Ten Ways to Beat Out Other Buyers, Part II

Last week, we presented you with five ways to beat out other buyers.  Below you can find more ways to beat other buyers to get the home of your dreams.

5. Requests for seller concessions. In our case, this wasn’t any determining factor. But it is always something to consider in any offer. If you are going to request that seller pay for some of your closing costs, vacate the home prior to closing, allow you to take possession prior to closing, take a big hit in the purchase price or otherwise concede something, for heaven’s sake compensate them by strengthening up everything else that you possibly can!

4. Earnest money. In my state it is customary for a buyer to put up earnest money with an offer, to be held in trust until closing. Unlike the state I used to live in, sellers don’t post in the MLS the amount of earnest money they are requiring. Buyers can offer anything. The more skin you are willing to put into the game, the more solid your offer appears to a seller. This is one area that really gets a seller’s attention when you are trying to offset a concession somewhere else in the offer.

In an offer on a short sale, an offer will ALWAYS beat out any others when accompanied by a provision that the earnest money is nonrefundable if the buyer withdraws their offer prior to third-party approval.

3. Closing and date of possession. Generally, the sooner you are willing and able to close, the better. If you can be flexible, based on what works best for the seller, you will have a big advantage. This is a detail where conflicts can occur between buyers and sellers. Find out what the seller prefers. A quick closing? An extended closing? Accommodate the seller’s needs if at all possible. Or, if you are asking for a closing time frame that isn’t ideal for the seller, be sure to offset it by strengthening the offer in all other areas that you can.

2. Costs paid by? In any real estate transaction, there are closing costs in a variety of areas. Appraisal, loan origination fee, lender’s title policy, septic inspection, escrow fee, survey, and so on. Although always negotiable, typically the person who benefits from a particular action is the one who pays for it. An appraisal required by a buyer’s lender should be paid for by the buyer, for example.

To strengthen your offer, be sure that you are not asking the seller to pay costs that are not obvious seller costs. If you do, realize that this is a concession you are asking of the seller and it weakens your offer.

1. Cash is king. Obviously, this isn’t an option for a lot of buyers, but a buyer will always be in a better position with a cash offer for several reasons. First of all, cash closings are uncomplicated and quick. There is no concern that an appraisal will come in lower than the price in the purchase contract. There are no worries that the buyer’s lender may discover something objectionable, while raking him over the coals, which would disqualify him from obtaining a mortgage to buy the home.

In the case of my seller and her three excellent purchase offers, here’s what it all boiled down to:

First, the offer from the buyer that hadn’t provided proof of funds to close or the requested documents was eliminated.

That left us with another cash offer, and an offer from a well-qualified buyer (a personal friend of the seller) who was preapproved to obtain an FHA mortgage. As much as my seller would have loved to see her friend get her beloved home, she opted to accept the cash offer for the reasons stated above. In her case, closing quickly with cash versus waiting for a mortgage to close also meant she would eliminate a ding on her credit score from a missed mortgage payment.

Now, for the rest of the story. I knew from my initial conversation with the agent for the winning cash buyer that this first-time homebuyer had saved a down payment, was preapproved and planning to get a mortgage. Imagine my surprise when the offer arrived as a cash deal. He and his parents were on the contract as joint purchasers, and their retirement account would be funding the purchase. This sharp buyer’s agent had acted on my advice to strengthen the offer in every possible way.

There is nothing stopping the parents from selling their share of the house to their son after closing, and him getting the mortgage he is preapproved for so they can repay their retirement fund. They went to the trouble of working it into a cash offer simply to strengthen their chances of being chosen, and it worked.  This was the buyer who also waived the inspection contingency.

Ironically, had they made the same offer but with the buyer still needing to obtain a mortgage, they would have been competing against the other buyer with the same preapproved mortgage status, and they would have lost! Why?  There would have been only two things differentiating the offers: that waiver of the inspection contingency from one buyer, and the fact that the other buyer was a personal friend of the seller. In this case, the friendship would have prevailed.

Myths About Buying a Home

From CNN:

Myth #1: Buying a home is a great investment

If the housing bust taught us anything, it’s that the housing market can be just as risky as the stock market — if not, worse. Homes lost a third of their value nationwide and some markets took an even bigger hit.

