Editor’s note: Meet Tara-Nicholle Nelson at the upcoming Real Estate Connect conference in San Francisco, which runs from Aug. 5-7, 2009. She will be available to meet with conference attendees from 12:30 p.m. to 1:30 p.m. on Thursday, Aug. 6, in the Palace Hotel’s Ralston Room. Click here to send Tara-Nicholle a message.
Q: I’m a first-time homebuyer using a Veterans Affairs (VA) loan with 100 percent financing. I’m having problems getting an offer accepted, as I’m competing with cash investors as well as other first-time buyers. Every property we find gets three to four offers on it by the day after it’s listed.
A: With prices so low, and the $8,000 first-time homebuyer tax credit deadline looming later this year, buyer competition has increased to the point where many homebuyers (first-time and otherwise) are running into multiple offers, over-asking sale prices and getting outbid on their target homes.
Reconcile yourself to the fact that you might have to write offers on three, five or 10 properties before you find the home that is meant to be yours. Buying a home in a market like this takes hard work, resilience and the smarts to avoid getting your heart set on any one home until you have a contract signed by all decision-makers — including the bank, on a short sale or bank-owned (REO) transaction — in your hot little hands. I recognize that latter piece, emotional detachment, is a Catch-22 because you don’t want to write an offer on a home that you’re not excited about.
Keep in mind, though, that the hard work you put in is well worth it. A few years ago (and, possibly, a few years in the future), there were few or no homes available to be purchased at what is now considered entry-level pricing in many markets.
And get this — if you buy in 2009, in 20 metro areas in the country, you stand to realize (on average) a 30 percent discount from 2006 peak pricing! So consider the work you have to put into your house hunt as sweat equity, and well worth it for the pricing advantages you stand to obtain.
The crux of your issue is the question of how a zero-down buyer can compete with cash offers or buyers with larger down payments. It’s not a new issue: I hear buyers ask all the time, "Why does the seller care how much I’m putting down? Won’t they get the same amount of money either way?"
In fact, the seller doesn’t really care how much is being put down on the deal, but the seller strongly cares about making sure the transaction closes escrow. The constant fear of today’s sellers is that they pull their home off the market, forgoing other potential buyers and offers, in reliance on an offer that falls out of escrow because of a glitch with the buyer’s loan or the condition of the property.
Low-down-payment VA and FHA loans both impose stricter condition requirements than moderate-down-payment conventional loans, and conventional loans (obviously) are more likely to be troubled by condition or appraisal issues than an all-cash deal. Also, if you have no money to put down, you’re stuck only with that VA loan — if the VA loan falls through, both you and the seller are out of luck. …CONTINUED
The more cash a buyer has available to put down, to a seller’s mind, the more financing options they have to fall back on in case their mortgage Plan "A" falls through. All-cash transactions have the added advantage of being able to close and get cash to the seller very, very quickly (e.g., as fast as five days), while most VA loans take closer to 45 days to wrap up.
With all that said, there are things you can do to improve your chances of being the victor in a multiple-offer situation. Shorten your inspection contingencies as much as your Realtor thinks is possible to do while still actually obtaining inspections. Maximize the net price you’re offering to the seller ("net" meaning the price that will go to seller after any closing costs you’re asking the seller to pay for), and realize that if you’re competing against an all-cash offer, you might have to offer significantly more than that offer for yours to be selected.
Get strategic about your house hunt. Don’t hesitate to get out there and see new listings — ask your Realtor to set you up to receive automatic e-mail notifications of new listings that meet your house-hunting criteria. When something new comes up, get over there to see it immediately, make an offer quickly and, if possible, put as short as possible a seller response deadline on your offers. You want to keep the timing tight so that a truly motivated seller might see your offer (the bird in the hand) as preferable to and not worth losing over two in the bush.
Also, if you’ve narrowed down a city, neighborhood and even property type that you’re interested in, your Realtor can help you analyze the average recent list-price-to-sale-price ratio so that you can have a data-based sense for how far over the asking price your target properties are selling for.
Once you have this information, use it wisely — reset your house-hunting price range a bracket or two lower than the maximum amount for which you are preapproved so that you can room to offer more than asking and be competitive in multiple offer situations.
Finally, don’t hesitate to offer more than asking for homes where the comparables and the competition justify your offer price, just because you’ve heard so much about this being a buyer’s market. While sellers now are motivated, in general, they’re also smart — many times, the list prices are being set intentionally low to generate a bidding atmosphere and multiple offers in the first place!
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." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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