foreclosures sold this October in Pollock Pines, which is a sizeable number when you consider the total population here of about 5000 people. More than two-thirds of all home sales here are now distress sales and non-distressed sales make up only 30% of all homes sold. There are currently 26 foreclosures on the market, so second-home buyers… here’s your sign!

Average sales price has declined 10.6% over last October’s high of $277,143. It is now at $247,678. Sold price per square foot has dropped 28.8% from $191.89 to $136.56 for the same period. Why the huge discrepancy in the statistical data? Because the bargain hunters are now able to buy bigger homes! The average home sold is now 25.6% bigger than last October!

Based on the last year of sales, inventory is 13.1 months and based on the last 6 months of sales, inventory is at 12.5 months. So, Sacramentans, put on your snow shoes and head uphill! (Actually, you might want to hold off on the chains, it isn’t snowing yet.)

Arden-Arcade Real Estate Market Update: October 2008

Bargains abound in Arden-Arcade and real estate buyers are lapping them up! To give you an idea of the home sales market consider this fact: there are currently 101 foreclosures in the zip codes of 95821, 95825, 95864 but they only make up only 3 months of inventory! That means about 30 foreclosures sold every month on average for the last year – that’s almost one every day!

Speaking of foreclosures, 60 distressed properties sold in October of this year – 55 foreclosures and 5 short sales. Those made up 63.8% of all sales. Needless to say, with overall sales up 84.3% and non-distressed sales down 10.5% from last Otober, prices are down year over year.

The average home in Arden Arcade sold for 38.1% lower than last October with average home prices falling from $353,457 to $218,954. The median sale price dropped 42% over the same period from $286,000 to $166,000. Of course, you should take into consideration that the average home sold was also 14% smaller than last October, so a more accurate measure of the price decline is the sold price per square foot. Unfortunately, there is no good news there either: sold price per square foot declined 28% from $225.21 to $162.19 over the same time last year.

Inventory is at 6 months (based on the last year of home sales) and 4.7 months (based on the last six months of home sales.)

Orangevale Real Estate Market Update: October 2008

The Orangevale real estate market is having trouble finding a bottom. Homes in this nice little community nestled close to the Sunrise Mall, Fair Oaks and Citrus Heights are still declining in price. The reason, of course, is the number of foreclosures that are still increasing. There are currently 40 active foreclosure listings in Orangevale, but going by how fast they are selling, they only make up 2.1 months of inventory (based on the last 6 months of sales.) 22 foreclosures sold this October, up from just 2 that sold last October. That should give you an idea of why the price declines in the 95662 zip code are not slowing down.

Sold price per square foot dropped 24.5% over last October from $215.77 to $162.84. (The average home sold is also 9.4% smaller than last year – an interesting little trivial detail.) Average sale price fell further from last month’s $270,590 to rest at $258,607. Year over year, that constitutes a 31.8% decline. Median sale price also fell 31.2% over last October’s $365,000 to this year’s $251,000.

Another marked change from last year: 72% of all home sales are now distress sales as compared with last October’s numbers where 85.7% were non-distressed. In fact, non-distressed sales fell 25% over last year.

Inventory hasn’t changed much since last month. Based on the last year of sales, it is at 5.5 months and based on the last 6 months, it is at 4.4 months.

Home Buyers: Get your Inspections!

I’ve been hearing lately that home buyers are skimping on the right home inspections because they are financially stretched thin. And I want to take the time today to talk about what inspections you should get before you buy a home and how important these are to your contemplated real estate purchase.

Time is on Your Side

As a home buyer, the first ten to seventeen days are yours. You must guard this contingency period and use every day you have been given to get any and all inspections and disclosures on the property as you can. Please, please do not fall in love with the home before this period is over. I know. This comment might as well fall on deaf ears, because most buyers have already decided they love the home and will buy it no matter what. They’ve figured out the furniture placement and which room is for which of their children. All right, then. At least treat the first few days as important so you know what’s wrong with the home that you might have to fix later – somewhere between your kids growing up and before the grandchildren come to visit. There. Now that might make sense.

But seriously, the contingency period is a little like dating. This is where you get the time to bring in whoever you need to approve of the property’s structure, appliances, electrical system, plumbing set up, roof, and so on. As a home buyer, this is your active time. While the lenders are working on getting your paperwork processed and ready to send to the underwriter, you should be at the property getting your inspections done. There is no better use of your time than this.

Let’s go over some of the common inspections home buyers ought to get.

The Pest Inspection

A termite company will send out a pest inspector to check for “wood destroying pests” in the structure. Since wood destroying bugs like beetles and termites can threaten the structural integrity of the house, you can probably tell that this is an important inspection. It is so important that the seller of the home might have even gone ahead and got a pest report. A pest report will tell you where the problems are on the property and will be divided into Section 1 pest issues and Section 2 pest issues. Section 1 is an active infestation, Section 2 is something that could become an active infestation given enough time.

The pest report is only valid for four months. The pest report will also show you how much the pest company will charge to fix all the problems in the home. Remember that if you are buying a bank-owned home, chances are that the bank will not fix anything. In that case, it is up to you to make sure you understand the liability in buying a home that might have a lot of pest damage. There might be active infestations that can get missed if the home is a big fixer.

Cost of pest inspections: $90 – $125.

The Roof Inspection

The roof inspection is another important one you should not miss as a home buyer. With the cost of a new roof currently bouncing around $9,000 to $10,000 it is not something you want to have to replace if you are already financially unstable. Even if you are doing well as a new homeowner, no one wants a big bill on top of their mortgage payment.

