For the last 3 years, we have experienced a shortage of quality homes for sale in Santa Clarita. That’s no big surprise, “tight inventory” is all over many real estate related reports. It is for that reason that 2016 was the fourth year in a row of price appreciation, especially in the lower price ranges. Too many buyers for too few homes caused about 10% appreciation for the year. At some point, of course, this will stop, but it’s hard to imagine it happening anytime soon. Today, we have under 400 resale homes and townhomes for sale in a valley of over 200,000 people. Even adding in the 11 new construction projects and their available homes leaves us with about 40% of what would be needed for a “normal” 4-month supply of homes. Meaning, that a marketplace in which multiple offers are common will likely be around for a while.
It is in this kind of supply/demand environment that we often see a new listing come up and there be multiple buyers making offers for that property. That is what today’s post is about, as I regularly see sellers and their agents mishandle this opportunity. Worst case, they take the first offer that comes in, something happens in escrow and 30 days later they have to come back on the market. So many times I’ve seen that cost sellers tens of thousands of dollars and untold aggravation. That can be avoided, though, by following some important tips that give the best possible outcome for buyer and seller alike. Let’s assume then, that the seller wants not just the best possible price, but also TERMS that lead to the timeframes they need and a smooth escrow without surprises or disappointments. I’ll offer a few tips to buyers at the end, but this is mostly for those that plan to sell in a tight inventory market like we have today.
It is my experience that if a seller wants top dollar, that almost always comes in a multiple offer situation during the first month that the property has been for sale. I’ve heard many homeowners say they think a home was sold under market value because it sold right away, and that certainly has happened. Rarely does that happen, though, when the agent involved makes sure that ALL buyers in the marketplace see the new listing, and it stays on the market for a designated period of time – not just a day or two. In fact, almost always when a home sells right away for less than it could have, it is because the listing agent sold it to the first offer in the first few days on the market and, SURPRISE, often to their own buyer so they can get all of the commission. This happened so many times in the short sale market of 2009-2012 that banks today INSIST a home be on an auction website to ensure that the home can be bid on. For today, the tip is simply this – have your agent put in the remarks that the new listing will be open for viewing for a specific period of time (i.e. 7 days, 10 days or 2 weeks). Give those buyers and their agents a chance to get in and not feel rushed to jam an offer in right away. Encourage everyone to come and offer if qualified and interested. This creates a comfort zone to view and buy and still keeps the urgency up to get offers in. This all but guarantees that every buyer that is in the marketplace sees it, which is the key to getting top dollar.
Next, any prospective buyer should be encouraged to write and put their best foot forward to start with. This way you learn their true motivation. Once all offers are received, tip #2 is to write a “multiple counter offer” with respect to the buyers’ highest/best price and terms. It floors me how often agents don’t do this, and while there can be reasons to just accept a solid offer, why not find out what each offer’s best price and terms are? It simply takes an extra day or two, and a one page form. I prefer asking for “highest and best” as opposed to asking for a specific price, because this encourages buyers to truly give their best price, rather than meeting a specific number. You never know what that will be! Giving a “multiple counter offer” is also important to determine what the second-best offer is to be a potential “back up offer” in case something happens with buyer #1. Again, just because you are the hot new listing doesn’t mean things can’t happen in escrow, and you want to be prepared if they do. For buyers, this is where a “cover letter” detailing your sincere interest in the home can help a seller feel comfortable being in escrow with you. Sometimes these letters can be a bit corny, but I’ve often seen them be the reason a seller chooses one buyer over another, even if their price is lower. Remember, a seller may be emotional about saying goodbye to their home. Knowing a buyer values it like they do can be powerful.
Last, terms are so, so, important (sometimes more so than price) but are rarely evaluated equally in a multiple offer situation. Removing all contingencies quickly means the seller has a solid deal. Until that is done, it isn’t even close to a “done deal”. By far the biggest issue in a rising price environment is the appraisal contingency. Just because a buyer offers $10,000 over asking…what happens if the lender’s appraiser doesn’t have recent sales to support it? I’ve spent hours and hours rebutting appraisals in the last 3 years, even after meeting the appraisers in person. Appraisers often don’t value things the way a buyer does. That’s just reality. For this reason, you should remove the appraisal contingency from the deal when possible. It may require the buyer to put more money down if it comes up short, but they don’t pay any more than the price they offered. Buyers, understand why removing the appraisal contingency will often be the reason you get the home – or don’t. Honestly, no one knows value better than a buyer that has been actively looking at every property for sale. They know better than appraisers! For sellers, if the appraisal contingency can’t be removed from the offers, at least shorten the amount of time to get it removed so you know if you have an issue. Sadly, many buyers will tie up a property, then try to renegotiate price when the appraiser suggests they paid more than market value. My feeling is if they are willing to pay over asking because of market conditions then they are going to pay that regardless of what the appraiser says. Get that in writing when you have the leverage to do so – in a multiple offer situation – before you open escrow. Happy selling!