Bargains abound in today's real estate market, and buyers rule -- but not necessarily lowball offers.
Real estate agents say steep price declines are driving a selling process now more like 2005's boom market than a bust. Priced-right properties at the lower end of the market get multiple offers and sell in days.
So buyers must formulate offers that stand out. That means offering the right amount, sometimes above asking price. And it means getting pre-approved for a loan and not making nit-picky requests of the seller.
The steep decline in home values is fueling the clamor. Prices fell 18.1% from April 2008 to April 2009, according to S&P/Case-Shiller's latest report, covering 20 major U.S. cities. That index is off roughly 33% from its peak in Q2 2006. In Phoenix and Las Vegas, prices have plunged more than 50%.
However, April marked the third straight month that the decline wasn't a record -- a small glimmer of hope for those who want to believe the market is improving. Whether one believes the market is nearing the bottom or not, multiple offers are commonplace on modest properties, says Brock Harris, a broker with Silver Lake Real Estate in Los Angeles.
"If it's a bank-owned property, you need to go over asking price," he said. "We're talking 10 to 20 offers. It's like the old days."
Harris says agents selling these properties are pricing them aggressively -- a change from last year. Now, he says, agents selling them are rated by the selling banks on "how quickly they can sell homes."
Lowballing an offer can be a big mistake on real estate owned by banks, or REOs, Harris says.
"REO agents tend to be a heartless and careless bunch ... there's not a lot of room for negotiation," he said.
So how do house-hunters come up with the right offer? A top-notch buyer's agent willing to do research is a necessity, real estate agents say.
Elizabeth Weintraub, a longtime Realtor at Lyon Real Estate in Sacramento, Calif., turns to the Internet, themultiple listings service and public records to dig up comparable prices and research sellers.
Research Pays Off
On a recent sale, Weintraub found out a seller was a home flipper with 37 properties. She discovered that he has sold 9 properties so far, for an average of just 2% under asking price. So he's pricing them well. Thus she had her buyer make a first offer 5% under asking.
She also knew from the seller's agent that there was another offer coming in. So she made sure that her buyer didn't confuse the offer by asking for a lot of seller concessions -- the home had been remodeled but a couple of fixes were still needed. The seller countered her offer, not the other party's, and the buyer agreed to the counter -- at the seller's classic 2% under asking price.
Weintraub says she also sells bank-owned properties and has seen buyers' agents make some lame moves. On her worsts list are agents who: don't call the selling agent to see what they can find out, submit fake comparable sales, submit lowball offers with a low deposit, or submit opening offers seeking too many concessions.
Preparing A Bid
Buyers need to review comparable sales, no more than two months old, when trying to formulate an offer price, agents say. And comparables should be equivalent homes in the same neighborhood or very nearby.
Agents say in this era of tight mortgage lending, a buyer must supply a pre-approval letter with an offer. It should show the buyer's pre-approved for the asking price of the home. A pre-qualification letter isn't good enough, says Patricia Broghamer, an agent with Re/Max Advantage Realty in Charleston, S.C.
The letter needs to be from a well-known lender on bank letterhead, says Broghamer. And it should be dated on the day of the offer -- stale, generic letters won't cut it.
Janet Hildebrandt, a Realtor with The Tonnesen Team, Prudential Americana in Henderson, Nev., says some banks selling foreclosures are even asking buyers to submit "a pre-approval from a specific lender." The buyer doesn't have to use that lender for financing, but the selling bank wants the letter so it has confidence in the buyer's ability to close the deal, she says.
On hot properties, buyers must be willing to put an offer in within a day or two of the home coming on the market.
Collections agencies and homeowners associations can hang up deals, Hildebrandt says. HOAs hire collections agencies to go after delinquent HOA dues from defaulting homeowners.
"These collection agencies have no rules, no regulations," Hildebrandt said. She says she's been waiting 30 days for demands from one collections agency on a home in escrow.
In what market category are prices still coming down, fueling below-list offers? Million-dollar and multimillion-dollar homes. Jumbo financing is still hard to come by, agents report, and the tough economy is hitting the luxury-home market hard.
In Isle of Palms, a tony vacation home area of South Carolina, luxury home prices have fallen 50% from their peak in 2005, Broghamer says. And sales still go at steep discounts from list prices -- two luxury homes that sold in May and June went for 21% and 24% below their asking prices. Broghamer says many investors are buying such homes.