If you are in the process of selling your Sacramento House, this seller’s market may lead you to believe that you are in the driver’s seat. From a big picture perspective that may be true, but only if your house is ready to compete.
A cold hard fact in real estate is that it’s impossible to review any buyer offers on a house that does not receive any offers.
When that happens, you know that even in a sellers market, the marketing, the pricing and the value were not targeted to the right group of buyers or the message just never hit the spot.
My name is Peter Westbrook, I am a Sacramento real estate investor and I know quite a bit about selling houses in any market, because I have sold hundreds of houses. No, I am NOT a real estate agent and I dont list other people’s houses for a living. I am a real estate investor and I make a living knowing what houses are worth on both sides of the transaction. I can’t afford to make many mistakes and I buy and sell more houses in any year than the average real estate agent because of that expertise.
One side note… just in case you are wondering… real estate agents dont buy houses and real estate agents dont sell houses. At Best Real Estate Agents Market houses and some perform that role better than others. In spite of it all, there are a litany of new tools that real estate agents have at their disposal that make the marketing of houses a relatively simple thing.
The Sales Numbers Don’t Lie
But the fact that the majority of agents that list houses, don’t do more to help the sale is a mystery to me. I think that the bottom 2/3’s of real estate agents are just part timers that like being semi employed. I see it in their marketing materials and the way that they lumber through a presentation or an open house. I find that the most motivated sellers are the homeowners that fight for position even with the worst of agents. The spend thousands of dollars and prep their houses and some take it on the chin when their houses dont sell.
Real estate is a lot like baseball. There are stats for everything if you look. The problem is that most sellers dont know where to look or even what information matters. Over the years, I have done a lot of research on real estate failings. For every CMA (comparative market analysis) report I process to evaluate a houses relative value, I have noticed a much larger list of expired listings.
Simply explained, Expired listings, are houses listed with real estate agents where the listing expired before the house sold. The dirty little secret in Real Estate is that that nearly 40% of all listings expire without receiving an offer. That is a large number of real estate agent represented listings that for whatever reason fall through the cracks and the houses did not sell. That is a huge number and I am told that the number has remained a constant over the past 20 years. Blame it on the process, the marketing, the real estate agents and the fact that real estate marketing is a one size fits all mentality.
The truth is that the process of selling houses hasn’t changed much in the past 20 years. Sure there are more tools for real estate agents to use, more automation and more places that their listings get propagated once their listing go live and online automatically. (It doesn’t mean that they necessarily use them or that they know how).
The real change has been with the buyers themselves. With the advent of smartphones and tablets they are now armed and they have virtually the same information available to them, that was just a few years ago, exclusive to real estate agents. In some ways the buyers are actually more adept and motivated in finding houses then their paid professionals and I see it at my open houses all of the time. Buyers coming alone and then asking if they can bring their real estate agents along for the ride.
It all Starts with the House
Every sale begins with a house. Remember there are roughly 4 criteria that make your house a great product. It all starts with its age, its location, its condition and its price. If one or more of these criteria are out of synch with the others it is a recipe for failure. Even in a sellers market, there is only so much deferred maintenance that can be overlooked by typical buyers and lenders. When that happens, the targeting of the marketing has failed and at that point it is the real estate agents fault.
Whether its part time agents or just laziness, when you analyze the numbers the reason for failure is the one size fits all marketing mentality that real estate agents have for houses. The truth is, not every house is ready to be sold conventionally with a real estate agent and if real estate agents had their clients best interest at heart they would direct them elsewhere. They would direct them to a cash home buyer in Sacramento. I know because I get referrals from the top real estate agents all of the time for the houses that should and cannot be sold conventionally.
Examples of houses that should not be sold conventionally include houses that have suffered through years of deferred maintenance and are known as fixer upper or Investment properties. They might linger in a probate or can’t pass a basic FHA or VA appraisal. These are the homes that can’t pass a general home inspection, pest report or roof inspection. No lender is going to approve a loan for these types of houses and yet real estate agents continue to promise the owners that they can be marketed and sold. These houses have no business log jamming the MLS and yet they account for a large portion of the roughly 40% of expired listings.
To Sell Fast, You Must Offer the Best Product for the Best Price
First things first. I mentioned that your home needs to be up to the task. We all know the old real estate adage…. location, location, location. Well it’s true, but that is just a piece of the equation. Remember from above that for residential real estate it all boils down to Location, price, age and condition of the house.