To me, there is really no argument against getting a roof inspection done except maybe getting one scheduled in time. There is no cost to getting one done, you don’t need your Realtor® to even open the property up for the inspector, you can then be assured of the structural soundness of the roof when you are huddled in your home during one of those New Year storms we always get in Sacramento and your home insurance company is happy as well!

Cost of roof inspection: Free. (Roof certifications and / or repairs costs vary. Again, keep in mind that with a bank owned home, you will probably not get a roof certification or repairs. Ask the roof inspector to spell out the costs associated with fixing it on the report. Always a good idea to get it in writing!)

The Entire Home Inspection

This is the big one. Plan on having about 2 – 3 hours for this one, especially if the home you are buying does not have a slab foundation and requires someone to crawl underneath the house to take a look at the structure under the ground. The home inspection covers mostly everything inside the home. The inspector will also check the outside water systems, walls, and so on for any glaring issues. He might then direct you to call a specialist if he sees anything. Remember that most of this inspection is visual and not invasive. He will not, for instance, pull up the carpet to check for mold underneath.

In my experience, home inspectors do a pretty thorough job. The power should be on for this inspection to be done right, so if you are buying an REO, ensure that your Realtor® calls the listing agent and has the power turned on. This is the only way to see if the central air works, for instance and that the electrical outlets are wired correctly. The home inspection is also a good time for you to ask questions. If at all possible, show up early and talk to the inspector about anything you might be concerned about. That way, he can pay extra attention to those issues and let you know at the end of those three very important hours if your concern is warranted.

Cost of a Home Inspection: $375 – $600 depending on square footage of the home.

Other Inspections

While between the three inspections above, most issues are covered, (Of course, if the home has a septic system, that is another inspection you absolutely should get!) don’t be fooled into thinking that everything is just fine. Sometimes, it is also a good idea to bring along someone you know to have a good eye for a property. Even though inspectors have been trained to look for problems, they are still human. I once had some friends buy an REO, got all inspections done and then a week later they found out there was something wrong with the plumbing and had to get it fixed for $500 or so. The home inspector said he had only checked what he was supposed to and the problem must have been deeper than that.

While such misfortunes unfortunately cannot be avoided, if you have a contractor friend (lucky, lucky you!) it might be worth it to bring him along and buy him lunch or dinner later to just have him check the place out during the home inspection. His insights might be priceless.

You’ve Been Warned!

This list of recommended inspections is, of course, not exhaustive. If you think it is, you only have to take a look at the Buyer Inspection Advisory you sign along with the Residential Purchase Agreement or “the offer.” It lists a whole host of inspections you can get to ensure that the property you are buying is safe and – structurally, physically, topographically – sound.

I hope I have worried you home buyers now into getting all your inspections done and using every one of those contingency days to ensure the house you are buying is really something you can afford. There is really nothing wrong with the home having flaws as long as the flaws are either fixable or manageable. And always remember that the fees you pay up front to get these inspections will dwarf in comparison to the huge amount you may avoid paying later when going through buyer’s remorse.

Carmichael Real Estate Market Update

October has been a better month for real estate in Carmichael overall. Consider the fact that prices have RISEN (Yes, you read that right!) since September. The increase, albeit a small one – from $175.55 a square foot to $179.19 and an increase in average sales price from $304,816 in September to $331,229 in October – should be heartening in a home sale environment of more foreclosures and distress sales than non-distressed. Foreclosures make up 44.6% of all sales and short sales make up 16.1% of sales. This led to overall home sales doubling over last October, but non-distressed home sales falling 4.3%.

Non-distressed sales now only make up 39.3% of all sales in Carmichael.

The increase in price over September is especially nice to see after the drop over last October. Year over year prices have fallen 15.6%. From last October’s high of $392,410 for an average house in Carmichael, we are now at $331,229. Median sale price also fell for the same period from $335,000 to $299,500 – a drop of 10.6%.

Inventory in Carmichael, based on the last 12 months of sales is at 6.4 months and based on the last 6 months of sales is at 5 months. We are beginning to see, as in most markets, foreclosure inventory contract to about 2 – 3 months. (2.8 and 2.1 months, respectively, in Carmichael.)

El Dorado Hills Real Estate Market Update

Home sales have almost doubled in El Dorado Hills over last October. There must be something drawing these buyers! I know, I know! It’s the prices. Sold price per square foot has fallen 17.5% over last October – from $223.83 to today’s $184.60. And that brings the average sales price for a home in El Dorado Hills to $570,388 – not a bargain by a long shot, unless you take into consideration the fact that last October, the same home would have sold for $673,656. Gasp! That’s a 15.3% drop in prices.

So what’s driving the fallen prices? The foreclosures, of course. While non-distressed homes still make up the majority of home sales in this area, foreclosures have quintupled since last October. We even saw six short sales close escrow this October, making distress sales about 36% of all sales in El Dorado Hills. Surprisingly, non-distressed sales also saw an increase over last October by about 28.1%.

The median price also recorded a drop over last October, from $587,000 to $520,000. That’s a gap of 11.4%. Based on 12 months of prior sales, inventory in El Dorado Hills is at 7.9 months and based on 6 months of prior sales inventory is at 6.4 months. Foreclosure inventory however is at 2.6 and 2.2 months respectively. Potential home buyers in El Dorado Hills, this is something to think about!

The Life (and death) of an Offer

The life of an offer really begins when a home buyer says, mostly to him or her self, “I want that house.” The next thought usually is, “Oh no, now I’m really in deep.” When the home buyer recovers, his Realtor® is standing there usually ready with approximately a dozen pages and a pen in her hand. (These days, it’s more a laptop and some printed sheets, but what the heck. The old fashioned pen in hand is a better metaphor.) The home buyer regains some co-ordination control, signs, hands the Realtor® a check and begins to pray.

