Mortgage money's cheap if you can get it
As rates for home loans hit new lows, underwriting remains tight
By Inman News, Thursday, October 4, 2012.http://www.shutterstock.com/pic.mhtml?id=6689761" target="_blank">Tight fisted</a> image via Shutterstock." width="225" />Tight fisted image via Shutterstock.
Demand for mortgages from homebuyers and homeowners refinancing continues to rise, as rates continue to find new record lows in the wake of the Federal Reserve's latest round of mortgage bond purchases.
But mortgage underwriting standards -- largely dictated by Fannie Mae, Freddie Mac and the Federal Housing Administration -- remain tight, and mortgages are difficult to obtain for those with less than sterling credit.
Rates on the workhorse 30-year fixed-rate mortgage averaged 3.36 percent with an average 0.6 point for the week ending Oct. 4, down from 3.40 percent last week and 3.94 percent a year ago, Freddie Mac said in releasing the results of its latest Primary Mortgage Market Survey. That's a new low in Freddie Mac records dating to 1971.
For 15-year fixed-rate mortgages, popular with homeowners who are refinancing, rates averaged 2.69 percent with an average 0.5 point, down from 2.73 percent last week and 3.26 percent a year ago. That's a new low in records dating to 1991.
Rates on five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 2.72 percent with an average 0.6 point, up from 2.71 percent last week but down from 2.96 percent a year ago. Rates on five-year ARM loans hit a low in records dating to 2005 of 2.69 percent during the week ending July 19.
For one-year Treasury-indexed ARM loans, rates averaged 2.57 percent with an average 0.4 point, down from 2.60 percent last week and 2.95 percent a year ago. Rates on one-year ARM loans have never been lower in records dating to 1984.
A third round of quantitative easing ("QE3) announced by the Federal Reserve on Sept. 13 will boost government purchases of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac by $40 billion a month for an indefinite period. When the government buys mortgage bonds, that pushes their prices up, and yields down.
"Fixed mortgage rates fell again this week to all-time record lows due to the mortgage securities purchases by the Federal Reserve and indicators of a weakening economy," said Freddie Mac Chief Economist Frank Nothaft in a statement.
Nothaft noted that the final estimate of second quarter GDP growth was revised down to 1.3 percent in the second quarter, representing the slowest growth in a year. Personal incomes rose only 0.1 percent in August, and an increase in July was revised downward. Also, the National Association of Realtors reported pending home sales fell 2.6 percent in August, well below the market consensus forecast of a slight increase, Nothaft said.
More recently, a survey by the Mortgage Bankers Association showed applications for purchase loans were up a seasonally adjusted 4 percent during the week ending Sept. 28 compared to the week before, and up 11 percent from a year ago.
Many homeowners have already refinanced to take advantage of low rates -- the Fed's first round of quantitative easing, $1.25 trillion in purchases of Fannie and Freddie debt and MBS which wound down in 2010, helped push mortgage rates below 5 percent.
But the MBA said requests for refinancings jumped last week to the highest level since April 2009, accounting for 83 percent of all mortgage loan applications.
If mortgages are cheap, they're not easy to come by for borrowers with blemished credit.
Ellie Mae Inc., which provides mortgage origination software to lenders, reports that the average FICO score for mortgages approved in August was 750, with borrowers making down payments averaging 21 percent and having front-end debt-to-income ratios of 23 percent.
The average FICO scores for purchase mortgages eligible for purchase and guaranteed by Fannie Mae and Freddie Mac was 763, while FICO scores on FHA-backed purchase loans averaged 700.
FICO scores range from 300 to 850 and, as syndicated columnist Ken Harney noted in the Washington Post, 78.5 percent of all consumers have scores between 300 and 749. That means only about one in five consumers have FICO scores equal to the average score of borrowers closing on Fannie and Freddie loans in August.
Fannie Mae Chief Economist Doug Duncan told Harney that underwriting could loosen up as banks begin to shed fees they've tacked on to mortgage quotes to address risk in the aftermath of the housing bust. Duncan expects lenders' fears about buyback demands from Fannie and Freddie and regulatory requirements stemming from the Dodd-Frank financial reform bill may also dissipate.
"In the meantime, don’t look for any dramatic relaxations," Harney concludes. "To get a mortgage, you'll generally need high scores, big down payments -- except for FHA, which accepts 3.5 percent down -- plenty of time and reams of documentation."
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Monday, October 8, 2012
Mortgage money's cheap if you can get it | Inman News
Thursday, October 4, 2012
Listing descriptions deserve care and creativity | Inman News
Listing descriptions deserve care and creativity
Spelling matters -- and easy does it with the abbreviations and exclamation points!
By Alisha Alway Braatz, Thursday, October 4, 2012.I can spell image via Shutterstock.
I was a kindergartner when my little brother came along. Princess Alisha was not impressed.
Even though my mother quit work to stay at home, every time I needed something, the new little brother demanded her attention with his eating, pooping, and screaming.
Around that time, a fabulous new family moved in next door. There were three kids to play with and their mother served Capri Sun, Otter Pops, and Oreo cookies as after school snacks -- waaaay better than the plain bagels on our countertop.
But the real coup d'etat sat majestically in their backyard: a real, honest-to-goodness trampoline! I LOVED trampolines!!!
Allison, the daughter, and I became fast friends. There was only one hitch.
Allison's mother, being super responsible, required that I bring her a note of permission from one of my parents before I even touched the trampoline. I ran home, desperate. But, as you might have guessed, my mother was busy. Busy with the baby, busy making dinner, busy, busy, busy.
