Even though we are in a slower time of year, houses are still selling. All year I have been seeing a shortage of good listings in the market. Right now there are 15% fewer available homes on the market than last year at this same time. This means that if a serious buyer is out looking for a nice home the cupboards are fairly empty. Right now there are many leftover homes on the market. I define leftover homes as those listings that haven’t sold for a specific reason whether it be price, location or condition. This shortage leads to heavy activity on those homes that come on the market ready to sell. Those homes are well priced, in good condition and in a location that doesn’t raise a red flag. This leads to multiple buyers being interested in the same house at the same time. Here is some advice for handling multiple offers from the buyer and seller perspective.
From The Buyers Perspective:
Check to see if you have competition. Your agent will call the listing agent to announce your intention to write an offer. Make sure you know if you are competing with another buyer. At the same time have the agent ask for the sellers preferred closing date and for any items that will be excluded from the offer. All of the information below assumes that there is another offer.
Make your decisions quickly. Getting your offer in a day ahead may make a big difference. Ask for a quick acceptance deadline.
Do your homework: Check comparable sales and decide the maximum price you will be willing to pay. Also, think about how you would feel if you would lose this house over a couple of thousand of dollars.
Do a thorough walk-through: When you see a house you are interested in, take your time. Check on the condition of the house, what would you need to do to make it yours. Are the systems (furnace, roof, windows) in good condition?
Prepare a clean offer: Don’t ask for Sellers to pay for appraisal, cleaning, HOA transfer fees etc. When the seller is considering two similar offers, $50 can make a big difference and send a signal that the buyers asking for all of the small stuff will be tougher to work with down the road on inspections etc.
Have your financing in place and make sure to include a letter from a lender along with the offer. I prefer to see a local lender who can jump in and make the closing work in a difficult situation rather than somebody who is working a toll free line.
A nice touch is to write a personal letter to the seller explaining who you are and why you love their house. The seller has an emotional attachment to the house and wants to sell to someone who will take care of their house.
Consider an escalation clause. When the house is a good value and you know there is competition one effective method is to write in an escalation clause. This clause in the contract automatically raises the bid price if another offer beats theirs financially. For instance it could read “the offer price shall be automatically raised to a price $1,000 above any other bonefide offer, the purchase price shall not exceed $xxx,xxx”. This is where the buyer has to know how much they are willing to pay; is it full price or $5,000 over?
From The Sellers Perspective:
If you are attracting more than one offer it shows that you have taken care of your home and priced it correctly.
You want to make sure that all interested parties have a chance to submit an offer. Have your agent communicate to each agent who has shown the property recently to gauge interest.
When reviewing offers look at these main points: net price to you after all closing costs, dates and terms and buyers ability to pay and close. (more…)
Once you have found a home and had a successful negotiation of the offer there are still many steps that need to be completed before you can move in. Here is a primer on the steps that take place between contract and closing from the buyers perspective.
Set The Inspection– It is the buyers responsibility to set and pay for any and all inspections on the home. There are no required
Photo doesn’t have anything to do with the subject, but I took it and thought it was cool.
inspections in Colorado. As a buyers agent or a transaction broker, I provide a list of inspectors that my previous buyers have liked, but a buyer may choose and use any qualified home inspector. It’s a good idea to ask about their services and experience as well as the insurance they carry. The buyer is ultimately responsible for any damage that an inspector may do while at the home. Most inspectors now use digital photography and provide pdf reports which are helpful during a negotiation. In our area radon is common and a radon test is an additional test that an inspector will do for a fee. Read this post to learn more about radon. Keep in mind that all inspections shall be completed prior to the inspection objection deadline as stated on the contract.
Formal Loan Application – Once there is a fully executed contract your lender can then set up a file and start moving your loan forward toward underwriting approval. At this time you will have the option to lock-in an interest rate. While you may have already provided some documentation to the lender. Once they are in the formal approval process (as opposed to pre-qualification or pre-approval) you will undoubtedly need to provide your lender documentation on income, debts, tax returns etc. Please provide these documents as quickly as possible so that any delays can be avoided down the line.