But then what happens? Most home buyers, after waiting nervously by the phone for three days, hear back from their Realtor®. It’s either a “yes” or a “no” but mostly a “maybe.” So how do these responses come about? What is the process by which an offer either grows up and becomes an adult escrow or meets an untimely and sad death?

Love me or Change me!

Offers make pretty good adolescents. They are written in the youthful hope of getting accepted just as they are – one-sided and all. Full of idealism, they are created by the home buyers in the wish that the seller will settle to sell the house to them for 25% less than asking and wait patiently while the loan process works itself out. Maybe the home buyers could move in early and get a feel for the place. Maybe the seller could even repaint the house for them. That color in the master bedroom just doesn’t do it. (I know, I exaggerate. Most home buyers are not this hopeful.)

Anyway, whatever it is that the home buyer wants gets written in and signed. The Realtor® then calls the listing agent and lets him know that an offer is on its way. Most of us now like our home faxes. “Send it over!” the listing agent says excitedly, secretly hoping the buyers love the home, have paid over asking price and are ready to pay cash and move in within ten days. (Hey, no one said there aren’t crazy expectations on both sides!)

The Painful Growth

The reality of course is that the offer falls somewhere in between what both parties want. The sellers usually like the down payment but not the offer price. The buyers love the house but know that it will take a little work to get it looking like something they own and can adore. Adjustments are hard. The seller’s Realtor® (the listing agent) looks at it critically and takes it over to the sellers. While it is not the dream they were hoping for, the sellers do realize this is nonetheless a serious offer and one they can work with. They decide to counter it.

Is this the End?

Technically, when you “counter” an offer or write a counter-offer, the first one is considered dead. Which means the sellers cannot now go back and say they would like to take the original offer to escrow. However, I like to think of a counter as the maturing of an offer. The counter heads on over to the buyer’s agent over the fax again and the home buyers are finally glad to hear back from their Realtor®. They were getting tired of being excited each time the phone rang. “We have a counter,” she says. “The sellers like everything but…”

The “Everything, But…”

The counter is usually the “everything, but…” offer. And I like that, most people do, because it identifies problem areas, deal breakers, and usually the counter offers are really where escrows are made. They are the sticky areas but also general and specific things buyers and sellers eventually concede. Counters are the peacemakers, as opposed to first offers. It’s unlikely there are more than two counter offers in an escrow. I once had an almost-escrow with four counter offers, the last one asked for $500 more. At that point, you can tell no property is exchanging hands. Most reasonable home buyers and sellers will reach a conclusion with one or two counter offers.

Yes, we have a Deal!

Eventually, the “everything but” clause is worked out and both parties reach an agreement. The offer has matured and it makes a wonderful escrow. Both parties sign all documents and the offer, ready to meet the world and hold its own, is sent to a title company where every word in it is pored over and followed. The offer is now a legal document and any changes to it require the approval of both parties.

The 30 – 60 day life of an offer, albeit short, is an important one. It marks the transition between home buyer and homeowner (and a homeowner to beach / golf course retiree, perhaps?) And it shows, in however small a way, that sometimes two parties can agree for the greater good of both. And isn’t that what all business is about anyway?

Citrus Heights Real Estate – Update

Investors love Citrus Heights. Especially in today’s market when real estate prices have fallen 27.3% over last October. The average price per square foot in Citrus Heights (zip codes 95610 and 95621) is now $132.71 – down from last October’s $182.43, a huge bargain for those looking to buy investment property or first homes.

The main reason prices have fallen so low is the foreclosures and short sales. There are currently 214 short sales on the market in Citrus Heights – a much larger number than I have seen in most other neighborhoods of Sacramento county. While we were beginning to see foreclosures in this area last October, the number has since tripled and distress sales now make up the majority of home sales – 68.1% are foreclosures and 15.9% are short sales. Non-distressed sales make up only 15.9% of all home sales – an interesting number when you think about the fact that total sales have gone up by 46.8% this October over the last.

The average sales price for a house in Citrus Heights is now $194,768 – down 29.8% over last October’s high of $277,310. Median sales price is also down 32.4% from $275,000 to $186,000 for the same period.

Inventory is at 5.3 months based on the last 12 months of sales and 4.1 months based on the last 6 months of sales.

Fair Oaks Market Update: October 2008

Here’s a real estate trivia question: what happens in a well established community which usually commands higher than average sales prices in real estate when the market contracts and foreclosures abound all around it? Answer: Home sellers quit selling. That’s exactly what has happened in Fair Oaks. In fact sold inventory dropped a whopping 38.7% over last October for the same time period and non-distressed sales dropped 63.6%.

Foreclosures always cause downward pressure on prices, so the 11 foreclosures that sold in October caused sale prices to drop even further. Sold price per square foot is down 17.1% over last year for the same period – from $201.32 to $166.83. Like I’ve said before, this is perhaps the most important measure in knowing price differences because the average house sold this October is 14% smaller than last October and average sale price and median sale price doesn’t tell the whole story.

However, here are the details for the curious minds: Average sales price has dropped 28.7% from last October’s high of $409,550 to rest at $291,828. Median sales price has dropped 22.2% over last October’s $405,000. It is now $315,000. Short sales have begun to poke their head through active inventory. Based on the last 12 months of sales, inventory is at 6.1 months and based on the last 6 months of sales, inventory is at 5.2 months.

