What may be hotter than August? Our housing market, most likely. This summer has been the most active home sales market in nearly a decade, according to the National Association of Realtors (NAR).
The high sales activity predicted for this month is not typical. ln most years, sales taper off gently in late summer from their glory days in May and June. This year is different, however. According to NAR Chief Economist Jonathon Smoke, demand is stronger this year than any time since 2008, and he’s not expecting the market to mellow as the calendar approaches Labor Day.
What will likely turn August into a busy housing market? ln a word, demand. According to Smoke, “Total home sales in April were up nearly 8% over last year, as the economy, lower mortgage rates, and demographics are working together to require, inspire, and enable the highest level of purchases since spring 2007. But they should be even higher, because the number of actual sales will likely be nowhere near the number of people who are trying to buy.
While sales in April were jumping, more than 40 million people determined to buy looked at listings on realtor.com, according to our survey data. lf you assume that every purchase will involve two people, the amount of buyer trafﬁc translates into 20 million potential home sales. Yet, at the current pace of sales, we will see only 6 million sales this year.
Do the math: ln this game of real estate “musical chairs,” nearly three out of our homebuyers are going to walk away without a new set of keys.
“That means the market is not likely to slow down even after the peak buying season ends this summer,” says Smoke. “instead, it is likely to get more frenzied in the summer because of more people reaching the latter stages of their journey and needing to close a deal.”
Sellers’ Market Par Excellence
Of course, market conditions vary from location to location, and some markets may still have more homes to sell than buyers. ln those buyers’ markets, buyers are in the more powerful position, and sellers can reasonably expect to do some bargaining over price and other terms, such as repairs, length of escrow, closing costs, etc. for example.
Those buyers’ markets, however, are likely to be a minority during the Dog Days of summer, according to Smoke. lf you live in or around a major city, the odds are good that you’ll be seeing a sellers’ market at peak conditions. There won’t be enough homes to meet the demand. That means sellers are in a good place to name their price and drive a harder bargain.
In particular, many sellers are likely to receive multiple offers, some above the asking price, and some even in cash.
Getting multiple bids may be a heady thrill for the seller, but there are rules to follow, so all the competing buyers-especially the losers-know there’s been a level playing field, according to Realtor.com, the NAR website.
“While little can be done to assuage that disappointment of losing a bid, fair and honest treatment throughout the offer and negotiation process, coupled with prompt, ongoing and open communication, can enhance the chances that all buyers-successful or not-will feel they were treated fairly and honestly.”
Challenges for Sellers
Above all, sellers will need the advice of an experienced Realtor who can help them develop a clear cut and transparent strategy in both eliciting and evaluating competing bids. One way to be fair is to set a single deadline for all bids.
“It’s really a way to add stability to a chaotic situation,” says Noah Rosenblatt, founder of a real estate data site, UrbanDigs.com, in an interview with the New York Times. “Everyone has the same deadline.”
The Multi-Bid Sale
Sellers should not try to sell on the very first day the property is listed, even if a good offer comes in, according to Bernice Ross. Writing in Inman News, she advices sellers to keep the property on sale for at least a week, to allow potential buyers to tour the property, sometimes more than once. “The key point to keep in mind is that ‘maximum exposure to the marketplace results in the maximum net price to the seller,” she advises.
For sellers to net the most money, “a better approach is to set up an auction environment where the buyers actually bid against each other,” says Ross. “Due to a lack of understanding about the power of marketing,” she adds, “many sellers leave thousands of dollars on the negotiation table because they accept an offer that comes in on the first day.”
Once the multiple offers are presented, “it’s usually smart to make a counteroffer to all the buyers,” according to Ross. “You never know which buyers will step up to the plate to purchase,” she adds.
“Issuing counteroffers to everyone avoids any charges of unfairness or discrimination,” Ross continues. While the seller has the options of either accepting one of the offers or negotiation with one or more buyers, in some cases, however, “Issuing a counteroffer to all parties will result in a better price for the seller,” she advises.
Buyers Must Be Nimble
Usually, a Realtor will advise a seller to counter all offers, even the good ones. If buyers are prepared for this, “it will move the process along a lot faster,” says real estate expert Verl Workman, writing in RIS Media.
Buyers, for their part, must be strategic, nimble and above all financially prepared to move quickly when opportunity presents itself. They’ll need clean credit, pre-approved loans and not attach too many contingencies, if any, to a sales bid.
Competing bidders may also need some extra cash, as we’ll see in a minute. Above all, perhaps, there’s a need to be both patient and philosophical, as well as the need to manage expectations: Buyers need to understand that disappointment in home buying is a temporary condition.
HOUSING MARKET IN HISTORIC REBOUND
“The recent rebound in new-home purchases, combined with stronger demand for previously owned properties, indicate that rising wages and low mortgage rates are putting the housing market on solid footing… Demand (for existing homes) continues to grow, especially in more affordable regions like the Midwest. Sales increased from a year ago in all regions except for the West, where faster price growth and low inventories are holding back buyers. (This past spring) new-home sales recorded their biggest gain since January 1992, jumping 16.6% to a seasonally adjusted annual rate of 619,000 units. That’s the highest level since January 2008. Sales of new homes increased significantly in all regions except the Midwest.” – Kiplingers
Experience and Strategy
Above all, buyers need the advice of a Realtor. Competitive situations require strategy and the knowledge of how to make an opening bid when other buyers are crowding around you, and that’s where your Realtor becomes invaluable.
