The substantial pent-up demand for home purchases and lack of inventory is fueling bidding wars this spring for condos and homes on the luxury Westside of Los Angeles. With the supply of homes nowhere close to the level of demand, competition among buyers has already become fierce.
Both buyers and sellers need a good strategy to deal with what can be a very frustrating real estate transaction.
If you are a buyer, it is very likely that you will wind up entrenched in what can become an anxiety provoking and time consuming “purchase offer negotiation.” To minimize stress and maximize your potential for success there are a few key steps to follow.
First, recognize that we are in a “seller’s market” for real estate. The scarcity of available inventory creates competition between prospective buyers. As in any competitive activity, you need to understand what it takes to win.
In order to compete, you need to be prepared financially. This means selecting a mortgage broker to shop for the most competitive loan rates for you. Alternatively, you may choose to work directly with lenders. In either case, you will need to obtain a preapproval letter, which should be submitted along with your purchase offer to the seller to show your ability to qualify for your loan.
You will also need to show proof of availability of funds to cover the down payment and closing costs. Such proof is usually in the form of your most recent bank statement or statement from another recognized financial institution showing you have such sufficient funds on deposit.
Be sure to do your homework to educate yourself on market values in your area.
This means scouring the active listings that may include research on the Internet and in local newspapers, as well as through the help of a qualified agent. You should ask your agent for a list of all of the active listings in your neighborhood that fit your needs.
Selecting a knowledgeable local real estate agent who will work with you to provide you not only the active listings and prices, but also recent sales is an important step in the education process. Then when the right home for you comes on the market, you will be ready to pull the trigger and write a good offer.
If the listed asking price is close to the current market value, it may makes sense to offer more than the asking price to try to beat out other prospective buyers.
If you can afford to make an “all-cash” offer, this is another step you can take to improve your odds of winning. You should check with your accountant or other professional who can advise you of any legal, tax or other issues related to obtaining a loan after close of escrow.
Sellers typically prefer an “all-cash” buyer to a buyer with a loan contingency. An “all cash” buyer removes a great deal of uncertainty for the seller who otherwise must wait two to three weeks or more for loan approval from buyer’s lender.
In addition, a personal cover letter from a buyer to the seller always helps provide the seller a more personal connection to the person who may become the next owner. This is an opportunity for the buyer to win the seller over emotionally. Explaining why you would cherish the seller’s home often goes a long way towards swaying a seller in your favor.
If a seller needs a short period of time to make the transition to a new home after the close of escrow, your flexibility and understanding in renting the home back to the seller can go a long way to consummating the deal. If you can be flexible, this can be a tipping point factor in winning your bidding war.
On the seller’s end, the key element to achieving multiple offers is to price the property right. In a seller’s market where inventory is scarce, prospective buyers will flock to a home that is priced just under or at the generally accepted fair market value of the property. Just because it is a seller’s market does not mean that the traditional real estate rules no longer apply.
Pricing a home more than 10 percent above the sales prices of comparable homes not only discourages multiple offers, but it can also discourages prospective buyers from coming to view the property. When buyers see significantly overpriced properties they tend to believe that the seller is not truly motivated to sell and are more likely to wait for a price reduction than make an offer.
It is a good idea for sellers to continue to have their agents hold their listed home open and do showings to obtain one or more back-up offers. This is preferable to having to put the property back on the market if the buyer backs out of the deal. To many agents and buyers, a property coming back on the market signals that there was something wrong with the property.
According to Redfin, demand has outpaced supply of home since early in 2015. Nationwide last year sales grew 9.7 percent, but new listings grew by only 5.9 percent.
It is significant to note that although the number of prospective buyers touring homes increased to the highest level on record on Redfin’s tour index, the number of prospective home buyers making offers fell year over year for the first time since October 2013.
This falling number of prospective buyers making offers indicates that more and more buyers are searching to buy, but fewer of them are having success in finding a home that meets their needs in their price range. For now, prices continue to push higher based on high buyer demand and low inventory.
For a free courtesy consultation, or information regarding mortgage brokers, contact Bess Hochman, a top Westside Real Estate Broker for over 20 years. Bess is also distinguished by holding a law degree. This article expresses the opinion of the author. You are advised to consult attorneys & others experts specializing in the issues referenced in this article.
Contact Bess at 310.291.4111 or Bess.CenturyCityNews@yahoo.com.
“Bess is a master negotiator!” says Michael Donaldson, attorney and author of “Negotiating For Dummies.”
