A Piece of the Pie

Buyers' agents in a changing market

It’s no secret that the real estate industry is hurting.  Every day you hear news of rampant foreclosures, real estate companies and banks failing and growing numbers of unemployed real estate professionals.  And, as the market becomes more and more challenging, it’s becoming harder and harder for us to follow the unspoken Realtor rule of “fake it until we make it." 

  

As hard as it is for those of us working under these conditions, it’s a great thing for buyers.  The real estate industry is no longer a haven for the shady, lazy and greedy. People who became agents to make big money fast have either left the business or have abandoned buyers in favor of becoming a listing agent for bank-owned properties.  Those of us who continue to work for buyers do so for the right reason - because we love it.   

  

Real estate is our passion. As our friends will tell you, we spend most of our waking hours working and we talk about real estate constantly. We’re charting new territory and we love the challenges (okay, maybe not EVERY challenge) and we are ecstatic when we’re able to guide our clients through a difficult transaction. We don’t mind working normal business hours, evenings and weekends because we have too much energy and too many ideas to sit in a cubicle.  We gladly take calls from our clients when we're not working. We'll do what it takes to continue to work in this industry.  

 

Realtors, like attorneys and people who sell cars, battle horrible stereotypes about our trustworthiness. I'm sure certain individuals contributed to this image, although most of those individuals probably have no desire to work with buyers in this market.  Prices are way down, transactions are tough and a significant number of properties have defects that are bad enough to cause buyers to back out of transactions; agents who work primarily with buyers are not making buckets of easy money. 

 

However, possibly more than ever, buyers, especially first time buyers, need guidance.  In many areas, most of the properties on the market are in some phase of foreclosure and depending on the stage and the listing agent, some should be avoided, or at least entered into cautiously.  There are new rules and forms that buyers should be aware of. Banks that own properties often shorten inspection periods and it can be more difficult for buyers to get their deposit back if they need to cancel.  And there are many other kinks,and issues that are specific to this market.  Since the money for a buyer's agent is already allocated when the property is put on the market, there is no reason for a buyer not to work with their own agent. And, for the reasons I mentioned above, the agents who are hanging in there are more likely to be knowledgeable, ethical and concerned for their clients' well being.  

Unfair Play in the East Bay: Investors vs. First Time Homebuyers

 My clients generally fall into two categories:  investors and first time homebuyers.  This is more of an indication of the market than of any effort on my part to woo these groups.  These are the folks that are out there buying houses, especially in the moderate to lower priced areas.  The fact that they’re both buying houses is one of the only similarities between them – these groups are usually competing for the same houses and the investors are winning. 

Although prices are down and FTHBs will have a much better and inexpensive mortgage than their peers of several years ago, it’s very tough for them to get their offers accepted.  Houses in almost every neighborhood that are in decent condition and are priced below the market are seeing multiple offers.  Sellers, often banks, have their pick of offers and prefer cash offers, offers with few or no credits and offers with standard loans (i.e. no FHA or other government programs).  Investors often have more time and resources to investigate the market for new listings and they are more educated on how the market works and how to make an offer that will be acceptable to banks, they are able and willing to move fast while FTHBs often want more time to consider the house.  FTHBs sometimes lack the technology and time to rapidly shoot off offers.

To be successful in this market you have to do two things, start thinking like an investor and look where the competition isn’t looking.  Here’s how you do that:

1.  Educate and prepare yourself ahead of time. 

In the desirable but inexpensive and moderate areas of the East Bay

, well priced properties that don’t need too much work often start generating offers the day that they are put on the market. If you want one of these properties, there isn’t time after you see it listed for you to get preapproved, talk it over with ten family members and see it five times.  If you aren’t able to make an offer on the same day that you see it or shortly after, you are likely to miss the opportunity to put in an offer.  I’ve called listing agents about properties that have been listed for 30 days to find out that there were more than ten or fifteen offers in, many of which are well over asking price.

Before you start looking seriously, you need to get preapproved, get on MLS e-mail updates from your Realtor, research comparable sales either with your Realtor’s help or by searching the MLS (realtor.com is a good option if you can’t use your Realtor’s website) and do anything else that you need to do to be ready to make an offer the same day that you see a property that you are interested in.

