Multiple Offers and Bidding Wars Are Back

Recently, there have been media headlines enthusiastically heralding the news that multiple offers for homes are making a comeback. These stories are everywhere – popping up on Twitter and on LinkedIn. Why just last week (April 27), the Wall Street Journal online (WSJ.com) had a report entitled Stunned Home Buyers Find Bidding Wars Are Back. And in general, real estate professionals have embraced this turn of events as a positive for the industry, perhaps even a cause for celebration. Really?

Certainly if you are a seller, then the return of multiple offers and bidding wars is good news and seen as a ‘good thing’ by the seller.  On the flip side, if you are a buyer, competing for a property and you succeed with the winning bid but subsequently learn that the property does not appraise for the amount of your offer – well then, perhaps from that buyer’s perspective, these bidding wars may not be such a good thing after all.

And yet, I’m not in total opposition to all competitive situations. As an example, when a seller lists their home and needs to set a sales price, the seller will be encouraged to take into account the price of other competing properties. Such market competition can serve to nudge a seller into opting for a more realistic sales price, one that is based on the concept of ‘fair market value’ rather than on the ‘seller’s perception’ of what their home is worth. However, when dealing with a seller’s opinion of value, pricing decisions do not always end well.

No doubt, properties that are priced well will attract tons of buyers; subsequently, that buyer interest will likely generate multiple offers for these homes. So, a well-priced property is certainly one factor contributing to bidding wars. Another factor is the level of inventory of homes currently available for sale in the buyer’s desired search area. On the South Shore of Massachusetts, the overall inventory of homes increased by a mere 1% in March 2012, as compared to same month in 2011, while the supply of available homes decreased. This indicates a tightening market which is conducive to multiple offers. April housing numbers are not yet available for consideration or comparison. Update:  Just in, as reported by PASS, April numbers show that inventory increased by less than 1% over April 2011 and the supply of homes dropped from a 9 month supply in March to an 8.7 month supply in April.

Speaking for myself, working as a Buyer’s Agent, I’m not really a big fan of bidding wars and I don’t encourage buyers that I represent to engage in the practice. Nevertheless, the final decision about whether or not to participate and compete in multiple offer situations is always left up to the buyer. However, I will offer the following suggestions relative to the matter of offers and maybe multiple offers:

A buyer should get their own agent, one who is working strictly on their behalf.

Before making any offer, a buyer should expect to receive, from their agent, detailed property information that is objective and impartial of comparable properties (‘comps’) that recently sold.. This will help the buyer assess the value of the property under consideration and that valuation should serve as the price basis for the initial offer as well as for any subsequent counter offers. This information will also help the buyer understand the max limit as to how much to offer for the property should the buyer become involved in a bidding war. Be aware too that if ‘your’ agent is the listing agent of the property, then that agent has a legal obligation to get the best price and terms for the seller – not you, the buyer. So again, a buyer should keep in mind the importance of having their own agent so as to receive unbiased, impartial and objective information.

Remain flexible in your home search.

Here on the south shore, the inventory of available homes for sale will vary from town to town. Therefore, as a buyer, you may want to consider keeping your options open as to your choice(s) of communities which may appeal to you. There may be certain towns that offer a higher inventory of homes from which to choose. And with these higher inventories, you could perhaps reduce or avoid altogether the competition for your desired property. Again, a well priced home will attract buyers – and competition – but the larger the pool of homes (inventory), the better your chances of success in getting your preferred home.

Be prepared to walk away or move on when necessary.

If your bid on a home reaches the top limit of the property’s value and a counter offer puts it over the max, then at that point it would be wise to stop chasing that particular property, walk away and move on to another property. Should your offer exceed the value of the property, based upon the comps you were given, then you run the risk that the property will not appraise for the price you are committing to pay – that would not be good and it will also make the lender nervous. Overpaying for a home isn’t advisable – not in the best of times, but certainly not in this current housing market.

