Monday, February 25, 2013

Multiple Offers Part Two: What Buyers and Sellers Should Know

So, if you read part one, you would already know that the Atlanta Real Estate Market has entered into a Seller's Market.  If you haven't read part one, please scroll down at once (there will be a short quiz later).  In Georgia in the last quarter, pending sales were up 21%, median prices were up 28%, the number of days on the market dropped 13%, BUT inventory levels were down 32% (the lowest level since Dec 1999).  With the combination of low rates, increasing values, and shrinking inventory, there has never been a better time for Sellers to put their house on the market and for Buyers to buy- as inventory is expected to continue to decline through 2015 and rates and prices are likely to rise!
Sellers:  Keep in mind that even though it is a Seller's Market (defined by months of available inventory), it is not a slam dunk that you will get multiple offers- or that you will even successfully sell your house.  Last quarter, 36% of all listings in Metro Atlanta failed to sell.  31% of listings took a median 168 days on the market and sold for a median 83.5% of their original list price, requiring price reductions to finally attract a buyer.  33% of the listings hit the sweet spot- 27 days on the market and sold for 98.4% of the list price.  22.6% of all sales sold for full price or more!   While 13.6%  of these over-the-asking-price sales were distressed sales, 8.9% were regular sales.
If you're a seller and you're presented with multiple offers at the same time, you could accept the best offer, counteroffer to the best offer, reject all offers, or call for a highest and best.  If you call for a highest and best, you will tell all offerors that they can resubmit their best offer by a certain date and time.  This strategy may actually turn some buyers off, as the competition may freak them out a little.  But if you have more than three offers, this strategy may prove very profitable.
The other thing I want Sellers to know about multiple offers is to consider any financing contingencies and appraisal contingencies in buyers' offers.  Obviously, cash is KING, and you might consider a slightly lower offer for a cash buyer since there is much less risk.  Your hope would  be to get the highest offer to be cash!  Your highest offer may not be your best.  How many contingencies are there?  How long are you taking your property off market for the Buyer's due diligence?   If there is an appraisal contingency and the highest offer price is a lot higher than the recent sales of your neighborhood, your deal could very well fall through if the Buyer's lender's appraisal is less than the agreed upon purchase price.  There are ways to minimize or even eliminate these risks, you must be an informed Seller!
Buyers:   If you're a Buyer who has found a great house in a great neighborhood, ACT FAST.  Your agent should let you know how long the house has been on the market.  If it has been listed less than a week or so, it's probably going to sell for close to or greater than the asking price- particularly if another offer comes in while yours is in negotiation.  Your agent should try and find out if there are any other offers on the table.   If you find out that there is already one or more offers on the table and you really want the house, I recommend that you make the offer as good as you possibly can. 
A skilled and experienced Realtor may be able to get you the house with an escalation clause.  You MUST have a pre-approval letter from a reputable lender which shows your ability to get a loan for at least the purchase price (or loan amount- show proof of funds for down payment as well).  Consider making your offer more attractive by not having a financing contingency (somewhat risky, but not so risky if you KNOW you can qualify or otherwise pay cash).  Consider not having an appraisal contingency.  Would you be willing to pay the difference out of pocket if the appraisal for your loan comes back lower than the purchase price? 
Write a letter to the Seller.  The Seller is mainly looking at numbers and what their net proceeds from the sale would be, but you might be surprised how humanizing the transaction with a personal letter can make a difference in your favor against other offers.  Explain why you love the house, and give the Seller assurance that you are committed to the purchase, tell a little about your employment and give them perspective about your house hunting.  The Seller wants someone who will love their house- appeal to their ego!   Also, the Seller wants someone who is not going to change their mind and back out during due diligence- let them feel your commitment!  Keep in mind (at the back of your mind) that you will likely have a due diligence period which will allow you to change your mind if you find yourself under contract with an offer to purchase a house for more than the asking price, and you have buyer's remorse.   On the other hand, you would know that you were awarded the contract out of several interested buyers, and chances are you got a great house!
Short Quiz at the End:
Which houses in Atlanta are likely to sell for more than asking price with multiple offers?
a)  houses that are overpriced because buyers are stupid.
b)  for sale by owner houses because realtors are stupid.
c)  houses that are underpriced because sellers are stupid.
d)  new listings that have a great realtor who has properly marketed the property, priced it correctly and staged it perfectly.
Answer: d) but you knew that because you're not stupid.
As always, thank you for reading my articles!  I am here to help you "make your best move"!

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