In recent months, competition for available homes has increased. Buyers are now seeing their offers rejected due to multiple offers and increased competition.
Since the real estate market collapse, buyers have been able to bargain and negotiate with sellers to get homes at incredible prices. Real estate-owned (REOs or bank-owned properties) and short sales dominated the market and forced traditional sellers to price their homes at rock bottom prices to get their home showed and sold.
Recently however, that trend has begun to change. And most buyers are unaware of this shift.
In light of the “robo-signing” scandal, fewer foreclosures are available for sale as the government has forced the lenders to re-evaluate all pending loan default and foreclosure documents to ensure the foreclosures are legitimate.
Robo-signing took place when the banks were not actually reviewing the documents and simply directing clerks to sign names and process the foreclosures, without a true review as to whether they had the right to foreclose.
Reduction in Inventory
Most foreclosures are being found to be legitimate, but the process is slowing down old foreclosure filings and new ones are less prevalent. Though there are still plenty of homeowners in default, the properties have not been released for sale by the lenders and fewer back-owned properties are for sale.
Until the federal government and the lenders decide on a plan to release these listings, the trend will continue (but don’t be surprised if this situation is not resolved until after the next election).
Lenders have been more diligent in working with borrowers to get their loans modified or restructured, thus reducing the number of short sales that are available on the market. However, the short sale process also has improved and many short sales can get to closing in 30 to 60 days. Agents also have learned to price them at market (and not ridiculously low) prices to gain buyer interest, increasing the short sale approval success rate.
All of these factors have combined to reduce the number of homes (or inventory) available for sale. If the number of buyers remains constant — which it typically does in Howard and Anne Arundel counties — then competition for these homes increases. Also, investment buyers are again becoming strong in certain markets, further increasing the buyer pool.
Many bank-owned sellers restrict investors from purchasing for the first 10 to 20 days on a listing, which gives owner-occupied buyers a chance; but you have to be available as soon as the house hits the market to view it and make an offer.
It’s become common in our markets for sellers to receive multiple offers on their properties. This reduces the buyer’s chance to submit offers that are lower than list price, and they often have to submit offers on several properties before they get an offer accepted.
The numbers tell the story: In August 2011, the number of available homes for sale went down in Anne Arundel County nearly 9% from 2010 and more than 7% in Howard County. This change is significant enough to generate multiple offers on listed homes, making for a long, difficult process for buyers in certain areas in their quest to purchase a home.
Market prices are still falling, but the rate of the fall is now decreasing, too, as demand is higher. If this trend continues, home values also will come up — but remember, there are large numbers of foreclosures on the books that are yet to be released into the market, which could bring inventory and pricing right back down if the market becomes flooded with these properties.
A recent buyer, “Allison,” who had a secure job that she had worked at for seven years, a good credit score and sufficient funds to ensure an easy loan approval, learned how this market works the hard way.
She was a first-time buyer and, after listening to media reports about the “buyers’ market,” felt now was the time to look for her dream home. The first potential residence she submitted an offer on was a bank-owned property that was in excellent condition.
Allison loved the house, but was business savvy and tried to negotiate a better price. Against her agent’s recommendation, she came in 20% below the asking price and her offer was rejected. She later learned that the home sold just above the asking price to another first-time buyer, and it was priced 40% below the last sales price in 2006.
Today, eight months later and with five offers submitted, Allison still has not been able to purchase her dream home. She no longer submits significantly low offers, but she is now also competing with others with strong credit and also many cash buyers. None of the other four homes she has considered have been as desirable as her first choice, and she is now just trying to find something that will work for her that she can upgrade later.
The Next Move
If the prospective home meets your needs but you do not really love it, bring in a lower offer no more than 10% below asking price, and see what happens. It’s easy to fall in love with a so-so house at the right price. Just remember to set your highest and best price that you would be willing to pay for this particular home in case you get into a bidding war.
Don’t be afraid to not increase your offer if the listing agent comes back and asks for your highest and best offer. You would be surprised to find out that it doesn’t mean you’re out of the game; it just means they’re giving all buyers a chance to improve their pricing before the seller makes a final decision.
If you absolutely love the house and your agent tells you from market statistics that it is priced right, consider offering full price.
Remember, pricing is down 30% to 40% from the days of the housing boom. Though we may never reach those heights again, prices will go up. And you’ll have secured your dream home at a good price.
Rebecca Giacobba is an agent with Capital Realty in Annapolis. She can be contacted at 410-320-4868 and firstname.lastname@example.org.