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MULTIPLE OFFER SITUATIONS

26 Monday Aug 2013

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Sellers Market

Our Atlanta real estate market is currently a strong “seller’s market”. We define a seller’s (vs. buyer’s) market in terms of available inventory.  If there is six months or less of housing inventory on the market, it’s a seller’s market – more than six months of inventory is a buyer’s market.

When we say “six months” worth of inventory, that means that if nothing new were to come on the market (hypothetically, of course), it would take six months to sell everything that it currently listed.  This is calculated this way

  • We compute the total number of active listings on the market last month in the area under consideration;
  •  Then compute the total number of sold homes for the that month;
  •  Then divide the number of current active listings by the number of total sales for the month, which gives you the months of inventory which remain.

Using this formula, the Atlanta Metro area has less than five months of active listings (in some areas, less than three).  So listings are often going under contract within the first day or two they are available, with multiple offers.  A seller who gets multiple offers may pick the best one and respond to it OR may decide to contact all bidders and request their “highest and best” bid and go with the bid the seller finds most advantageous to them.

If you are a buyer trying to “win” in a multiple offer situation, it goes without saying that you should place your HIGHEST offer – the most amount of money that you are willing to pay for the property.  The seller will usually go with the highest bid, but not always.  There are other factors important to the seller: how likely a buyer is to get to the closing table, for instance (so a buyer with cash is “king” – because loans can fall through, of course).  This is why the seller asks not only for your “highest” offer, but for your “highest and BEST” offer.  Let’s look as some of the factors that will help your offer be the “best” offer.

First, if you can avoid asking the seller to pay closing costs, I would recommend that.  A seller will perceive a buyer who is asking for closing costs as not as strong a buyer.  A strong buyer has enough cash on hand to pay their own closing costs and can avoid rolling those closing costs into the loan by asking the seller to pay for them.  (What the seller cares about is the seller’s “net” – contract price minus closing costs paid.  By asking the seller to pay closing costs you are offering them “less” than the contract price and perhaps indicating that you are not as strong  a buyer).

Another seller consideration is how difficult the seller perceives that the buyer is going to be during the contract to close process.  A buyer who asks for too much in the opening bid may be perceived as a scared buyer who is more likely to terminate the contract during the due diligence period.  Or one who is likely to ask for excessive seller concessions during due diligence.

Here are some other pointers if you are the buyer placing a bid against other offers:

  • Make your offer a CLEAN AS POSSIBLE; meaning avoid stipulations.  Keep those stipulations you do include as simple as possible.
  • For instance, we will sometimes insert a stipulation asking for a professional cleaning of the property from the seller prior to transfer of possession.  If there are multiple bids, LEAVE THAT OUT.  That stipulation is sometimes taken the wrong way by sellers who think that they are indicating that the property is less than clean, and that may be the thing that prevents you from getting the property.  You can pay for your own move in cleaning if the seller doesn’t (and many, if not most, sellers will have the property professionally cleaned without you asking for it)– but don’t risk losing the property by asking for this when there are other offers.
  • The same thing goes for other items you might otherwise ask for: a survey, condo documents, etc.  You can pay  for a survey yourself and still *ask* for the condo documents (or have your agent get them) during the due diligence period. Asking for them in the initial offer may, all other things being equal, cause a seller to choose another offer that is simpler for the seller.
  • You may be competing against other offers that DO NOT HAVE a financing or appraisal contingency.  If you need financing, you must have those contingencies (unless you have enough cash to cover if the property ends up not appraising for full contract price and are willing to take that chance). But keep this in mind – know that some buyers will pay cash without a loan OR appraisal contingency for a hot property.  So you may be beat out not on price but by a buyer in that position.
  • So if you must have a loan and appraisal contingency, make them as clean and enticing as possible.  Here are some guidelines: indicate in the contingency how much money you are putting down – more is better to the seller, of course.  If you are putting fifty percent down,  you are a stronger buyer than someone putting twenty percent down, for instance.  Keep the loan and financing contingencies as tight as possible – 21 to 25 days is the norm, but go shorter if you can in order to present your offer in the best light.
  • HAVE A PREAPPROVAL LETTER (or proof of funds if you are paying cash).  Most sellers won’t even consider an offer with a prequal or proof of funds.  It is best if that preapproval letter is from a recognized lender who regularly does mortgage loans so that the seller is reasonably certain that the lender will not botch the deal.
  • You may also be competing against an “AS IS” offer; that is, one in which the buyer says that they will purchase the property without asking for any repairs.  (In an “as is” contract, the buyer still has a right to inspections, but has agreed not to ask the seller for any repairs). Therefore, if you do want a due diligence period, keep that period as short a possible (typical is 7 to 10 days – in multiple offer situations, I definitely recommend not going over 10 days).