If I were selling my personal residence I would have to make a decision. I would either fix and update it or I’d put it on the market for the highest cash offer. In essence they are the same, except in the first instance I am going to gamble on making repairs and the second I am not. The truth is if you want to sell a house fast you need to Offer the Best Product for the Best Price. That is called Value.
With my investment properties my formula is pretty simple. I fix everything and offer the best product at the best price. My houses sell and they almost always get multiple offers. It really is that simple…
When you offer the best product at the best price it means that you know what your buyers want. You also need to know how to target the marketing to the right buyers. Just like a good real estate professional should not be showing a $400,000 house to a buyer that qualifies for $350,000 house, buyers that want move in ready should not be shown fixer uppers.
Once you have made that decision, the only thing left to do is to price your house. Most people know what they would like to get out of the house. Sometimes those expectations are unrealistic and sellers need to reconcile their aspirations with the reality of the market. I have seen many instances where sellers felt short changed because the market, an appraisal and a buyer did not support the higher price that they wanted.
Even in a seller’s market, if your house is priced right, you’re almost certain to get an offer on your house. But what should you do when you get an offer? Do you just accept it? Do you negotiate? How? It is a quandry for most sellers.
The first step should be to step back and evaluate the offer based on your initial selling criteria. You should be looking at a few things… What does it mean for the bottom line and how much money after all of the commissions, closing cost and expenses will you walk away with? Next, how close is that offer to what you really wanted. Is it close enough that if you accepted it the difference is less than a months worth of holding cost… remember most real estate escrow periods are at least 30 days and you have other cost besides a mortgage.
If you dont accept the offer, will you get another offer within a day, a week a month? Or, will you have to do a price reduction anyway? How much would that be and how does that compare with the offer that you just received? No matter what anyone says, all offers are gambles because with them comes a period called escrow in which anything can happen as the rest of the conditions of the Purchase and Sale agreement play out. Those conditions are generally the buyer conditions known as contingencies. This article is about those contingencies.
How To Prepare For The Buyers Offer In A Sellers Market In Sacramento
The things that Buyers Ask For Are Called Contingencies
Simply defined, contingencies are what the buyer wants from you in order to purchase your house. Some are very simple and would be considered no brainers for most sellers, while others can tend to be quite complicated and can add substantial cost to you as the seller while receiving very little by way of return. Only you can decide what each means for you and your family.
A warning to buyers, while there are no limits to the number of contingencies that you can place in an offer, sellers can easily get turned off if they think that you are just not that serious or too demanding. In any, case buyers that make an offer with a lot of contingencies are not given a priority and have little chance that their offer will be accepted.
Buyers make offers with contingencies for all kinds of reasons.
So understanding the types of offers you might see will require a little common sense mixed in with a little bit of math. First, I would suggest that you do your homework to prepare for what to expect when evaluating buyer offers. Second I would suggest that you look at all offers with your eyes wide open but first. Preparation means that you read articles, talk to multiple real estate agents (hopefully the best in class) and talk to some experienced real estate investors. Ask specifically about the kinds of offers that you could see. Ask for recommendations…
Wouldn’t it be great if someone could simply prepare us for every single offer contingency, exception and configuration in advance? I know that you would like to think that your real estate agent could prepare you for that. Some can, but the vast majority of real estate agents are just not capable to the extent that would be meaningful, because they just dont have the experience. The ones that can are most likely not going to be your agent because over 72% of all sellers just hire the first real estate agent that they talk to. That is not a talent search that is a recipe for mediocre representation.
Understanding Contingencies and how they affect the Offer
Offers are the heart and soul of any real estate transaction. When sellers place their houses on the market they all hope to sell their houses at full asking price with no contingencies and a fast closing. Unfortunately, that just doesn’t happen all that often. Instead buyers will look at their own situation, understand what they can afford and make offers accordingly and more often than not that means they’re making offers with contingencies.
What most sellers dont understand is that even the most basic contingency is not a demand by the buyer. It is a request, that can be accepted, countered or rejected. It really is that simple. I wish that most real estate professionals really understood every aspect of the sale, the power of a properly worded counter offer and the kinds of flexibility that sellers have in guiding any offer through the escrow period to closing.