"Just write me a note!" I screamed.
"Alisha," she responded shrilly, "write it yourself!" Well! Hmph! Of all things! Making me, a kindergartner -- hey, wait -- me write the note? Oh. Okay!
First, I needed paper.
Hmmm... well, apparently, our house didn't have paper. I couldn't even find construction paper (another sign of parental neglect). So, I had to improvise. I found a discarded shoe box top in the garage. It was flat and blank. It would do just fine!
After I commandeered a pen, I sat down on our front porch to compose a note.
The note had to convey authority. I didn't want Allison's mom suspecting that my mother hadn't written it. The note also needed to be concise -- and most importantly -- spelled correctly. Every kindergartner knows that. I mentally ran through all the words I knew how to spell and cross-checked them with all the important words necessary for my note: permission, allowed, trampoline, fun, neighbors, snacks, eat, many, Oreos.
Yikes. I didn't know how to spell any of those words. I scrunched my forehead, I chewed on my pen. Time was a ticking! Finally, I just went for it. In all capital letters I carefully wrote: "SHE CAN!" I put the exclamation point on the end to give it my mother's voice.
Perfect! The note was concise, to the point, spelled correctly, and conveyed authority. I breathlessly ran it over to the neighbor's house, thrust it into Allison's mother's hands. I was up on that trampoline before she could say, "Thank you," or, "Have another cookie, cutie".
For some crazy reason, Allison's mother didn't believe my mother actually wrote my permission slip. But she let me bounce on the trampoline while she called my house, anyway. "See?" I said, when she hung up the phone, "Every word was spelled right!"
Yes, she nodded, yes.
My takeaway? Correct spelling, punctuation, and language matter. Every time I read a mangled property listing online or in a newspaper, I cringe. I realize there are space restraints, but know your audience. General readers are not versed in Realtor shorthand.
For example, the homes in the listings below boast "ugly sparklers" and "oral orifices." Well, those are just my best guesses. And according to the endless exclamation marks, you should be really excited about them! Really!
- NEW PRICE! Custom home exudes pride of ownership boasting 4 bedrooms, 2.1 baths, 2 lvng areas, dining, nook, kitchen w/ granite counters, new laminate flring, pantry & stnls stl appliances. Surround sound, fenced, landscaping, b/i hot tub, Trex decks w/ 2 cvrd patios, lrg 2 car garage, u/g spklrs, shed & storage galore! Close to shopping, schools & freewy. OPEN HOUSE 8/19 1-3pm.
- McNary Estates Best! Sensational remodel done w/an Interior Designers Eye of perfection! 2 huge beautiful Master Suites w/vaults & fans! 3rd guest rm or ofc & 3rd full bath! All counters are gorgeous Corian! Beautiful tile flrs layed on the diagonal! 2nd MBR is privately located up! All other living on the main! Darling bricked in cvrd patio w/fan! McNary Estates yrly dues $235! HOA monthly $212 inclu all ext maintenance & landscaping! New roof 2009, new siding 2004, new paint 2010, new gas furnace Jan 2012.
Eighty-some percent of buyers start online, right? That's what we're told. They start by researching homes and agents. They read these descriptions. And then, they choose who to work with... and I know I've said this exact same thing before, but here I go again: take the time to write your home descriptions with care and creativity. Because it matters.
As a side note, neither of these Realtors would be allowed on Allison's trampoline. I'm sure of it.
Alisha Alway Braatz is a buyer's broker for Coldwell Banker Advantage One Properties in Eugene, Ore., and a real estate humorist.
Contact Alisha Alway Braatz: All rights reserved. This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this article without permission is a violation of federal copyright law.
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Tuesday, October 2, 2012
Fence-sitters in no hurry to sell | Inman News
Fence-sitters in no hurry to sell
Hopes for additional price gains creating inventory shortages in many markets
By Andrea V. Brambila, Tuesday, October 2, 2012.http://www.shutterstock.com/pic.mhtml?id=875437" target="_blank">Fence-sitter</a> image via Shutterstock." width="225" />Fence-sitter image via Shutterstock.
Editor's note: This is the second in a two-part series on the impact of shrinking inventories on buyers and sellers. In Part 1, "Low inventories thwarting buyers," Inman News reporter Andrea V. Brambila looked at how the scarcity of listings in many markets is affecting buyers. In Part 2, Brambila looks at the reluctance of many sellers to put their homes on the market.
Home prices are seeing some strength nationwide, but further price increases will be necessary to spur some homeowners to sell, according to real estate professionals contacted by Inman News.
As would-be sellers sit on the sidelines hoping for prices to go up, many markets are facing inventory shortages. Nearly every major U.S. metro saw the inventory of for-sale listings drop by double digits in August compared to last year, according to data from Realtor.com.
By and large, real estate agents and brokers say that despite some modest price increases, many homeowners still cannot afford to sell.
Though rising home values helped 1.3 million homeowners get out from "underwater" in the first half of the year, 10.8 million homeowners still owed more than their homes were worth at the end of June, according to real estate data firm CoreLogic.
The firm has said that negative equity prevents potential sellers from placing their homes on the market because of the need for a down payment to purchase a move-up home. Underwater sellers would also have to either negotiate a short sale with their lender or pay the difference if the home were sold.
Tom Avent, broker-owner at Tom Avent Real Estate in Fresno, says buyers now believe home prices have hit bottom and their confidence has boosted demand. But sellers are reluctant to list their homes because they have lost so much equity, he said.
The Fresno metro area has experienced the third-biggest drop in listings in the past year, down 43.1 percent in August. Active inventory currently stands at a 1.5 months' supply.
