How To Prepare For The Buyers Offer In A Sellers Market In Sacramento

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 houses that does not receive any offers. When that happens, you know that even in a sellers market, the marketing was 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 prep their houses in advance and take it on the chin when their houses dont sell. There is a little know fact, but of all of the stats in real estate that we dont hear about, 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.

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). The real change has been with the buyers themselves. With the advent of smartphones and tablets they are armed and now they have 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.

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 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 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 frequently 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.

Second, are the buyers looking for any closing credits or down payment assistance from you? Do they want 3 inspections? Are they really qualified? Have you talked to the lender yourself? Have they already submitted copies of their pay stubs, 2 years of tax returns, copies of bank statements proving that they have seasoned  money for the down payment? Has the money they are using for a downpayment been seasoned or is it properly gifted?

I understand that those are a lot of questions, but it is why so many sellers get frustrated when looking at offers and to tell the truth most real estate agents are neither mathematicians or negotiation gurus when it comes time to help. 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.

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…

When it comes to accepting offers in a seller’s market, it’s best to be prepared. Here’s how to prepare for the buyers offer in a sellers market in Sacramento…

How To Prepare For The Buyers Offer In A Sellers Market In Sacramento

Understanding Contingencies and how they affect the Offer

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 that means for you and your family.

The Offer to Buy Your House is Contingent on the Sale of Their House

Although these offers are more common than you would think, a contingency based on the sale off a house is rarely accepted in a sellers market. I have seen a few this year and I actually accepted one based on the fact that the sale of their house was scheduled to close in less than 2 weeks. They also offered $10,000 over the asking price.

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 hoping, that they sell their house first?

In this scenario you can counter offer to either shorten the term or accept the offer providing that you can continue to market the house and offer them a right of first refusal to remove the contingency should another offer come in. Or you can just reject the offer outright.

But as in the example I mentioned above, what if the buyers house is already in escrow with a buyer for their house? You could accept, but I would first recommend that you find out several things directly from their lender before you seriously consider this type of offer.

  • How long have their buyers been in escrow
  • What is the anticipated Closing date (does it coincide with what the buyers told you, honesty is king in these circumstances)
  • how well qualified are the other buyers (Credit Score and other factors)
  • Is all of their paperwork turned in to the lender (Tax returns, pay stubs, seasoned money, verification of employment)
  • Are there any Lender conditions that are outstanding to the transaction
  • Has an underwriter reviewed the file and approved it based on its contents (Final approval forthcoming?)

Anticipate Inspections to be ordered

Most buyers want move in ready and that means that they want a house that is largely free from defects. In fact 98% of all buyers order at least 1 and as many as three home inspections and most offers are contingent on those inspection reports. Sellers need to know that no matter how well maintained a home was, no matter when the last updates were performed, real estate inspections “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.

Even new houses that have been inspected at every step during the construction process are flawed in some way. Those flaws however are most likely minor and never play a role in the livability of a house. 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
  • Others

Understanding the Request for Repairs

An Inspection Contingency means that the offer is valid only if the house passes inspections that have been ordered by the buyer. Sellers need to know that this contingency allows a buyer to back out of the sale if they’re not comfortable with something uncovered during the inspection process. You cannot force them to buy.

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.

If you have done a lot of work on the house prior to listing it, the repairs are generally minor, but still repairs are costly and can run anywhere from several hundred to several thousand dollars depending on the nature of the repairs.

Sellers need to remember that inspections becomes like a material documentation of a houses condition and the reports need to be disclosed to any buyers whose offer you accept. Sellers need to know that it doesn’t matter who ordered the inspection (you in advance of the offer or a buyer while in escrow), all inspection reports become part of the houses history and must be disclosed to all potential buyers, even future buyers if the current offer falls through.

I have personally watched a buyer back out of a sale because the back sliding door was missing a screen and there was dry rot in an eaves of the rafters by the front porch. Come to find out, she grew up in a house that the roof leaked and she did not want the roof repaired, she wanted it replaced.

Not all buyers are so unreasonable, but they could back out if they found out through a report that there was old termite damage. Buyers with contingencies are a risk to all sellers.

Understanding the Financing

Certainly the most common of all contingencies is financing. 97% of all “on market and conventional” real estate offers have a financing contingency. It is pretty straight forward and stipulates that the buyer will purchase your house provided that they can get 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 that most lenders strive to achieve. Remember just like buyers, not all lenders are the same and not all loans with any one lender takes the same amount of time to review and approve.

 

In my experience the big banks are the slowest and the specialized mortgage companies that just do Home Mortgages are generally the best.

Did you know as the seller you can reject an offer from a potential home buyer because you refuse to work with their lender. Did you know that you can talk directly to that lender and tell the buyer you will only consider accepting their offer if they give the lender permission to you to talk to them directly about the buyers qualifications.

Most real estate agents will do that for you, although I would never allow it because I want to hear from the lender directly how likely the transaction is going to meet the underwriters standards. I do not want a watered down version regarding time frames etc and i want to ask direct questions like…

  • What size loan are they approved for
  • how well qualified are the other buyers (credit, etc)
  • Is all of their paperwork turned in to the lender (Tax returns, pay stubs, seasoned money)
  • Are there any Lender conditions that are unreasonable to the transaction
  • Has an underwriter reviewed the file and approved it yet
  • How long does it typically take to approve a buyer with the information that you have right now
  • What is the likelihood you can close on time for this transaction

If any of the answers is contrary to your timeframes you can just reject the offer or counteroffer stating that you would like the buyer to find another lender.

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. etc It is important that the seller understands all of the types of offer and 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 that requires third party scheduling. 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..

Like many parts of the escrow period this is another time consuming step that can become very frustrating very fast. Although appraisals are pretty straight forward there are many times that the appraiser cant 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, 20 Demand that the buyer come up with the difference in cash or 3) start the sales cycle all over with a new buyer.

In any case if it is an appraisal that was performed by a VA or FHA appraiser, that appraisal amount is directly tied to the house and the value becomes public record if new buyers are found and want an FHA loan. I have been involved in many sales whereby the sale hinged on an appraisal that came in under value. Another option is to protest the appraisal and ask that it be performed again by another independent appraiser. It is rare that another appraiser will contradict a previous appraisal unless there was another sale of a comparable house was missed.

. Appraisals are pretty straight forward and technically they can be explained like so many other processes and procedures in real estate, but appraisals all have different components.

Understanding Appraisal Types

  • Refinance Appraisals
  • Conventional Loan Appraisal
  • FHA Appraisal (may require two appraisals)
  • VA Appraisal
  • CalHfa Appraisal

Many things have changed over the past several years and last

Clear Title Contingency

Other Contingencies

  • Furniture
  • Fixtures
  • BBQ’s
  • Golf Carts
  • Other Personal Property

What Do You Do When the Offer is Not What you Want

Ignore the offer

You are under no obligation to speak with any of the buyers or their agents regarding the offers that you receive. Sometimes that and of itself is a great negotiations technique. People that submit offers want to know what the status is and that is great.

The Counter Offer

This is where real estate agents could become valuable if they just understood the power of a counter offer. I am here to tell you that 85% of all real estate agents do not understand how powerful that they can be.

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 why 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.

Sell Your Sacramento House As-Is

 

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