purchase offers – OC Neighborhoods

Don’t Make Mistakes On Your Offer to Buy a Property

Since 2012, there’s been a consistent rise in home prices which is making new options for a lot of baby boomers and others nearing retirement.

According to CoreLogic statistics, the median Orange County home price has increased $267,000 since four years ago. Some home buyers see that as a signal to get themselves into a home. They’ll need to work with a good real estate agent to locate a suitable property and put in a purchase offer.

Agents who are representing buyers recommend that your offer should be based on the most recent sales prices of comparable properties in the area. This encompasses comparing all features of the properties to your prospective property.

Some examples of comparable features are: square feet, number of bedrooms and bathrooms, year built, location, lot size, parking, pool, etc.

The amount that you offer for purchase of a property should not be based on a percentage off of the List price.

Occasionally, after analyzing recent sales of comparable properties, you will discover that the list price is actually in line with current market values of similar properties that sold in the last 60-90 days or is even priced under current home values.

With this in mind, you shouldn’t expect substantial change from the list price. For that matter, if the property has appealing features, it’s not unusual for such properties to generate multiple offers or sell above the asking price, especially when inventory is low.

It is not a mistake to make an offer at the list price or above if the purchase price is at market value. The issue is many buyers have it ingrained that they’re not getting a deal. Some sellers understand this and simply list their home at a higher price to allow room for the buyer to negotiate.

Your offer should not be predicated on modifications you would like to make. Make an offer based on the property’s condition and current market value. If the modifications, you’d like to make cost $100,000, you should not simply subtract $100,000.

Offer Mistakes

Offers that are unrealistic to the seller, like lowball offers many times do not even get a response from the seller. Some sellers are outraged by such an offer and it indicates you are not a serious buyer.

Do not base your offer on the home’s tax assessed value. The tax assessed value is commonly less than current market value.

Do not base your offer on how much the current owner paid for the property. The current market value is what you need to pay attention to, not their profit. They may have bought it 25 years ago which means they’ve probably experienced equity appreciation of more than 300%.

Do not base your offer on the property’s value when home prices were at their peak. The price it would have sold for in 2005 is not important today, stay focused on how much the property’s current value is now.

Currently, Orange County is in a market when inventory has been reduced, so, generally, there’s adequate data to review to figure what the current market value is. In certain neighborhoods, especially those that are close to the beach, property values are stable and experiencing appreciation due to sales activity, reduced inventory, and high demand, so worries about future price declines based on your offer are less important.

A high percentage of today’s buyers are making “All Cash” purchase offers for homes, so the anxiety about a repeat housing crash due to mortgage defaults is a huge mistake and should not affect decisions about offering close to list price, at list price, or above.

Anytime we work with home buyers, we start the search by providing full data about neighborhood property values they’re considering so that practical expectations are known, as well as an accurate, informed understanding of the market.

Buying Your Next Home Before You Sell Your Home

Usually the next house you want to buy is going to have a higher price tag than your current home.

Making an offer on that next home can prove to be tricky if all you can put down is 10% or less on a new house.

So before you buy your next home, should you sell your current house, rent for a while, or just buy the new house?

How about taking out a HELOC to make your down payment larger, then you’ll own two homes and have two payments?

What about using a “bridge loan”, to get by for 3-6 months?

If you have the income to easily pay the costs of two mortgages – but the only issue the lack of down payment for your next home, a bridge-loan scenario, then refinance and pay off the bridge loan when you eventually plan to sell the current home.

However, most homeowners don’t want to take on the debt obligation for two mortgage payments at the same time.

In some cases, you could end up “stuck” with two mortgages for 6-9 months.

The reason you want to do this is because many prospective home buyers put a contingency on the sale of their current home in their purchase offer. If you are in the process of doing this in Orange County, you may find your offer not accepted countless times. If the sale of your current home will provide you with more funds to put down to the tune of 25% or 50% , your offer is a lot stronger in the seller eyes.

Certainly, in a very hot seller’s market, the seller still might not be interested in your offer even if it doesn’t have the sale of your home contingency clause because there may be all cash-buyers.

It’s important to let your realtor understand your goals and price your existing home properly when your offer is not contingent on the sale of your home. If your realtor prices your home much higher than similar homes in your neighborhood, possibly to assure them of a higher commission, they may not be factoring as every month passes, you’re making two mortgage payments. This eats right into the expected profits. Don’t let them off the hook with their common response of “the house will sell when the right buyer comes along”.