Over the past 10 years, home prices have risen just 0.3% annually, while the S&P 500 has returned an average of 8.26%.

There are, of course, other factors that can eat even further into those returns, such as maintenance. Have to repair the leaky roof? That will be $500. Need a new water heater? That’s another grand.

Myth #2: Buying is always better than renting

Now that the housing recovery has taken hold, some markets have become way too expensive for homebuyers.

One quick way to figure out whether to buy or not: If the home costs more than 15 times the annual cost of renting a similar home, you’re better off renting.

In Manhattan, for example, the average cost of buying a house is about 24 times the average cost of renting one.

Some other factors to consider: What would that 20% downpayment have fetched if it was invested in stocks or bonds (recall those returns for the S&P 500 we talked about before)? And beyond maintenance and repairs, what will the extra costs of owning the home include. 

For most people, the decision comes down to the number of the years they plan to stay in the home. If you think you can stay put for five years or more then it might be worth taking the plunge. The timeline is longer in expensive markets like Manhattan, where it would take nearly 10 years before buying becomes a better deal than renting.

Myth #3: The three most important factors are location, location, location.

Finding the perfect home used to mean that it had to be in a well-established community with low crime, good schools and far from annoyances like airports or heavily used roads. But these days some of the best deals are found in neighborhoods that have yet to reach their peak.

“There should be more emphasis on the future outlook for a location, on what is the upside,” said Jonathan Miller, president of Miller Samuel, a real estate appraisal company.

He said it’s better to keep an eye on a location’s potential for growth — and value.

Myth #4: Buy the worst home in the best neighborhood.

The advice seems sound: You can fix up a bad home but you can’t clean up a whole neighborhood.

Those bad homes, though, can come with some pretty huge flaws.

“Every home you buy should have an engineer’s report because it could become a money pit,” said Michael Morris of Coldwell Banker M&D in Moriches, NY.

Few Americans have the skills to do the work themselves — or the money to hire someone to do it for them, he said.

In the end, you may end up paying more on that fixer-upper than if you had bought a home in better condition in a up and coming neighborhood.

Myth #5: All real estate is local.

It wasn’t too long ago that the way to make profits in real estate was to study the local market inside and out. Local conditions, such as wages, unemployment and population growth, would dictate the direction of local home prices.

Not anymore.

“Real estate is much more of a global phenomenon today,” said Dottie Herman, CEO of Prudential Douglas Elliman, one of New York’s biggest brokers. “The Internet and social media age has drastically altered [the] business.”

International buyers accounted for about 7% of all U.S. home purchases during the 12 months ended March 31, while investors accounted for 20% of sales. And many of these buyers are paying in all-cash, driving prices sky-high.

In some markets, like New York, Los Angeles and Miami, this phenomenon is particularly profound.

Should You Rent From a Friend?

From Zillow:

Experienced professionals often advise against entering business relationships with close friends. The risk of financial issues ruining long-term friendships is strong. At the same time, some landlords might feel more comfortable renting to friends and family members they can trust.

To help determine whether ease of mind is worth jeopardizing close bonds, we asked eight personal finance specialists to weigh in on leasing to and from friends.

1. Have you ever rented a home to a friend?

I’ve had dozens of renters cycle through my properties, but renting an apartment out to friends is a special case that definitely sticks out. The last time I rented to a friend was in 2007. For me, the experience went off without a hitch. I have had a property manager for as long as I’ve owned property, so a lot of the problems that might have come up didn’t have a chance to. I would definitely do it again. — Mario Bonifacio

I rented a home to a close relative once about a few years ago.  It was a pleasant experience, and I’ll certainly do it again. The relative took good care of the house and told me of repairs needed, which I worked with him to get done, and then also gave me enough notice of when lease would be expired and need renewing, and when he was finally going to vacate. — Manshu Verma

