The median price paid for a county home last month was $308,000, up $52,000 over March 2012. It was the highest monthly median price since July 2010. Monthly sales at 250 were up 31 percent from February and the highest number of sales for the month of March going all the way back to 2005.
Not only are more homes selling at higher prices, but sales are brisk. Median priced listings averaged 18 days on the market before they were reported as pending sales. That’s better than the statewide average of 26 days. A year ago the average time on the market was 52 days.
While year-over-year prices and sales are increasing, the number of homes for sale is not. The 156 new March listings were up over February but down 25 percent from March of last year. First quarter new listings are down 40 percent over last year. With sales at 250 a month and new listing at 150 what do you suppose is happening? There are a lot of folks trying to buy the same house.
Here is an example:
On the first day the property was listed, I called the listing agent to arrange a showing that afternoon to my client. He said a tenant occupied the home and would not allow showings.
“OK,” I said, “How do you expect to sell the home that no one can show?”
“Just write the purchase contract ‘subject to’ your buyer’s inspection.”
“OK, have you or the sellers been in the home?”
“So you expect buyers to write offers without seeing the home?”
And they did. The listing agent later told me he had a total of 15 offers within the first 48 hours of listing the property in the MLS. Nobody previewed the inside of the home. Five offers were all cash. The successful buyer bid 6 percent more than the listing price.
This is a challenging market for most buyers. If they need financing they are at a disadvantage, competing with cash buyers. If they are not able or willing to pay more than the appraised price, their offer is disregarded as not serious. If their offer is contingent upon a pest or a roof inspection, forget it. So how does an average buyer stand a chance of having an offer accepted?
Here are a few strategies that buyers and their agents are using. Although not guaranteed, they will increase a buyer’s odds of successfully getting a home into escrow.
Buying a home these days is a lot like applying for a job. Simply e-mailing a résumé to a prospective employer or an offer to the seller’s agent isn’t a winning strategy. When all offers are at or above listed price, buyers have got to make an impression. One way is with an introductory letter telling the sellers why they like their house. These letters often include family photos and perhaps some family background information. They are intended to find something in common with the sellers or create an emotional bond.
Contingency-free and contingency-light offers could be risky for buyers but attractive to sellers. Most purchase contracts have customary contingencies in favor of the buyer. If one of these contingencies is not satisfied, the buyer can easily walk away from the deal without losing their deposit. Obtaining a loan, the appraisal meeting the purchase price and satisfactory property inspections are all standard buyer contingencies. Offers without contingencies are considered more serious since the buyer has a deposit at risk.
A few years ago it was pretty common for sellers to pay part or all of the buyer’s closing costs. Now, buyers are crediting sellers for their customary settlement charges.
An escalation clause in the purchase contract commits the buyer to match and exceed any verifiable, bona fide competing offer by say $500, up to some maximum amount. This strategy keeps the buyer’s offer in play despite other higher offers.
Coming in second place on a home that you wanted to buy isn’t the best position but it’s better than no place at all. When a seller accepts another offer, buyers should try to get their offer accepted in a “back up” position. Back-up offers are now so popular that there is often competition for first and second place back up. Here’s why: More accepted offers are failing to close and when the escrow is cancelled, the back-up has the opportunity to slide right into first position.
So why do you think in our sizzling hot market, an increasing number of sellers are losing their buyers?
Despite the low interest rates, qualifying for a loan is not a leisurely stroll in the park. Low appraisals are also killing deals. Short sales, although less in number, still have a higher fall-out rate and often successful high bidders have “buyer’s remorse” and cancel escrow. They get caught up in the negotiating process, perhaps agreeing to pay thousands of dollars over the listed price regardless of the appraisal. A few days later they come to their senses and walk.
Back-up offers can be written that allow buyers to continue shopping, cancel the contract at any time, require no deposit and if their back up offer slides into first place, allows buyers sufficient time for their inspections and loan approval.
Ken Calhoon is a real estate broker in El Dorado County. He can be reached at kencalhoon.com.