A recent article in Chicago Realtor Magazine, recommends that Realtors help manage their clients’ expectations by reminding them that multiple offer situations are frequently found in the current market and not to get discouraged if the first couple of bids fall through.
It may sound cliché, the article states, but try to believe that everything happens for a reason, if buyers lose out on one property, “chances are there may be a more ideal property right around the corner.”
Tips for Bidders
To be prepared, buyers should ask their Realtor to explain the different types of bidding scenarios and the way their representatives would handle each.
Here are a few tips for buyers entering a multiple offer situation, according to Chicago Realtor Magazine: Agents should let their clients know that multiple offers are frequently encountered, and that buyers should be prepared to bid close to the asking price or even above it.
U.S HAS STRONG FUNDAMENTALS
“The American economy may have slowed, but it remains fundamentally strong, as it is buttressed by a healthy consumer sector. Personal consumption, adjusted for inflation, is up by 3% in the past year, having surged in April… According to a recent Fed survey, 69% of Americans say they are “doing okay” or “living comfortably”, up from 62% in 2013. What is more, the rise has been most pronounced among those with only a high-school education… Rising wage growth helps explain consumers’ cheer. Since early 2015 growth in average hourly earnings has perked up from about 2% to around 2.5%” – The Economist
It’s also “vital” to find out which method the seller will use to ask for bids. Will the seller first take initial offer and then afterwards ask all the bidders to submit their “best and final” offer? Or will the seller’s agent ask for the “best and final” offer up front, effectively limiting each buyers to only one bid? That situation makes successful bidding far more challenging.
Hit the Deadlines
Buyers should respond quickly and comply with a dates and deadlines, according to housing expert Workman. “Your ability to get a deal done might come down to how fast you can respond to counters,” he writes. In short, doing things inside the time frame requested by the seller makes it easy for him or her to choose your offer above the others.
Another important thing to know, he adds, is the seller’s preferred closing date. While this is good information to know in any case, “It’s even more important in a situation with competing offers.”
A buyer should take care to turn in all paperwork on time to the seller. Having your paperwork in order keeps the process going smoothly and removes any worry on the part of the seller that the buyers have their proverbial ducks in a row.
Your agent may also provide the seller’s agents some personal information about you, such as what you particularly like about the home. “The seller has to know you really want it, “says a listing agent quoted in the New York Times.
A higher-than-standard down payment is another way of showing the seller that you’re serious. If you can afford it, consider putting down more than 20% of the purchase price.
First Offer, Best Offer
When making your offer, “go in strong” and start out with your best offer, Workman advises, “If you are outbid, at least you’ll know that the price simple rose above your limit, which may help you to be philosophical about losing the deal.
Another piece of advice: Don’t include contingencies in your bid unless absolutely necessary, according to Workman. Remember that in a bidding contest, anything that raises the possibly that you might pull out of the deal makes your bid less attractive to the seller.
In the same vein, try to hold off requests for things like home warranties. “It complicates the offer and moves it to a different pile, “says Workman. To stay in the running, therefore, “keep it simple and easy for the seller to understand your entire offer.”
Another way to stay competitive: Don’t ask the seller to pay part of your closing costs. “When competing for the property with other buyers, offer quickly get reduced to the bottom line net to the seller,” says Workman.
HOMEBUILDER, RETAIL STOCKS FLYING HIGH
“There is one part of the economy that is undeniably strong-the housing market. New home sales hit their highest level since 2008 in April. Big homebuilder stocks Pulte and KB home both railed on the home sales news. And they are beating the broader market this year… Another sign of housing strength? Home Depot and Lowe’s (have) both reported strong earnings. They are bright spots in an otherwise lousy quarter for big retailers. But retail sales may soon take a turn for the better-thanks to the housing market rebound.” CNIN Money
Whether you’re making an all-cash offer or are financing the transaction, send the seller verification of your funds (proof of funds) from your financial institution(s). And if financing, have your lender send a letter documenting “very strong” underwriting pre-approval. “An underwriting approval carries (even) more weight than a simple letter from the lender stating you are approved,” Workman suggests. Plus, with an underwriting approval, “the financed buyer becomes competitive with the cash buyer,” he adds.
Indicate that you are flexible in the length of time for the contract to close. “Allowing more time for the seller to pack and move shows that you are reasonable and want to work with the seller to make the transition much easier,” says Workman. “This is a nice gesture and will stand out to the seller.”
So, here’s a late-summer salute to those who are listing their properties for sale in the coming months, and to all who want to buy. Home buying in the late summer is a little like football: if you get knocked down, get up, dust yourself off, and try all the harder the next time. Your new home is waiting for you. It just may take a couple of tries to get it.