"Many of them are waiting for prices to increase more before they can sell, and some sellers are keeping their current homes as a rental investment and buying without selling," Avent said.
The Oakland, Calif., metro area saw the largest drop in for-sale inventory in the nation in August, according to Realtor.com -- down 58.4 percent year over year. At the same time, the median list price of a home in the Oakland market rose 13.6 percent on an annual basis, to $385,000 -- the sixth-highest price jump of the 146 markets tracked by the site.
Nonetheless, prices are at 2002 levels, according to Deidre Joyner, a real estate agent at Red Oak Realty in Oakland.
"I have several clients who may sell if they can earn about $50,000-$75,000 more (on a sale) than they can right now," she said.
An aerial shot of Oakland, Calif., showing Lake Merritt and the Adams Point neighborhood. Image via Shutterstock.
'No sense of urgency'
An August consumer survey of U.S. adults from Fannie Mae found that 35 percent of respondents believed home prices would rise in the next year, while 48 percent thought they would stay the same. Only 11 percent thought they would decline.
Seattle-based online brokerage Redfin also recently surveyed 816 homeowners in 20 metro areas nationwide who intended to sell their home. The survey found that 8 out of 10 believed they would get a higher price for their home by waiting one to two years to sell. Only 13 percent believed now was a good time to sell, while 61 percent believed now was a good time to buy.
In a blog post, Redfin said sellers had "no sense of urgency."
"Taken together, the responses paint a picture of a market composed of reluctant sellers with low opinions of the market today, yet high expectations for the future," Redfin reported. "Most of today's sellers believe that it's a much better time to buy a home than it is to sell a home, and that the market will get better for sellers in the next year or two."
And while sellers are generally happy with the price increases that the inventory shortage has spurred in some markets, many also worry about finding a replacement property, real estate pros said.
"The sellers want to sell high and buy the home for prices that were available six months ago. When they realize the entire market trends up, they rethink their plans to sell since it may not be as economical," said Andrea Harrington, an agent at EWM Realty International in Fort Lauderdale, Fla.
Still a buyer's market
In other markets, listings may have dropped, but that doesn't mean inventory is low enough to make it a seller's market. In Tallahassee, Fla., for example, for-sale listings fell 15 percent in August, but there is still a supply of roughly 11 months on the market.
"The declining real estate inventory has not brought about market equilibrium yet, so buyers still have plenty of choices," said Joe Manausa, broker-owner of Century 21 First Realty in Tallahassee.
He has been cautioning sellers that prices in the area may not reach what they were in 2008 until several years from now.
"We have altered our listing presentation significantly, now offering home sellers the kind of information they really need to make an informed decision," Manausa said. "We have found that many home sellers, once educated, make the decision to stay out of the market -- thus reducing inventory and making it easier for those that do need to sell immediately."
Manausa said his firm is "only dealing with home sellers who are motivated to sell a home right now. Those that want to 'test the market' end up unhappy with their real estate company, and we do not wish to be that company."
The Williams House, an historic home in Tallahassee, Fla. Photo credit: Ebyabe/Wikimedia.
He also noted that even a market with a less than a six month supply is not necessarily a seller's market at every price point.
"In many markets, the supply of homes under $100,000 has been cleared by investors, while those over $400,000 have significant glut," Manausa said. "When you segment a market by price point, you get relative supply levels that accurately show (a buyer's) market above the median, and (a seller's) market below the median. Thus, the overall supply is dangerously misleading in most markets."
Fewer distressed properties
A diminishing pipeline of distressed properties has played a role in the overall inventory shortage. Nationally, 15 percent fewer homes received foreclosure-related filings in August compared to a year ago, according to foreclosure data aggregator RealtyTrac.
Though short sales have been on the rise this year, they have not made up for the sharp decrease in sales of bank-owned homes, also known as real estate owned homes, or REOs.
At least partially due to efforts at the state and federal level to regulate the foreclosure process and help struggling homeowners, more borrowers have avoided foreclosure through loan modifications. Short sales also appear to be closing faster, meaning they spend less time on the market.
"Banks are working harder to get short sales closed in 90 days or less, thus reducing inventory," said Alexis Eldorrado, managing broker at Eldorrado Chicago Real Estate in Chicago, where listings are down nearly 20 percent from a year ago.
A short-sale specialist, Eldorrado sees short sales closing "at a much higher rate than a year ago."
She anticipates even speedier short sales under new guidelines issued by Fannie Mae's and Freddie Mac's regulator, the Federal Housing Finance Agency, that are scheduled to go into effect Nov. 1.
Some real estate professionals also believe banks are holding back from releasing their REO inventory at once.
In the Atlanta metro area, where listings were down 37 percent from a year ago in August, the drop in inventory has had the effect of creating a "somewhat artificial seller's market," said Christy Brannon, an agent who is part of a team at Keller Williams Atlanta Metro East in Conyers, Ga.
"Whether they are holding on to inventories for that purpose or just really making sure, this time, that they are actually able to legally foreclose on the homes is anyone's guess," Brannon said.
Jason Lopez, a broker at Atlantic & Pacific Real Estate in the San Diego area, said that "shadow inventory," which he defines as all properties at some stage of the foreclosure process, will have to come to market in order for the supply of homes for sale to increase.
Lopez thinks those properties should be offered to buyers who will live in them or resell them, not sold in bulk to investors who will turn them into rentals -- a view shared by real estate industry trade groups.
