There are thousands of how-to and tips articles related to homebuying. Most of them are crap written by realtors as the one post on their website before they give up blogging. Most of the advice in these articles is useless generalities that waste everyone’s time. Back in 2007, I wrote my tongue-in-cheek Buying and Selling During a Decline with tips for buying in a buyer’s market. Unfortunately, those days have come and gone:
The First Offer is the Best Offer
This is the most counter-intuitive part of buying in a buyer’s market. Ordinarily sellers, or more accurately the seller’s realtor, try to create a sense of urgency to buy the house. They want the buyer to think other people are looking, there is going to be a bidding war, and the buyer needs to get an offer in today. Realtors thrive by creating fear in buyers. They will use lines like:
- It is a good time to buy!
- Hurry. This one won’t last.
- Don’t throw away your money on rent.
- If you are serious, you had better buy now or you might be priced out of the market.
- They are not making land anymore.
- If you see a property you love, you really need to make an offer.
- The more earnest money you put down, the more seriously your offer is taken.
- Things have been a bit slower than last year, but the last two weeks we have seen a lot more traffic.
- Rates are at all time lows and buyers have more choice than ever!
- Rates are creeping up, so you better get in now.
- If you wait until the bottom, you will miss out on getting a property that you really like.
- This property is priced at below market value.
- Incentives this good won’t be available after…
- Don’t worry about the asking price: just offer what you’re willing to pay.
- Don’t worry. You can afford this house.
- I will show my client the offer, but I just want to let you know that we have another offer for more coming in this afternoon.
- Trust me.
- It’s not just the commission. I really care about you.
In a buyer’s market these ploys are all lies (the truthfulness of these statements is questionable in all market conditions). Generally, the buyer is the only prospective buyer, and they can take as long as they want to buy the house. The buyer’s task in negotiating is to create a sense of urgency and panic in the seller. This is why buyers should make their first offer their best offer.
There are many properties priced over market in a buyer’s market. Sellers resist the realities of the market environment. Asking prices that are much too high do not warrant buyer consideration. Most sellers will not reduce their asking prices more than 15% to consummate a transaction, so “lowballing” a seller with an offer 25% from their asking price is a waste of everyone’s time. If the asking price is not within 15% of the price a buyer is willing to pay, the buyer should not even instigate a negotiation. If the asking price is within range, buyers should start with a bid at least 10% below asking price. This is the best offer. The buyer should lower the opening bid as follows:
- If actively bidding on the property, the buyer should make all offers expire in 3 days, and these offers should be delivered on a Tuesday. The buyer should not allow the seller to think about things over the weekend. If the buyer is still interested in the property after the offer expires, resubmit a fractionally-lower offer (1% is a good rule) on the following Tuesday (make them sweat over the weekend). The new offer should not be so much lower as to lose consideration, but it should be enough lower so that the seller gets the message they need to accept the offer before it drops further.
- If the seller makes a counter offer, the buyer should retract the offer and resubmit a lower one. This works the same as the time decay offer above. After the buyer has lowered an offer a few times, the seller may panic and take the offer before it goes any lower. This is what buyers are after.
- Buyers should lower their offers 1% each time they speak with the seller’s realtor. Every time the seller’s realtor communicates with the buyer, the realtor will pressure the buyer to increase their offer. If the buyer lowers their bid each time the realtor speaks, the buyer sends a message that the realtor pressure is not working, and it is, in fact, hurting the deal. Buyers should lower their offer 2% if the realtor uses one of the standard lies mentioned above.
- If the realtor tells the buyer there is another bidder on the property, the buyer should immediately withdraw their offer and tell the realtor to call if the deal falls out of escrow with the other buyer. Since this statement from the realtor is almost certainly a lie, it will cause them to have to explain to their client why the only buyer around has pulled their offer.
These practices won’t work today (not that they ever did). They were useful for making desperate loan owners angry and venting against the injustice of the bubble, but if you want to obtain a property, some more useful tips might be in order. I came across a recent article in Time Magazine that was actually pretty good.
The Best Times to Buy or Sell a House
By Mark Di Vincenzo | October 10, 2012
The housing market, a reliable bellwether of the economy, seems to be bouncing back.
Many of the nation’s largest home builders surprised analysts by reporting a profit in the quarter that just ended. Home sales continue to rise nationwide, compared with 2011, and home prices also are up. Prices rose 4.6% in August compared with a year ago — the largest year-over-year increase in more than six years.