Review Paperwork – The seller will be providing (in most cases through the title company) paperwork regarding the title transfer, property taxes and the Homeowners Association. Your agent and lender will also be reviewing the title documentation for anything abnormal but it is in your best interest to review them carefully yourself or hire an attorney to review them so that you understand what you are getting when you purchase this particular property. The HOA documents will tell you the rules you are agreeing to abide by as well as the financial structure and health of the association. The turnaround time on looking at this information is fairly quick so don’t put it off.
Attend The Inspection – The inspection is the best chance for you to get to know your new home in an intimate way. Following the inspector around for a few hours will give you some good insight on the overall condition of the home as well as a thorough understanding of the conditions that you may ask to be repaired by the seller. As an agent I usually just attend the summary or get the report via email. I leave the inspection itself to the experts. Keep in mind that unless the home is brand new there will be some items that the inspector will point out. It is the inspectors job to be detailed in their inspection.
Inspection Objection with Agent – The next step in the process is to decide a course of action after the inspection. A buyer in Colorado has three choices: 1) move forward as-is and don’t ask for anything; 2) terminate the contract; 3) make a list of unsatisfactory conditions on an Inspection Notice form and present those to the seller. Work with your Realtor at this stage to strategize the best negotiation scenario. It’s best to remember that in most cases focussing on the major issues and/or safety issues will allow for the most productive negotiation with the seller. In my experience, sellers get annoyed if a buyer asks for too many trivial issues. Keep it simple, be specific and hold to the major points.
Other Items – During this entire time you will be making plans regarding moving and packing. Contact your Realtor as to when is a safe time to put non-refundable money down on any services. During this time you will also need to start contacting the local utility companies. This is especially important for those who work at home or depend upon an internet connection. One of the most important things to remember is “DON”T BUY ANYTHING!” Lenders check credit again just before closing and taking on additional debt can spoil the whole deal. Wait on the furniture, wait on the appliances, wait on the new car until after closing. At closing you will need to bring good funds to the closing. This means that you need to bring either a cashier’s check or wire funds in advance to the title company. You will get the exact amount to bring a day or two in advance from the title company via your Realtor or lender.
Closing – Finally it is the day of closing. One of the last stops before going to the title company to sign papers is back to the house for a final walk through. During this final walk through you get one last look at the house to make sure nothing has changed. You make sure that the agreed upon inspection items are complete and you make sure the items that are included are still there. The closing itself lasts about an hour and the buyer does the majority of the signing. In addition to your money make sure you bring a picture ID. The closing is a time to close up any loose ends. Connect with the seller and ask about the neighbors. It is not a time to renegotiate or hold grudges about past negotiations. After an hour or so you will get the keys and you are ready to move in.
Throughout the process it is most helpful to have an experienced Realtor there by your side to help you along and negotiate on your behalf. I have been helping buyers in the Boulder Valley real estate market for over twenty years. I’d love to put that experience to work for you.
There are many tactical ideas about real estate negotiation but in my opinion not enough is said about the emotional relationship between a buyer, a seller and an agent. Buyers and sellers don’t often meet in person. This can be a very good thing in many ways because the agents take the direct confrontation out of the process. But the downside of this lack of interaction is that buyers and sellers don’t get a chance to make a personal connection. They don’t get a chance to like each other. Their first interaction is the offer for purchase and this can be a very explosive introduction. “Hello Mr. Seller, nice to meet you. You don’t know me but I like your house but I think you are stupid to ask that much. I only think your house is worth $xxx. Oh, and by the way I want to keep your refrigerator, your window coverings and your grandma’s chandelier.” This usually doesn’t inspire an invitation to dinner.
Stephen Covey’s idea of an emotional bank account in “The 7 Habits of Highly Effective People” can be easily translated to the parties in a real estate transaction. Watch the video to see what a buyer, seller and agent can do to make friends with the other sides of the transaction. In doing so, negotiations will go much more smoothly and buyers and sellers won’t mind sitting together at the closing table (this by the way is getting less common).
Advice for Home Buyers:
Don’t make an unreasonably low offer.
Don’t ask for personal items which have been excluded from the sale.
Don’t be unreasonable and uncaring toward the seller.