Think about if you had your home for sale. If you receive offers with FHA financing, 3-5% down, contingent on sale of their property (which may be overpriced) or closing dates 3-4 months out are the least considered. When receiving multiple offers, the simplest and least complicated offer is chosen. The offer most sellers will accepted are those with a large down payment, such as 30-50%, and have a quick closing date.

The worst part about selling your home early is you have to move your personal belonging into a storage unit temporarily, and then find a short term rental. By doing so, you can submit a stronger offer with a large down payment like the one you accepted on your home.

Frustrating to Find a Home or Get An Accepted Offer in Orange County?

Orange County, CA is yet again in a seller’s market which is typical in a region of high demand. Home sellers tell their agent to ask the prospective buyers for their highest and best offer which results usually in a bidding war and of course the seller getting more than asking price.

Buyers sometimes become desperate from all the offers they put in on houses and just want to end the process once and for all.

To make matters worse, the inventory of homes for sale has dropped to much less than average numbers based on the past 15 years. There are 14,400 listed properties for sale in the Realtor operated MLS by Orange County homeowners in 2015. Fifteen years ago, there would be 3,500 additional homes for sale for the same period.

With home buyer demand at record levels, and home inventory very low, it means that buyers have a smaller selection of homes to choose.

Property values aren’t the problem either as they have recovered from the housing crisis levels. In a normal market, people would be listing,” said Chris Arco, Broker for 1^st Nationwide Real Estate.

With so few properties on the market by sellers, many home buyers searching in Orange County are limited to the number of offers to make and their moving plans are delayed for quite some time.

Prospective buyers wake up in the morning to check for listings that meet their criteria and they are disappointed. It is certainly frustrating but buyers need to start looking around six months before to understand how competitive the market is and not expect to find a home and get an accepted offer within 60 days of house searching.

Reasons Why Sellers Haven’t Sold

Below are some factors that have kept homeowners where they are. They include:

• No place to move to: Due to the uncertainty of finding a suitable home, less homeowners want to list their properties on the MLS.

• Locked in Best Rates Ever: Approximately 2 1/2 years ago homeowners took advantage of the lowest rates in 50 years and refinanced into 3 percent fixed interest rates.

• Proposition 13 tax rates: The low property tax rates assured by the 1978 property tax-control measure are wiped away if they sell their home. Prop. 13 limits any increase in property taxes to 2 percent every year up until the home is sold. Thereafter, rates adjust to market values.

• People are staying put longer: From 1980-2000, residents in California and nationally moved once every seven years on average. Nowadays, it’s estimated people move once every 20 years. They simply go to Home Depot or Lowes and do home improvement projects.

Gone in 55 days

The lower inventory is good for those who can sell their homes but bad for buyers.

The hottest market averages 34 days on the market and that price range is $250,000-to-$500,000.

The $500,000-to-$750,000 home price range takes just 5 days more at 39 days to fetch a buyer, while OC properties listed on the MLS for $4 million and above take over eight months to find a suitable buyer.

Making Aggressive Offers

For many buyers who search for multiple months, put in bids and the offer is not accepted, and hardly any new suitable listings come to market, they become more aggressive with their offers.
Home buyers in a seller’s market who finally get a home are the ones who are offering more than the asking price.

Don’t Take Inspections Lightly When Under Contract

In the very desirable Southern California real estate market, making an offer to buy a home typically entails competing with other real estate agents submitting offers with less contractual contingencies pertaining to financing, appraisal value, closing dates, and even inspections. While it is true your purchase offer may appear more favorable to the seller, you could be moving into a money pit by being careless with interior inspections.

Home Inspection in Orange County, CA — physical inspection underneath a home in OC.

The Home Inspection

As with all things in life, there are some highly-rated inspectors and those inspectors who you would never recommend. Asking your real estate agent, loan officer, or friend/relative who bought a home nearby might be a good start. Prospective home buyers might also want to make sure that the inspector is certified, licensed, and insured.

If the inspector uncovers problems that need to be corrected, knowing how bad it is, how much to fix, and how long it will take are crucial to completing the transaction. Usually the inspector will be able to tell you exactly how to fix the problem, the estimated time, and the cost to repair or replace the problem..

Here are some reasons why the buyer should have one performed:

Peace of mind — It makes the buyer content that the home is decent and livable condition.

Renegotiate – If problems do surface, the buyer is in a position to ask the seller to make repairs, give the buyer a closing cost credit, or lower the purchase price so he can fix it after escrow

Cancel the transaction — If the problems uncovered are overwhelming with substantial costs to fix, the buyer can cancel purchasing the home.

