Mar. 9: Property buyers as negotiators; what is a “hot” market?

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. See more

Scorching even in winter?

Where were the out the 20 hottest real estate markets in February? Cliff Note version: mainly California. The Northeast is deader than Elvis.

Buyers as negotiators:

With vast quantities of information accessible at the touch of a screen, what negotiation concepts do potential buyers most read about? We all know if it says it on the internet, it must be true…ha ha. There is a plethora of reading material and tips out there and some of the information is actually relevant and innovative. However, access to information and understanding it are different animals.

The primary point reiterated in negotiation 101 is do your research. Buyers are instructed to find out as much as possible about their potential home. This fact finding mission includes an idea of the current real estate market, the seller’s requirements, and details about the property and similar home sale prices. Also, a buyer should be aware of what kind of market they are in: a buyer’s market; a seller’s market, a balanced market, or intense bidding wars raging.

The world at large has heard the catch phrases, “sellers- market” and buyers-market” and most probably understand the basic concept of what that actually means. However, as a Real Estate Agent, you are all too familiar with ALL the strings and intricate webs these phrases truly involve. Marketing focused on your future clients should be informed of the complexities that you, as a seasoned professional, can guide them through. A very crude example that comes to mind is you can absolutely fill out and file your own divorce paperwork with the end result acquired. However, what doors were left of versus which were closed that maybe were not in your best interest? The potential for misinterpreting or just plain missing important pieces of the puzzle should not be taken lightly in the largest purchase of your life.

Although I think it is kind of stating the obvious when reading “negotiation tips” but advice includes, once an offer is submitted, depending on how far apart the buyer and the seller are in terms of price, buyers should discuss their willingness to negotiate. Additionally, negotiations are not solely financially focused and may consist of working out deposit amounts, settlement dates, and repairs to be made by the seller and potentially which appliances will be left behind. Everything is typically spelled out in an agreement of sale, a real estate form that can easily be found online for each state.

I would be remiss to not mention, the process involved in interpreting a purchase contract is not advised for a novice. The standard language alone is complicated. As far a financing goes, it really is rocket science these days. Navigating your way through all the requirements and dates that can literally set back completion of a loan for days not to mention completely unravelling the entire deal, is more of concern today than ever before.

Avoiding a dual agency agreement is also mentioned fairly consistently. Buyers are warned that a real estate agent cannot simultaneously negotiate the best price for the seller and the lowest price for the buyer. As a Real Estate Agent, you need to have a game plan to either disprove this claim or an option to avoid it altogether. Just food for thought, folks.

The internet, much like the library in the old days, (remember those?) allow us to self-educate which only helps to improve our understanding of the unknown. Perhaps, however, you recall the old saying, “I know just enough information to be dangerous?” I think we would all be wise to remember that little nugget.

Low… low… low…

Zillow’s January report reiterates the broken record we have been hearing for months, low inventory is limiting the buying market nationwide. January statistics show supply of homes for sale in the U.S. is 8.6 percent below its level a year ago. Markets in the West tend to favor sellers, while buyers have more negotiating power in the East. National home values rose 4.2 percent to $184,000, and rents rose 2.9 percent to $1,381.

The “for sale inventory” in Metro areas, including Houston, Washington, D.C., Atlanta and Pittsburgh where inventory improved last year, the number of homes for sale in each market is significantly below recent peaks in inventory reached when the market bottomed in 2011 and into 2012 according to the data.

The lack of homes thereof should signify the need for new construction, and it in fact does. However, optimal land and lot space is limited in the majority of states, particularly within a reasonable distance from main thoroughfares. As we have pointed out recently, available lots, known as “C and D” properties, are less desirable for starter homes. Understandably, builders are hesitant to break ground on these riskier properties. Also, costs of building supplies are continuing to increase and land, well, it isn’t cheap.

Housing starts reached a three-month low in January, according to BloombergBusiness. That would indicate that newly built homes will not be a significant benefit for buyers in coming months. And a restricted supply of homes for sale will mean increased competition for those homes that are available, potentially leading to bidding wars that can price out entry-level or first-time buyers.

The locations of buying and selling strengths are dispersed throughout different markets. According to Zillow’s latest Buyer/Seller analysis, markets that benefit sellers are mostly grouped in the West, where buyers are more likely to face bidding wars. Buyers will find themselves with more bargaining power in the East, in markets like Philadelphia and Baltimore.

Although it seems as if we are currently living in a sellers-market with home prices increasing exponentially, the presumed value and actual appraised value are still disproportionate albeit slowly coming more in line with each other. Sellers definitely have selling power currently but they in turn need to live somewhere as well right?

As far as potential buyers go, with the inventory so depleted and lender guidelines still extremely conservative and tight, it is more important than ever for your buyers to prequalify for a loan. Proof in hand of ability to purchase could be a golden ticket as the friction of bidding wars continue to heat up.

Four guys have been going to the same golfing trip to St. Andrews for many years.
Three days before the group is to leave, Jack’s wife puts her foot down and tells him he isn’t going. Jack’s mates are very upset that he can’t go, but there is nothing that they can they do. Three days later, the three get to St. Andrews only to find Jack sitting at the bar with four drinks set up! “Well, I’ve been here since last night. Two evenings ago, I was sitting in my living room chair and my wife came up behind me and put her hands over my eyes and asked, ‘Guess who?’ I pulled her hands off, and there she was, wearing a nightie. “She took my hand and pulled me into our bedroom. The room had candles and rose petals all over. Well she’s been reading 50 Shades of Grey…… “On the bed she had handcuffs, and ropes! She told me to tie her up and cuff her to the bed, so I did.
And then she said, ‘Do whatever you want.’ “So, here I am!”

Rob

(Copyright 2016 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman. To subscribe please visit www.knowledgeforrealestateagents.com.)