I am shopping for my first home. I am pre-approved and at homes in the $150,000-$200,000 range.

Asked by Susan, Sacramento, CA Thu Dec 4, 2008

I have a down payment of $30,000 and 805 credit score. Can you offer any advice on how to make an attractive offer, when the time comes, so that if I'm up against other bidders (as this price range seems to attract several offers to each house) I will be the one that comes out on top? For example - if you offer at full price but ask the seller (or bank if REO) to cover closing costs, is that looked down upon? Any other tips or advice?

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Jim Walker, Agent, Carmichael, CA
Sat Dec 6, 2008
Just some observations about why so many buyers find themselves repeatedly in multiple offer situations when there are so many listings available.

1. Most buyers choose to make offers only on the homes that are priced at or below market value.

2. Few buyers will choose to make offers on homes that are overpriced.

3. It makes sense for serious sellers to price below market in order to achieve maximum exposure, receive a high number of offers and choose the highest ones and sell for the best price.

4. Therefore it makes sense for savvy homebuyers to also look at homes that are overpriced and have few or no other buyers competing in the bidding.

5. It is common for two different banks to list identically valued properties a hundred thousand dollars apart. One bank will ask $50,000 too much, the other bank asks $50,000 less than what it is worth. - Which one do you think sells for the highest price after getting multiple offers?

5. I have seen buyers who lost out in multi offer competitions where they overbid by a huge amount subsequently win a similar house for a huge underbid, because they looked at houses that were overpriced as well as the cheaply priced ones.

6. Don't deprive yourself of the best bargains by only looking at houses that are underpriced. You just gotta outwit the banks and their asset managers.
1 vote
Erin Stumpf…, Agent, Sacramento, CA
Fri Dec 5, 2008
Hi Susan,

Thanks for asking such a great question...the price range you are in is a brisk market, and (as I have stated before) the cherries are picked early on. Strategy is critical, and the sooner you and your Realtor can implement a few key pieces, you will be able to stand apart from your competition.

Unfortunately, not all buyers and offers are created equal. You can only create as strong of an offer as your circumstances will permit. Luckily, and especially for the price range you are in, you have great buyer credentials.

You will want your Realtor to craft an offer that includes the following components:

-Pre-approval letter from your lender. Hopefully you are working with one already. Be sure to allow your lender to verify your income, assets, credit score, and employment in advance, and make sure that your pre-approval letter states it. Also, since you have such an impressive credit score, ask your lender to put your mid-FICO on your pre-approval letter. If you want to go a step further, ask your lender to provide you with an Automated Underwriting approval (sometimes referred to as a DU approval) printout. Some REO's will require that you pre-qualify with a specific lender - so be aware of this requirement if it exists for the property you want. As an aside, you will probably be using a conventional loan program given your resources for a downpayment -- but for anyone else reading this, FHA or VA/CalVet financing, or the use of downpayment assistance will be looked at as less favorable by a bank. Do what you can...as I stated you can only create as strong of an offer as your circumstances allow.
-Proof of funds to close. Because you have a downpayment, provide proof that you have liquid funds.
-Copy of your deposit check for at least 1% of the purchase price. If you are comfortable with offering a larger deposit - do it.
-Short timeline to close your escrow. Ideally 30 days or less...occasionally a bank will not be able to close as soon as your timeline...let them be the ones to extend that time period...of course, verify with your Realtor and lender that you can close in 30 days or less. Some REO's have a liquidated damages provision in their paperwork - a daily penalty if you close escrow late. I have seen this up to $400/day.
-Allow that the title/escrow be the company of the seller's choosing.
-Do not ask the seller to purchase a home warranty for you.
-Do not ask for a pest inspection report or clearance. Most REO's get pest inspections in advance. If a pest inspection was performed, there should be a tag posted in the garage (or if not in the garage, look for the water heater as it is usually near that) from the pest company. The tag will be dated when the inspection was performed, and the company's contact info will be on the tag. These reports are public information - call and request a copy of the report. If there are substantial repairs that you want to ask the seller to complete prior to closing, cap the cost at a specific dollar amount.
-Be prepared to remove your contingencies early. The default timelines in the standard CA Residential Purchase Agreement are 17 days to complete your inspections and get your financing in order. If you can work on a speedier time line (like 10 days or less), this will be looked at favorably.
-If you can pay your own closing costs - don't ask for a credit.

As far as other strategy elements - get to the property as soon as you can once it hits the market...the good ones go quickly and with multiple offers. Make sure your Realtor analyzes the market value of the property as many listings today are priced artificially low to attract lots of attention. The sellers are looking for the "highest and best" offer - which is the best combination of net proceeds ($ from the sale) and terms.

I think that about covers it. Good luck to you!

Web Reference:  http://www.SacREBlog.com
1 vote
Tyler Flaher…, , Turlock, CA
Thu Dec 4, 2008
A clean offer is one where you ask for pretty much nothing back. Yes inspections are a great idea and I highly recomend you get them done but don't put them in your contract. In the past or when buying from an individual not a bank a pest clearance is a typical request. If dealing with a bank your agent may want to leave these things out so that your offer is "cleaner" than someone who may throw an offer of asking price but ask for inspections (which can lead to repairs). There is plenty of inventory out there that you can find a good house that will pass inspections. If you have an inspection done after you have an accepted offer and the inspection comes back with something that needs to be fixed you can either request for repairs or back out of the offer. You typically have 17 days to do so, but in most cases I have seen the bank may shorten that 17 days to 10.
Good luck
1 vote
Ute Ferdig, Agent, Newcastle, CA
Thu Dec 4, 2008
Hi Susan. You have excellent credit and a pretty good down payment. That's the good news. The bad news is that you have to compete with investors, many of whom will make all cash offers or offers with larger down payments. Most banks will give preference to all cash offers, even if the all cash offer is lower than your offer. This means that you'll have to come in above asking price. If you want a buyer's credit, I would recommend that you add the credit to the price you offer. Yes, some banks are willing to pay for buyer credits, but if you want to come out on top, you want to make it so it does not affects the bank's bottom line. You'll have to be patient. Don't get discouraged if you are outbid. I would also not focus only on bank owned properties. Owners of non-distressed properties have to put their properties on the market at competitive prices to compete with bank owned properties. Don't think you can only get a bargain if the property is bank owned. Not all bank owned properties are bargains.

