Sacramento Real Estate Blog

As we always do, my agents and I have been working with a lot of home buyers. A lot of these buyers have been really great, and we appreciate their business. Maggie closed escrow last week with me, for example, and Christine is closing in a day or two with Vicki. Another buyer of Mike’s will be closing later in the month.

To all those buyers who’ve given us the opportunity to work with you recently, Thank You! We appreciate your business!

At the same time that I’m grateful to our customers, one of the things I’ve noticed more and more in this market is that there seem to be lot more buyers writing offers that go nowhere. You can probably guess how depressed this makes me if I tell you the original working title of this article, which was this: “Home Buyers Beware: Shooting Yourself in the Foot Is Not As Fun As It Looks”.

Getting to see buyers shooting themselves in the foot is of course an occupational hazard. As Realtors® working as agents for buyers, naturally we have a fiduciary obligation to write pretty much whatever offer you want us to. This isn’t just a fiduciary obligation, it’s a practical one as well, since there’s always another agent who’ll write an offer for you if we won’t. So unfortunately, if you want to shoot yourself in the foot, one could make a case that part of our professional duty is to load the gun and hand it to you.

The other constraint that we work under is that when we write your offer, we really don’t know for sure if it will work until it’s presented. In my experience I’ve seen offers I thought were quite reasonable get flat out rejected, and on the other end of the scale I’ve seen offers that I thought were overly aggressive get accepted as written with no counter-offer. Usually, however, as people who write a lot more offers than the overwhelming majority of the buyers and sellers we work with, we have a pretty good idea if an offer is a contender or a non-starter.

What I’d like to do in the rest of this article is point out the mistakes that I see buyers making. My hope is that it will save you time, and help you get the house you really want.

Mistakes Buyers Make

1. Not Looking At Comparable Sales
   The number one mistake that buyers make when they write an offer is not looking at the market value for comparable homes. If there’s an Internet connection handy, your agent can usually get you this information in about five to ten minutes, especially if the home is not on acreage and is in an area where there’s a lot of activity.Even before “running the comps”, however, we know that there’s a good chance the home you’re writing an offer on is already a bargain. How do we know? Because you already compared it to what’s on the market when you selected which homes to go look at, right? Chances are good that you never said this to your agent: “Oh, let’s go see this one — it’s the same as these other ones but more expensive!” Then of the ones you saw, which one do you want to work on? The bargain, right? Of course. However, the reason you need to know the comps is that you need to know whether the home you’re interested in writing an offer on is a tiny bargain, a medium bargain or a huge incredible bargain.
2. Writing an Offer on the Market, Not On A House
   We all know that the market is slow, inventory is high, prices are going down, and things aren’t moving, right? Absolutely — all of that is true. Does that mean you can write a low offer on a house that’s priced really low already? Not necessarily. Remember that the house that’s low already is not average for the market, it’s at the low-priced end of the market “bell curve”. The definition of a buyer’s market is that the middle of the curve isn’t selling. The bargains always sell. There are bidding wars in this market just as there were bidding wars in a seller’s market — there just aren’t as many of them. We saw one home a few weeks ago that had twenty-nine offers on it!
3. Negotiating a Bargain Instead of Looking for One
   There are bargains available now, almost everywhere someone asks us to find them. Naturally there are exceptions — a few areas in where prices have stayed high or dropped more slowly than in other areas. But for the most part, in neighborhood after neighborhood, zip code after zip code, we have found homes that are listed below the comparable value of sold homes. In a market such as this, where prices are falling, the leading edge of the market is made up of today’s bargains that make up tomorrow’s comps. One of the successful buyers we mentioned above closed on a home that was priced better than twenty-five out of twenty-six pending and sold comps. Not bad!
4. Working on the Huge Incredible Bargain
   If a list price on a home in a given area is too good to be true, chances are that it’s either a major fixer upper, or there will be a huge amount of competition on the house, or both. Remember the house with the twenty-nine offers on it? This one was a house like that. Even offering full price on such a home will not secure it for you. If a house is priced extremely well, you should be offering more than full price. Remember, your job is to find the bargain and write the offer that will buy it. List price is irrelevant — what’s important is market value. Would I pay $50,000 above list on a home that’s $200,000 below market? Gladly. All day long if I could.As a general strategy, we find it best to work in that area of the market that you might say is “significantly discounted, but not a huge killer deal”. Forty per cent below market is a bidding war waiting to happen. Ten percent below market is a home with built in equity that you have a good chance of closing on.
5. Traveling Through Time
   One of the reasons I love real estate is that I grew up reading science fiction, and as a Realtor® I get to watch people travel to the future for their prices. The logic goes like this. The average sale price of a home in a given area, is, let’s say, $300,000. A home the buyer’s interested in is listed today at $260,000. Buyer thinks to themselves: Well, prices are going down, I can probably get this house twelve months from now for $220,000. I’ll offer $220,000.
6. Not Wanting to Leave any Money on the Table
   Alright, first of all let me say that anyone who knows me will tell you I say dumb things to get a laugh. For example, when I meet people for the first time or when someone I know well calls me on the phone, I’ll say “Welcome Back”.Given my propensity for saying dumb things recreationally, it’s probably the pot calling the kettle black for me to have a pet peeve about something that doesn’t make any sense. Be that as it may, I hate this phrase: “I don’t want to leave any money on the table”.

   Buyers will often utter this phrase when they’ve decided that 15% off of current market value isn’t enough of a discount for them. They usually say it as they’re getting out of their DeLorean having just come Back From the Future to make up a price. (I think there must be a tape player inside every DeLorean where this phrase is taught to buyers through some kind of subliminal hypno-training.)

   Buyers, let me be clear. Nobody’s going to leave any money on the table. You and the seller are paying a title company good money to do your escrow for you, and your escrow officer will prepare a settlement statement approved by the Department of Housing and Urban Development. These settlement statements account for every dime involved in the transaction. Also, part of my job is reviewing your closing statement before we close. In the absurd event that there’s an entry on there for “money left on the table”, I promise that I will make the title company give it to you.

   Your welcome.

   True story time: A buyer for a house I once had listed at $350,000 told us through her agent that she “didn’t want to leave any money on the table”, so she offered my seller $300,000. At the time of the offer, the buyer told us there was another house (a close comparable for my seller’s house that was right down the road) that she liked less, but she was writing up an offer on my seller’s house first because it was her first choice. The offer being too low, my seller was insulted, and the buyer and seller never did come together. Two months later, we saw that the buyer had closed on her second choice house, the one she didn’t like as much. Final sale price? $350,000.

   Load lowball. Point at foot. Pull trigger.

7. The Market Referendum / Kitchen Sink Offer
   “Look this is a buyer’s market, right? Well, I’m a buyer. Here’s what I want. I want to use Nehemiah down payment assistance program where the funds may or may not be available for me to close, and I want the seller to pay for that plus my closing costs, and I want to pick out a nice bank owned property that’s listed for 20% below market. Then I’d like to also offer less than the asking price.”Do you like jokes? Here’s a real estate riddle for you:

   Q. What do you call a buyer who knows it’s a buyer’s market, who wants 100% financing, their closing costs paid, and won’t pay list price on a home that’s already discounted? A. A tenant.