Before I came into this business, my mental reference images for the home-buying process lived at two equally ridiculous extremes of a fully unrealistic spectrum. On one end were my selective memories of house hunting as a child, in which my brother and I got to run into a single, perfect house and choose our rooms (I’m pretty sure my parents had already closed escrow on the place before we got there). On the other end were scenes from that last of Richard Pryor’s PG-rated films, "Moving," where his family showed up after closing to realize that the doorknobs, sinks and even the in-ground swimming pool had been jacked up and hauled off by the sellers.
Then, I started selling real estate in a booming seller’s market. My buyer clients’ experiences were neither idyllic nor traumatic, but were fast-paced and hectic, with the process of making an offer comprised of me making educated guesses at what price would make my client win out over the other 80 offers (no joke — I once worked on a home that had a total of 81 offers) and still appraise at the purchase price. Buyers came into the office well prepared by their friends’ and families’ anecdotes of multiple offers and over-asking sales prices, and so were ready to lose a few and go way over the list price.
Fast forward to now. In the past two years, I’ve been asked to write articles and provide quotes probably a dozen times speaking specifically to what a buyer should have or do to be prepared to buy in today’s market. I usually give some sort of answer that mentions loan guidelines, down-payment money, clarity on their life plans and vision, and so on and so forth. But over the last few months, I’ve become convinced that there’s an extra element buyers need to have: very thick skin.
Buyers today need to be durable. It is just a tough market. Today’s buyers are just getting up the nerve to through their hat into a market that has been unprecedented in volatility. After two years of hearing what a buyer’s market it is but being afraid to buy with prices still falling, buyers are getting up the gumption to jump into the market with both feet (OK, nudged slightly by the $8,000 Obama tax credit) and, well, being put through the ringer.
First off, 40 percent of them aren’t even qualifying for a mortgage. And that’s 40 percent of the people who thought they were qualified enough to spend their time filling out a loan application, not just 40 percent of John Q. Publics out there. Sometimes it’s a credit issue, but other times, the source of the failure to qualify is a (justifiably) concerned-for-her-job underwriter who simply can’t go out on a limb to approve any sort of employment or income or asset documentation that doesn’t live squarely within the box.
But once they do get a loan, finding a house — one that has no fire damage, flea infestations, crime scene tape, meets basic health and safety standards, is in a good neighborhood, and is maybe even (could it be?!) attractive and functional — is just not as easy as it used to be, especially at the oft-touted entry-level price ranges. …CONTINUED
Half of the bank-owned properties — most of what’s out there at this price point — are falling apart, filthy, or have some flavor of funkiness that renders the property ineligible for FHA financing. Another good 20 or 30 percent of them have some minor or perceived issue that doesn’t actually render the property ineligible, but the listing agent or the asset manager believes it does, so they refuse to accept an FHA-financed offer.
And now we’re learning that a bunch of the REOs aren’t even being listed for sale, but are being held off the market by the banks until some unbeknownst to anyone moment in time, with the intention to prevent a glut of REOs. I can’t tell you how many times in the last couple of months a buyer has asked me how they can buy a particular property that we know, through title or the signage on the property itself, to be bank-owned, but is not available for sale, according to the property and asset managers.
Then, when you finally find a good place in a decent neighborhood, there are inevitably multiple offers. Now, my clients are well-trained to understand that the list price is simply a figment of the listing agent’s and seller’s imagination, so it might be right on fair market value, but it could be overinflated (to match the seller’s ego) or depressed (to generate multiple offers). So we go over asking in multiple-offer situations on the places we think are worth it. But lately, even our $30,000-plus over-asking offers are getting little or no seller love! I mean, we’re still dealing with nine weeks of response time from the bank, or someone else with a 20 percent financed offer $10,000 higher than ours. In a normal market, it’d be no sweat — we’d just go higher the next time. But after two years of having heard how buyers hold all the bargaining power, how houses are just sitting there, it’s really tough for buyers to wrap their heads around offering $40,000 or $50,000 dollars over asking. And with the new changes that minimize or eliminate communication between Realtor/mortgage broker and appraiser, I wonder whether these deals are even feasible, with sale prices so high over asking and with few or no comparables to justify them.
So, what does a buyer need to have to buy, besides mortgage money, cash and decent credit? Pads. As in football pads — but of the emotional sort. Buyers need to be hearty and hale. Be prepared to be battered. Be prepared for a long escrow if you make an offer on a short sale. Be prepared for some tumult and drama if you make an offer on an REO, and then be pleasantly surprised if you experience none. Be willing to check MLS, Craigslist and each of the 7,249 other listing Web sites about 17 times per day (the precise number a client of mine said she checks them). Never get your heart set on ANY short sale or REO until you have a contract signed by the bank’s representative. And if you know anyone with a mid-century modern in my town with no pit bulls next door and minimal freeway/airport noise — please call me. I have qualified buyers!
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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