Written by Nathan White, Chief Investment Officer of Paragon Wealth Management
This is an interesting article for anyone interested in buying or selling a home in the current environment. Many regions in the country are now experiencing a lack of supply which has given the sellers the upper hand. It’s certainly a different market than the last few years to say the least.
To view the article, please visit bloomberg.com
Here is an excerpt of the article:
Strategies for the Spring Housing Scrum
By Carla Fried
It all seems so quaint now: the casual walk-throughs, the drives to check out the neighborhood, the luxury of sleeping on the largest financial decision you'll likely ever make. Trying to buy a home now feels more like being thrust into the trading pit at the Chicago Mercantile Exchange -- the frenzied bidding, the need for lightning-fast decisions, the packs of sharp-elbowed competitors.
In one fraught situation, a home near Union Station in Washington, D.C., drew 168 offers in December and sold for almost twice the asking price. In the tonier neighborhoods of Los Angeles, 20 bids per house is not uncommon, according to real estate agent David Kean. And the speed of deals can be intense. "In the middle of a snowstorm we have seen houses sell in one day," says Sam Schneiderman, owner/broker at the Greater Boston Home Team agency. "At open houses on million-dollar homes you are literally bumping into people, it's that crowded."
Finding an Edge
A dearth of homes for sale has run smack into a suddenly energized buying crowd egged on by rising values. The National Association of Realtors says the number of existing homes on the market in January -- 1.74 million -- was 25 percent lower than a year ago, and the lowest level since 1999. Over the past 12 months the inventory of existing homes for sale has dropped from a 6.2-month supply to a 4.5-month supply, the lowest level since 2005.
Price is obviously the main lever in all deals. What’s particularly important now is to understand how the seller will handle bids. Some collect all bids and immediately choose a winner, typically the highest offer, which is often more than the asking price. Other sellers give the top three or five bidders the chance to make one counteroffer. In those instances, you want to get into the bake-off but leave yourself room to counter.
In today's tight market, some sellers are asking every bidder to counter. That's what happened to a client of Schneiderman's in the recent sale of a house in Newtown Center, Massachusetts, listed for $975,000. The seller got nine offers -- four to nine offers is the norm now, Schneiderman says -- and asked for counter bids on all nine. Schneiderman's client bid $1,016,000 and lost. The seller's agent said the winning bid was "significantly higher."
To gain an edge in counteroffers from the start, you can put an escalation clause in your original offer. With one of these, you agree to beat the top offer by $5,000, up to a limit. So if you bid $380,000 and have a $5,000 escalation clause up to $400,000, that means if another bid comes in at $385,000, you automatically agree to $390,000.
Beyond price, buyers need to craft an offer that screams “I’m easy” to the seller. That starts with the buyer’s agent getting vital intel from the seller’s agent on what buttons to push. Some sellers are in a hurry to close. Others would love an extra month before escrow to coordinate their move. Sometimes letting the seller stay in the home for a month or more, rent-free, after a fast close can provide the seller valuable breathing room that seals the deal..........
To view the rest of the article please visit: bloomberg.com
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