Land Park Market Update: October 2008

The Land Park real estate landscape has changed over the last year. And this is a textbook case on how foreclosures can affect house prices, so it’s well worth noting, even if you have no interest in buying a home any time soon and / or do not live in Land Park.

Last October saw no foreclosures in this well established community and no short sales. 100% of the houses sold in this area were non-distressed. Today, while the majority of houses sold are still non-distressed, it is a small majority: 54.5% of all home sales. The rest are foreclosures (27.3%) and short sales (18.2%)

And when almost half the homes sold in a community are foreclosures, prices reflect that reality. Price per square foot in Land Park have dropped 25.9% from $338.42 last October to $250.87 this month. The average home in Land Park sold for 26.1% lower this year – for $346,250. Last October, the same home would have sold for $468.750. Median sales price has also dropped from $412,500 to $318,000 for the same period – a drop of 22.9%

There are, unfortunately, 13 short sales on the market in Land Park, so we might see some pain just yet in this community. Overall inventory based on 12 months of sales is at 5 months and based on 6 months of prior sales is at 5.5 months.

REO Buyers – Get your Offer Accepted Part 3

Welcome to the conclusion of this three part series on getting your offer accepted! The basics we have covered so far if you are a home buyer making an offer on a bank-owned property are to come across as a “normal” buyer, increase your good faith deposit, let the seller decide which title company to use, increase your down payment, get preapproved with a direct lender, offer over asking price, shorten timelines, clear contingencies as soon as is reasonably possible and not to ask for repairs. These are the specifics. There are other general conditions that help get your offer accepted and I will be going over them today.

Don’t get Greedy

The real estate market can be a lot like the stock market at times in that it is constantly driven by greed and / or fear. If you base your decision not on those two feelings but instead concentrate on inherent value and your own pocketbook, you will do just fine in your purchase. What do I mean by that? Greed runs buyers in a buyer’s market just as it did sellers a few years ago at the top of the real estate market. Fear also runs rampant in buyer’s markets as well as seller’s markets, except it’s quashed pretty easily. Don’t be one guided by panic or folly. (I know, I know – easier said than done.)

But more specifically, don’t offer an amount ridiculously low with the wildly optimistic hope that the bank will take it, because, hey, they have to get rid of the house anyway! Also, many home buyers like to get closing costs rolled into the loan so they don’t have to pay them out of pocket. In this case, don’t guess at the amount and ask for a ton of money back to close. If the cash back to close is not supported by the appraisal and the final HUD-1, both lenders (seller and your own lender) will be unwilling to give it to you. So, at all times, keep your cool.

Respond Quickly

Here’s a time when it pays to be opportunistic. If you find the right home and you think the price works for you, make an offer. When you hear back and the counter seems fine, sign it and send it over. It might be a good idea to sleep on it for a while, but if you take too long to decide, the house might very well belong to someone else by the time you get back to the bank. I know what you’re thinking: isn’t this a buyer’s market? Absolutely. But that’s why you’re seeing homes selling for so little! And even if you don’t see the value in some of these houses, I can guarantee that other home buyers are. Sales have been up for a while now – a sure sign that demand is beginning to catch up with supply. Wait too long, let fear overcome you and your window of opportunity might be lost. So make up your mind before you make the offer; think hard and long before, but when it’s time to act, well… act!

Be Prepared!

Of course, to be able to perform, you must be well-prepared. And preparation is more than saying, “I’m going to buy a house this year,” or listening to a relative talk about his real estate fortunes made when he bought homes in the 70s. While both these can be great incentives to your buying a home, you should have at the very least (1) done the math to know if you can buy a home and how much it’s going to cost you every month and (2) figured out a way to get the money to buy a house – whether it is begging, borrowing or stealing. Just kidding. Keep the stealing out of it.

I feel the need to reiterate this because I once met a client ready and willing to buy a house – she even wrote an offer on it and then realized she had jumped the gun. Why? The money she was going to use to buy the second home had to come from a refinance of the first one. She had waited to refinance because she was afraid to keep money lying around, lest she get tempted to go shopping with it. Do you know the conclusion to the story? Everything fell apart – the entire plan. Waiting to refinance the first home had been the mistake. Prices had fallen further and her first home now didn’t appraise for the amount she needed out of it. So, to use a cliche, get your ducks in a row before you sign the contract!

Get Good People on your Side

This should go without saying, but I feel the need to spell it out because, I’ll admit it, there are too many people out there who think they can make a good deal with a bad person. If you are not comfortable with your real estate agent or lender and you get a sense of not being able to fully trust that they have your interests at heart or that they are otherwise – well, shady – find honest ones. There are plenty of honest, hardworking Realtors® out there (ahem, notice the toll free number at the top right corner? There’s a hint!) with their circle of hand-picked good lenders they can refer you to. There’s no reason to stay in an untrustworthy relationship. Also, ensure that besides being nice and honest, the professionals working for you are also competent. No sense in having an honest lender who can’t perform at a critical time!

I hope this series has been helpful to the home buyers out there. Feel free to send it your questions through our contact form and if it’s something we have not addressed, I’ll be glad to answer on this blog!

REO Buyers: Get your Offer Accepted Part 2

Welcome back! This post is the second in a series of three posts regarding how to get your offer accepted by a bank if you are buying a foreclosure or REO property. So, besides coming across as a “normal” buyer with all intentions of really buying the house, increasing your good faith deposit, getting preapproved with a direct lender and offering over asking price, what more can you do?