The FHFA is moving forward with a pilot initiative to conduct bulk sales of homes in Fannie Mae's REO inventory in metropolitan areas "hardest-hit" by the foreclosure crisis, including Los Angeles, Chicago, Las Vegas, Atlanta, Phoenix and parts of Florida.
"Selling distressed assets in bulk to investors that have no short-term plans to bring that inventory to market will cause this issue to linger," Lopez said. "We don't need more tenants -- we need homes for first-time buyers, and those capable and willing to get back into the market that want to take advantage of these low rates and do it the right way."
Investors buy, hold and rent
According to an analysis by real estate search portal Trulia, buying now beats renting in the 100 largest metro areas in the U.S. But persistently rising rents mean investors are still going strong -- they made up 18 percent of homebuyers in August -- and investor demand is contributing to the inventory shortage.
Listings were down nearly 35 percent year over year in the San Diego area in August.
"On the REO side, trustee auctions have gotten much more competitive, and more homes are selling at that stage and never make it to the market as an REO," Lopez said. "Factor in that investors are moving toward a buy-and-hold strategy versus flipping, and even less inventory becomes available."
Charles Roberts, co-owner of Your Castle Real Estate who serves as a director on the Denver Board of Realtors, said he's having his "best year ever" as a real estate agent. Roberts said he's tallied more than 50 closings so far this year, largely due to investor clients. High affordability and low interest rates have made the Denver metro area "an amazingly hot landlord market," he said.
"Vacancies are at all-time lows; rents are up at their highest rate in 10 years; many people are still afraid to buy so they rent -- all of which means that you can't swing a dead cat without finding a qualified tenant," Roberts said. "My buyers have a long-term outlook and are buying, (sometimes fixing), renting, and holding for at least seven to 10 years."
Coaxing sellers off the fence
Some real estate pros say many sellers have the impression that home prices are still declining and there is an overabundance of homes on the market.
"Many sellers are still not aware of how strong our market is," Roberts said. "They still think it's a bad market to sell. Our job is to inform them about the market and explain to them that with a rising market it has become a strong seller's market and to walk through their options."
Denver skyline image via Shutterstock.
Some real estate professionals are dealing with the inventory shortage by reaching out to potential sellers.
"Once they get the insights, it's like a light goes off," Lopez said. "This is a seller's market, and that is surprising to them. Now it doesn't mean prices are skyrocketing like past cycles, but with the chance of multiple offers it makes the process more appealing."
Stacie Perrault Staub, broker associate at Live Urban Real Estate in the Denver metro area, has had some success coaxing sellers off the fence by letting them know their home will have less competition on the market.
"Some of my current sellers have been on that fence for years," she said. "And some of my favorite transactions this year have involved sellers who never thought they could sell their home for what it was worth and ended up making a profit. I've had some great -- and surprising -- results pushing the boundaries this year, adjusting up to account for low inventory. Turns out, thirsty people will buy the water."
One wrinkle is that sometimes, no matter how much a buyer is willing to pay, homes aren't appraising at the agreed-upon price. For that reason, it's important for real estate professionals to be "super-prepared" for the appraisal, Staub said.
"I prepare a nice packet of info for the appraiser, including comparables, information about the community and neighborhood, and even down to new restaurants and coffee shops, school improvements, and local recreation amenities and events," she said. "I also include a nice list outlining every improvement that has been made to the property itself. I haven't had a deal fall through due to appraisal on the listing side yet!"
Lack of new homes
In some areas, the inventory problem is not due so much to a lack of sellers, but a lack of homes. Sheri Moritz, a real estate broker with Keller Williams' Wake Home Team in Raleigh, N.C., said the inventory shortage in her area would ease only with a jump in new homes built.
Moritz said the area's population is expected to nearly double in the next eight years, making it "harder and harder to keep up with the demand."
"Many new-home builders either went out of business or drastically slowed their building through the difficult times our market experienced," Moritz said. "Although building has begun to ramp up again, we are not building as fast again as the recent growth in demand."
The sellers who are selling "are not typically leaving our area, so when they sell they are still needing a home in our market," she said. "So even if more resale sellers put their homes on the market, we need to find homes for them to move to."
Nonetheless, Chicago's Eldorrado said she didn't want "too much" inventory coming on the market.
"If the supply is more than the demand, the prices will tumble further rather than leveling out," Eldorrado said. "The market is correcting itself right now from the wild run-away-train appreciation of easy money when all you needed was a pulse to get a mortgage and everyone bought. Well, almost everyone."
Contact Andrea V. Brambila: All rights reserved. This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this content without permission is a violation of federal copyright law.
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Seems to be a trend for all the news out there.... the Chief Economist of NAR I believe predicted things to be going just like this!
5 A-ha! Moments That Get Buyers to Boost Lowball Offers | Trulia Pro Blog
When the market begins an upturn, like it’s doing now in most places, it’s easy to think that the biggest challenges for buyers are soon to be a thing of the past. Loan guidelines are a bit looser, it’s less likely that a property will decline in value after closing, and rates are still quite low. But experienced agents know that in an ascending market, it can be tough to get appraisal comps to keep pace.
And in the same vein, it can be even more challenging to get buyers’ mindsets to keep up with the heat of the market.
It’s not at all bizarre for a buyer to have to lose one, two or ten properties while the market “educates” them that when supply and demand shift, the lowballs of yesteryear just won’t cut it. Fortunately, there are a few powerful talking points agents can use to help their buyer clients experience less trauma and lose fewer dream homes before they stop lowballing sellers and seriously get into the game.
1. “A great deal isn’t a great deal if you don’t get the house.”
