Buying a Home in the Sacramento Region
October 28th, 2009 categories: First Time Home Buyer Info, Market Commentary
Understanding The Market
The Sacramento real estate market is presenting buyers with challenges at the moment.
This article is about getting better acquainted with our market so that you can make offers in as strategic a manner as possible and finally buy a home rather than just making offers without success.
Education is key to success in any market and the Sacramento real estate market is no exception.
1) The Inventory of Homes for Sale is Low
The banks are in control of the real estate markets nationwide at the moment.
I speak to agents from Maine to Florida to Southern California to the Canadian border weekly.
The story is the same. There just aren’t as many homes to sell as there were last year.
Lack of inventory creates a “frenzy”,of sorts, the result of which is that homes stay on the market for a very short time.
As of this article, there are 6121 single family homes and condos available in active or active short sale status listed in the MLS.
That is down from somewhere in the neighborhood of 16,000 homes a year and a half ago. (Sacramento, El Dorado and Placer Counties)
One of the MLS administrators said yesterday that the “normal” market listing inventory is usually around 12,000 to 14,000 homes. I thought that number was a bit high.
2) Multiple Offers
The lack of inventory creates multiple offers on the majority of homes for sale. Multiple offers drives the price up beyond the price the home is offered for.
Consequently, the listing price means nothing if it isn’t at or near market value.
Buyers are then encouraged to make their highest and best offer to the seller. There is no negotiation between the seller and the buyer if the buyer’s offer is not the highest and best.
If your offer is not netting the seller the most, there is NO second chance at that particular home unless it falls out of escrow.
The result of this is that the buyers in our market right now have NO leverage with NO room for negotiation. The market is unbalanced in the direction of the sellers or the banks.
While it seems unfair that the banks should be in control after the mess they’ve created, these are the realities of the market right now.
3) “Your Highest and Best Offer Only Please”
This situation takes away strategizing on what to offer. You’ve got to come in with your highest and best offer on every home.
What does that mean?
Your highest and best offer means that you’re offering the maximum you can afford on every home in the price range you’re offering on and letting the proverbial chips to fall where they may.
This can mean that if you’re pre-approved for $280,000, you’re going to want to look for homes in the $250,000 range depending on whether you’re asking for a credit back from closing costs.
If you’re not asking for a credit back, then you can look a little higher say around $260,000.
Concerns
This approach may seem absolutely haphazard and without concern for the actual value of the home. Although it seems that way, it’s no longer the issue it used to be.
Here’s why:
The appraisal process on a financed home will ensure you won’t pay more than market value for the home you buy.
Part of what got the national real estate market in the position its currently in was because of the banks pressure on appraisers to substantiate virtually all sales without ramification for error.
Sales prices were artificially driven up without regulation. This is now the exception rather than the rule.
Appraisers are more cautious than ever and banks aren’t quick to accept appraisals at face value and many times order a re-appraisal if the numbers don’t look right.
I’ve had two properties that I’ve sold this year where the sales price was driven down by the appraisal report. The seller took less!
As it should be, you and your lender are protected in that you shouldn’t pay more than market for any home in our region at the moment.
Say you offer $280K on a property that is listed at $240K and your offer is dependent on the appraisal coming in at no more than the agreed upon price.
Your offer gets accepted by the seller.
During your escrow, the appraisal report comes back at a value of $245K. One of two things need to happen:
1) The buyer comes in with more money to make up the difference
or
2) The seller has to come down in what they will take.
Generally, the seller comes down and the buyer pays less than the agreed upon price but pays the fair market value for the home. I’ve had that happen twice this year.
The appraisal process is the only safeguard for buyers in our market right now.
This article got long, sorry for that. It’s important information to know when you’re seemingly doing everything you can to get it done and it isn’t happening.
If you need help buying a home in Sacramento, please feel free to contact me.
Thanks for visiting!