All of this good news has been widely reported, so many Americans are thinking more about wading back into the real estate market, both as buyers and as sellers. But how many people know there are best times to buy and sell houses?
Here are some timing tips from real estate agents that can save home buyers and sellers a lot of money:
The best month to make an offer on a house is January. Fewer buyers are willing to house-hunt during cold, nasty weather, so there’s less competition and few, if any, bidding wars. Sellers also tend to be more motivated than they will be in the spring, when there are more buyers. Why? They may have just received their credit card bills that reflect Christmas spending and may be feeling financially insecure. And their decision to try to sell their houses in the winter means they’re willing to risk listing during a time of the year when properties tend not show particularly well.
I have written many times about buying in the fall and winter to get the best deals. Many buyers who have worked with Shevy and his team are loyal readers of this blog who know the next several months are the best time of the year to shop. This year will be somewhat different due to the lack of inventory, but if the inventory does not return next spring, this fall and winter may still represent the best time of the year to shop.
The best day of the month to make an offer on a house is the first Tuesday. Why early in the month? Because the homeowner just wrote a mortgage check for a house he no longer wants – or needs to sell — and he doesn’t want to write another one. Why Tuesday? Because by Tuesday he’s starting to worry that he won’t get any offers from house hunters who saw the house the weekend before.
Interesting idea. It’s probably valid.
The best time of the year to sell a house is the spring. Buyers come out of the woodwork during the spring, and with tax refund checks in the bank, spring buyers more often pay full price. In fact, sales peak in the spring, helping to explain why about 60% of those who move do so in the summer. Tip within a tip: Don’t price your house with a zero at the end. Studies show that people perceive a precise price, such as $282,284, as lower than rounded ones, such as $280,000, even when the rounded prices are actually lower. Real-life sales show that one zero at the end of an asking price lowers the final sale price by .72% and two zeros lower it by .73%. That may not sound like much, but it can add up to thousands of dollars.
Spring is certainly the best time to sell. There are generally competing buyers, and despite the increased number of other listings, the demand is so much higher that the spring has consistently proven to be the best time to list a house for sale.
The best day of the week to list your house for sale is Thursday. This is more true during a sellers market, but if you list your house for sale on a Thursday, it will be available right away for weekend showings and by Saturday — the most important day of the real-estate week — your house will have shown only two days. That’s important because the fewer days on market, the better chance the home will attract a full-price offer. Even if your house doesn’t sell by the next Saturday, it will still show only nine days on market, benefiting from the psychological advantage of a single-digit number.
I don’t know how true that is, but it’s another interesting idea.
The best time to stop renting and buy a house is when it costs less to buy than to rent. Makes sense, but how do you figure that out? Find two similar houses – one for sale and one for rent – and divide the asking price by the annual rent. The difference is called the rent ratio. During the 1970s, 1980s and 1990s, the nationwide rent ratio stayed between 10 and 14, then rose to nearly 19 in 2006, when the housing market topped out. (The rent ratio neared 35 in San Francisco and San Jose in 2006.) A rent ratio of 20 or more usually means that it costs considerably more to own than rent after you factor in the mortgage, taxes, insurance, repairs and other expenses. It makes financial sense to buy when the rent ratio is a lot closer to 10 than to 20.
There is a much easier way to determine when the cost of ownership is less than the cost of a rental. I provide this information every day with properties on the blog, and Shevy produces Fundamental Value reports for clients on any property they bid on. Providing an accurate cost of ownership is more complex than the formula he presents above, and finding good comparables requires local market knowledge.
I have long been a proponent of buying when houses are below rental parity. Now that prices are that low, it’s very frustrating to have so little available for sale. I wish I could see that changing soon, but right now, it looks like low inventory is the new normal.
40% off the peak
Despite the headlines about rising prices, some properties still sport healthy discounts from the peak. Today’s featured property is an REO, not a short sale with a teaser price. The bank allowed this peak buyer to squat for nearly three years before finally forcing him out. Then they sat on the property for 10 months themselves before finally putting it on the market. They stand to lose $500,000 or more on this loan. Ouch!
Wouldn't you be embarrassed to overpay by $100,000? Only fools buy houses without knowing neighborhood values. Don't be a fool. Don't suffer the pain of an underwater mortgage. The surest way to lose your house is to overpay for it. Our reports identify overvalued and undervalued neighborhoods. Use it to broaden or narrow your search area. Savvy buyers work with us to find bargains. We've saved thousands from financial ruin. Let us save you too. If you want peace of mind while shopping for your next home, sign up for our monthly market newsletter.