Finally, it sometimes helps to use a “personal touch”.  Tell the seller something about yourself.  We call this a “buyer’s letter” and I will often write them for clients in situations where I think it would be helpful.  Tell them what you like about the home and give them information so that they know you’ll be a good neighbor.  Not all, but many sellers care very much about what type of person is purchasing their home and what type of neighbor that person will be for the friends that they are leaving behind.

Put your best foot forward when there are multiple offers – remember that you are competing not only on price; and good luck!  If your bid is NOT the winning bid, consider asking the seller to hold on to it as a “back up offer” in case the winning offer falls through.

Frankly, My Dear… Antebellum is Making a Comeback

23 Wednesday Jan 2013

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510 Londonberry FRONT

Atlanta will forever be associated with Margaret Mitchell and the famous novel Gone With The Wind – her tale of the Civil War South and the genteel characters who endured the war and its aftermath. Tara, Scarlett O’Hara’s fictional  home, never existed, and most real homes like it that did exist are themselves “gone with the wind”.  The quintessential architectural style of the period, and of Tara, is the Antebellum home – Antebellum means “before war” in Latin, and the term now applies to the style of certain homes built in the period prior to the Civil War which remain distinctly southern. The style is also known as Greek Revival or Classical Revival.  Not many remain in Atlanta and environs – there’s Bulloch and Barrington Halls in Roswell, but not many other examples.

But the Southern elegance and charm of the period do live on in select homes here.  Take, for example, this gorgeous Southern home on Londonberry Road, in the ritziest part of Atlanta. Scarlett would have died to live here. First, befitting a southern estate, it has a commanding presence from the street and a grand entrance featuring stairs up to a rocking chair front porch. Like many Antebellum homes, it features large Corinthian columns and a symmetrical façade.

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The home was designed by Mitch Ginn, an architect from Newnan, Georgia, for the original owner who specifically requested this style of home. Mr. Ginn and his firm have designed many homes in different styles – but some of their most memorable have been antebellum like this one. According to Mr. Ginn, “We design 150 to 200 homes a year, but the Greek Revival and Classical Revival styles are unfortunately few and far between. Popular styles today with future homeowners include Craftsman, Bungalow, and homes with English or French cottage influences. I guess I could say I look forward to a Greek Revival “revival”. “

Like many architects, Ginn enjoys recreating classic styles from the past: “I have always loved the timeless beauty and grandeur of the classical architectural styles. They are dictated by historic architectural structure and proportions. I am also a romantic sucker for the “image” of the Old South.”

The home Ginn designed on Londonberry parlays that image into the modern day. The lot was perfect for a sweeping driveway – and it made the most sense, given the lot, to place the swimming pool to the front and side of the home.  That showcases it as part of the “estate,  and allows a wonderful view of the pool area from the front porch. A meandering creek also wanders far below the home and to the back of the property, adding to the interest of the landscape.

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The interior of the home on Londonberry continues the grand southern feel with a sweeping stairwell (can’t you just imagine Scarlett making her grand entrance) and two story foyer. There’s also a screened porch overlooking the back grounds – the perfect place for some iced tea or a mint julep, don’t you think?

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And of course, the style makes way in some respects for the demands of the modern day homeowner – for instance, the kitchen is open to the breakfast and family areas, a must-have for many modern buyers. In addition, there’s a master suite on the main floor with a large master bath. The doors to the master bath and the lighting fixtures are all of grand southern design.

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As a new generation of homebuyers grows into their “dream” homes, the grandeur of the Antebellum style has a new appeal. It does come with a price tag – the home on Londonberry is currently listed for sale for $1,785,000.