Many of today’s home buyers are remnants from the recession: people who craved to get the great deals and low prices of the bottom of the market, but were afraid to buy until home prices stopped dropping. While they might have done a mindset reset to understand that home prices have stabilized, making it safe (in their opinion) to buy, many have not adjusted their understanding of the flip side of market dynamics. Today’s market realities of competing with other buyers and having to make an offer at or even over the asking price are simply hard for them to swallow.
When your buyer clients insist on making a lowball offer because they want to “get a great deal,” gently remind them that an offer price that seems like a great deal is just an illusion, even a delusion, if the offer doesn’t get accepted by the seller. This reminds them that home buying is not a one-sided endeavor – that the sellers must agree with a price before it becomes the price. It also forces them to face the very real possibility that a lowball offer will result in rejection and loss of the house, especially in a multiple offer situation. If they choose to go in low anyway, that’s obviously their call to make, but this reminder helps you avoid being at the end of the finger-pointing if they make a lowball despite your advice.
2. “If you offer X vs. Y, you’ll actually only be saving Z%.”
You deal in six or seven figure transactions on a daily basis, so it can be easy to forget that your clients do not. For most of them, this is one of only a handful of occasions in their lifetime where they will be involved in a deal of this size and impact. Combine the fear of making a mistake on their biggest transaction ever with the deep desire to get a great deal and to make a smart decision, then add in the fact that many Americans just aren’t that great with math and you’ll see why it’s easy for buyers to think their lowball offer would reflect a much better deal than it really would.
This is especially the case with buyers making a decision between two offer prices on a higher-priced home where there are multiple offers. On an $850,000 listing where you know there are at least one or two other offers, your buyer might be vacillating between offering $860,000 and $865,000. Obviously, the higher offer positions them the most competitively. So, do the math for them: let them know that the $5,000 difference is a difference of only .6% – in a world where buyers are used to retail discounts of 10, 20, even 30%, many will feel that a .6% discount is not worth losing a home over. Similarly, you might want to point out the actual mortgage payment difference between two offer prices being considered.
This empowers your buyer client to make a completely informed decision about whether the level of “discount” reflected in their offer price is significant enough to be worth the reduced chances of successfully securing the property. And they may decide that it is, but if they make that decision with this information, they will feel much more comfortable and less regretful about it, if they aren’t the successful buyer.
3. “Make your best offer on your first offer, as you can’t count on being given another opportunity to go higher.”
Scenario: there are fifteen confirmed offers coming in on an REO property. You give your first-time buyer client the comps, which suggest the home should sell at $30,000 more than the asking price/offer price – and your client can easily afford to offer the offer price + $30K. Your buyer insists on offering the asking price, and no more, because they want to conserve money to negotiate with the bank.
Here’s your talking point: “I urge you to make your best offer on your first offer. This is a bank-owned property, and the bank is unlikely to go back and forth with all fifteen buyers. As well, if the highest offer is a cash offer or is willing to forego an appraisal contingency, the bank might simply take it outright, with no counters to anyone. When there are this many offers, you simply cannot count on being given an opportunity to negotiate and offer more later.”
This point, and all of the others listed here, have a strong track record of success at actually getting buyers to rethink their offer price and strategy on that go-round. However, even if they don’t take your advice, and they go in low and lose the first home, the fact that you gave them the comps, gave them this advice and warned them what would happen if they went in low – then cheerfully wrote the lowball offer anyway – places you in a position to have stellar credibility on your offer recommendations on the next go-round.
4. “How would you feel if you heard that the winning offer was at $X?”
This is a reality check, another one that most useful where you believe or know there are multiple offers. And this one is particularly powerful because it helps buyers understand that the value of a home at any moment is based on what a qualified buyer is willing to pay for it – and that every home is not necessarily worth blowing the bank on. If a buyer is trying to decide between two price points, this can help them make a decision about which one to choose – “What if you hear that the winning buyer made the same offer as your high offer? Will you feel regret? Or will you feel fine with having taken that risk, given the way you feel about the property?”
I pose this question even in heated multiple offer situations where my client is offering what I feel is a competitive price for a listing – this prepares them for the reality that they might not be successful, and helps them stay as emotionally detached as possible and move on to other listings very quickly, when they are not successful.
5. “Let’s look at the list price: sale price ratio for: my last few sales/my last few buyer clients/the recent comps.”
American home buyers aren’t all great at math, but they are desperately interested in making smart decisions, and they are well aware that the data can help them do it. If you’re struggling to get your buyer client to understand that the market has shifted and they need to be more aggressive with their offer prices, shift from giving advice to offering evidence: show them the full comps data for any or all of the following, with a specific emphasis on the actual list price, the actual sale price and the list: sale price ratio:
- the last few homes you sold
- the last few buyers you represented
- the comparable sales for the listing they want to make an offer on.
If the data reflects that homes are selling at, near or over asking, this can be very influential in helping a buyer wrap their head around the new state of the market. It can even be helpful to give them references to other buyers you’ve represented who struggled with this and had to lose several homes before they started taking your offer price advice.
Ultimately, what to offer is a decision for the buyer to make, in consultation with their head, their hearts, their bank account and their tax and financial advisors. Helping buyers have these a-ha! moments is not about trying to talk people up in price, indiscriminately, to get a higher commission, nor is it about trying to convince people to spend more than they can afford on a home. In fact, some of the conversation a smart agent might need to have with lowballing buyers is around house hunting at a lower price range so they can make more competitive offers without blowing their budget.
