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Waiving the Appraisal Contingency

If you find a hot buy that is likely to have multiple offers, you will be confronting the uneasy choice of waiving the appraisal contingency in your offer.  It’s likely that the other buyers will do it too, so it’s become a part of the minimum package needed just to compete.

If the appraisal comes in below the sales price and you have a 20% down payment or less, you will be forced to make up the difference in cash (or pay mortgage insurance, if possible).

In an unfortunate frenzy effect, because the appraisal contingency has been waived, listing agents don’t show up to help substantiate the value to the appraiser.  It used to be one of the vital jobs of the seller’s agent to provide recent sales to the appraiser to ensure the appraisal came in at the sales price – so the sellers wouldn’t be faced with potentially having to lower the price to appease the buyers.

But these days, the listing agents couldn’t care less.

So now when we have the buyers, I meet the appraisers.  I want to make sure I do everything I can to persuade the appraiser to hit the sales price so my buyers don’t have to bring in more money.

I just had one where, two days before our appraisal appointment, a new listing of a model-match but inferior condo hit the open market priced at 10% UNDER our sales price in an obvious ploy to start a bidding war.  I already had a big challenge with the comps because there had not been a sale in the complex all year – and appraisers don’t like using sales from complexes that were 3-4 miles away.

But I convinced him, and the appraisal came in at our sales price!

Model-Match Comparison in Frenzy

This home in La Costa Oaks listed for $1,800,000, and then the price was raised to $1,900,000.

It closed yesterday for $2,150,000 – here is the video tour:

We sold the same model for $1,910,000, and the sale closed today:

https://www.compass.com/listing/7337-calle-conifera-carlsbad-ca-92009/760203178471857041/

Two of the same models, on the same street, sold the same week and had a 13% variance in price – wow!

Get Good Help!

Buyer-Agents Being Crushed

Home buyers deserve to have their own representation.

The broker cooperation system which allows every agent to share their inventory with all other buyers via the MLS has worked well for 100+ years.  But it has been under attack for years, and it may not survive the tight-inventory era where sellers and listing agents want to minimize or eliminate buyer-agents altogether.

An agent sent this in today:

Do you know that Lennar is no longer paying agents a commission or referral fee?

I have been working with a client for almost a year. She wouldn’t have known about the Lennar at Treviso community without me bringing her there. I registered her as my client and when her name got called on the list, they told her they’re no longer cooperating with agents and if she tried to include me she’d lose the house. Thank you Lennar for putting my client is a horrible position. Hey builders. Don’t ostracize the brokerage community! The market may be busy now but when the tides turn, you’re going to need us again. This is bad business.

I know for a fact that Lennar isn’t paying commissions on any of their SD communities currently.

I agree that it’s bad business to have an agent sign in their buyer as required to receive the commission, but then rescind their offer of compensation when the buyer steps up to purchase.  But nobody cares about buyer-agents, and the abuse will continue. Lower or no commission being offered, no clarity on how multiple offers get handled (other than the usual “I just let the sellers decide”, which is a lie), and no easy path to show and sell.

What is the result of buyer-agents being snuffed out?

Here you go:

https://www.cnbc.com/2021/05/17/64percent-of-millennials-have-regrets-about-buying-their-current-home.html

Buyers don’t recognize the need for getting good help.

An apprentice from a realtor team will suck them in with the promise of getting them an ‘off-market deal’, but then get sold a 1,200sf two-story house in a gang-infested area for 10% to 20% over value (true story).

We should probably just drop the seller-paid commissions – though they should have the right to offer a bounty – and have buyers pay their own agents. Those who value good help will seek out the best agents, and those who don’t will get what they get and wind up with regrets.

 

Daring You To Buy

In the last couple of weeks, you may have seen prices on new listings reflecting today’s exuberance.

Homes that are priced attractively will generate the crowds, and likely get bid up over list.

Others are listed for a price that raises an eyebrow. In areas where we’ve seen 10% to 20% appreciation in the last six months, are sellers packing that much on to their list price PLUS another 5% to 10% – or more?

How do you recognize the difference?

The difference between a bidding-war listing, and a seller just daring you to pay their price?

Thoughts for Buyers Wondering If The List Price Is A Dare:

Compare to the Pendings

If you only consider the sold comps from the last six months, you probably won’t buy a house in this market – one which should last at least a couple of more months before there’s any possibility of unsold listings starting to stack up.

Who is the Listing Agent?

Known and successful listing agents aren’t going to list a home for some crazy too-high price. They know it’s better to keep it attractive, and let the market do its thing.  If you’ve never heard of the agent and he acts more like a kook from Montaluk, then know that their list price is more likely to be outrageous.

Quiz the Listing Agent

The number of showings doesn’t matter as much – the number of offers does. If there have been 50 showings but only 2-3 offers, it means the price turned off 90% of the buyers. Unfortunately most listing agents are shutting down the showings so fast that it’s hard to get an accurate count – or to get them to fess up.

The Age of the Home

The older the home is, the less likely it’s worth a premium.  The floor plans aren’t current and the upgrading over the years is likely to be inconsistent – those will be even more difficult to sell in a normal market. They do tend to be in the better locations, so the home’s age isn’t a hard stop.  But typically the older homes are less likely to be worth a big premium today, let alone in the future.

Days On Market

If you’re not sure if the price is right, then wait it out.  The initial frenzy dies off quickly, so if you don’t need this house like you need air to breathe, let ride and see if it goes unsold for the first 7-10 days.  It’s really the only way to know for sure if the price is wrong.

Stay Picky

Only pay a huge premium if it’s the perfect house for you. There’s a decent chance that appreciation flattens out over the next few years and you end up high & dry for a while. But you don’t care because you’re in it for the long haul, so make sure this home fits ALL your needs. No compromise.