Don’t Ask for Repairs

Nine times out of ten, banks will not make repairs or pay for repairs to a property listed as an REO. Actually, make that 9.9 times, a bank will not make or pay for repairs. It is so rare that if the bank is willing to do such a thing that fact will be spelled out in the marketing and become a selling point. This is why the property you are buying is priced so low. This does not preclude the fact that you will know about the repairs (some banks will already have a pest report for you to take a look at) but if you think the required repairs are a negotiating point, remember that the lenders have taken them into consideration when they listed the house. Also, if you ask the bank to make repairs, chances are your offer will likely get rejected in a multiple offer situation. That being said, do keep in mind that sometimes the banks are not right in pricing the home. Get your inspections done and weigh the repairs against the price. If you think the asking price is not worth the work, move on. There are plenty of homes to view.

Increase your Down Payment

With today’s FHA loans, it is possible for a home buyer to put just 3.5% down (with closing costs paid by the seller) and buy a house. However, if you can afford to pay your own closing costs, maybe take care of escrow costs by yourself or increase your down payment, your offer is sure to stand out from the rest. Some home buyers will even succesfully get their offer accepted at asking pricesimply by increasing their down payment. Or you can get your closing costs paid by the seller and use your cash as additional down. It’s up to you. Bottom line: see if you can find any more cash to use as down payment to bolster your offer and it will be taken more seriously by a bank.

Let the Bank Pick a Title Company

This is a small one, but it does cut out extra paperwork. Chances are the listing agent selling the REO has a preferred title company and that particular title company is well set up with all the details of dealing with that particular bank. If you pick your own title company (and, of course, that is your prerogative), you might get a counteroffer and you will need to rewrite your good faith check. It is sometimes simply easier to let the title company be the seller’s choice and make your good faith deposit out to a generic “Title Company.”

Shorten Escrow Time

This might not always be in your control, but it does help your offer if you can close the loan in 45 days or less. Timelines have gotten a little stretched lately since paperwork review has become more thorough in the lending industry, but anything over 45 minutes will probably merit a counter offer from the bank. Be careful, however. Writing a short timeline which you know to be unrealistic just to get the offer accepted could cost you. Most banks will have a counter that levies a pretty hefty fine on every day beyond agreed upon days to close – something like $50 per day or more. So make sure your lender is ready to perform on your shortened days in escrow.

Shorten or Clear Contigencies

The default contingency period on the California Purchase Agreement is 17 days. This means that if you do not write in a shorter contingency period for approving all documents and completing all inspections, you will have said that you want 17 days to do them. The bank will usually try to shorten these to 7 or 10 days. Why? Well, if the buyer does decide to walk away during the contingency period, the house has wasted less days on market. A good idea for a buyer at this point is to know that the bank will want to do that and shorten the contingency period himself. Better yet, it’s a good idea for the home buyer to get at least the home and roof inspection done before making an offer. However, be advised that if competition is stiff, this can get pretty expensive, (Home inspections cost approximately $350 – $500, pest inspections cost about $100 – $200 and roof inspections are usually free, certification and repairs on roofs cost money depending on how much work is involved) so only get inspections done before making an offer if you’re absolutely sure you are in love with the home.

If you keep these tips in mind when making an offer on an REO, you should be in pretty good shape. These are specific pointers to follow to get your offer accepted. For more general ideas, check back tomorrow for our last post in this series.

REO Buyers: Get your Offer Accepted Part 1

Last week, we received this query from a home buyer:

Thank you for the Sacramento Real Estate Blog and the time you
take in putting out this information. It’s been really informative and
helpful to read through the blog, especially in the current Sacramento
market. Anyhow, I’m a first time buyer with a question about offers on REO
homes. In the current market, I’ve noticed REO listings typically elicit a
multiple offer scenario. Aside from offering over list price, what can a
buyer do to make their offer stronger in the eyes of a bank? Are there
certain things that a bank will view more favorably (e.g. larger down
payment)?

I think this is a very good question and one repeated by many first time homebuyers. Buying a home is stressful enough. Add to that the fact that you are a first time home buyer and also are dealing with a lender / bank directly to buy a house and the discounted price almost doesn’t seem worth it.

However, notice I said “almost.” There are a few things you can do to make your offer stand out when a bank is looking at it. I will give you the inside details on that in this series. This is a three part series and I will discuss what you can do to have your offer stand out from the multiple offers a bank (usually) receives if the house is priced right.

To understand what your offer needs to be like, you have to understand the bank’s point of view. Imagine this: you have an object which needs maintenance, which you have never seen and have no idea how to take care of. Now place the object far away from you – miles away in fact. The person you loaned money to who promised to care for it refuses to pay you back, so you have to take the object back. But it is heavy, so instead you have to keep the defaulting person away from the object. Mind you, the object is still miles away from you. All you’re thinking is, I need to get rid of this object. I need to salvage some money here. But I have to get rid of it!

Get the idea? Then these tips will help!

Give all impressions of being a “normal” buyer

Banks typically don’t like offers that are not straightforward. (Now, you can argue that the banks themselves play all sorts of games with loans and so forth and are not straightforward themselves, but remember your goal at all times. If your goal is to buy the home, you must be direct.) What do I mean by “direct?” This would mean that you are an individual buyer or write your offer as an individual buyer (not a business entity like a corporation, typically). Do not even try to use the games most so-called real estate investing books recommend. For example, do not write something like “and/or assignee/s” after your name on the offer. Most loans are not assignable and since it is the first line on the California purchase contract, chances your offer won’t get very far at all. Of course, this is just an example. If you haven’t read any game-y real estate investing books, keep it that way. Listen to the advice of your Realtor® and come across as a normal buyer. Don’t do anything that would be grounds for immediate rejection.