Bottom line, there is an emotional component to buying a home. Also you, as a buyer, have specific wants and needs that surely will influence what you consider to be your ideal home. These are all factors that come into play as you pursue and possibly compete for the home to purchase. So understand that if or when you become involved in a bidding war over a particular property, you may not be privy to information and perhaps certain advantages your competitors have. For example, you may may be competing against an investor and/or a cash buyer for the property, each of whom will likely be favored over you by the seller.

You can’t really know or control the circumstances of the competition. Yet, even if you lose out on your bid for a particular property, you should still feel good about yourself in that you gave it your best effort. And in the end, you should trust in the expectation that there is another house out there for you – and likely it’s a better one!

As always, thank you for visiting and feel free to contact me directly with your questions.

Until the next time,

Jackie Farrell, Realtor®

BuyerBrokersRealty

Twitter @BuyerBrokersRE

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About the blogger:  Jackie Farrell is the Broker/Owner of Buyer Brokers Realty, a South Shore MA Exclusive Buyer Agency specializing in representing residential buyers in the purchase of homes throughout Boston’s South Shore. She is an experienced real estate professional who understands buyer representation.

The Buyer Brokers Realty service area includes these South Shore MA towns: Kingston, Plymouth, Carver, Duxbury, Halifax, Hanover, Marshfield, Norwell, Pembroke and Scituate.

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1st Quarter 2011 vs 2012 Housing Statistics

COMPARISON OF SINGLE FAMILY HOMES SOLD 

             1st QTR 2011                                          1st QTR 2012 

                #Sold      Median Price                             #Sold     Median Price                     % Change Price

Kingston                    23          $333,500                                  18          $262,500                          -21.29%

Plymouth                   73          $255,000                                 102          $250,000                           -1.96%

Carver                        23          $230,000                                  10          $196,000                          -14.78%

Duxbury                     30          $556,750                                  38          $485,000                          -12.89%

Halifax                       18          $251,500                                  12          $188,750                          -24.95%

Hanover                    19           $370,000                                 24          $406,500                              9.86%

Marshfield                 50          $314,500                                  40          $336,000                              6.84%

Norwell                      17          $383,000                                  14          $417,250                            23.04%

Pembroke                  17          $310,000                                  20          $248,250                           -19.92%

Scituate                      25          $420,000                                 32          $430,000                               2.38%

COMPARISON OF CONDOS SOLD

     1st QTR 2011                                            1st QTR 2012

                       #Sold        Median Price                            #Sold       Median Price                   % Change Price

Kingston                      1          $160,200                                     2           $165,750                               3.46%

Plymouth                   27          $113,000                                   18           $107,000                              -5.31%

Carver                         0               –                                              0                 –                                           -

Duxbury                      1           $165,000                                    5            $377,000                           128.48%

Halifax                        3           $160,000                                    5             $125,000                           -21.88%

Hanover                      1           $370,000                                    1             $415,000                             12.16%

Marshfield                  6            $ 83,000                                    6             $147,500                             77.71%

Norwell                       0                  -                                          3             $248,000                                 -

Pembroke                   5            $181,000                                   6             $191,500                               5.80%

Scituate                      8            $440,000                                   6              $417,000                             -5.23%

Seeing A Light at the End of the Tunnel - Really?

Spring is here and with the season comes a growing sense of confidence amongst those of us in ‘the biz’ that the real estate market may be truly improving – finally!  Yes indeed, there is definitely some ‘bustling’ going on now which is lending to the positive vibe in the real estate community throughout Massachusetts and I’ll share with you the reasons why there is such optimism.

To begin with, know that real estate, like politics, is local. In Massachusetts, housing trends and statistics will differ from region to region within the state and then again from town to town within each region. Every month and for each quarter, the Plymouth and South Shore Association of Realtors® (PASS) prepares for its members an analysis of real estate trends and stats for the whole south shore region. Most recently, they provided a report comparing the real estate numbers for March 2011 vs. March 2012 using the information compiled by the Multiple Listing Service (MLSPIN). Following are the highlights, listed by category, as reported by PASS:

Sales of single family homes and condos combined – up 25% (from 240 sold in March 2011 to 300 sold in 2012).

Prices – the median price of single family homes and condos sold was up 1% (from $291,350 in March 2011 to $293,700 in March 2012).

