This morning (Saturday) I am writing during a rental open house. We hold rental open houses for our investor clients to help them find tenants for their newly purchased investment properties. Unlike open houses for sale properties, we find that rental open houses are highly effective for finding tenants. (This is not the point of my blog today, just an interesting bit of real estate marketing trivia.)
This morning a young lady came to the open house looking for a rental because she was frustrated with the buying process. She had been searching since December for a home priced under $400,000 in Orange or Riverside county. Despite what she was hearing on the news and around the office water cooler, picking up properties for 20% below list price or "pennies on the dollar" was simply not the reality. In fact, after placing four offers over list price, only to get outbid on every one, she finally throw in the towel.
Was it really time to through in the towel? Heck no - it's time to use the towel to wipe off the misconceptions and approach the market correctly.
If you are frustrated buyer trying to buy property under $500,000, here are five rules in this market.
Rule #1 - Understand that the list price is meaningless. Most properties on the market today under $500,000 in Orange County are either bank owned foreclosures or distressed short sales. Both types of properties are typically priced incorrectly - either too high, or more often - too low. In fact, I dare say that "Zestimates" are more accurate that the actual listing price, and that's not saying much! So the first rule is simply to ignore the list price. Don't get attached to the number. Don't think about how much lower you can get it under list price. Don't even worry about what nearby properties are listed for, because those prices are probably incorrect, too.
Rule #2 - Focus on current market value. Current market value has nothing to do with prices, and everything to do with recently sold properties. Have your agent pull sold comparables and pending comparables to determine the current value of the property. Here's the interesting thing - an overpriced house is more likely to sell for a discount than an underpriced house. That's right - if you are looking for a good deal, focus on the overpriced properties, not the underpriced properties. Here's why. Underpriced properties get all the attention. And when demand is high and supply is low like it is right now, a bidding war commences and the momentum tends to drive offers over market value. Overpriced properties get no attention. With no traffic, a seller will have to consider any offer, even if that offer is lower than market value.
Rule #3 - Don't be afraid to overbid a property. Despite Rule #2, don't be afraid to overbid a property. I'm a poker player and the most important lesson I learned in poker is that only aggressive players win. Your first goal in purchasing property is to be get your offer accepted. When you are competing against 20 other bidders, your goal is to present the cleanest, strongest offer with the best terms and conditions for the seller. Once you enter escrow, now it's just you and the seller - no other bidders. Now you can perform your inspections and appraisal. In this tight lending market, appraisers are very conservative about value. In fact, it's nearly impossible to overpay for a property because the appraisal will protect you. If your purchase price is $300,000 and the appraisal comes back at $290,000 - simply go back to the seller and ask for a price reduction. In our experience, you'll usually get it. Remember, you are now the only buyer at the table and the seller recognizes that any other buyer is going to have the same issue.
Rule #4 - Don't let "as is" fool you. Yes, I know the scary language in the bank addendum tells us that the bank will not make any repairs, so don't even bother asking. Wrong - huge myth. We represent banks and buyers and have found that they are even more open to repair credits than our regular equity sellers. Do some sellers responds with something like, "No way, read the addendum, absolutely not, how dare you even ask, are you new, what's wrong with you?" Sure, but it's not like they can back out of the deal because you dared to ask! I'm willing to ask scary questions all day long to save our clients a few thousand dollars here and there.
Rule #5 - Get the inside scoop. In the private remarks of our MLS, some very busy agents write very professional notes to other agents like, "MLS updated daily. Don't call for availability. Your calls will not be returned." However, despite their good intentions, they do not update the MLS daily and properties showing "active" are not, or there are already 20 other offers over listing price, or the property is hours away from final bank approval and your chances are at the needle in the haystack level. As professional agents, working for our buyers, we ignore these threats and call anyway. Why would we want to waste our client's afternoon looking at properties that are not really available?
Actually, we email, text and then call. We find that busy agents, are more than happy to send a quick email or text. In addition, by developing good industry relationships, we can usually find out whether there are already offers and if they are over listing price. While agents typically will not disclose actual offer amounts, they tend to come pretty close because they really don't want to process another 25 page offer package that doesn't have a chance.
The Biggest Rule - Work with a professional Realtor who understands the current market, isn't afraid to call agents, ask tough questions, thoroughly researches the comparables and is able to get your offer at the top of the stack for the best properties in the market.
Nancy Moeller, CPA, Real Estate Broker
Seven Gables Real Estate
Direct (714) 276-7006
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