March Madness

It ain’t just about basketball

As a seller you love them, as a buyer you dread them: the multiple offer situation.  And in March, when the (somewhat) somnolent winter real estate market starts revving back up into high gear with the onset of spring, multiple offers become a more frequent occurrence.

Let the delight or dismay ensue!

From a buyer’s perspective, the obvious issue is that you don’t know what you might be up against when you hear the dread “submit your your best and final offer” phrase.  If you don’t know what the other offers are, how are you supposed to know how to beat them?  The listing agent can only disclose that there are other offers, but not what’s in those offers (unless specifically directed to do so by the seller — which is rare, but does happen).  You have to know how to structure an offer which will be the most appealing.

Obviously, upping your offer amount is the first thing to look at.  Offering more than the asking price is very common, especially in our crazy hot Austin real estate market, and something I alert my buyers to the possibility of when I’m certain we are going to be in a multiple offer situation.  I have often chosen to go in initially over asking price, as long as I feel that price will be supported by the appraisal.

But one thing to know about multiple offers is that sellers don’t necessarily always go with the highest dollar amount; oftentimes there are other factors which can be more enticing to them.  For instance, it can be a quick closing date that wins the day.  If a buyer can close in 2 weeks instead of 45 days that can be very appealing to a seller who needs to move in a hurry.  Conversely, it can be a buyer who doesn’t need to take possession right away but can allow the seller a leaseback for a certain period after closing while the sellers wait to close on their new home.

When offers received are very similar in price and time needed to close, other things which can tip the scales in your favor are a shorter option period (note: I would never advise NO option period) and/or a higher option fee, a larger earnest money deposit and a greater down payment.  These are things which speak to the seriousness of the buyer and to their financial stability, so there appears less risk that the deal will fall apart from financing issues.  I would also include in that same category (if it’s feasible) for little to no ask for seller contribution to closing costs, or an offer for the buyers to pay the owner’s title policy, which can be a substantial amount of money and is typically paid for by the sellers.  This would translate to a higher net for them — because for some sellers it is ONLY about the Benjamins!

Another contributing factor in some seller’s decision-making process is a bit more nebulous: the sentimentality factor.  While for some folks it’s just a piece of real estate and doesn’t mean anything to them on a personal level, for many sellers their home carries a lot of emotional weight and they want to know it is going to someone who will love the home and care for it as they did.  Many sellers like knowing that, after having raised their own family in a home, the new buyers will be doing the same.  They made many fond memories in their home and they want to see that continue with a new family.  They want their old home to be appreciated, its history respected.

Knowing this, one of the things I like to include in my offers is the “love letter”, which is just a short paragraph or two about the buyers and their hopes and plans for their life in the new house, what they love about the home and/or the neighborhood — them, their kids and the family pets all get starring roles in the love letter!  Nothing schmaltzy, mind you, just something to pluck the heartstrings a bit, or stir up fond memories for the sellers of when they themselves first bought the home.  I have seen sellers turn down a higher dollar offer on their home by investors who were planning to flip it and instead sell it to a family for a little less based on their love letter.  Never underestimate how much of a role sentimentality can play for some sellers.

My final thought on submitting an offer that stands out and hopefully wins the day is make it clean, fill everything out completely, attach all pertinent documentation (financing agreement, lender’s pre-approval letter or proof of funds letter from bank, and any other addenda needed) and summarize the offer in a cover letter with bullet points showing the specifics so they can quickly get a complete picture of your offer without having to read a dozen pages.  And then keep your fingers crossed! 🙂

 

To Inspect or Not to Inspect

Why is this even a question?

I’ve always thought buyer’s inspections were kind of a no-brainer when it comes to purchasing a home.  If I’m dropping a quarter of a million dollars (or much, much more) on something, you better believe I’m gonna want to have someone who knows what to look for give it a good going-over before I commit to paying for it for the next 30 years!  I mean, it’s not like you can just browse through Amazon Reviews to get the lowdown on your potential new house — only a trained professional can provide a comprehensive picture of the home’s overall condition.

