An open letter to buyers in an aggressive market

Dear Buyers,

Yesterday I talked with a few buyers who are in the trenches of the market. One is feeling frustrated at not getting offers accepted, and the other is starting to feel like affordability is beginning to vanish. I was actually taken aback with the sense of hopelessness felt by the latter individual, so I wanted to share some perspective as an appraiser when it comes to making offers in an aggressive-feeling market. Whether you are in Sacramento or elsewhere, I hope this helps. Any thoughts?

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Advice for buyers in an aggressive market:

1. Shop below your price range: We are in a market where multiple offers are commonplace in many price ranges and neighborhoods. This means if you are qualified up to $300,000 and money is tight, you might want to consider homes that are priced $270,000 to $300,000 instead of just $299,000. This allows you some space in case there is a bidding war.

2. Expect to get beat: Sorry to be a downer, but you probably aren’t going to get into contract on the first home you offer on. Remember, real estate is a bit like dating. You often don’t marry the first person you go out with. So take heart and expect you’ll submit many offers until something sticks.

3. Know when listings usually hit the market: There is a season in real estate, just like there is a season for baseball, weather, or elections. It’s true inventory is sparse, but it’s also true listings don’t start to hit their stride until March through August. Sometimes February will be a stronger than usual month, but we still don’t see the bulk of what’s going to hit the market until May through July / August. If you don’t believe me, look at the light green listings below over the past few years. In short, don’t freak out in February if there isn’t much on the market. 

listings in sacramento - sacramento appraisal blog

4. Don’t let sensational headlines stress you out: Headlines these days often talk about how hot the market is, but my advice would be to read stories carefully and ask a few real estate professionals what they think too. For instance, one headline says “Sacramento will be one of the hottest markets in the nation” as values are projected to increase by 7% in 2017. This one story has seriously saturated the market and I’m hearing this sentence about everywhere I go. The irony though is a 7% price increase is about what happened in 2016, which means the headline could have just as easily said, “The market looks like it’ll do about the same thing this year.” I don’t say this to gloss over how competitive the market is, but only to highlight we need to read articles carefully and think critically rather than immediately stress out.

5. Don’t mistake low-ball pricing for the market: Some properties are attracting 15-20 offers, but my sense is when that happens it’s usually more about low pricing than the actual market. This week I saw a property listed at $290,000 that probably should have been listed at $350,000. We can look at the 15 offers and bemoan how intense it is out there or we can realize this one was priced ridiculously low.

6. Be careful of bidding up to “no man’s land”: While it’s plausible to think the contract price might get pushed up a bit with multiple offers, don’t forget to be realistic about what the home is actually worth. If you know you don’t have cash to pay for the difference between a realistic appraised value and the contract price, you might not want to offer that high then. Somehow you’re going to need to stand out as a buyer to the seller, but an unrealistic offer well beyond a reasonable value probably isn’t going to help you in the long run.

7. Realize cash doesn’t always win: There is a false idea that cash investors from the Bay Area are beating out financed buyers all the time – especially those bringing very little money to the table. The truth is 1 in 4 sales last year in Sacramento County were FHA buyers who put down 3.5% (or less if they used down-payment assistance). Keep in mind only 14% of all sales were cash during this same time. Moreover, 27.4% of all sales under $500,000 had FHA loans in 2016 in Sacramento County.

8. Find a way to stand out: There could be multiple offers, so you need to figure out a way to stand out and make a positive impression on the seller. Of course the strength of your offer is the first place to start, but beyond that find a way to make an emotional connection with the seller too if possible. I might recommend brainstorming ideas with your agent. When my wife and I bought a house a couple of years ago there was actually a higher offer on the property, but the seller accepted our offer instead. When touring the home we were fortunate to meet the seller and we hit it off a bit. During the conversation the seller mentioned her son was going to start at a new private school. Anyway, when we submitted the offer we wrote a personal letter complimenting the house and reminding the seller who we were. We also looked up the school and found it was $1400 per month. We then wrote in our offer we were going to give the seller an extra $1400 at the close of escrow to help pay for her son’s school (The underwriter actually freaked out because she’d never seen a buyer do that). I’m not saying you need to do something like this, but in our case it definitely made a huge impression. It showed that we listened, we truly cared, and we were very serious about the home. 

