The highly competitive ‘sellers market’ we saw in the popular towns in 2013 has continued in 2014, and has expanded to those towns where the commute is longer or the school district not as good. So, what does it take to be a successful buyer in today’s highly competitive housing market?
The Offer Price is clearly important but it’s just one factor that, when combined with inspection, appraisal and mortgage conditions, convinces the seller that they a getting a good price and that the transaction will move to closing quickly and smoothly – what economists might describe as minimizing transaction costs.
In this and subsequent posts we’ll look at the various factors:
Offer Price – a strong offer price ‘gets you in the game’. A home is the single largest asset of most sellers. Move-up sellers need the money to buy their next home; move-down seller’s will use the appreciation to sustain their lifestyle, perhaps in retirement. So, buyers should look closely at what relevant properties are selling for and for those recently sold how long they stayed on the market (if they sold in the first weekend it’s probable that they sold for over asking). We track this list/sold ratio on our website http://www.MAPropertiesOnline.com for over 40 towns – contact us if you would like more information on this and other real estate statistics. As an example this is the list/sold ratio for Arlington – one of the most popular towns with first-time and move-up buyers.
Escalation Clause – an escalation clause is where buyers state they will increase their offer price should other offers exceed theirs. The clause states the price increment and the maximum offer price. Two things are important – escalate from a ‘strong’ offer price, and make the offer increment large enough to make the sellers see the value in accepting your offer over the next highest.
Offer Deposit – $1,000 is the traditional amount put down at offer time. From the sellers perspective, a buyer can ‘walk away’ at any time prior to Purchase and Sale and only forfeit $1,000. Buyers should consider increasing their offer deposit to make the offer more competitive.
Appraisal Value – before a bank will lend against a property it requires a property appraisal to determine how much it will lend on the property. The mortgage appraisal process involves comparing the property against comparable properties in the same area to determine the appraised value of the home. In today’s market this can be a concern for sellers when the offer price is higher than the listing price, and there are fewer comparable homes and prices are rising. If the appraiser appraises the home for less than the offer price then the bank will lend on the appraised value, not the offer price. When this occurs the buyer will have to find the additional funds or exit the contract (at the mortgage contingency). If finances allow, buyers should consider adding a clause to the offer stating that they will fund any shortfall should the property not appraise for the offer price. The following graphic shows the number of transactions that have an appraisal problem and likely outcome for homes where the offer price exceeds the appraised value.
In the next post we’ll look at contingency (inspection and mortgage) strategies.
The details of this post came from The following newsletter How to Make your Offer Successful in a Competitive Situation (or if you’re on your smartphone – How to Make your Offer Successful in a Competitive Situation)
The MA Properties Online team produce a newsletter on a monthly basis on topic of interest to both buyers and sellers – to see a complete list visit www.mapropertiesonline.com (or if you’re on your smartphone – mobile.mapropertiesonline.com) and look under the Newsletters tab.
If you have a real estate topic that you think needs more explanation please email me at Marcus Collins and we’ll look into writing a newsletter on the topic in the very near future.
The MA Properties Online tagline is “A Data Driven approach to real estate” and so for information on over 40 towns (and a lot more information on buying/selling) look at our website www.mapropertiesonline.com (or if you’re on your smartphone – mobile.mapropertiesonline.com) and if you have any questions do not hesitate to contact us on (617) 997 9145, or email at Dani.Fleming@MAPropertiesOnline.com.
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