If you bid on a bank owned property, be prepared to complete your inspections in 7 days and close in no more than 30 days.

Good luck to you.
1 vote
Sue Archer R…, Agent, Palm Harbor, FL
Fri Dec 5, 2008
Expect that you probably WILL be up against other buyers, if the home is in decent condition and a good neighborhood in that range. But then again, with the holidays upon us, you might find less competition than when the weather is warm, the sun is shining and people aren't distracted by holidays. So don't get discouraged and give up.

As others have said, each property needs its own specific negotiation strategy so to plan a strategy that will work for every house is not realistic.

It sounds like you've taken the first step and set yourself up financially, being in contact with a lender who will provide you the prequalification letter that allows you to make an offer. The next step is to find the neighborhood/home that you like.

If you are not focused on a specific neighborhood but more focused on a home that meets your needs, you could expand your list of potential homes by being more familiar with the cost for certain repairs. If a house smells terribly, then many buyers immediately reject it. For a minimal cost, this could be your dream home with little competition! Hepa Air filters, sealing floors once soiled carpet is removed, cleaning and painting can remove odors and damage. That's just one example.

If you are focused on a specific neighborhood, my clients exhaust the homes on the market first in an 'active' status. If we do not find what we want, or were not successful in our bid on a home, we will then consider short sales listings (but only after we've looked at all others). This is a different effort to qualify how real the short sale listing is....but that's another article and spoken of many times on this site. And last, we will review for upcoming foreclosures. That's again more efforts.

I guess the main message from all of us, is persistence. My experience has been that when my buyer does not get the first house that they wanted, they ended up with a better home. It just seems to work that way so hang in there and let your realtor give you the benefit of their experience for each individual deal.
Web Reference:  http://www.suearcher.com
0 votes
NonRealtor, , 23456
Fri Dec 5, 2008
Wait another year, save another 20% on the price. When prices decline more than your 30K down, you are stuck with the house--you can't refinance--you can't sell. Good Luck
0 votes
Bill Eckler, Agent, Venice, FL
Fri Dec 5, 2008
You are well on your way....getting pre-approved was the first and biggest step because you now know what price range you should be focusing on. There are several things you can do to make your offer more appealing:

1. submit a copy of the pre-approval letter with your contract

2. keep the contract clean by minimizing the number of contingencies

3. offer to close in 30 days or less in possible

The fact that you have a sizable deposit and a healthy credit score will help as well.

Good luck
The Eckler Team
0 votes
Beth Moran, Agent, Folsom, CA
Thu Dec 4, 2008
Hi Susan,
Your realtor should be able to do a market analysis for you once you find a property you're interested in purchasing. I don't agree with Cindi about waiving your inspections. You never know what you're going to find in the way of structural issues and forfeiting your right to walk away if you find something you cannot abide is not in your best interest. Your agent's job is to give you as much information about the market as possible in order for you to make an intelligent decision. You are in a great position to play with the big boys and if the compeition is keeping you from suceeding in a purchase then you need to analyze your offers and see what isn't working and make some corrections. Ask your agent to find out why you didn't get the homes you offered on. Sometimes the listing agent will reveal information that can be useful to you on your next offer.
Good Luck
0 votes
Susan, Home Buyer, Sacramento, CA
Thu Dec 4, 2008
Thank you all for your quick responses! Can you explain what it means to write a "clean" offer? I can probably guess but I'm not entirely sure what a clean offer would look like. Also, Cindi - when you say "don't ask for inspections" does that mean don't ask the seller to pay for inspections? I assume having an inspection done is always a good thing, right?

Last question - when you recommend checking out comparable properties and their prices - how do you do this? Does my realator have access to prices that local homes have sold for, or is that something I can look up myself?
0 votes
The Hagley G…, Agent, Pleasanton, CA
Thu Dec 4, 2008
You have a larger down payment than most folks in your price range, which helps. Make sure your agent writes the offer as clean as possible...don't ask for inspections, home warranty, etc......go with the seller's escrow company, and close in 30 days or less.

Also...banks are under pricing homes to create multiple offers....a full price offer does not mean you will get the deal...make sure your agent does their research and advises you correctly on pricing.

Good luck!
Web Reference:  http://www.cindihagley.com
0 votes
Tyler Flaher…, , Turlock, CA
Thu Dec 4, 2008
Susan, you are in tremendous shape. I wish most of my buyers were as prepared as you. it is difficult to say and exact number due to every market in every neighborhood being so different. I will say you are in great shape so be excited about your new investment. Find a good agent that can help you find the perfect home and advise you on the perfect offer. I have had many clients get deals for less than asking price and get a winning offer by asking more than asking price. A good agent will set you up.
Best of luck and happy holidays,
0 votes
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