We're sorry, but we couldn't find MLS # S714307 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
Proprietary OC Housing News home purchase analysis
22732 BOLTANA Mission Viejo, CA 92691
$769,900 …….. Asking Price
$1,325,000 ………. Purchase Price
4/11/2006 ………. Purchase Date
($555,100) ………. Gross Gain (Loss)
($106,000) ………… Commissions and Costs at 8%
============================================
($661,100) ………. Net Gain (Loss)
============================================
-41.9% ………. Gross Percent Change
-49.9% ………. Net Percent Change
-8.0% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$769,900 …….. Asking Price
$153,980 ………… 20% Down Conventional
3.43% …………. Mortgage Interest Rate
30 ……………… Number of Years
$615,920 …….. Mortgage
$141,812 ………. Income Requirement
$2,742 ………… Monthly Mortgage Payment
$667 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$192 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$62 ………… Homeowners Association Fees
============================================
$3,663 ………. Monthly Cash Outlays
($607) ………. Tax Savings
($981) ………. Equity Hidden in Payment
$165 ………….. Lost Income to Down Payment
$116 ………….. Maintenance and Replacement Reserves
============================================
$2,357 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$9,199 ………… Furnishing and Move In at 1% + $1,500
$9,199 ………… Closing Costs at 1% + $1,500
$6,159 ………… Interest Points
$153,980 ………… Down Payment
============================================
$178,537 ………. Total Cash Costs
$36,100 ………. Emergency Cash Reserves
============================================
$214,637 ………. Total Savings Needed
The property above is available for sale on the MLS.
Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
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Nearby Foreclosures
Gain a competitive advantage over other buyers. By locating distressed properties -- before they hit the MLS -- you can discover where tomorrow's REOs and short sales will appear. Most of these properties are not listed on the MLS, but they will be soon. Research properties in advance and get a jump on your competition. Don't miss out on another deal because you couldn't act quickly. Use this tool to your advantage! The red properties are already bank owned. As soon as REO asset managers prepare them for sale, they will be on the MLS. Get ready! The green and blue properties have owners who are not paying their mortgages. They may be offered as short sales, or they may go through foreclosure and become REO. Either way, they will also likely be available on the MLS soon. Find your next home! Be prepared to offer on these properties by researching them in advance or risk losing out to buyers who are have done their homework. Start your research today! To find distressed properties, enter your desired location and press search. Scroll through list by pressing "next."
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C.A.r. Survey Finds Short Sales Less Frustrating, but Still Difficult
The short sale process, while still difficult, is becoming a little less frustrating, according to a Lender Satisfaction Survey conducted by the California Association of Realtors (C.A.R.).
The trade organization reported 64 percent of California Realtors expressed difficulty in closing short sales, an improvement from 77 percent in August 2011 and 70 percent in 2010.
However, the more significant improvement was the drop in Realtors who described the short sale process as “extremely difficult.” More than half (56 percent) of the Realtors surveyed in 2011 said the process was “extremely difficult” compared to about a third (34 percent) in 2012.
The survey is based on Realtors’ most recent short sale transaction.
“While it’s encouraging that lenders and servicers are making headway in improving their short sale processes, they still have more work to do to ensure that not only REALTORS®, but also home sellers and buyers have a better experience when dealing with short sales,” said C.A.R. President LeFrancis Arnold.
Overall satisfaction with lenders during the short sale process improved, with 28 percent expressing satisfaction in 2012, compared to 16 percent in 2011. A smaller share was also dissatisfied, with 59 percent expressing dissatisfaction, down from 75 percent in 2011.
In addition, more than six in ten Realtors said they would not refer buyers to the lender for future home purchases, down from 78 percent in 2011.
Among the main obstacles Realtors faced, a lender’s slow response time to a short sale package was the most cited, with 67 percent of Realtors marking it as an issue, according to the survey.
Poor communication with the lender representative was the second most cited obstacle, with 55 percent of Realtors selecting it as an issue. Half of the Realtors also said repeated requests for documentation hindered them as well.
Other obstacles included a buyer backing out or long negotiations (32 percent), problems with second lien holders (23 percent), and a lender foreclosing on a borrower before the transaction is completed (8 percent).
The GSEs and Bank of America have addressed some of the issues through changes to their short sale process.