2.  Be psychologically ready to move quickly when you find the home that you’re interested in.

Putting an offer in on a house is a really big step. It’s like proposing to your girlfriend, it’s an expression of a desire to make a serious commitment and it’s really hard to rescind. 

Bank-owned properties are dominating the market in many areas and you have to move quickly and decisively if you are interested in them or you risk losing your deposit or being financially penalized.  This quickly moving process often makes people uncomfortable and it’s natural to have second thoughts after entering a commitment like that.   Before you make an offer, realize that if it’s accepted, the contract doesn’t have a provision that allows you to back out (after acceptance) just because you aren’t sure you like the house anymore or because CNN is saying scary things. Of course, you can cancel or ask for repairs if an inspection finds major issues but you aren’t likely to get your deposit back just because you feel weird about buying the house now.  This is why it’s extremely important to be sure you’re ready to buy a house and enter into a process that moves quickly and is often very harsh before you make an offer.

You should also know that there is a three day period in the standard C.A.R. contract that allows the buyer to back out if the offer hasn't been accepted for any reason. Also, you aren’t obligated to purchase the property if the seller accepts your offer after the time period that you have given the seller to make a decision expires.

3.  Use technology to your advantage.

Investors use the internet to have access to instant, up-to-date information about the market and new listings, to communicate quickly to their Realtor and to receive and transfer documents.  It can be very helpful to have internet access and an e-mail account that you check on a regular basis to be sure that you’re able to move as fast an investors.

Another important tools are fax or a scanner to allow you to transmit documents instantly to your real estate agent.  I can e-mail contracts and other documents to my clients for them to sign remotely and they often use their work or home fax machines to return them quickly.  If you don’t have your own fax machine you might want to locate a Kinko’s or other business nearby your home or work to send faxes from.

4.  Know the market so you can make attractive offers.

Either, by looking at the MLS online or with the help of your real estate agent, look at the sold price and list price of recently sold homes in the area that you’re interested in.  Take note of upward or downward trends in sold prices.  Look at gaps between list and sold prices and see which homes went for at or near asking price, those are a good snapshot of where the market was at that point in time.  When houses went for much higher than asking, know that those homes were priced well below the market and when you see prices like that, you’ll have to offer more than the asking price.

You might also want to look at how long these houses were on the market, houses that were on the market for less than two or three weeks probably received more than one offer right away. 

5.  Work with an aggressive and quickly moving Realtor.

It’s just as important for your real estate agent to have access to and use technology to their advantage as it is for you.  As I’ve mentioned before, you don't have much time to pull together an offer and tour the property with these quickly moving properties. Make sure that your Realtor is willing to do what it takes within reason to get your offer in. In addition to using technology, he or she should be able to work some evenings and weekends and be available by cell after business hours.  You should be able to call or e-mail him or her with the property that you’re interested in and he or she should, generally, be able to set aside some time for you within the same or next day to get you into the property for a tour.  If he or she cannot do this personally, suggest that she have the listing agent or another agent from the office let you inside. 

In a pinch, especially when there are tenants in the property that make it difficult to show, consider making an offer contingent on touring the property.

6.  Consider homes that need work and investigate creative options for having these repairs done.

These homes are not going to be on the radar of everybody and their momma.  For this reason, the seller will probably be more motivated and may be willing to finance some repairs, reduce the price, or at least give you more time in escrow to get estimates for repairs and to qualify for a loan for the repairs (such as FHA 203k).

7.  Consider homes that have been sitting on the market for at least four months, including the ones that are a bit overpriced.

Another way to get away from the competition with investors is to look at houses that aren’t on their radar.  When a listing agent puts a property on the market or changes the price on a property, everybody who gets e-mail updates on properties that meet that criteria gets an e-mail. This means that you and hundreds or THOUSANDS of people have all been notified about this property. 

Properties that have been sitting on the market with no recent price changes aren’t on everybody’s radar.  The sellers of these properties become more and more motivated as the weeks pass.  This means that they are much more willing to be flexible on price and terms than sellers of properties that have just come on the market.  You’ll have more room to breathe as you negotiate with these sellers, they’ll be more willing to accept an offer that is less than asking price and they might even do some repairs before the close of escrow.  

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Although prices are down, this isn't the market for everyone.  Trying to buy your first home in this market can be stressful and intimidating.  You may have to make several offers before getting one accepted.  If you're patient and creative, you may be able to buy a wonderful house at a fabulous price.