Helping buyers manage their own mindsets in this way is meant helping buyers who are house hunting in a price range they can afford stop sabotaging their own offers by making time-wasting offers that have no chance of success. It’s also about helping them minimize the regret and frustration that comes with losing home after home and helping them avoid being priced out of a certain neighborhood or size home by a rise in prices.
Most importantly, this is about doing what they come to us for: helping them successfully secure a home that meets their wants, needs and budgets.
5 A-ha! Moments That Get Buyers to Boost Lowball Offers | Trulia Pro Blog
When the market begins an upturn, like it’s doing now in most places, it’s easy to think that the biggest challenges for buyers are soon to be a thing of the past. Loan guidelines are a bit looser, it’s less likely that a property will decline in value after closing, and rates are still quite low. But experienced agents know that in an ascending market, it can be tough to get appraisal comps to keep pace.
And in the same vein, it can be even more challenging to get buyers’ mindsets to keep up with the heat of the market.
It’s not at all bizarre for a buyer to have to lose one, two or ten properties while the market “educates” them that when supply and demand shift, the lowballs of yesteryear just won’t cut it. Fortunately, there are a few powerful talking points agents can use to help their buyer clients experience less trauma and lose fewer dream homes before they stop lowballing sellers and seriously get into the game.
1. “A great deal isn’t a great deal if you don’t get the house.”
Many of today’s home buyers are remnants from the recession: people who craved to get the great deals and low prices of the bottom of the market, but were afraid to buy until home prices stopped dropping. While they might have done a mindset reset to understand that home prices have stabilized, making it safe (in their opinion) to buy, many have not adjusted their understanding of the flip side of market dynamics. Today’s market realities of competing with other buyers and having to make an offer at or even over the asking price are simply hard for them to swallow.
When your buyer clients insist on making a lowball offer because they want to “get a great deal,” gently remind them that an offer price that seems like a great deal is just an illusion, even a delusion, if the offer doesn’t get accepted by the seller. This reminds them that home buying is not a one-sided endeavor – that the sellers must agree with a price before it becomes the price. It also forces them to face the very real possibility that a lowball offer will result in rejection and loss of the house, especially in a multiple offer situation. If they choose to go in low anyway, that’s obviously their call to make, but this reminder helps you avoid being at the end of the finger-pointing if they make a lowball despite your advice.
2. “If you offer X vs. Y, you’ll actually only be saving Z%.”
You deal in six or seven figure transactions on a daily basis, so it can be easy to forget that your clients do not. For most of them, this is one of only a handful of occasions in their lifetime where they will be involved in a deal of this size and impact. Combine the fear of making a mistake on their biggest transaction ever with the deep desire to get a great deal and to make a smart decision, then add in the fact that many Americans just aren’t that great with math and you’ll see why it’s easy for buyers to think their lowball offer would reflect a much better deal than it really would.
This is especially the case with buyers making a decision between two offer prices on a higher-priced home where there are multiple offers. On an $850,000 listing where you know there are at least one or two other offers, your buyer might be vacillating between offering $860,000 and $865,000. Obviously, the higher offer positions them the most competitively. So, do the math for them: let them know that the $5,000 difference is a difference of only .6% – in a world where buyers are used to retail discounts of 10, 20, even 30%, many will feel that a .6% discount is not worth losing a home over. Similarly, you might want to point out the actual mortgage payment difference between two offer prices being considered.
This empowers your buyer client to make a completely informed decision about whether the level of “discount” reflected in their offer price is significant enough to be worth the reduced chances of successfully securing the property. And they may decide that it is, but if they make that decision with this information, they will feel much more comfortable and less regretful about it, if they aren’t the successful buyer.
3. “Make your best offer on your first offer, as you can’t count on being given another opportunity to go higher.”
Scenario: there are fifteen confirmed offers coming in on an REO property. You give your first-time buyer client the comps, which suggest the home should sell at $30,000 more than the asking price/offer price – and your client can easily afford to offer the offer price + $30K. Your buyer insists on offering the asking price, and no more, because they want to conserve money to negotiate with the bank.
Here’s your talking point: “I urge you to make your best offer on your first offer. This is a bank-owned property, and the bank is unlikely to go back and forth with all fifteen buyers. As well, if the highest offer is a cash offer or is willing to forego an appraisal contingency, the bank might simply take it outright, with no counters to anyone. When there are this many offers, you simply cannot count on being given an opportunity to negotiate and offer more later.”
This point, and all of the others listed here, have a strong track record of success at actually getting buyers to rethink their offer price and strategy on that go-round. However, even if they don’t take your advice, and they go in low and lose the first home, the fact that you gave them the comps, gave them this advice and warned them what would happen if they went in low – then cheerfully wrote the lowball offer anyway – places you in a position to have stellar credibility on your offer recommendations on the next go-round.
4. “How would you feel if you heard that the winning offer was at $X?”
This is a reality check, another one that most useful where you believe or know there are multiple offers. And this one is particularly powerful because it helps buyers understand that the value of a home at any moment is based on what a qualified buyer is willing to pay for it – and that every home is not necessarily worth blowing the bank on. If a buyer is trying to decide between two price points, this can help them make a decision about which one to choose – “What if you hear that the winning buyer made the same offer as your high offer? Will you feel regret? Or will you feel fine with having taken that risk, given the way you feel about the property?”
I pose this question even in heated multiple offer situations where my client is offering what I feel is a competitive price for a listing – this prepares them for the reality that they might not be successful, and helps them stay as emotionally detached as possible and move on to other listings very quickly, when they are not successful.
5. “Let’s look at the list price: sale price ratio for: my last few sales/my last few buyer clients/the recent comps.”