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Notes on Negotiating

26 Thursday Apr 2012

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What does your Realtor do for you? Well, many things, but a lot of what we do is negotiate contracts – either on behalf of the buyer or of the seller in the purchase or sale of a home.  I have taught classes on negotiation skills.  Because I am also an attorney (a former litigator) I have a lot of experience negotiating deals.

But recently I took a class from a professional mediator about negotiating.  Jennifer Keaton owns One Mediation, a mediation firm based here inAtlanta, and she made some great points about negotiation that are well taken, a great reminder, and applicable to any type of negotiations, including real estate.

First, every contact with the other side conveys information – so pay attention to every contact.  Most importantly, you do not have to mean or rude to “win”.  After all, haven’t you heard that you get more flies with honey than with vinegar?  Particularly in real estate, often a more emotional negotiation, this is important.  Being professional and polite does not mean you cannot be tough and represent your client well.  In fact, make sure your agent is one who is respected and liked by other agents.  Agents want to work with other agents who “play fair”, and that will serve you well when coming to agreement.  Also, say you do not come to agreement on a given negotiation.  Timing matters – a seller may get more motivated, a buyer may find a greater source of funds – in other words, the deal may work, just not right now.  If you have kept a congenial relationship, the other side may just come back, offering more.

Another important point is that knowledge is power.  With information, your arguments actually hold weight – without the hard facts, you have no ground to stand on.  When an agent is representing a buyer, that agent should marshall the LOWEST comparables and be able to discuss them with intelligence to convince the seller, hopefully, to accept less than they would otherwise.  Similarly, an agent representing the seller shouldmarshallthe HIGHEST comparables available to help convince the buyer that they are getting a great deal (which every buyer wants and expects).

Also: be creative.  Every negotiation is not all about money.  What else can your client offer that is of value to the other side?  Perhaps a seller will take less for the home if you close quickly.  Or if they need more time, if you will close later.  Your agent needs to ask questions and pay attention to the nuances of the other side’s needs and wants; that can certainly help ease the parties to agreement.

Finally, stick to your plan and stay the course.  Do not walk away without offering your “walk away” offer.  But if you give a “take it or leave it walk away” offer, make sure that is exactly what it is.  If it is not, you lose credibility.

In this market, great negotiation skills mean more than ever.  Make sure your agent has them!

WHAT I LEARNED FROM BUYING A HOME – GETTING A MORTGAGE LOAN

20 Friday Jan 2012

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I vaguely recall getting a loan when I purchased my first home.  And what I remember is that it did not seem all that difficult, but that the closing was a nightmare.  The loan officer did not show up for closing, there were charges on the closing statement that hadn’t been revealed to me previously, and the loan officer was nowhere to be found.  As a result, the closing was much more arduous and took a lot longer than it should have.

And while I work with clients every day who are getting a loan to purchase their homes, most of my clients work with my favorite lender.  He makes the process appear seamless to me as a Realtor.  He is patient, explains everything carefully to them, and always answers the phone or returns calls promptly.  So in recent years I have been less aware of what getting a loan is really like.

So when I convinced my husband that buying another home was a great idea, I was not really sure exactly what to expect.  I called my favorite loan officer.  And even though he made the process as easy as possible for me – I had forgotten all the information you need to provide for the loan – recent pay stubs, W-2 statements, tax returns for the last few years.  You will need to get with your lender and fill out forms, provide the documents, and then provide more documents as issues come up.  For instance, my husband was divorced from his first wife, but continued to pay alimony for a period of time after the divorce.  The lending underwriter needed to see the divorce settlement to determine when those obligations ended.  Why, I am not really sure.  But that is how it goes in the lending world these days.  The best advice I can give is to get all your important tax, account and legal papers together and organized and have them ready.  Some documents you may not even know that you need until the very last minute, when the loan goes through final underwriting.  Luckily, although the call came for that divorce document at the last minute and while my husband was overseas, I was able to locate it quickly in his organized files.

So, lesson one – have all important papers ready and handy and make sure that you have filed your income taxes regularly, particularly for the most current year.  I already knew not to make any large purchases between applying for the loan and closing.  Lenders do not like to see large sums of money going OUT of your account(s) during that time.  Now, lots of buyers purchase appliances, furniture, that sort of thing – if it is a large purchase, just run it by your loan officer before you do it.

