It’s no secret that inventory levels have fallen in just about every market across the country. Here in Orange County, inventory is near 2 “months of supply” — the same level in some months of 2005 and 2006. Without getting into too much detail, a market below 4 months is a seller’s market. This has translated into more “bidding wars” where multiple offers will drive the price up and remove almost all negotiating power from a buyer who wants a particular home.
When I was a new agent, one of my frustrations would come from a buyer reacting angrily upon discovering there are other offers on a home they wanted. I’d hear a buyer say numerous times, “I’m not getting into a bidding war!” The same would happen on the listing side, only difference being that it would be the buyer’s agent saying over the phone, “My client isn’t getting in a bidding war.” The frustration eventually ended when I realized that I wasn’t setting expectations and educating my clients about the current market and when you can negotiate — even if it’s a buyer’s market.
There’s a Real Estate coach that teaches you to be blunt with clients. Afterall, they deserve to be told the truth. At first, I took this literally. I once told a buyer, “if you don’t want to get in a bidding war, don’t buy a home anyone else wants!” While this is partly true, it’s oversimplifying things.
[youtube http://www.youtube.com/watch?v=K2kh5xY9-Rg]
I did that video more than 1 year ago when the inventory levels were higher and it was a buyer’s market. Buyers would be become very frustrated when they encountered bidding wars when it was obvious there were more homes for sale than qualified buyers.
Even though the market has changed, the points in the video are still valid:
1. Know the “bread and butter” market segment: First-time home buyer price range, newer construction, move-in ready, good neighborhood, great feng shui layout, at least 3 bedrooms, at least 2 baths. This is what the majority of buyers want.
2. Even when there are plenty of homes available, there’s always a shortage of homes in the “bread and butter” category.
3. Position negotiating (1 buyer : 1 seller) is best for the buyer.
4. Market-driven negotiating (multiple buyers : 1 seller) favors the seller.
Do the opposite of the other buyers
You can gain an advantage if you’re willing to break free of the mainstream group. Look beyond things that can be fixed easily: undesired paint colors, popcorn ceilings, outdated kitchens, smelly homes, etc. Be willing to buy older construction — they have several advantages over newer homes such as larger backyards, mature trees, and wider streets. Research school boundaries — many school districts allow transfers into the more desired schools with a simple application. If you’re tolerant to surrounding noise, a home near a railroad track or a busy street can result in a huge savings. If you’re not superstitious, ignore the dominant cultural preferences such as a front door aligning with a rear door or staircase. Look for a home with a large lot or swimming pool — they both seem to be undesired for today’s generation of buyers.
Be smarter than the rest
If you insist on not breaking free from the crowd from any of the advise above, it doesn’t mean that you simply have to pay more. You can be smarter than the rest:
– Look for stale listings. The numbers don’t lie. Consumers are willing to pay more for something perceived as “new” and “scarce.” Once a home starts gathering multiple “days on the market,” they don’t seem to gather as much attention anymore. Most of these “stale” listings are damaged goods: overpriced, showing challenges, unrealistic seller, or a seller condition that can’t be overcome. However, you might be able to luck out on the listing that doesn’t have any of those and might have simply been overlooked by the rest.
– Look for listing errors. Since most buyers and agents are using the internet to search, that means that a given criteria is used as a query to return a list of homes. Of course, this assumes that the information entered is correct. I’ve seen it happen many times where a home did not sell for full market value due to one typo: too many 0’s entered (home priced at $4,000,000 instead of $400,000), wrong square footage, beds, baths, or even the city! I had a neighbor who was wondering why she wasn’t getting showings on her home when it was priced right. It turned out that her agent had the living square footage listed as ZERO. Any buyer searching for a home over 1,000 square feet did not find her property. In Anaheim Hills, it will often happen where an out-of-area agent will enter the home as simply “Anaheim.”
– Hire a full time, established agent. At the end of the day, an agent is paid for putting deals together. Make sure you hire an agent who has good ties with the other agents in the area. Within their network, they can often get news of homes about to be placed on the market, about to fall out of escrow, and upcoming price reductions BEFORE everyone else finds out.
– Look at “For Sale By Owner” homes. The numbers show that over 96% of FSBO homes will not sell. However, for the 4% that end up selling, they average approximately a 10% discount compared to the rest of the market. This mainly happens from a lack of exposure and the seller overpricing the home.
Of course, you can always decide to remove yourself from the market entirely. Afterall, everyone has an opinion on where the market is headed. Just don’t fool yourself into thinking you can buy a home everyone else wants and not get any competition.
