Although inventory seems to be on the rise in North Orange County, ask anyone buying a home and they’ll agree that it remains extremely tough out there.

Especially with the “cookie cutter” newly constructed home, double digit offers within the first few days are the norm even when sellers price their home 5% above the comps.

This has led to many high producing agents refusing to work with buyers altogether regardless of qualification or motivation. I’ve heard several of my peers tell stories of submitting over 10 offers on different homes and not getting their buyer the deal.

As an agent, the toughest price point to work with seems to be the conforming territory of $650,000 and under. Mainly saturated by first-time homebuyers and investors, this price range seems hopeless for many due to stiff competition from cash buyers, high downpayment offers, and unethical listing agents who simply wanted both sides of the commission.

Although it has been tough out there, I was able to have 3 of my offers accepted for buyers in the sub-$550,000 price range in the last month. While is this nothing to brag about, it still resulted in 3 clients finding a home that suited their needs. ALL of them were low-downpayment buyers with 2 of them using FHA financing. One of the buyers had their very first offer accepted while the others took 3 tries to finally have their homes under contract.

As an agent who’s accustomed to competing against multiple offers, I have to admit it’s part luck, part strategy.

Of course, we can’t control our luck. We can only use strategies that will increase your chances. I’ve been able to maintain a ratio of at least 3:1 when comparing offers submitted vs. accepted offers.

Here’s some of my tips:

1. Expectations are everything. Sit down with an experienced agent before looking at homes. Meeting for 30 minutes can save you hundreds of dollars in gas and your precious time. A good agent will take your through the basics of what you can buy in this market and what price the other buyers are willing to pay. Most important, the agent can tell you if your goal is realistic or not.
2. Make a lasting impression on the seller – when possible, introduce yourself to the seller when viewing their home. It’s happened on several occasions where the seller said something along the lines of, “We LOVE that young couple. We don’t want to sell to just anyone.” Of course, don’t overdo it. Just make sure you at least have them associate your name with a face. Don’t be afraid of saying, “Be on the lookout for our offer. Our names are _____ and _____. Your agent should be receiving it by tomorrow!”
3. Highest isn’t always the best – a savvy listing agent knows if a home will appraise or not. Your agent needs to make sure that he/she shares the same opinion of appraised value. If offers start exceeding that amount, higher offers start becoming a non factor unless the buyer can remove their appraisal contingency or create an addendum promising to pay the difference up to a specified amount.
4. Going direct to the listing agent rarely increases your chances of acceptance – especially for the high producing listing agent, they know that the buyer going direct to the listing agent rarely is willing to pay the most. They often ask for “kickbacks” and are unrealistic on price. On several occasions when I’m the listing agent, I’ve even had buyers offer me money on the side if I were to withhold other offers from the seller! In this market, a listing agent often has multiple buyers approaching them. Additionally, the high producing agent knows they must keep their reputation intact with the local broker community, so the last thing they want is to have their record blemished from not playing fair. I know there are many stories out there about a friend of relative getting a deal from a shady agent. Refer to tip #5.
5. Know the listing agent’s dual agency % – your buyer’s agent can look up an agent’s past production in the MLS. If the listing agent has a past history of representing both sides more than 20% of the time, it’s likely something’s not right. If this is the case, have your agent either 1.) Present your offer in person, or 2.) Send your offer via certified mail directly to the seller. You can imagine how much explaining a shady agent would have to do if a seller received an offer in the mail and the agent withheld it.
6. Don’t back down from showing challenges – in one of my offers accepted in the last month, there was a tenant that was flaky cooperating with showings. It took several calls and text messages to finally see the home. Each time I spoke to the listing agent, I made sure I was courteous and empathized with the situation. If that home allowed flexible showings, it would have had multiple offers competing against my buyer’s FHA offer.

   

7. Hire an agent with relationships in the broker community – I always like to use the nightclub analogy: if you don’t know the bouncer at the door or the owner, you have to get in line with the rest. In all 3 instances where I had my offers accepted, I either knew the listing agents personally or we’ve heard of each other and quickly established rapport. We aren’t talking about the “shady” agents that withhold higher offers in order to accept mine. A multiple offer situation usually ends up as a very close race with the top 2-3 offers with a huge drop off after that. Sometimes, any little edge can matter. The last thing you want is some schmuck as your buyer’s agent who works part time for some no-name company.

Happy hunting! Call me if you want a free consultation!

If you’ve been watching the Real Estate market from the sidelines from fear of lack of selection and bidding wars, good news may lie ahead.

As you can see in the graph above, May’s numbers continued the trend of rising inventory as the number of homes for sale rose for the 3rd straight month. Rising interest rates, seasonal selling, and an increase in sellers who want to “test the market” with aggressive pricing are some of the factors that have contributed to the trend.