Get Preapproved

Today, most listing agents require a preapproval (not a prequalification) letter from a lender (not a broker.) This means that you have met with either your own bank or credit union and have an approved loan or you have been to a mortgage broker and he has submitted your information and has received a loan approval for you. This is the most basic requirement for writing an offer and most REO banks will not take your offer seriously unless you attach a preapproval letter with it. Also, it would be a good idea to have a copy of your credit report because some banks still require that even if you have a preapproval letter, you get approval from their lender. It’s an extra step, but necessary. Sometimes, you can send the bank’s lender your credit report to expedite the process.

Increase your Good Faith Deposit

This is the oldest trick in the book, except it’s not a trick. Again, think of this from the point of view of the seller. If he has two offers to consider and one is offering $100 that he would lose if he walks away from the transaction and the other offers $2000 that he would lose, which one would you consider to be more serious about buying the property? Remember the bank wants to ensure that once the house is in escrow that is stays that way and ends in the buyer buying it. Ensure that you have between 1% – 3% of the offer price to put as a good faith deposit. This money will be deposited in an escrow account after the offer is accepted. You can get this amount back if you find a problem during the contingency period and cancel escrow. You only lose it if you cancel escrow after the end of the contingency period. So make sure you schedule inspections immediately after the bank accepts your offer. More on this later.

Offer an amount over asking price

Banks will typically underprice a property, especially if it shows well or has been built in the last five to ten years. Why? It’s a sales technique to get home buyers into the home and create a sense of urgency. Also, the price attracts more buyers which ultimately leads to multiple offers and sends the price up. If you don’t have a substantial down payment or a decent good faith deposit, offering over asking price might be the best way to get your offer accepted. But be careful – don’t offer more than you think the house is worth. At this point, it would be a good idea to ask your Realtor® to get you a market analysis and make an offer on the high side of the market, but not over the top. Besides having buyer’s remorse if you pay too much, you might have trouble during escrow if the house does not appraise for the offered amount.

That’s it for today! Come back tomorrow for more tips on getting your offer accepted! There are many REOs out there. If you’re interested in buying one of them, search here or call us. We’ll be happy to help!

Antelope: Bottoming Out?

I might be jumping the gun on this, but Antelope seems to be done bottoming out in terms of price. After a strong month of sales in September, this October saw the average sales price actually stop falling. While there is of course no guarantee that this means the falling prices are over, we must take our good news where we get it.

Yesterday, I spoke about El Dorado county’s median sales price rise over last month’s numbers and while Antelope has nothing to in common with El Dorado county, except the occasional common deer (ha, ha – let it go, first cup of coffee today!), we are beginning to see a few places here and there that seem to be bright spots in the otherwise bleak numbers in Sacramento and California, overall.

One such good piece of news is Antelope. Consider this: Average sales price in September for residential listings in Antelope was $219,705. October’s sales price was $216,864. When compared with prices over last October, the price is 21.7% lower, but when compared to last month, the sales price has fallen only 1.29%.

Nondistressed home sellers in Antelope also seem to be holding their breath and waiting for all the foreclosures to be lapped up and gone. While last month was the best month for foreclosure sales, this month (October) wasn’t bad either. 35 foreclosures sold in the month of October along with 11 short sales and only 6 non-distressed homes. This means distress sales make up the majority of sales currently in Antelope.

Inventory based on the last 12 months of sales is at 4.4 months and based on the last 6 months of sales is at 6.7 months. Price per square foot is at $130.01.

El Dorado County Market Update

Homes – and people, I assume – in El Dorado county are in no hurry. I get the sense, owning real estate myself in this part of California that things are a little more laid back here. The same goes for the real estate in El Dorado. After last month’s slow drop in prices and increase in sales, nothing much has really changed. But there are always more statistics to report, aren’t there? So here we go!

September was just such a strong month for sales that October would have had to be on wheels to beat it. Well, it wasn’t. Only 109 homes sold in October in El Dorado county, lower than the 161 sold in the month of September. While the majority were still non-distressed sales (67 – or 61.5%), foreclosure sales (34 or 31.2%) seem to gain momentum. 8 short sales also sold, which took up the remainder of the sales pie.

Price per square foot fell 16% over last October for the same period to $183.65. The average sale price fell 6.9% (Don’t we just love single digit falls?) from $473,560 from last October to $440,754. Median sales price actually ROSE by 3.9% from last October! It went from $390,000 to $405,000. Of course, you should keep in mind that the price per square foot tells the real story because hidden in the average and the median numbers is the fact that homes that sold this October were larger by 10.9% over last October. The average square feet of a home this October were 2399 over last October’s 2164 square feet.

Based on the last 12 months of sales, inventory is at 12.2 months and based on the last 6 months of sales, inventory sits at 10.6 months.

Folsom Market Update: October 2008

Home owners in Folsom have a lot to cheer about. While Folsom has been the last vestige of hope for Sacramento county’s falling prices, it has still seen price declines. They just haven’t been as severe and as deep as the rest of Sacramento. October brings better news. After a long time, we are beginning to see price declines in the single digits.

Consider this: The sold price per square foot saw a month over month increase to $197.22 from last month’s $190.47, but it is still a decline of 9% from last October’s $216.62. The average sales price is down 4.8% from last October’s $436,943 to $416,141. The median price is also down – 6% – falling for the first time this year under the $400,000 mark – to $389,500 from last October’s $414,500.

Nondistressed sales still make up the majority of all home sales in Folsom, albeit a smaller majority – 64.3% – as compared with last October’s 82.7%. Based on 12 months of prior sales, inventory is at 5.3 months and based on the last 6 months of sales, inventory is at 4.8 months.