American home buyers aren’t all great at math, but they are desperately interested in making smart decisions, and they are well aware that the data can help them do it. If you’re struggling to get your buyer client to understand that the market has shifted and they need to be more aggressive with their offer prices, shift from giving advice to offering evidence: show them the full comps data for any or all of the following, with a specific emphasis on the actual list price, the actual sale price and the list: sale price ratio:
- the last few homes you sold
- the last few buyers you represented
- the comparable sales for the listing they want to make an offer on.
If the data reflects that homes are selling at, near or over asking, this can be very influential in helping a buyer wrap their head around the new state of the market. It can even be helpful to give them references to other buyers you’ve represented who struggled with this and had to lose several homes before they started taking your offer price advice.
Ultimately, what to offer is a decision for the buyer to make, in consultation with their head, their hearts, their bank account and their tax and financial advisors. Helping buyers have these a-ha! moments is not about trying to talk people up in price, indiscriminately, to get a higher commission, nor is it about trying to convince people to spend more than they can afford on a home. In fact, some of the conversation a smart agent might need to have with lowballing buyers is around house hunting at a lower price range so they can make more competitive offers without blowing their budget.
Helping buyers manage their own mindsets in this way is meant helping buyers who are house hunting in a price range they can afford stop sabotaging their own offers by making time-wasting offers that have no chance of success. It’s also about helping them minimize the regret and frustration that comes with losing home after home and helping them avoid being priced out of a certain neighborhood or size home by a rise in prices.
Most importantly, this is about doing what they come to us for: helping them successfully secure a home that meets their wants, needs and budgets.
Are you signed up for Tom Ferry Sale's Power? You should be! Nov. 1 Start Date!
Click the link below to see a video from Tom Ferry and Margaret Kelly CEO of RE/MAX LLC, gives a good overview of each of the sessions!
Contact Dan Bertelson at dan@greatermadisonrealty.com if you're interested in taking the course!
www.tomferrygroup.com/salespower
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Monday, October 1, 2012
Low inventories thwarting buyers | Inman News
Low inventories thwarting buyers
Available homes go to the swift, ready and aggressive
By Andrea V. Brambila, Monday, October 1, 2012.Homebuyer Nicki Sulllivan at the door of her new home
Editor's note: This is the first of a two-part series on the impact of shrinking inventories on buyers and sellers. In Part 1, Inman News reporter Andrea V. Brambila looks at how the scarcity of of listings in many markets is affecting buyers. Part 2 will look at impacts on sellers.
Homebuyers nationwide are discovering their self-appointed task is not for the faint of heart. Nearly every major market has seen double-digit declines in inventories of for-sale listings, making multiple-bid situations common.
According to Realtor.com, which receives listings data from nearly all of the nation's multiple listing services, there were fewer homes for sale in August than at the same time a year ago in all but two of 146 metro areas tracked.
Inman News asked real estate agents and brokers in markets with shrinking inventories how they're coping, and found that many are dealing with at least one consequence of the shortage: thwarted buyers.
See related story: 
Downtown Raleigh, N.C. Photo credit: Mark Turner/Wikimedia Commons.
"The buyers tend to become a little frustrated as they are seeing homes that they want to 'think about' and before they can even get home to discuss it there are already multiple offers on the property," said Sheri Moritz, a real estate broker with Keller Williams' Wake Home Team in Raleigh, N.C.
According to statistics compiled by Realtor.com, the Raleigh area saw a 21 percent annual drop in listings in August.
"I counsel buyers to be patient, and not get discouraged, that it may take extra time to find the suitable property," said Tom Avent, a broker associate with Guaranteed Real Estate in Fresno. "I have also seen some buyers give up looking, frustrated with low inventory and losing out in multiple-offer bidding."
Realtor.com statistics show the Fresno metro area experienced the third-largest drop in listing inventory nationwide in the past year, down 43.1 percent in August. Active inventory currently stands at a 1.5 months' supply -- far less than the six-month supply many analysts see as a balance of demand from buyers and sellers.
A recent survey of buyers by brokerage Redfin found inventory shortages and bidding wars dampening buyer enthusiasm during the third quarter. Less than half of survey respondents said now was a good time to buy, while there was an increase in those who said now was a good time to sell -- an indication that would-be buyers think the market may be shifting against them, Redfin said.
The survey also found a reluctance to engage in multiple-offer situations: seven in 10 of those surveyed said they'd encountered competition on at least one offer, and 31 percent said they'd back off when faced with multiple-offer situations, up from 28 percent during the second quarter.
California State University, Fresno image via Shutterstock.
One of Avent's clients, homebuyer Nicki Sullivan, 57, a human resources professional in Fresno, sold her 1,700-square-foot house recently in order to downsize to a lower-maintenance home.
She got a $211,000 cash offer the first weekend the home listed, which surprised her, and she began looking for a replacement home. She quickly turned to the new-home market after not finding any resale homes to her liking.
"I bought a move-in-ready home with a very short escrow. It is very easy, no multiple bids. The lender was on site that day and I got all my paperwork done in one weekend," Sullivan said. She considered the price, $205,000, "very comparable" to existing homes.
While only the lowest-priced properties used to generate bidding wars, now homes in nearly all prices ranges attract multiple offers, according to several real estate pros.
"We're seeing multiple offers for well-priced properties all the way through $500,000," said Charles Roberts, a director at the Denver Board of Realtors and co-owner of Your Castle Real Estate. "Two or three years ago the recovery was happening at the lower end, below $200,000 and most strong at the very low end."
In the past nine months, the higher end of the market "has seen a very strong recovery," Roberts said. "At one time there were seven years of inventory of $1 million-plus homes. That's down to 10 months or so."