“A recent change announced by the Federal Housing Finance Agency (FHFA) to align Fannie Mae and Freddie Mac short sale guidelines will allow lenders and servicers to quickly and more easily qualify borrowers for a short sale, further improving the process,” said Arnold. “C.A.R. has long advocated for a standardized short sale process, and agreeing to a more standardized process may be the best way for banks, servicers, REALTORS®, and homeowners to facilitate the sale of homes that qualify.”
The survey also included a recently developed Lender Performance Index (LPI), which measures how satisfied a Realtor is with a lender.
With 50 as the median, the index stood at 23 in 2012, up from 17 in 2011 and 16 in 2010.
Politicians duped loanowners into thinking relief was coming, then they diverted the relief money to other more deserving ends.
States Divert Nearly Half of Settlement Money Earmarked for Housing
Less than half of the states’ $2.5 billion from the national mortgage servicing settlement is being used for housing initiatives as intended, according to a study released Thursday by Enterprise Community Partners, Inc., a nonprofit group that supports affordable housing programs and spearheads community revitalization projects.
It’s been just over six months since a federal judge approved the agreement reached between the nation’s five largest mortgage servicers and officials from 49 states, the District of Columbia, and the U.S. government. Enterprise observed the six-month mark with a report on the states’ allocation of their share of the funds.
The five servicers–-Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo—agreed to a $25 billion penalty as part of the settlement. Of that total, $2.5 billion was paid directly to the participating states (all but Oklahoma signed on to the national settlement).
These direct payments were intended to help prevent foreclosures, stabilize communities, and prevent and prosecute financial fraud.
To date, states have announced plans to spend $966 million of the settlement money on housing- and foreclosure-related activities, according to Enterprise’s study. The nonprofit group found state governments have diverted $988 million, funneling the money instead to their own general funds or toward non-housing ventures.
There’s still $588 million that has not yet been allocated for specific uses; Texas and Florida hold the lion’s share of outstanding, non-designated funds.
While the majority of states plan to use most of their funds for housing-related activities, Enterprise says it’s the largest recipients—including California, Florida, and Texas—that are not currently addressing their local housing issues with the settlement money.
Enterprise found six states have deviated completely from the agreed upon uses of the funds, allocating zero percent to housing: Alabama, California, Georgia, Missouri, New Jersey, and South Carolina.
In a number of states like Ohio, Tennessee, and Connecticut, Enterprise says settlement funds have begun to flow as intended.
Terri Ludwig, president and CEO of Enterprise, says her organization’s study spotlights the fact that the majority of the settlement funds, particularly in some of the hardest hit states, are not being put to use as planned.
GSEs Anticipate Winter Price Declines
Even with a September jobs report showing unemployment slipped below 8 percent, combined with an increase in consumer confidence, Fannie Mae’s Economic & Strategic Research Group expects economic growth to “remain at a sluggish sub-2 percent rate this year.”
In its October Economic Outlook report, the research group pointed to financial and policy issues in the U.S. and abroad as looming challenges that could restrain meaningful economic growth in 2012.
“The U.S. fiscal cliff and debt ceiling debate as well as the weakened global economic environment are likely to create the strongest headwinds facing any real improvement this year,” said Fannie Mae Chief Economist Doug Duncan in a release. “With these issues hanging in the balance, we believe risks remain tilted to the downside.”
While the outlook on the economy was uncertain, the assessment for the housing market was more stable.
“News from the housing sector is more positive, with various indicators showing continued momentum toward a sustainable, long-term recovery,” said Duncan. “Notably, home prices are inching back into positive territory on a year-over-year basis.”
With the winter season comes slower activity in the housing market, but the research group still maintains the viewpoint that home prices hit bottom earlier this year, despite an anticipated dip in home prices this winter.
In addition to the bottoming out of home prices, the GSE’s research group said record low mortgage rates should encourage more consumers to enter the housing market. As housing activity picks up, the group expects to see total home sales increase 9 percent from the previous year.
More importantly, the low mortgage rate environment, which is being encouraged by the Fed’s stimulus, will continue to motivate more consumers to seek refinancing options. As homeowners find themselves with lower monthly payments through lower interest rates, they will have more to spend, save, and to use toward debt, the research group explained.
The drop in mortgage rates also prompted the research group to revise its projection for refinance originations 20 percent higher to $1.8 trillion for 2012.
realtors Who Are Assholes Sell More Property
Real-estate agents, take note: It’s better to be feared than loved.
Research led by a professor at Morgan State University has found that brokers who score high in Machiavellian personality tests sell more real estate than their kinder, gentler colleagues.
