Many think they know how to bid on a home for sale since they have done it before. We seem to think our past experiences can be used for all scenarios even if it was 5-10-30 years ago. But it’s different than fixing a flat tire or painting a room. Its a completely different animal that most of us do not understand. Let me rephrase that. Only people that study the market or are in the trenches actually see the conditions as they have changed over the past 6 months. Even an active investor has noticed the change in market conditions as those models from 6 months ago no longer work for flipping. It is called “Darwinism“. Survival of the fittest. Adapt or become the past. You cannot win in this market without knowing all the details of how to purchase a home in a sellers market.
This brings me to next next point of pricing. We are human beings that are trained to think that we need to negotiate in order to get the best deal. We were raised to believe that we need to pay the least amount of money for an item in order to purchase it. Now some may be more aggressive than others. For example, I do not look at gas prices ever. I buy gas when I need it, and whatever it costs is what I pay. Some will drive miles to save 3 cents not realizing those extra miles driven exceeded the cost savings in gasoline. So the ends must justify the means to make sense.
Well, that applies to houses as well. Who wants to pay full price for anything right? If something costs $100, we want it for $90. That would make us feel as though we obtained value in our purchase. If a house is listed at $100,000 then we would like to steal it at $80,000 right? No… The key word was listed. I can list a home valued at $100,000 for $120,000. So if you offered $100,000 on a listing of $120,000 you feel you got a deal. Even if its worth what you payed for it? What you pay for it is actually the definition of market value. When a listing is priced below market value, that is looked at as more of a floor price or starting price. Similar to an auction floor price. The problem buyers have is they do not know what the house is worth when they look at a listing. Due to the distressed properties on the market, they are unable to determine true value any longer. I see agents overpricing properties as well as under pricing them depending on that agents marketing approach.
There are many different variables changing at the same time which confuses anybody that is not in industry (even some that are actually, lol) An overpriced property will be on the market for more than 30 days. When I do comparables I always know who is underpriced and who is overpriced based on days on market. An under priced property will have multiple offers and be gone in less than 7. This is a sellers market for a reason. The supply of inventory is low, rates are low, and there are more buyers than sellers.
So if you really want to purchase a distressed home in this market, you will have to follow a few steps to get there as traditional purchasing in AZ has changed drastically, even more so in the past 6 months.
These steps should assist you with at least competing for a home for sale vs complaining that you have lost 4 offers even with offering full listing price.
1) Do not look at list price. Ask your agent for a CMA or BPO of the property you are interested in. Comparables are factual date and will assist you with determining what to offer.
2) Understand that the discount on the property already exists. You do not need to low ball or even try to get a lower price. The value of the property will be determined from the comps. Since there is a shortage of homes on market, your offer will probably be one of a few offers on that property. If you want to win that battle you must be the highest and best offer. Forget the negotiating part, just try to play the game and get the house. As long as the home appraises you are not overpaying. What a buyer is willing to spend is what the home is worth, as long as the price is supported by comparable’s.
3) Trust your agent as they should posses the information and skills to assist you get a home. A good agent will review the values with you prior to placing an offer. If you really want to win the bidding war, offer close to the highest comparable in CMA/BPO report. This will at least catch the listing agents attention that you are aware of market value.
4) Do not add too many contingencies as that makes banks and negotiators look the other way. That doesn’t mean you cannot ask for seller paid concessions. It just means they may not like a home warranty, or if an FHA loan requiring the bank to pay repairs. Not only will they most like not agree to those items, but they can even pick another offer over yours.
This may sound a bit harsh, but a sellers market means the seller has the upper hand. In many cases, the seller is the bank. The bank does not care about why you are buying the house or who is going to live it in. They are a business and are looking for the best possible buyer to purchase their short sale/Foreclosure.
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