2. What are some drawbacks of renting to or from a friend?

There are always risks when you turn a friend relationship into a business relationship. I can see problems arising when the tenant does not treat the property with respect, or doesn’t pay their rent on time (or at all) because it’s a friend. On the flipside, the landlord could develop some sort of superiority complex that could sour the relationship. After all, they’re renting from you, which puts you in a perceived position of power — at least in the traditional view of landlord-tenant relationships. There could also be tension if and when it comes time to raise the rent. — Nick Loper

Discovering your landlord friend doesn’t take what you consider to be the best possible care of the property can damage your perception of them. Small issues may arise that end up causing huge riffs in friendships. Weigh the importance of this person in your life versus the financial gain you’d take by entering a lease agreement. If the person is important enough to you, it may not be worth taking that risk. — Femme Frugality

3. What are some potential advantages?

Since the renter is a friend, one usually knows the person. It’s better than renting to a stranger. A friend will take better care of the property.— Hoimonti Basu

For me, it was saving some extra money. His rent helped to defer the mortgage every month. Another advantage is being able to do things without calling each other. We can be eating lunch on a Saturday afternoon together and easily make plans for that night. — Jon Dulin

4. Are there specific circumstances that would make you want to rent from or to a friend?

If the price was right, I’d be happy to rent from a friend. I’d want a clear contract regarding our obligations drawn up though — the same as with any landlord. Personally, I’d probably rather not rent to a friend. I’m sure they’d be responsible, but if not, that’s a lot of added emotional stress to the regular stress of being a landlord. — Mel

5. Any general advice about forming close relationships with landlords?

It’s good to be on friendly terms with your landlord, especially if you want repairs and other issues handles promptly! Also, from a different perspective, it’s important to be firm with your landlord, too. You have rights as a tenant, and don’t let them shirk responsibilities they have. Sometimes people will treat you how you let them treat you! — Ray Advani

Ten Ways to Beat Out Other Buyers, Part I

Have you missed out on the house of your dreams because another buyer swooped in with a higher offer?  Check out these ten tips to beat out other buyers.

10. Present it in person. This seems to be a dying art in my market. Almost never happens. There is just something about making the effort to come hand me the offer in person, make eye contact and explain a bit about the buyer. I always attempt to present offers in person, and at the very least will include a letter to the seller’s agent and seller telling a little bit about my buyer, what they love about the house and pointing out the strengths of our offer.

9. Include any requested addendums and documentation with the offer. In this case, I had requested the offer be submitted along with some addendums I had made available to agents in advance by uploading them into the MLS. Specifically, a short-sale addendum, a Wells Fargo affidavit, as well as the Property Condition Disclosure. One of our potential buyers failed to include any of the requested documents.

In a side-by-side, hair-splitting comparison of offers, this was a negative. We didn’t know FOR SURE that they wouldn’t find something on the PCR they would object to, or that they would be willing to wait for third-party approval. Just a couple of little question marks hanging out there that could have easily been eliminated.

8. Include proof of funds to close if a cash offer, or a lender’s preapproval letter. One of our offers was accompanied by a very strong lender preapproval letter. One of the cash offers was accompanied by a very impressive proof of funds to close. When I asked for proof of funds for the third offer, also cash, I was told that the buyer would submit proof of funds necessary to close only after her offer had been accepted. Would you be surprised if I told you this was the same buyer who wasn’t forthcoming with any of the signed documents that were requested?

7. Inclusions. If you are competing with other offers, this is not a good time to ask the seller to include personal property in the sale. Especially if the refrigerator, washer and dryer are specifically excluded in the MLS information. Why risk losing your dream house over an appliance or some kitchen curtains?

6. Inspection contingency. In our case, one of the two deciding factors (remember that we are really splitting hairs here) was that one of the buyers waived their right to an inspection contingency. This eliminated one potential pitfall that could possibly arise down the road, of a buyer canceling their contract based on an inspection. Short sales are sold “as is,” but a buyer always has an opportunity to have a professional inspection, and rescind their contract if they find something unacceptable. This buyer felt that this was a reasonable risk given that the home was fairly new construction and obviously well cared for with no deferred maintenance.

Short of eliminating it altogether, a good way to strengthen any offer is to shorten up, as tight as possible, the length time you are requesting in which to perform an inspection.