So I was quite surprised to find, when reading the comments section of a recent online real estate magazine article on this very topic, that so many Realtors seem to disagree, or are at least on the fence about whether or not to encourage buyers to get an inspection.  As I’m reading the negative comments I’m shaking my head and thinking, are you nuts!?

First of all, yes I know: if you want to keep your faith in humankind NEVER READ THE COMMENTS!  Having already broken that golden rule, however, my curiosity was piqued.  I decided I should conduct my own small, informal survey of other real estate agents to get their thoughts on the subject.

Now let me backtrack a moment, for anyone unfamiliar with the home buying/home inspection process:

When we write an offer to purchase a home, it’s common practice to include an option period (generally 5 – 10 days) for which a buyer will pay a nominal fee (like $100, say) and which gives them the unrestricted right to terminate the contract for any reason without losing their earnest money deposit (which will probably be several thousand dollars, depending on the price of the home).  And this option period is used, in most cases, to hire an inspector to come out and go over the house very carefully, making sure buyers know exactly what they’re getting before buying.

The inspector will check out the the electrical and plumbing systems, the HVAC and any appliances that will convey with the home, like the stove and the dishwasher.  They will look at the water heater, check out the condition of the roof, measure attic insulation levels, look for any evidence of foundation troubles or wood-destroying insect activity.  They will make sure windows and doors latch properly and check all the home’s safety features like smoke detectors and stair rails. Outside, the inspector will check out how sprinkler systems and garage doors are functioning, as well as make note of any tree limbs brushing the roof (which can lead to damage/displacement of shingles) or vegetation growing too close to the foundation (which can trap moisture and lead to erosion).

While sellers are legally required to disclose to buyers any of the home’s known defects or anything which might negatively impact its value, oftentimes they are unaware of their home’s flaws.  For instance, I can’t say I have EVER crawled out on my roof to make sure all the shingles are intact; I just assume they are.  Or if a seller listed their home for sale during our scorching central Texas summer, would they know their heating system was malfunctioning, or would that fact only be discovered by the new buyers the following January?

You can see why having this information is key, especially if this is the buyer’s first home where they might not necessarily know what kinds of things to look for themselves, or in an older home which is prone to age-related defects like we all are.

So why would a real estate agent, especially one representing the buyers, not encourage them to get an inspection?

What I gathered from my little survey was that it really comes down to the quality of the inspector themselves, and to what they uncover.  While some agents complained that inspectors overlooked obvious defects in the home which then caused big problems when they were later discovered, a far more common complaint was the reverse: the inspector uncovered too many little, inconsequential flaws (their words, not mine) which then jeopardized the sale by scaring off the buyers, or inciting them to present a massive list of demands for seller repairs or giving them apparent grounds to renegotiate the sales price.

And this is where Realtors can help by setting proper expectations up front with buyers with regard to what they can and should be looking for in a home inspection.  Yes, inspectors will (and should) disclose even minor defects, like interior doors that stick or bathroom faucets in need of re-caulking, but agents need to work with buyers in understanding that just because a small flaw exists doesn’t mean it needs to be addressed prior to the sale.

I encourage my buyers to focus on big ticket items or safety risks and not to get bogged down with minor defects.  I remind them that the purpose of the inspection is to make sure the home they are considering is solid and safe to live in.  I try to convey that the things to ask a seller to repair need to be reasonable.  Or if a seller has indicated they don’t wish to make any repairs, that they be reasonable in making a financial allowance to the buyers so that they may have it repaired after the sale.  I try to appeal to everybody’s sense of decency and fairness, and remind them (if need be) that we are all working toward the same goal, which is the sale of a particular home!  The inspector just provides the information needed so we can all work together to accomplish this.

Don’t shoot the messenger, you know? 🙂