Abdul Aziz, associate professor of management at the Baltimore school, and Jim Meeks, a senior at the time at the College of Charleston, devised a “Mach-B scale” to measure Machiavellian behavior in people across various occupations. The personality test looks for traits described in the writings of Niccolò Machiavelli, a 15th-century Italian diplomat. A Machiavellian person, Prof. Aziz explains, is emotionally detached, prone to deceive and believes that the end justifies the means, even if it is not morally right. “Machiavelli believed in using dirty tricks in order to succeed,” says Harvey Mansfield, professor of government at Harvard University and author of numerous books on Machiavelli.
“The key word in Machiavellian is manipulation,” Prof. Aziz says. “It’s a dirty word, but in our average daily life, we always manipulate information.” Machiavellian people are very good in business situations and are astute at reading others, Mr. Aziz says. “They need to understand the needs of other people and gain their trust,” he says.
For the Mach-B test, people from various occupations were asked how much they approved or disapproved of seven scenarios: for example, how they would judge a person who took a prime parking spot on a stormy night that someone else was waiting for. The answers were graded on a scale from 7 to 28, with 7 indicating the least Machiavellian personalities. Real-estate agents came in at an average of 14.8, which Mr. Aziz categorizes as a moderate score. The number falls below those of automobile salespeople, stockbrokers, health-care employees and timeshare sales agents.
Real-estate agents who exhibited more Machiavellian traits tended to see higher sales, meaning Machiavellian behavior and performance were found to be highly correlated. Automobile salespeople and stockbrokers with higher Mach-B scores also saw increased performance.
Of course, not all real-estate agents have Machiavellian personalities, says James Larsen, a professor of finance at Wright State University who has studied ethics in real estate.
“In general, anyone in real estate is likely to be dependent on repeat business. If you take a Machiavellian approach, then that would hurt your long-run prospects.”
But Prof. Larsen notes that certain personality traits of successful agents overlap with Machiavellian people. “You’ve got to be a people person. Being a go-getter and aggressive negotiator doesn’t hurt.”
I thought it was common knowledge that in today’s society (and all of history) those who lie, cheat, steal, intimidate and otherwise are $hitty people typically make more money (whatever the profession).
I would like to think that nice guys don’t always finish last, but perhaps you are right. Real estate sales has this problem to a larger degree because the rewards for lieing, cheating, and stealing are greater. Plus, the pathology is deeply woven into the core of realtor business practices. Lies told to motivate buyers is not just accepted, it’s encouraged.
IR,
RE is not an exception.
That is what it taught in B school, except for the veneer of ethics and law classes.
Dilbert appears to be a training manual for many in C B.
Most of the RE agents that I know actually believe the stuff they say–even those that have lost money. “It was just a temporary bad market.”
Cognitive dissonance, confirmation bias, seeing what they want to see; since realtors duped so many into committing financial suicide during the bubble based on their bullshit recommendations, they need some form of denial to continue to feel good about themselves.
Based-on the barrage of mainstream media/sell-side ”housing recovery is now” headlines blasting the populous, there’s no doubt the following phrase is going to become synonymous with the year 2012.
‘head fake’
The housing market is behaving like a drunk having a Bloody Mary to cure a hangover. Alcohol and caffeine may provide some temporary relief, but only purging the bloodstream of alcohol will cure the hangover, or in this case, purging the system of real estate appreciation kool aid.
The HELOC and perpetual QE are like meth. addiction. There a rush of euphoria and energy, then the down, followed by another hit to repeat the cycle. More is required each time for the high and energy boost. The face starts to deteriorate due to meth-induced obsessive compulsive (OC) behaviors. There are pimples and itches that are scratched until they become scared craters. It’s not very pretty.
Maybe O.C.’s HELOC and repetitive equity withdraw/refinancing is a addiction that needs to be overcome instead of government supported. The injection of QE money is showing decreasing affect to stimulate the economy.
When I’ve made offers on properties, I’ve waited the full 3 days before responding to any counter offers. This is the equivalent of “icing the kicker” in football. It gets them thinking about how badly they really want to sell the property. Also, I convey a sense of anger or dismay to my agent even though that’s not how I’m really feeling, because I know the first thing the agent will do is blab to the seller’s agent about how upset I am. That adds legitimacy to the bluff. Is that Machiavellian of me?
Thanks for the other tips! I had never thought about Tuesdays being the optimal day to make offers. I would add that rainy weather can add to that sense of desperation that nobody is coming to view a property.
Thanks for sharing your technique. I imagine it’s quite effective.
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