9. Listen to your agent: You probably know the market pretty well by now because you’re scouring listings in an obsessive compulsive way on Redfin, Zillow, and MLS. This also means you are most likely going to find your eventual home before your agent does. That’s how it works these days. Just remember finding the home is the easy part, but the most important thing your agent can do for you is negotiate on your behalf and offer professional guidance and advice along the way. Will you listen?

I hope this was helpful.

Sincerely,

Ryan

Questions: What piece of advice resonates with you? What is #10? Did I miss something? I’d love to hear your take.

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Comments

  1. Lori says

    Love this information. I’ve already forwarded it to my clients who are looking for a home currently.
    Thank you Ryan!

  2. says

    #5… 20% below market? wow… that strategy only works IF the listing is properly exposed, easy to show, and there are plenty of buyers, otherwise the seller can get screwed. I have yet to see and agent list their own property this way.

    • says

      Excellent point Jeff. I too have never seen an agent list his/her home this way. Why do it for a client then? Of course maybe it happens this way sometimes if an agent thought value really was at a lower level. The appraiser might hear about it being a strategy….. I think you’re right the seller could get screwed. The agent is also giving away valuable business time to communicate with a huge number of other agents too because of the avalanche of communication.

      • says

        It’s actually a strategy I heard pitched by a well known broker in a large seminar setting…. many of the agents were new recruits… it’s also pitched via an NAR video… it presents significant ethical conflicts if not managed properly….when you couple it with delayed on market dates, internal marketing only, and 25%+ dual agency, etc. it’s a class action lawsuit waiting to happen when done as a normal business practice.

  3. says

    Great analysis as usual Ryan. I’m glad you pointed out low ball prices. Often I go into a house and they tell me there was some ridiculous number of offers. My thought is the same as you, the list price must have been too low.

  4. Gary Muma says

    Hey Ryan – Great insight, advice and strategy to buyers. I agree, if I was an agent I would discuss these issues/strategies with each of my buyers starting around Christmas time through March. Great way to see the big picture of listings in winter time.
    Thanks

    • says

      Thank you Gary. I think that’s excellent advice on the strategy too. It can feel so hopeless to buyers when listings aren’t hitting the market in January and February, but we have to realize that’s fairly normal. On a related note, it’s easy to see how inventory has declined these past few years with the graph above. It’s anemic right now (though still not as competitive as it was in 2012 & 2013 when housing supply was nearly one month for an entire year).

  5. says

    Great post, Ryan. Number 5 is interesting because it’s possible to make things look like something different than what they are. As appraisers, we know you can make the numbers say what you want them to say. I guess when selling homes you can also make the market look hotter than what it actually is. When looking at comps it would be good to know what the true value of a home actually is compared to what it sold for. A home selling for $50,000 higher than it’s lists price does make it look like the market is blazing hot but this may not be the case. Thanks for sharing these helpful tips.

    • says

      Thank you Tom. I appreciate your insight. I think you’re spot on. The thing with situations like this is it can end up inflating the sales to original list price ratio too. If we’re not careful, we can blindly look at a ratio like this in a neighborhood and think the market is a much different temperature than it actually is. Of course one sale doesn’t make or break a market, but if we’re not careful one sale in the midst of a handful can make the data look funky. I actually pulled price stats for the county last month and my median price was WAY different than what I thought it should be. In fact, it was making year-end stats look really inflated. I was freaking out for a couple hours because I couldn’t figure out why the numbers were coming out so off-base at a good 15% too high. As it turns out there was a sale that was listed for $220,000,000 instead of $220,000. That one sale threw off everything. 🙂

  6. Nicole Grant Kriege says

    Thanks for this! Great follow up to the event last night – some folks I know left feeling a little discouraged and this is good inspiration.