Elk Grove Market Update: October 2008

The banks finally seem to be getting the picture; at least in Elk Grove, that seems to be a reality. As a case in point, one has only to look at the short sales. Where last October a mere 4 houses sold as short sales, this October we see 26, a 550% increase! Foreclosures now make up almost three quarters of all sales, up from last October’s 50%. There has also been an overall increase of 55% over last October’s sales in all. (That includes both distressed and non-distressed sales.)

Sold price per square foot is now at $129.92 on average, a drop of 25.1% over last October, but a slight increase over last month’s $126.72. The average home sales price also seems to have recovered a little over last month. In September, the average home had sold for $265,701. This month the average home sold for $268,546. The numbers are obviously not great enough to rejoice yet, but seem to be bouncing around the bottom. The average sales price is still a drop of 25.8% over last October.

Inventory in Elk Grove (zip codes 95624, 95757 and 95758) based on the last 12 months of sales is at 5 months and based on the last 6 months of sales is at 4.1 months.

Home Sellers: Snag Buyers by Distinguishing Yourselves

After I wrote the recent post on how you should react to offers as a home seller in today’s market, a few clients asked me to follow that up with what a home seller could do now to get their homes sold. Are there any other tips a seller can use to compete with the bank-owned homes? As we’ve seen, foreclosure sales have almost tripled in Sacramento county from last October to this October. While that might seem like a dead end to many sellers in this market, it is important to remember that some buyers are still interested only in homes that are not bank owned. How can you reach these buyers? Here are some ideas.

It’s Still About Price, But…

You cannot avoid the fact that price is on everyone’s mind these days. Even if your home is not bank owned, you will be competing against homes that are either short sales or REOs. Not to mention the reality of depressed prices in your neighborhood due to less expensive homes selling before all others. Banks can afford to drop their prices to get rid of inventory. Maybe you can’t drop your asking price to rock bottom, but you must price the home as close to an REO as you can handle. Leave some room for negotiation (because there will be some!) but I don’t have to tell you that overpricing your home in this market is essentially like not listing it at all.

That being said, be aware that just because the REO next door to you sells for say, thirty thousand dollars less than where you are priced, that it’s all over for you. Appraisers do have to take into consideration that your home is not a distress sale. Chances are also that REOs have deferred maintenance, thus reducing their value. Ask your Realtor® if you can see the pictures inside the homes listed around yours – that should give you a pretty good idea of where your house should be priced.

Accessibility is Important

Besides just price, bank owned homes have another thing going for them: accessibility. Almost all of them are easy to show. Buyer’s agents love showing REOs because there are never appointments to make and all of them have lockboxes and are vacant. While it might not be possible for you to move out (and sometimes a vacant home can be negative, because buyers don’t get an idea of furniture placement), it is a good idea to have your Realtor® use his lockbox on your door and indicate in the showing instructions that just a message on the phone is enough notice to show the home. This is called “Call 1st lockbox” and is easier on most buyer’s agents and the buyers than making an appointment with you or waiting for a call back. Remember, the home buyers are not in love with your home yet! You have to let them into the home first.

It is also a good idea to leave the house when the Realtor® and the potential buyers come by. Take a walk around the block, go to the store, take the dog for a walk. Give the buyers room. Definitely do not sit and stare at them as they look around the house. That will ensure they run out in within two minutes. And buyers that leave in less than five minutes almost never write offers!

Language & Negotiation

I covered this in detail in the previous post about how to deal with a purchase offer, but it bears repeating: ensure that your Realtor® is telling every buyer inquiry that all reasonable offers will be considered. When you do receive an offer, read it carefully and don’t rush to answer. Chances are it will be low. Learn to negotiate with it. Read this before you do anything. Also, another thing worth mentioning here. Don’t take too long to consider an offer. Your competition, banks, take anywhere from 72 hours to a week and are getting quicker. The best already have a counter offer written and they take very little time in getting it out. Sleep on the offer you receive, but don’t be caught snoozing. The home buyers don’t want to wait forever – there’s a lot to look at!

Ensure Clearances

This is arguably the best advantage you have over REOs and short sales. You have money. I know, it sounds crazy, but hear me out. You, as a homeowner, have lived in the home and chances are you have made repairs where they were necessary. You have taken care of the house. REOs are priced at wholesale prices because they have not been kept up. The people who had their homes foreclosed on definitely did not fix leaky faucets, torn roofs and the banks will not offer clearances for pest work, roof certifications or fix anything else that’s broken. In fact the first line in any bank owned home sale counter offer is, Property sold as-is, where-is.

You will not do that. In addition to making your home look pristine, inviting and warm, in addition to pricing it right, you can get pest inspections and clearances done ahead of time. In other words, your home is turn-key. In spite of what you see around you, there are buyers for turn key homes. Not everyone wants to add their own sweat equity; some people are just fine paying others to do so.

Sweeteners

No, I’m not talking about Splenda. Sweeteners have been largely forgotten in the strong seller’s market we had and could come back in a big way today. These include letting buyers customize their preferences in carpet, paint and so on. If you are considering painting anyway, let the potential home buyers know that they can pick the paint color. Same for replacing the carpet – let them pick it. Most home buyers will change some aspect of the home to suit their personalities anyway and your buyers might appreciate the opportunity to be able to move in without changing anything.

I hear often that to sell a house in this market you must think like a bank. I disagree. I think distinguishing yourself from the rest might be the key. Good luck!

