We’ve written about low inventory being the real estate story of early 2013. Now as we are getting further into the year, the story has switched to talk of a seller’s market. In February realtor.com’s national housing data showed that median list prices were slightly higher month-over-month at $189,900. For the first-time homebuyer these figures can present a little bit of a challenge. Low inventory has meant multiple offers in many hot markets. Prices are rising slowly but investors are snapping up homes before some first time buyers can get their foot in the door. What can a first-time homebuyer do to stand out in this market?
It’s not all doom and gloom for the buyer who is looking for the first time. After a couple of years of restriction it seems that things may finally be loosening up a bit making it easier for those who have never had a mortgage before to enter the market. NAR chief economist Lawrence Yun has estimated that if credit conditions were to return to “normal,” that could generate an additional 500,000 to 700,000 sales this year. This is good news for sellers but means that buyers may be competing in an increasingly crowded field.
The Emotional Approach
Once the financing is in place how does a buyer with financing compete against investors? One approach may be the emotional one. Investors can often offer ready cash but where they can’t compete is on the emotional end. “Have your lender prepare a pre-approval letter that speaks specifically to this home, so the seller knows you’re committed,” advises Sam DeBord, managing broker at Coldwell Banker Danforth. “Don’t write a letter about why you’re a good buyer. Write a letter about what you’d love to do if you lived in that house, on that street.”
Marianne Bornhoft, President of the Spokane Association of Realtors and Realtor® at Windermere Manito LLC also suggests that potential home buyers can write a short one-page letter explaining both who they are and why they want the house. She stresses the importance of working with a buyer’s agent. “Buyers need to work with a qualified Realtor® who knows the market and understands the nuances of the type of house you are looking for.”
Bornhoft also says that when possible she likes to make sure that the seller’s agent can meet the buyer and sees “the love in their eyes” for the house. She recently showed a first-time homebuying couple a home that was about to be listed. The seller’s agent was present and could see how in love with the house the couple was. A connection like that can matter when the seller’s agent is presenting an offer because selling a house can be an emotional experience. The seller often still feels invested both in the home and the neighborhood and the sellers care about what happens to their home and their neighborhood. “It’s about leaving a good legacy for the neighborhood,” explains Bornhoft. “Sellers may drive by their old home in a few years and they want to have a memory of a good transaction.”
Be Willing To Adjust
In order to make the deal appealing, buyers may also have to do some adjusting. If the sellers want a quick close or a little more money in their pocket at closing it’s important to try and accommodate that. Competing against cash sales can be very challenging. Natalie Cerpa, a buyer’s agent in the suburbs of Los Angeles has seen cash buyers move in quickly on homes. “First-time buyers are having a hard time competing,” she says. “Those who have a 30-40%+ down payment have the best shot. Often we are seeing that the buyer is removing their appraisal contingency with their offer to try to compete with cash offers.”
Part of the role of the buyer’s agent is educating them with both the statistics on cash sales and their experience in the market. “ It isn’t long before they realize they need to come in at their highest and best and ask for as little as possible,” adds Cerpa. “Often buyers are absorbing the cost of termite repairs or a home warranty plan.”
In a market full of multiple offers there may not be time for haggling. “Frankly, they have to make their best offer right up front,” says David Welch, a Realtor® with Re/Max in Orlando, Florida. “Even then they may not get it if they have to obtain financing, because there are so many cash sales. We are seeing some sellers removing appraisal contingencies on ‘high’ offers, and buyers are making up the difference between appraisal and purchase price.”
If you are really looking to make an impact, you could always try a gift. “A buyer could send a gift to the address of the seller if it is an owner-occupied home,” adds Sam DeBord. ” It shows a dedicated interest, and is all part of the negotiation.”