Do write a personal letter so that the sellers can get to know you as a person (family).
Do compliment them on their home.
The goal is for the seller to want you to live in their home.
Advice for Home Sellers:
Have the house in tip top showing condition.
Fill out all disclosures accurately and thoroughly. Don’t try to gloss over the details. Giving more detail will earn the Buyers trust and respect.
Respond to offers quickly.
Keep the communication lines open.
Advice for Realtors:
Treat the other Realtor with respect, courtesy and go in with a win-win attitude.
Remember that you are not the one who is buying or selling. So don’t make decisions for your client. Lay out the options and let them decide.
Many times you will see “Home Warranty Included!” on a property listing. This sounds good right? But many times prospective buyers who negotiate for home warranties have the wrong idea about what a home warranty is and what it covers. Here are some answers.
A home warranty is basically a very limited insurance policy that covers certain home systems and appliances for a fixed time period. Usually when a home warranty is provided as a buyer incentive the warranty is good for one year after the closing. The cost of basic coverage is typically $275 – $400 and covers plumbing, heating, electrical, major appliances and water heater. There are limitations in coverage and plans do not cover preexisting conditions. Home warranties do not cover mold or structural damage.
Once the warranty is in place the new owner would call the warranty company first when an issue that requires a repair person to be called. The warranty company contracts with certain companies and sends them out to diagnose and fix the problem if it is determined to be covered. At the time of repair the owner pays a deductible. The owners share is usually around $50 to $60 per occurrence.
So is it worth it? Just like any insurance policy you need to weigh the probability of something happening and the severity of the cost if you didn’t have coverage with the cost of the coverage upfront. If someone else is paying it is definitely a good thing to have. If you are paying $400 year after year it may not pay off in the long run but it is an amount that is easy to budget and you won’t be surprised one year by needing a new furnace etc. The other consideration is the age of the home. If it is a newer home the chances of having a problem each year are relatively low. If you have an older home with older appliances the chances of needing repairs on a consistent basis increase.
Here are some home warranty providers in Colorado:
You have probably seen the attached picture before – is it a picture of a young women or an old women? The answer is it depends on how you are looking at it. How you perceive it.
One definition of reality is: “all of your experiences that determine how things appear to you”. I agree with this on many levels – I believe you make your own reality and what you know and believe as well as your past experiences effect what is “real” for you. A slum dweller in India has a much different reality than a socialite living in Beverly Hills.
The key word in the definition above is experiences. I submit that this definition is not as true as it once was. Don’t worry, I will tie in to real estate in a moment.
In the past (B.C. through the 19th century), reality was based on what one actually experienced. All inputs to opinion were very localized. For example, when there was a famine, chances were that you were hungry. Perceived reality equaled actual reality. There were no outside forces to sway your perception.
During the last century, technology in all of its forms have provided us a wider set of inputs. I guess this is called globalization. We have access to and know more about more subjects. Where we used to just be concerned with our local experience, we now are fed data on an ever-broadening spectrum of subjects. Google (verb) whatever subject you can imagine and have instant access to other’s research and opinion’s. It is no longer our own experiences that form our perceived reality it is the experiences and knowledge of others.
My point is that our perceived reality may not always equal our actual reality due to the influence of non-localized information. I run into people all the time who can’t believe the sorry state of our real estate market. The problem is that they have no actual experience with the market, their perceptions are based on outside information. When people come in from out-of-town, (or locals who have not been paying attention to the trends) they assume that values have dropped at least 20%. When in fact they have remained relatively stable over the past 5 years. They come from that paradigm when they submit very low offers. It is easy for sellers to realize that these low ball offers do not fit with the market.
Right now, the media has plenty of negative news to report. There is blood in the water and the sharks are in a frenzy. Foreclosure’s in CA, value loss in Michigan, empty buildings in Florida, etc. Bad news all around, a fact. The problem is that people take that news and equate that news to all other areas. The message is that the market is bad, the conclusion is that the market is bad everywhere.