Market Update October 2008: Sacramento County

It’s that time again! And this time, it seems like the real estate numbers seem to agree with most people’s predictions. (Hey, maybe next we can predict the Presidential Election results!) The overwhelmingly common opinion I hear from most clients is that we are around the bottom of the housing market. And I believe they are right.

Here are the numbers: total sales are up from last October! Sacramento county saw 1369 homes sell this October as compared with 884 last October. So the statistics are finally catching up with anecdotal data. As I have mentioned somewhere before, I see many investors and first time home buyers now entering the market. I hear things like, “I don’t want to miss out on this market!” Until now, this was just personal experience. Finally, we are beginning to see it carried out in the overall market numbers.

Since last October, the ratio of the number of distressed to non-distressed sales has completely reversed. Whereas last year, we had 61.3% of all sales as non-distressed homes, foreclosures and short sales made up 71.9% of sales this October. The number of short sales sold have also almost tripled from 33 to 138 this year over last October, suggesting that the push, even on lender’s minds is to get the inventory sold as soon as possible. Less than a fifth of the total market (18%) is now comprised of non-distressed sales.

Now let’s go to the real meat of the story and what all of us really care about: real estate prices! Average price per square foot fell 30.3% from last October to rest at $131.50 but we actually saw an increase when it was compared with last month’s price per square foot of $130.50. I know, I know, it’s only a dollar increase, but anything that is not a decline offers most home owners hope!

We are seeing similar hopeful numbers in the average home prices. The average sale price for a house in Sacramento county is down 34.7% over last October. It is now $211,916. But if you followed the market update last month, you will see that is actually an increase from September 2008′s average of $208,212. The median price has also seen a slight increase from last month’s $185,800 to $190,000 in October 2008, even though it is a decline of 36.7% over last October’s median sales price of $299,999.

Based on 12 months of prior sales, inventory in Sacramento county is at 5.7 months and based on 6 months of prior sales, inventory sits at 4.5 months.

Home Sellers: Offers & What to Look For

After I wrote the post on Home Buyers and Purchase Offers, a few people have asked me what the seller is supposed to do when an offer comes his way. In other words, in addition to the efforts of the two real estate agents to get the buyer to write a fair price offer, is there anything the seller can do to encourage the potential home buyer to come up with a price everyone can agree on and lead to a successful transaction that leaves everyone happy? The answer of course is yes.

Firstly, Encourage an Offer

If you are a seller in this market, I don’t have to tell you that it is tough out there. As a seller you are competing against short sales and bank owned properties. The most important thing you can do today is to distinguish your house from the REOs and short sales. I will deal with this aspect of selling a home in another post, but for now remember that you must price your home right. It might seem a little like you are gifting your home to a buyer, but you cannot argue with the market. Obviously, you wouldn’t be selling right now if you didn’t have to, so do everything you can to encourage an offer. Ensure that your Realtor® is letting every buyer inquiry know that all reasonable offers will be considered.

Now that the basic assumption is out of the way, let’s see what you can do with the various offers that might come your way:

The Lowball Offer

Don’t be too disappointed if you get a lowball offer. As I said in the post regarding buyers and the offers they write, you might see more low offers in this market than you will be prepared for. Most sellers think they are ready for the home selling process until they see two or three lowball offers. This might be hard, but try not to take it personally. Sometimes, all the home buyer is trying to do is get an idea of the seller’s rock bottom price. This is the buyer’s market’s counter point to the multiple offers of the seller’s market. So play along. Counter the buyer’s lowball offer with what you’re willing to accept and send it off. If the home buyers really liked the home and were serious enough, they might come back with a more reasonable offer. If they were merely tire kickers, hoping to buy the home for a song, you will never hear from them again. Either way, you’ll know. What you absolutely do not want to do is get offended and never get back to them. While you might be upset by the offer, remember it is ultimately a business transaction. Everyone is trying to get the best deal that works for them and getting angry could cost you a home buyer, albeit a clueless one.

The Asking Price Offer

Before you hurry to sign it – in case the buyers change their mind – be sure to go over all the eight pages with your Realtor®. In particular, you want to check how long the escrow will be (anything over 60 days merits a counter to reduce the amount of days), if the buyers need any money back for closing costs since that will reduce your net amount and how the escrow costs are divided. That being said, in today’s market, if you do receive an offer at asking price, remember that the buyers will expect you to pick up some or all of the escrow and closing costs. This is a reasonable expectation, no matter how many price reductions you have had. If you do wish to make any changes to this, be sure to have a verbal agreement before you send out a written counter. While verbal agreements are not dependable and definitely cannot be used instead of written contracts, it does seem to send out a message of wanting to work it out and fair negotiation.

The Over Asking Price Offer

Before you do anything, try not to faint when your Realtor® announces that your house has received an over asking price offer. Chances are, you have done a great job pricing the home and it shows extremely well. The potential home buyers have made an over asking price offer because they are concerned there are other offers on the table or they are coming. When you receive an over asking price offer, be sure to go over with your Realtor® – in addition to the points discussed above – if the home buyer has asked for any cash back for closing costs. That is common with offers over asking because the loan amount is increased by that amount. Remember that appraisals are tougher in today’s market and offers over asking might not always be a boon. Also ensure that closing costs above 5% of the purchase price are approved by the buyer’s lender.

And With All Offers…

Make sure the home buyers have a letter of preapproval for the entire amount of the purchase. Have your Realtor® talk to the lender before you sign the offer. This is perhaps the most important part. Follow all these rules and you should be just fine!

Archive for November, 2008

Downtown Sacramento Real Estate Market Update: October 2008

Natomas Real Estate Market Update: October 2008

Pocket Area Real Estate Market Update: October 2008