Since there are two parties involved in the transaction, it will help the seller by dealing with any concerns ahead of time that could hinder the sale of their home. The seller can obtain repair estimates prior to listing the house for sale.

Transparency — Having available a pre-inspection report for buyers shows them the cost of repairs and that the seller is being transparent.

Whatever you do, do not rely solely on the advice of a home inspector’s assessment of termites. And if the subject property is on a hill or slope, you definitely want to get a geological report to assess the geological risk involved in the purchase of a home on a hillside.

The Termite Inspection

Using a licensed pest control company inspector who is experienced in finding the existence of wood destroying pests and then providing a report on his findings and recommendations for correction is a very smart idea. In fact, it is so smart, that any buyer who will obtain financing must have this completed on homes in California. An inspection for termites can potentially save you lots of money in damage repairs that pests might cause if not inspected.

They will typically inspect every visible area of the house that is accessible. If infestation evidence is found, the evidence is put on their state-approved forms and they recommend forms of treatment, either spot treatments or tenting the entire structure. Keep in mind that the inspector cannot see or detect infestation behind walls, paneling, cinder block wall voids, or beneath carpeting. Infestation in these areas may continue to be undiscovered.

Geological Inspection

The potential geologic hazards that are present, within homes situated on hillsides, may be very easy to the expert’s eye but missed by the person without specialized knowledge in geology. Possible geologic hazards that go unrecognized can show up at any time, resulting in hefty financial losses coupled with lawsuits for liability. If you think it can’t happen to you, don’t forget the Bluebird Canyon landslide in Laguna Beach (http://www.ocregister.com/articles/home-137081-city-canyon.html) on June 1, 2005, which destroyed 12 homes and disrupted the lives of dozens of residents.

It’s a jungle out there, for both buyers & sellers…watch out folks. Get represented by a real estate company who is on top of things so your best interest are always a priority number one.

Is it normal to have made 25 offers in 3 months and not one be accepted?

It’s a pretty common theme in California’s housing market where you are all ready to pack-up and move into your new home. The only glitch is you could be up to 50 offers in six months and nothing worthwhile has been accepted. So what more can a buyer do in this situation?

You are up against a few major home purchase obstacles:

The price range you are shopping in is very active with all-cash buyers and fetches multiple offers
As a buyer using a low down payment program such as the 3.5% FHA or 5% down conventional loan, you are competing with buyers who have stronger financial qualifications.

Sometimes, it is the agent and other times it isn’t.

Here are some effective strategies that should be used:

Find out if you’re able to be approved with a 10% – 20% down payment conventional program. The reason is because many sellers feel that FHA loans come with more conditions to overcome than a conventional buyer.
If you’re a patient person you should consider a short sale where there may be less competition for a nice home.
Low inventory in the area you want? Ask your agent to get in contact with homeowners in your preferred neighborhood whose homes are not listed for sale but may be interested in selling to you now or in the near future.
If you have been directing your attention exclusively to one neighborhood, see if you can expand your housing requirements and search in adjacent areas.
Give some thought to buying your home with a co-borrower such as a family member or a trusted friend who can add to the down payment/financial requirements which will strengthen your offer.
For people who put a higher than average amount into the earnest money deposit, and well before the actual down payment, you are telling the seller that your intentions are serious to consummate your real estate offer. Other competing offers cannot contend with such diligence. Not surprisingly, if you withdrew your offer in the middle or towards the end of the contract date, you’d forfeit this deposit.
When buying a home in the frenzied environment of multiple offers, try to come up with a connection between you and the seller. The seller having owned or lived in the house a long time may have an emotional experience with it, and you might be able to get on the seller’s side by communicating your appreciation for certain aspect of the home.
Demonstrate concern for the seller’s circumstance by being flexible on the possession element after closing. Draft an agreement to offer them a 30-60 day window post-closing to allow them to move by paying rent or no rental payment at all. Maintain an advantageous connection by not asking for personal items in the house.
Sweeten the deal for the seller’s by paying for some of the seller’s costs like settlement, transfer, and title policy fees.
It does help for your agent to have a friendly relationship with the listing agent and understand what the seller’s truly wants to close the deal. Once uncovered, you can then make an effort to meet those goals.

If you are in a neighborhood where almost all properties are receiving offers over asking price and you really want a house, you may want to make your offer $5000 above asking price, remove the appraisal contingency, and close in 30-45 days. This type of offer, if an FHA or low-down conventional, competes better in a multiple-offer environment with buyers who have a large down payment such as 20-30% or an all cash offer. It suddenly becomes appealing.

If you carefully consider and implement these strategies, you will certainly be a leg up on the competition.