    • says

      You’re welcome Nicole. I was planning to write something else this week, but after the discussion last night I thought it would be relevant to scratch out these thoughts. I enjoyed the panel very much, though I wish we had more time to share some of the opportunities that do exist for affordable housing. There are some helpful loan programs out there too for first-time buyers also. If a loan officer was on the panel last night, I’m sure he/she would have preached that. 🙂

      One thing I wish I would have shared is the market in Midtown is simply no longer an entry-level market for many buyers and renters. That’s a bummer for some, but it’s the truth. The good news is there are more affordable options in other places than the grid.

      By the way, if anyone from the event last night needs some connections to explore financing options or you need to connect with a trustworthy real estate agent, just let me know. I’m glad to connect you.

  7. says

    Great article Ryan, every point is 100% true.

    One suggestion I make to buyers is to consider properties that may be overpriced or have been sitting on the market a long time. If you do decide to make an offer, you’ll likely be the only one on the table for consideration, instead of the 10+ offers you’ll see in brand new listings. Being the only offer on the property obviously greatly increases your chances of consideration.

    For example, I had a client get out-bid on a home in the neighborhood, even though we offered $6,000 above ask. So, I went and found the comparable home on the neighborhood that had been sitting for nearly 4 months, and negotiated the price down $11,000 and got her offer accepted.

    Another strategy agents can use is to search for canceled, expired and withdrawn listings that may actually still be for sale. I had a client who had been beaten out twice in one of Elk Grove’s most competitive neighborhoods… so I did a search for older listings and found one that was withdrawn from the market last year. I called the agent, and lo and behold they were just about to replace the roof and put it on the market. I was able to get an offer in before anyone else even knows it’s for sale, and find my client a home when he kept getting beaten out by better offers.

    Most agents won’t think to use these strategies or be willing to put in the extra work to find them, but it’s a surefire way to increase your chances of finding a home in such a competitive market.

  8. Cheryl Rouse says

    Wow, Ryan! Love the letter! In addition, great comments! Wes’ suggestions are on the mark – I will take them to heart for two buyers with whom I am currently working.

    • says

      Very cool. I love hearing that. It’s amazing how we can all benefit from sharing information. Thanks again Wes. By the way, next week will be Part 2 of this post (though it’ll be geared toward sellers). 🙂

  9. says

    Thank you for an excellent article! Another frustration lately is clients spotting a home extremely low-priced and getting very excited, only to discover it’s an “auction” and priced quite a bit below the actual amount the seller will accept. Couple that with the fact that the seller doesn’t have to accept any offer, including one that meets the minimum they established, and you have many frustrated buyers in a lower price bracket. On top of all that, many (most?) of the buyers who can actually afford the realistic price of the home may never see it, since they are looking specifically at higher prices. Meaning the sellers aren’t getting as many eyes on their property as they could – which I would think might often lead to lower prices for the seller than normal. Frustrating on so many levels!

    • says

      Thank you Kaye. I appreciate your comment. If it’s priced low, there is a reason. Maybe it’s condition or maybe it’s an aggressive marketing strategy. It’s almost like would-be buyers have to consider the pricing and just discount the listing. “There is no way it’s going to sell that low, so let’s not waste our time.” I’m more of a fan of pricing closer to the actual value, but that’s just me. I do see some who price low, but it’s a bit of a gamble. What if the property does not get bid up to a reasonable level?

      I think your comment is insightful regarding eyeballs on the property. Pricing mistakes sure can make a difference. Some buyers are only going to look at a specific price range and they will get emails from Redfin and Zillow within that range too, so pricing just outside of a range doesn’t make much sense. It’s like that one listing at $301,000 instead of $299,000. It’s easy to miss some buyers who have entered searches under $300,000. Of course buyers might see this property, but when something is priced really low it’s easy to miss it. Like you said, the goal is more eyeballs. Bottom line.

      On a related noted, I was just reading a post on Nextdoor.com yesterday where a resident wanted to list his home without an agent. My advice to him related directly to your comment. I told him in a market like today’s he needs to get more eyes on his property, and the best way to do that is through MLS.

      Keep up the great work!

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