I get asked all the time what a reasonable offer would be. My answer depends upon many factors but hard data also helps bring a good perspective to the negotiations. Over the last year in Boulder County, real estate transactions have had the following average negotiation percentages in each price range:
$0 – $250k 3.15% (1,307)
$250 – $500k 2.95% (1,550)
$500 – $750k 3.99% (498)
$750 – $1 MM 5.24% (141)
$1 – 1.25MM 8.2% (58)
$1.25 – $1.5MM 8.35% (35)
$1.5 – $2MM 9.9% (22)
>$2MM 8.65% (23)
Numbers in parenthesis represent the number of sales in that price range.
Perception does not always equal reality. While the market in Boulder County is not stellar, it is much better than what you would think by listening to the news. Prices are holding, properties are selling and foreclosures are not a big part of our market. We are very lucky and I’m spreading the word! When you are ready to buy or sell give me a call. I’m here to help. Neil 303-818-4055
The recent fires in our area bring to my mind the importance of homeowners insurance. During my 19+ years of selling real estate in and around Boulder homeowners insurance has never been a big part of the transaction. Years back it was a last minute detail, many times lined up the day before closing. Now there is a specific deadline on the contract in which the buyer has the right to cancel the contract if reasonable (in the buyers subjective opinion) homeowners insurance is not available for the property they want to purchase. Usually this contingency period is 10 – 14 days after an accepted contract.
Most people think about insurance in two ways. For 99% of the time they want to know they are covered without paying too much (that’s why the save 15%… commercials have mass appeal). Having coverage brings peace of mind. Once you have a claim your perspective changes. If you have good coverage you are thankful and if you don’t you kick yourself for being cheap. Just think of the 166 families who have come home to their home and possessions which are now a pile of ashes. The pit in your stomach is deep enough without the nagging fear that your coverage is lacking.
So, with this in mind I asked my friend and insurance agent Ryan Brooks from Allstate to give some quick tips on making sure you are adequately covered. Here are a few tips:
Don’t just shop for the cheapest plan out there. Yes it will save you on a monthly basis but this approach is penny wise and pound foolish. In case of a catastrophic loss you could be lacking some important coverages.
The best scenario in setting up a policy is to sit down with an agent (not online) and go over your specific situation. Ask questions and tell them about your personal situation. Do you have art, expensive jewlery, memorbilia? Telling the claims adjuster after a fire will not fly, it needs to be disclosed in advance.
Here are a few items that you want to make sure you have on your policy.
Cost of Living – this coverage gives you money to live in a home of similar size and quality while your home is being re-built or repaired. If you don’t have this coverage it can quickly cost you tens of thousands of dollars.
Adequate Liability Coverage – Make sure you have enough liability coverage. In most cases this is $1,000,000 or more. This covers you if someone would slip and fall off your deck during a party, etc.
Building Codes Coverage – This coverage is especially helpful in the case of an older home. This allows for modification of the house to meet current code if the covered repair needs to be re-worked in order to meet code. Think of an old home with a steep pitched roof.
Condo Coverage – If you are a part of a homeowners association there is most likely a master HOA policy which covers the structure. However, this policy does not cover the individual owners possessions, or the interior finishes (drywall, plumbing , cabinetry, carpet). Make sure your condo insurance has adequate building structures coverage which will rebuild the interior of the unit. Many times this is capped out at 10% of the contents coverage and this is not enough.
Loss Assessments – Speaking of condos. Loss assessments coverage covers you if a covered loss (roof, liability) on the part of the HOA results in a special assessment. This coverage runs around $10 a year and is well worth it.
Sewer and Groundwater – Losses from sewer backup and water coming into the home are not usually covered unless there is a specific rider on the policy.
Personal Property – Make sure the limits on your policy grow over time. The amount of personal property a typical household has grows ever time. We have much more in our home when we are 60 years old than when we were 20.
Once good insurance is in place you can rest easy. Many pay insurance their whole life and never take out, but for those who have a significant loss, insurance is well worth it.
Tip: Take an extensive video of your home, including closets, drawers, garage etc. and store either online (private Youtube) or in a safe deposit box. This will be a good inventory of personal property and will allow you to remember items that would have slipped your mind. Everything has value make sure your homeowners insurance is up to snuff.