Homebuyer Cori Ward, 35, a financial and administrative services manager in Salt Lake City, decided to dive back into the housing market after selling her home four years ago to travel abroad.
"Prices seem good and the interest rates are low. I have excellent credit, so now that I'm back in Salt Lake City long term, it just doesn't make sense to rent," Ward said.
Salt Lake City, Utah. Photo credit: Skyguy414/Wikimedia Commons.
Ward started looking in her current price range in mid-April. She's made an offer on only one home so far -- a multiple-bid situation that spurred her to be more aggressive than she thought she thought she would have to be when she first started her search.
Ward offered full price, but lost out to an offer of $15,000 above the asking price, all cash.
"I thought it would be quicker to find a home to buy," she said. "I just signed a three-month lease on Sept. 1, but am hoping I find a house and won't have to extend it."
Ward is the first to admit that, in addition to the low inventory, "buyer pickiness" has been a factor in her search. She said she now accepts that she may have to compromise to find a home.
"Maybe (I'll) have to remodel a kitchen or something," she said.
Kevin Coyle, principal broker at SLC Homes, is Ward's Realtor. He's had 11 buyers in multiple-offer situations so far this year, and has won eight of those bidding wars.
"I learned something from the last boom," Coyle said. "When the market is going up, and it's the beginning of a new boom, it's OK to push a buyer to full market value if they love the house, you think it will appraise, and they're willing to go there."
Ward said Coyle has advised her to "act fast" when a home comes on the market.
"We both look every day and if one comes on in the neighborhood we see it the first day," she said.
Swift, ready and aggressive
Several real estate professionals said swift, ready and aggressive buyers have an advantage in low-inventory markets.
To give their clients an edge, these real estate pros have them preapproved for a loan, familiarize them with the neighborhood, educate them on multiple-offer situations, and advise them on ways to make their offers more appealing -- all before they even start house hunting.
"I always try to inform the buyers, before we start looking, it may take more than a few offers on houses to finally get an accepted contract," said Christy Brannon, an agent who is part of a team at Keller Williams Atlanta Metro East in Conyers, Ga.
"For some clients, the best method to find a home is making offers on multiple properties and see which one gets accepted first," Brannon said. "Before I will do that, I ask my clients to make sure they are committed to purchasing whichever house is the first to be accepted. I have had a few successes with this method, and the buyers feel like we are being proactive in the search for their new home."
She's seen multiple offers come in on homes that have been listed for only a day or two.
"Very often now, I will be told by listing agents that they have multiple backup offers and they are either not accepting any more backups or they will take mine and add it to the stack," Brannon said.
She said multiple listings service hotsheets -- a tool detailing the newest changes in a listing's status -- were becoming "vitally important" to compare to listings from Fannie Mae and the U.S. Department of Housing and Urban Development (HUD) "so you can see which homes have just been listed or are about to be listed."
Roberts said urgency defines the current market for buyers. "Gone are the days of looking at 50 homes and taking months to make a decision. If there's a good property on the market, buyers need to act quickly, and yes, sometimes bid above asking price," he said.
"The educated, thoughtful clients are getting great deals with astoundingly low interest rates," Roberts said. "The clients that are still insisting on putting offers at 80 cents on the dollar are getting shut out of the market. They either learn that that strategy doesn't work anymore or they keep on renting. Our job as real estate agents is to teach them what the market looks like and guide them in their decision-making."
Deidre Joyner, a real estate agent at Red Oak Realty in Oakland, Calif., recently represented two separate clients, each of whom submitted offers that were more than $100,000 above asking price.
One of the properties was a trust sale home listed at $295,000 that needed some work. The other was in a trendy, upscale neighborhood and listed at $825,000.
Both homes received multiple bids -- one 25, the other 15 -- and ultimately sold for 34 percent and 31 percent above list price, respectively.
In both cases, the winning bidders waived any inspection contingencies when they submitted their offers.
In a competitive situation, offering more than the asking price "is often not enough," Joyner said. "I am seeing large down payments and even all-cash offers. Some buyers are doing pre-inspections so they can write their offer without an inspection contingency."
Brian Copeland, a broker at Village Real Estate Services in Nashvile, Tenn., said his brokerage's agents are "brutally honest" with their buyers, telling them not start seeing homes unless they're ready to buy that day.
"Just this week, we sold two (homes) off of buzz without even hitting the MLS," Copeland said. "These stories must be shared with the buyers."
Whereas last year buyers tended to be "wishy-washy," now they understand time is of the essence, Copeland said.
Broker Brian Copeland at his recently purchased farm in Nashville, Tenn.
Village Real Estate Services has added another staff member just to handle additional paperwork.
"With more buyers comes more time out on the streets," he said. "With more homes sold come more inspections, releases and addenda."
Copeland himself just bought a home that had been on the market for more than a year. He said the sellers came down more than $35,000 from their asking price.
"Smart buyers are looking at old inventory and snapping it up, leaving room for more showings on the other inventory. It's kind of like a going-out-of-business sale in its final weeks. The consumer doesn't know exactly when the store is closing, but they know it's soon," he said.
With interest rates so low, "I would have been crazy not to practice what I preach, and buy," he added.
Contact Andrea V. Brambila: All rights reserved. This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this content without permission is a violation of federal copyright law.
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OK REMAX Pros!!! This is here now, already starting to see many multiple offer situations for the "Good Ones" out there. Expect this to only increase in frequency in the coming year so make sure you have the right dialog with your buyer clients so they understand the situation!