- The Offer to Buy Your House is Contingent on the Sale of Their House
- Inspections Standard is 17 Days
- Financing Standard is 21 Days
- Appraisal (Open ended)
- Clear Title Contingency (Unlimited)
The Offer to Buy Your House is Contingent on the Sale of Their House
A Home sale contingency asks that the seller accept their offer to buy the house contingent upon them selling their house first. On the surface this can sound ominous especially if their house is not yet on the market. If that is the case, you just need to ask yourself… are you willing to let your house sit as well, waiting and hoping, that they sell their house fast?
Although these offers are more common than you would think, a contingency based on the sale of a house is rarely accepted in a sellers market.
Inspections as a Contingency
Most buyers want move in ready and that means that they want a house that is largely free from defects. Sellers need to know that 98% of all buyers order inspections. It is more than likely that your house will be subjected to at least one and as many as three home inspections and most offers are contingent on the outcome of those inspection reports. Sellers need to know that no matter how well maintained a home is, no matter when the last updates were performed, real estate inspectors “always” find something wrong. Minor or major, every house has a flaw and some are perceived based on the observations and experiences of the individual home inspector.
Home inspectors are looking for potential problems that over time could have an impact on the health of a house. Notice I said could. But inspectors are paid to call out anything they perceive to be a problem because at the point that they accept money for the inspection they become liable to the buyer if they missed something.
The following are the typical home inspections that most buyers will order. The question becomes how likely will your home pass any one or all of these inspections and will the results trigger a request for repairs or will the buyers simply walk away from the sale?
- Wood Destroying Pests (Termite and Dry rot)
- Roof Inspection
- Mechanical and Plumbing
- Foundation and Structural
Request for Repairs as a Contingency
Inspections are a fact of life and sellers need to understand that once an inspection are complete, most buyers are going to ask for a series of repairs. It doesn’t matter that you are selling your house as is, as the buyers by asking for the inspection within the offer created a contingency that they can use to back out of the purchase.
Depending on how much work was done to the house prior to listing it, the repairs are generally minor, but repairs can be costly and can run anywhere from several hundred to several thousand dollars depending on the nature of the repairs.
Sellers need to remember that all inspections need to be disclosed to the buyers even if they were a byproduct of an offer that happened three months ago. They become documentation of a houses condition and the reports need to be disclosed to any buyers whose offer you accept.
Financing as a Contingency
Certainly the most common of all contingencies is for financing. Almost all real estate offers have a financing contingency included. It is pretty straight forward and stipulates that the buyer will purchase your house provided that they can secure a loan.
Sounds easy enough, but I can assure you that over 30% of all offers contingent upon financing fall through because the lender declined to loan the buyers the necessary funds.
Lending contingencies are a standard 21 days in California. Not by law but as a common practice. A seller should know that most lenders pretty much ignore any timeline whatsoever and while the contingency removal period is 21 days most lenders exceed it to provide an approval.. Remember not all lenders are the same and not all loans with any one lender takes the same amount of time to review and approve. What sellers need to remember is that all offers that require financing are contingent offers and no matter how much you want or need to sell your house, every type of loan (see types below) comes with a certain amount of risk to the seller as the buyer may be declined. It is up to you to get ahead of that train and secure your ability to talk directly to the lender in advance of accepting any offer. You can demand that.
Understanding the Different Financing Types
- Conventional Loan
- FHA Loan (Government Backed Loans)
- VA Loan (Government Backed Loans)
- First time home buyer assistance (Government Backed Loans)
- CalHfa (Government Backed Loans)
Accepting any offer, unless it’s all cash with NO inspections, NO financing, NO appraisals and NO Contingencies has a risk of falling apart. It is important that the seller understands all of the types of offers that include financing contingencies so that they can make an informed decision. It is important that the seller understands that every offer with government backed financing is a more volatile and risky type of loan, and there is a 33% chance that the loan may never materialize. Sellers wanting a less risk with financing can demand that buyers use conventional loans which typically require up to a 20% downpayment and are a lot less volatile.
Understanding the Appraisals
Generally the appraisal is the last hurdle in the financing loop. Appraisers like home inspectors, need to come out and view the property, take measurements, look at the condition of the house, verify its location, age and square footage. They also often perform mini inspections at the lenders bequest validating that all mechanical systems are operational, that all windows have their screens and that all of the safety features required by today’s building codes are present. (Smoke and Carbon monoxide detectors are in place. Hot water heaters are strapped and that garage doors are operational if blocked or when there is a power outage).
