The Rules have Changed – Frustration in a Buyers’ Market (Part 2)
The buying process should be easy, right? A seller should be desperate to unload their devalued property in this market, so buyers should get what they want quickly. In some parts of the metropolitan Phoenix and Scottsdale market, this can be true. But in those areas where there is significant buyer interest, buyers have found a frenzy reminiscent of the boom years, making a process that buyers thought would be easy just the opposite. In my last blog, I provided the numbers that show the increased activity in selected portions of our market.
Area and price range often determine which of our two different real estate situations you will encounter. But the reality today is that lenders, rather than the typical mom and pop seller, dominate the residential real estate process valley wide. This results in delays and complexity. When you add to this already unfavorable situation an area where there is less inventory due to its price range and location, the situation becomes more difficult for buyers.
The result is that when buyers find themselves in this situation, they can’t ask for reduced prices or concessions anymore. In addition buyers, especially the first time purchasers that can now afford to buy, have found that they have to move quickly to make an offer on a home in the desirable area, but then the opposite is true; they must show infinite patience if multiple bids over the list price ensue, and with the frustration inherent in the short sale process.
Purchasers need to brace themselves for the short sale process involved in the purchase of many homes. Short sales are slow and unpredictable, but if a buyer wishes to purchase in some areas, there is usually no choice but to participate in one or more. Expecting a short sale to proceed like a typical sale will result in a level of frustration that can end with the buyer dropping out of the market. The key is having reasonable expectations – realizing that short sales are not the usual “make an offer, get it accepted or countered quickly, wait around 30 days and then close.” Making many offers and waiting many months is the rule and not the exception.
Due to the low prices investors are back purchasing multiple properties at a time. In a recent article in the Arizona Republic (www.azcentral.com) they consulted Jay Butler, director of the realty-studies program at Arizona State University. He related that because they often pay cash and buy several houses at once, investors are attractive to banks trying to shed dozens of foreclosures. It is common for sellers to get multiple offers, resulting in bidding wars that drive up the price on desirable properties, forcing traditional buyers to the sidelines. Investors can bid prices higher than a home’s appraised value, putting traditional buyers at a disadvantage, because the investor, as a cash buyer, doesn’t need an appraisal to secure a loan.
An example of the competitive situation places ordinary buyers at a disadvantage, the Arizona Republic article detailed now a young couple had been outbid at least 15 times on what they thought would become their first home. They made an offer on one bank-owned house, only to receive a counteroffer that was $33,000 above the initial asking price of $117,000. The continued failures have been very frustrating to the couple because they have done all of the right things by saving money, having good credit and carrying little debt. In an attempt to get a home, they were forced to make offers on homes before they had seen them – as many as three per day. Their strategy is to look at the house for the first time if they got a response, and then decide whether to continue or back out of the deal.
At SimplySOLD Realty, we have extensive experience working in certain desirable, affordable zip codes such as Scottsdale’s 85257. To avoid repetitive disappointment, it is sometimes necessary to recommend that buyers offer full price or more that if the property is priced reasonably and the buyers like it. Current appraisals are in most areas are reflective of the pricing of the short sale and pre-foreclosure listings, so if the offer is close to the comparable sales, the buyers will not overpay.
What does this mean to you? Circumstances are still favorable for a purchase, and the hassles for buyers are worth the wait. But if you are looking to buy where the magic areas and price ranges go together, be prepared for a longer than normal process to obtain and close on your home. Don’t be discouraged by rejected offers and lender intransigence; persistence is required. Critical to success is an experienced, knowledgeable agent to guide you through it (the only kind you will find at SimplySold).
Plus new homes continually come on the market; June 2009 saw a 14% increase of homes on the market compared to May. Inventory is available, although admittedly somewhat spotty in the most desirable areas.
In addition, interest rates are also favorable. According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage declined to a record low 5.03% in the second quarter of 2009 from 5.06% in the first quarter; the rate was 6.09% in the second quarter of 2008
Finally don’t forget there is another reason for first-time buyers to move quickly now – to take advantage of the $8,000 tax credit. To be eligible for this program, the transaction has to be finalized by November 30, 2009. For more info, contact us through our website at simplysoldndaz.com to discuss any of your real estate needs.
– N. Mark Kramoltz © 2015