The Eye Test
Has this truly resulted in more selection for the frustrated buyer? That depends. The extremely “starved” part of the market in North Orange County through my own eyes continues to be the $600,000 – $850,000 price range. This price range consists mainly of single family homes between 2,200 – 2,800 square feet. That “bread and butter” size appeals to both the first-time homebuyer and a “move-up” buyer who currently owns a condo or townhome. For my buyers in this price range, more homes are appearing on the daily reports I run for them, but many of them are “stale” listings where the price is unrealistic or a situation with the seller where one of the parties is not truly motivated to sell.

As mentioned in another blog, one has to look at several factors in order to determine which direction prices are headed. The graph above shows that lender-mediated sales rose for the first time since November of 2012 as lenders adapt to the newly-passed Homeowners Bill of Rights and investors such as Fannie Mae and HUD sell off their distressed pools of notes.

At the time of running the reports for the above graphs, June numbers were not available. I expect June and July numbers to reflect a moderate increase in number of homes for sale. By the end of summer, inventory should be at “healthier” levels of at least 3 months. Keep in mind that most consider a market of under 4 months to be a seller’s market.

The bottom line: Inventory rising to 3 months is GOOD news for most. The homebuyer will have more selection and have a better chance at getting their offers accepted. For the “move-up” seller, they can now place their home on the market with better confidence that they’ll find a suitable replacement property.

When I decided to make a full-time career out of Real Estate in 2007, I entered an industry that everyone was leaving. It was like going the wrong direction on the freeway. I remember the judgmental reactions I’d receive whenever I told someone I left my stable Engineering career in order to try my luck in Real Estate. Some would bluntly ask, “Are you crazy? There are NO houses selling!”

While others saw chaos and uncertainty in declining home prices, I saw opportunity in distressed homes. I remember meeting a savvy investor who had a motto, “I can make money in ANY market: up, down, or sideways.”

Like almost all agents, I started working with buyers. I sincerely felt that the massive supply of distressed homes would present a once in a lifetime opportunity to buy a home with historic affordability.

It didn’t take long for my frustration to kick in. I found out that most buyers are either unwilling or unable to buy at the bottom of the market. It wasn’t until my 3rd year in Real Estate did I learn to qualify a buyer for motivation.

Although I improved my buyer representation skills, I was still puzzled. Why do most buyers including “move-up” buyers wait until prices go up?

In order to answer this question, I have to identify (3) factors:

The buyer’s personal “market” – This is the buyer’s personal finances. I remember sitting down with a past client that shared his frustration: “We had everything in order to buy a larger home when the prices dropped. Then my mother contracted cancer and our expenses skyrocketed.”

Unfortunately, this cycle seems to sync with the Real Estate market for most. The Real Estate market is often tied directly to the economy, so while prices may be low, buyers often face salary reductions, layoffs, and overall uncertainty. The uncertainty often results in the conservative individuals to increase their savings even when their income is not in true jeopardy.

The buyer’s emotions – For the buyer who’s looking to purchase a home to live in, this is often the most important factor: How they feel. Just like the first factor, this seems to be in sync with the Real Estate market for a number of reasons.

Friends and Family:During the bottom of the market, buyers are often ridiculed by their friends and relatives who believe the market will only go down further. There are more escrow cancellations during this time of the market due to a higher rate of buyer’s remorse.

Local and National Media: keep in mind that all metrics reported in Real Estate by the media are trailing indicators, or reporting on what happened in the past. Additionally, it’s no secret the “doom and gloom” headline is more likely to create a buzz and go viral when compared to a positive headline. During the bottom of the market, headlines read similar to this: “Orange County Median Prices Drops by 20% — the 3rd Consecutive Year of Decline.” My most memorable one was a front page photo of a family being evicted from their foreclosed home. The attention-grabbing image showed the the family sitting on the curb with all of their heads looking at the ground.

Lack of scarcity: Humans need scarcity in order to place value on something. We like to pursue things that seem out of reach. During the bottom of a Real Estate market, supply is high and it’s often perceived the selection will last forever.

Too much emphasis on how much their current home is worth: for the “move-up” buyer, they rarely look at the more important side of a move-up transaction: the purchase. In 2004-06, many move-up buyers bragged to me how much they sold their home for only to buy a larger home at an inflated price. Many do not realize the the gap widens between their current home and the larger home once prices increase.

The local Real Estate market – The Real Estate cycles are often very predictable. Prices go up, then they go down.

Like most, I once thought that this was the most important factor. I would arrogantly think to myself, “Are most people stupid? Why do they want to do the opposite of what you should do?”

Here’s the reality: the external market takes a backseat to an individual’s internal market mentioned above. As Suze Orman once said, “The best time to buy is when you’re ready.”

So, does this mean that you should just react to the Real Estate market like the masses? Of course not. The solution lies in what Warren Buffet said, “Be fearful when others are greedy. By greedy when others are fearful.” In other words, do the opposite of what seems instinctive. If you receive more income, cut your expenses. When things seem unstable, invest in something.