Although appraisals are pretty straight forward there are many times that the appraiser can’t find the comparable sales in the neighborhood to value the house at the sale amount. When that happens the sellers have a choice: 1) renegotiate the sales price with the buyer, 2) Demand that the buyer come up with the difference in cash or 3) put the house back on the market and start all over with a new buyer.
Know that your appraisal is a hurdle and until it comes in at value, the lender will not approve the loan.
Clear Title Contingency
This is probably the easiest of all contingencies to explain and yet it is another reason that many houses cannot be sold. Meet the title company.
The title to a home is it’s record of its ownership. It’s a legal document generally known as the ” Grant Deed”that details who has owned the home, past and present. It’s also a complete record of any liens or judgments that have been made against the property. In a typical scenario, a title company and it’s title officer will review the title on the house before closing by ordering a Preliminary Title Report. No sale can be recorded unless anything found on that title report is resolved so that the title can be transferred to you free and clear.
There are a few occasions where problems with the title report cannot be solved in a timely manner. Often times it can be house that has not been through probate or a house that has multiple liens that are contested by the current owners. That’s where the title contingency comes in. It gives the buyer the option to cancel the sale rather than having to deal with the possibility of contested ownership or having to pay off someone else’s debts.
- Seller Credits for Closing Cost
- Seller Down Payment Assistance
- Multiple Mortgages
- Golf Carts
- Other Personal Property
What’s Next? Now that You Understand the Offer What do you Do?
“Luck Is What Happens When Preparation Meets Opportunity” This quote, by Roman philosopher Seneca, reminds us that we make our own luck. Selling Houses in any market is no different if you and your house are prepared for the moment, selling a house in Sacramento should be relatively easy because you will have all of the tools.
Research and preparation. It is why you are here and if you’ve read my articles you know that I believe that you need to take a more active role in the selling of your house. Think of the sale as a checking account. Are you really going to give a real estate agent signatory power to spend you equity in any manner they see fit. Remember, It is your asset and you are the one that is giving everyone else an opportunity to MAXIMIZE your EQUITY. The way that you do that is to not be intimidated when the offers finally come. If you have prepared you will be ready to read them carefully and comprehend what the buyers are asking for.
So What’s Next? The next step in your sales process is the Counter Offer. In may article Sell My House Fast The Counter Offer. , I’ll detail the steps for you and tell you what to look for. You see it really doesn’t matter what the buyer is asking for at first blush. What they are doing is giving you their wish list by testing the waters. Don’t think for a moment that in this sellers market, they are not sitting back, on pins and needles, wondering if you’ll accept their offer. This is your chance to speak to the buyer directly and let them know what you want. You have seen their offer and now it is your turn to close the sale.
Decide on the criteria that you want to see in the offer
Ask yourself what’s most important to you. For example, do you want to sell quickly and get a fast closing date? Or maybe you want to get the most out of the house in terms of sales price… And while both of those might be important to you, one of them will be more important, so determine which is most important for you.
Second, think about what you want for a bottom-line price.
In a seller’s market, you may get a higher price than your bottom-line price but it’s also very common for property owners to accidentally over-estimate the price they think they’ll get on their house. Therefore, determine your bottom-line price. Chances are, you’ll get an offer somewhere between your bottom-line price and your preferred price.
Third, think about the Closing date you want and consider any flexibility you have.
You might want to move right away, for example, but you could potentially open yourself up to better offers if you don’t press for a specific closing date but instead find out what buyers are willing to offer.
Fourth,remember that you’re still the seller.
Even though it’s a seller’s market, remember that the buyer is still the one with the money and they could decide to buy a different house. Decide which terms and conditions are absolutely imperative for you and which ones you’re more flexible on. That way, if a buyer has the cash. with no contingencies and is willing to close within your preferred timeline, you can work with any conditions they may have directly with them.
What Makes Sense?
In a seller’s market, it’s often thought that the seller has the advantage but there are times when you might want to sell now instead of putting your house up for sale, cleaning it up, and seeing what buyers will offer.
That’s where we come in. We are a Cash Home Buyer in Sacramento. We’ll make you a cash offer on your Sacramento house. Just call our team at (209)481-7780 or click here and enter your information on the form, and we’ll be in touch.