Wednesday, April 27, 2011

Suggestions on how to stop losing homes to higher bidders

Q: My daughter and her husband-to-be, who are both 21, are trying to buy a house and have put many offers in on various homes. They already are preapproved for the amount they need.

Every time they put an offer in, even on houses that have no other offers, and that have been on the market for a long time, all of a sudden many offers come in -- sometimes within 24 hours!

Then the bank goes with the higher offer, which confuses them because their agent told them there were no other offers. This has been very depressing for them.

They are getting married in June and would like to purchase a home before then, so they have a home to move into after the wedding (they both still live with their parents). Is there anything they can do to resolve this problem?
A: Being a buyer in today's market is nearly as frustrating as being a seller. You read and hear all day long about what a strong buyer's market it's supposed to be and what great deals there are to be had via foreclosures and short sales.

But when you start making offers on properties, you find that the banks are nowhere near as willing to negotiate as you expected, and that many of the bank-owned homes cannot be bought without prevailing over a sea of other offers.

Depressing and frustrating -- yes. But there are some strategies they can and should put into play to better their chances going forward.

With an individual seller, you can minimize the chances of being outbid unawares in a couple of ways. You can put a very, very short time frame on your offer, eliminating a window of opportunity for other buyers to swoop in on the property.

Also, most listing agents in "regular" sales want their clients to get the highest possible price for their home, so it's common for them to ring up any previous offerors to let them know when additional offers have come in, to give them an opportunity to increase their offers or otherwise make them more competitive.

You can't force a bank to respond to your offer in a very short time frame, or in any time frame at all, for that matter.

But what your daughter and future son-in-law can do is go into these transactions with the lessons they've learned thus far.

Whatever it is that caused them to be interested in this property at this point in time could very well be inspiring other buyers to make an offer at the same exact time. So, even when their agent is told that there are no other offers at the time they make theirs, they need to do several things.

First, they need to enlist their agent to stay in very close contact with the listing agent -- as often as two or three times a day is not overkill -- once their offer is submitted.

Your daughter's agent should not only be calling the listing agent frequently to check and see whether other offers have come in -- they should also be asking the listing agent upfront to notify them if additional offers come in. That way, your daughter and her fiancé may at least get the chance to try to compete with the other offers.

Additionally, your daughter should consider changing her approach to formulating the price she offers for a home. She will have a better shot at getting a home if she offers a price more in line with the recent sales in the area, versus just offering something below or even at whatever the list price is on the assumption that she has no competition.

Every time she wants to make an offer, she and her mate should sit down with her agent and get an analysis of the recent sales of similar properties in the area. If she's making an offer on a bank-owned property, she should look at those sorts of sales. It's critical that she not only look at the recent comps' list price, or sale price, but their list-price-to-sale-price ratio.

For example, if a home's list price is $100,000 and it sells for $110,000, the list-price-to-sale-price ratio is 110 percent.

From what you've said, it seems that it's pretty common for these homes to sell over asking. If she can work with her agent to determine how much, on average, over asking these homes typically sell for, then she can apply that ratio to the list price of the home for which she wants to place an offer.

So, for example, if the other homes are selling for 107 percent of their asking price and she is seriously interested in buying a home that is listed for $125,000, she would multiply $125,000 by 107 percent and consider an offer price of $133,750.

Yes, that may mean that she goes in with an offer over the asking price, even in a situation where she has been told there are no other offers. But if the recent comparable sales justify that value, and it is within the price range she can afford to pay, that may be necessary to avoid being chronically overbid and secure the home in which to start her family.

Some buyers get hung up on the idea that they are "overpaying" if they make an above-asking offer, but the reality is that the list price is not the actual price of the home -- it's a starting point for upwards or downwards negotiations, depending on the local market dynamics and how the list price was set vis-à-vis the fair market value of the home.

Getting a great deal is not necessarily the same as paying at or below asking; just think -- if the list price is set too high, then offering to pay it isn't a better deal than if you offer above-asking on a place where the list price is set way too low. This is why it's so critical to rely heavily on an analysis of recent comparable sales to drive your offer price, rather than just on the list price or what the listing agent tells you.

Further, no house is a good deal if you don't get it, which may be the learning that your daughter and her fiancé are experiencing. And given that prices have rolled back to 2003 levels in many areas, whatever they pay will undoubtedly be a great deal, from that perspective.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for Trulia.com.