The other part of this lesson is something I already knew: HAVE A LOAN OFFICER WHO IS ACCESSIBLE, AVAILABLE, AND RETURNS YOUR PHONE CALLS PROMPTLY.  Loans are more difficult these days.  You want someone who can guide you through the process and make sure everything goes great at closing.  Have what I had the second time – a seamless, efficient closing with no surprises that was over in less than an hour.  Do not have a closing like my first one – and you can avoid that by finding the right lender.

MAKING THE OFFER

21 Monday Nov 2011

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Okay, so you’ve looked and looked – and you’ve found the place that you want to buy!  What happens next?  First, have your agents pull COMPS.  COMPS are comparable properties that have sold in the area recently that will help you determine the value of the home that you want to buy.  Typically we start with homes that have sold in the last three months that are within a half mile radius that are “comparable”.  If there aren’t at least three comparable properties within those parameters, we expand the search – going out to a mile and back six months…. And so on.  Your agent can be an invaluable help in determining a fair price for the home and what you should offer.

Once you’ve determined what you’d like to offer, it’s time to put TOGETHER the offer.  We do this by filling out the GAR (Georgia Association of Realtors) Form – there’s one for single family homes, and a different one for condos.  Here are the elements of the offer: 

  • Purchase price you’re offering;
  • Amount of earnest money you’re putting up – standard in Georgia is to put up at least one percent of the purchase price, so for a $500,000 property you’d put up $5,000 in earnest money);
  • Amount of closing costs you’re asking the seller to pay:
    • This must be a SPECIFIC amount.  You can’t just ask the seller to pay “all” closing costs, or 50% of closing costs – you have to ask for a specific amount
    • Make sure the amount you are asking the seller to pay is not MORE than your actual closing costs.  Your lender can help you determine this
  • What DATE you want to close.  Typically you’ll need at least three weeks from making the offer if you are getting a loan (not paying cash) for the lender to underwrite your loan;
  • Due diligence period – this should be seven to ten days, unless there is a good reason to ask for more (say there’s evidence of structural problems, that sort of thing).  During the due diligence period you can terminate for any reason or no reason at all, and still get your earnest money refunded;
  • The closing attorneys you’d like to use; your Realtor can make recommendations for this – it needs to be an attorney who regularly does closings and who in on your Lender’s approved list;

In the stipulations, here are some things (among many) you may ask for (BUT keep in mind, that you might not want to clutter up your offer with lots of ancillary requests, particularly if the offer is a lowball offer):

  • Seller to provide a one year termite bond for Buyer
  • Seller to provide a one year home warranty for Buyer
  • Seller to provide a survey of the property for Buyer
  • Seller to have the property professionally cleaned prior to closing
  • There may be certain items in the property that aren’t listed on the Seller’s Disclosure as staying with the property, but which you want to remain with the property, such as:
    • A porch swing
    • A gas grill
    • A piece of furniture that is custom fit to a certain spot
    • Chandeliers, if not already being left; etc. 

In addition, there are often EXHIBITS to the contract that are necessary: 

  • Financing contingency – if you are paying for the property with a LOAN, you want to be sure that you can obtain financing
  • Appraisal contingency – this assures that the property must appraise for the amount you are paying, or you are able to get out of the contract
  • Lead Based Paint exhibit – if the property was built prior to 1978, you need an exhibit explaining that there may be lead based paint in the property
  • Plumbing disclosure – in some counties, like Dekalb, the county requires that you have LOW FLOW fixtures in order to obtain water service.  In those counties, there should be a plumbing disclosure attached to the contract
  • Seller’s Property Disclosure – this is attached to and becomes a part of the contract
  • Condominium Disclosure Exhibit – sets forth the monthly fees for the condo, etc.

Your Realtor will need your signature on the offer and exhibits, will need the earnest money check IN HAND (the Broker will deposit the check when you’ve reached binding agreement – otherwise, it will be torn up or returned to you) and a prequalification from your lender.

Now, the game begins!  Unless you’ve made a very good offer, chances are that the Seller will counteroffer, and the counteroffers will go back and forth until the parties reach agreement.  At this point, it is INSPECTION TIME – the subject for another blog post in the near future!!!