I almost cracked up the other day when I read somewhere that the average homebuyer sees 12 houses before buying one. I suppose that’s simply one more way in which the San Francisco Bay Area real estate market differs from much of the country. In fact, I know buyers who have seen 25, 50, even 90 houses before they buy "the one."
Most often, it’s not because the buyer is overly picky, but because they’ve made offer after offer, and been overbid or (more often) bested by buyers paying with all cash or higher downpayments time and time again. Or, they got into contract on a house or two, and had the deal fall apart because the place turned out to need a new foundation, or some such.
In today’s market, there are so many things that can come between a buyer and his or her intended home — many, many more than even five years ago. As a result, I recently heard myself advising an elated homebuyer who had just gotten into contract after making 10 offers over an 18-month time frame to tone down the celebration because it was premature.
"Yes, this is a step in the right direction. But you are just not allowed to get excited yet," I said.
I proceeded to sketch out for her my philosophy on homebuyer and seller excitement levels. It’s a theory of hurdles and degrees — leap a hurdle, and then you’re "allowed" to crank up the "excite-o-meter" a notch (or several, depending on the particular hurdle we’re talking about).
In this respect, as I was retelling my philosophy to this particular buyer, it sounded uncannily like Alton Brown’s methodology for making frozen fruit smoothies: Switch the blender to ice for one minute to break down the fruit, turn it one notch up to frappe for another minute, then once all the big lumps and air bubbles are out, crank that bad boy to the smoothie level and let it run for all it’s worth.
But back to this buyer. I gave her a 10 percent excitement allowance for just getting into contract — especially because she’d been trying unsuccessfully for so long. And she was already preapproved for a loan with a reputable lender, so that bought her an extra 10 percent.
But she was getting into contract on a 90-year-old home! The sellers had provided her with a pest inspection report, which fell within her tolerance range for repair costs she could handle (this was an as-is deal), but that was it.
So, I told her she’d need to reserve about 30 percent of her excitement quotient until after the property had gone through all the inspections she wanted — pest, property, roof, and bids for upgrades by her choice of electrical and general contractors — and she was able to resolve any "issues" that came up with the seller.
Next, this buyer was very concerned about whether the place would appraise at the price she’d agreed to pay for it. Very. She’d looked at the comparable sales data and was a bit skeptical. Actually, she was very concerned that she’d agreed to pay more than the fair market value of the place.
So, I encouraged her to reserve another 30 percent of her excitement to be "spent" on the appraisal: when it came in, at or above the purchase price, she could ratchet up her excitement level about that much. …CONTINUED
Finally: underwriting. This buyer, like many, was nervous about the final loan approval process — and rightfully so. The National Association of Realtors’ 2009 Profile of Home Buyers and Sellers found that 10 percent of people who successfully bought homes last year found it to be harder to get a loan than they thought it would be, which is striking considering that most folks I know expect it to be very difficult to begin with.
A mortgage industry survey of real estate brokers and agents found that 56 percent of home-sale transactions that fall out of escrow fall apart due to financing glitches — these among buyers who were, by and large, preapproved before they even made an offer! (My guess is that the financing "issues" to which respondents referred probably included appraisal issues.)
So that final 20 percent of excitement, I explained, was to be held on tap for the underwriter’s final review of everything — every check stub, W-2, gift letter, and especially the appraisal. The underwriter’s green light signifying that the lender will do the deal, after they’ve asked every question and every condition has been met, is also the buyer’s green light to get excited, finally.
(It’s also the buyer’s green light, in most situations, to remove contingencies, and the seller’s green light to get excited, too!)
It’s like odds-making in Vegas: the more likely a particular hurdle is to be the glitch that kills the deal, based on past transactions, the more excited a buyer or seller can get once that hurdle has been successfully leapt.
Buyers, sellers and agents talk in terms of excitement — we’re really using excitement as a proxy emotion for hope — the hope that the deal will actually close, that buyers will be able to move into their new homes and that sellers will be able to move onto their next phase of life.
Holding off the excitement and cranking it up incrementally, only after various stages have been completed, is not pessimistic breath-holding — it’s a wise management of expectations, based on the reality of today’s real estate and lending climate. So, if you get into contract to buy or sell a home, don’t get excited — yet.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
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