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The market for the best homes has been hyper-competitive for years – it’s only because of the covid/low-rate cocktail that buyers are flooding the streets in numbers we’ve never seen before.

Maybe you should wait it out?  Aren’t all sellers daring you to buy now?

You’re just buying homes today at tomorrow’s prices. If prices go up another 10%, and appreciation flattens out and you can score a deal at 10% off, then you’re only back to where you would have been today.

Low Inventory, More Sales

The NYT has another article lamenting the drop in the number of homes for sale, and offered some reasons, like covid reluctance, sellers skittish about finding their next home, forbearance relief, the lack of building new homes, and people keeping their old home as an investment property when they buy a new one.

But who cares about inventory when we’re having MORE SALES THAN EVER.

It’s true that the number of new listings this year is about 23% behind where it was last year at this time.

The other day I compared just to 2020, but here’s a look at the last ten years:

NSDCC Closed Sales Jan 1 – Feb 15

Year
# of Sales
Median Sales Price
2011
158
$810,500
2012
153
$749,000
2013
197
$845,000
2014
261
$1,007,500
2015
252
$1,200,000
2016
253
$1,125,000
2017
260
$1,200,000
2018
231
$1,300,000
2019
242
$1,288,000
2020
254
$1,394,775
2021
299
$1,695,000
% Change, YoY
+18%
+22%

We haven’t had this big of a jump in number of sales AND median sales price to start the year since the Frenzy of 2013 bled into early 2014 when we had a 32% increase in sales and +19% in median sales price. Back in 2004, we had a 26% increase in the median sales price (from $635,000 to $799,000), but the number of sales dropped from 253 to 209.

This is the new reality – more people chasing fewer homes for sale.

Buyers who might think we’re going to get a pullback because rates have gone up are going to get a good lesson on who’s in charge here. Sellers don’t care about rate hikes, lack of inventory, or your lease expiring. They just want their money, and if they don’t get it today, they will wait until they do.

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Realtor MLS Club

Selling a house is different every time – it’s truly the wild, wild west.

Because there are no standard rules of engagement on how to sell a home, everyone does it differently.  I had an agent accost me on why my offer was so low (it was full price), to which I said that it’s my preference to save my bullets for the highest-and-best round. She responded, “WE NEVER COUNTER”.

You just never know what to expect.

With real estate, every house is different, and so are the players (sellers, buyers, and agents).  Mortgage rates go up and down, loan-qualifying affects buyers differently, and resolving the condition of the home is a wild card on every deal.  Even if there was a simple way to navigate those, you still have to contend with the emotions and egos of the human beings involved – which can be extreme when dealing with a life-changing decision that might have to last you forever.

Now add the low-supply/high-demand environment, and it’s never been so crucial to get good help.

Yet, Zillow, Redfin, and others want you to believe that they can dumb down the process into a paperwork shuffle. They pitch lower costs, but never consider that a home’s sales price depends on who is selling it – and there is a wide variance in today’s market.

The NAR doesn’t get it either. They are creating a national MLS to compete with Zillow, but unless they spend multi-millions of dollars on advertising (very doubtful) the buyers and sellers won’t know they exist.

What we need is for realtors to stand up and save the model that has worked the best for all parties.

Last year was all fun and games as we got used to the new intensity.  But now it’s obvious that the low inventory is causing a sea change among buyers. In the Under-$2,000,000 market, the comps don’t matter any more, and winning at any price becomes the only goal.

Once buyers figure that out, they will appreciate getting good help like never before – and hopefully before it’s too late. If a seller picks the wrong agent, it only means leaving money on the table, which is the cost of real estate ignorance.

The best chance to ensure that the traditional model endures is for realtors to create our own private listing club, and these guys are on to it. They had 700 agents on this call, which is impressive but it’s early and they would need to commit massive resources to reach the entire country.  The word-of-mouth among agents could take them a long way, however.

Here’s a peek behind the scenes.  Decide if you think they can sell it, or if they might hit the eject button when the heat gets hot – because the outsiders are going to challenge this idea:

Get Good Help!

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Chasing The Market

The term ‘chasing the market’ usually applies to sellers in a down market when they don’t lower their price fast enough to get ahead of the new listings coming on that are under-cutting them.

The reverse is also true about home buyers in a hot market.

Those in the hunt for weeks or months who have lost several bidding wars are watching each new listing get priced higher and higher, and their frustration mounts as they struggle to get ahead of the trend.  Some buyers can get priced out altogether, and others buck up and pay an exorbitant price just to end their misery and get on with life.

It just happened like that in La Costa Oaks.

I had two great comps nearby when when we priced our 7168 Sitio Corazon listing at $1,379,000, with the latest being right across the street.  Ours had the master suite downstairs, which isn’t as popular with families with young kids – and the 3,563sf plan has the master upstairs with the rest of the kids’ bedrooms.

It’s very unusual in the low-inventory era to have four sales within five months – especially this close together.  You can see what happens – they feed on each other, with the intensity building with each sale.

After my efficient and timely bidding war where I gave all contenders the chance to submit their highest-and-best offers, we ended up with three.  Two were $1,450,000, and the winner was a decisive $1,470,000 with no appraisal contingency and a 30-day rentback for my sellers.

Many of the buyers who saw my listing went across the street when 7177 Sitio Corazon hit the market a week later. I told the listing agent and the seven buyer-agents who contacted me that our sales price was $1,470,000, which helped feed the frenzy.  With it being the more desirable floor plan and full transparency about how hot the market is, buyers went crazy – and there were eight offers.

The buyers who won with an offer of $1,600,000 were one of my $1,450,000 offers.

They were tired of losing, apparently, and added enough mustard to clinch it – about 10% over list price, and more than 23% above a nearby model-match sale in August!

Get Good Help!

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