Pending Sales – the total number of single family homes and condos put under agreement was up 35% (from 368 in March 2011 to 497 in March 2012).

Days on Market – the average number of days on market for single family homes and condos combined decreased from 177 days at the end of March 2011 as compared to 169 days at the end of March 2012.

Inventory of single family homes and condos combined – up less than 1% (from 2,697 on March 31, 2011 as compared to 2709 on March 31, 2012).

Supply – at the end of March 2011 there was 11 months supply of properties (single family and condos combined) at the current rate of sale. By contrast, at the end of March 2012, there was 9 months supply at the current rate of sale. The market is considered balanced when there is between 7.5 and 8.5 months of supply.  A balanced market does not favor  either the seller or the buyer.

For homebuyers, this last point pertaining to the supply of homes is significant and bears watching closely as this current trend suggests that the advantage for buyers to having a ‘buyer’s market’ is slipping away.

Overall, these numbers are positive, yet it should be noted again that the real estate market will also vary from town to town within the region.

Coming very, very soon I will post a complete recap of sold homes (single family and condos) by town for the first quarter January 2012 through March 2012 as compared to the same period January 2011 through March 2011. So please stay tuned…

As always, thank you for visiting and feel free to contact me directly with your questions.

Until the next time,

Jackie Farrell, Realtor®

BuyerBrokersRealty

Twitter @BuyerBrokersRE

_________________________________________________________________________________________________

About the author – Jackie Farrell is the Broker/Owner of Buyer Brokers Realty, a South Shore MA Exclusive Buyer Agency specializing in representing residential buyers in the purchase of homes throughout Boston’s South Shore.

Jackie’s service area includes the Massachusetts towns of Kingston, Plymouth, Carver, Duxbury, Halifax, Hanover, Marshfield, Norwell, Pembroke and Scituate.

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Required Documentation for a Mortgage

The Perfect Loan File is the title of a recent article at Forbes online, the link to which I posted on twitter @BuyerBrokersRE last week. This article gives prospective borrowers a clear understanding of the rationale behind the screening process employed by today’s mortgage lenders. Therefore, anyone who may be considering jumping into the housing market this spring or summer will surely benefit from this insight.

The house hunting process should necessarily begin by first speaking with a reputable and experienced mortgage professional who will interview the buyer/borrower to determine a) the prospect’s qualification for a mortgage and b) if qualified, then the amount of the loan. And while it is now accepted knowledge that lenders have implemented more rigorous lending guidelines in the wake of the real estate financial collapse, Mark Greene, author of The Perfect Loan File speaks to the lender’s objective and requirements for approving the borrower’s loan. Greene states:

“It’s no longer necessary to have excellent credit, a big down payment and stable employment with income sufficient to support your debt service to guarantee your loan approval. However, you must have a borrower profile that meets the credit underwriting guidelines for the loan you are requesting. And, more importantly, you have to be able to hard-copy-guideline-document your profile.

Every nook and cranny of your financial life has to be corroborated, double- and triple-checked, and reviewed again before closing. This way, if the originating lender has created a loan file that is exactly consistent with published underwriting guidelines and has documented while adhering to those guidelines, the chances are that your loan will not be subject to repurchase.” To wit, the perfect loan file.

To best understand a lender’s motivation for creating the perfect loan file, it helps to review the circumstances that necessitated establishing this new lender objective.

Traditionally, after the real estate closing is completed, the lender will sell the loan to Fannie Mae or Freddie Mac. Subsequently, the proceeds from the loan purchase (by Fannie or Freddie) are recycled to provide new loans and the cycle is repeated. However, subsequent to the financial collapse, Fannie and Freddie performed audits which revealed that some lenders had committed fraud in the way they classified some loans sold to Fannie and Freddie. As a consequence, these particular lenders were forced to repurchase their fraudulently submitted bad loans, representing a losses for the lender(s). As Greene explains,

“the small and medium sized mortgage originators that survived [have] created underwriting guidelines and procedures to eliminate the threat of future loan repurchase losses. The answer? The perfect loan file.”

“securing mortgage approval and satisfying credit underwriting guidelines are not the difficulties plaguing mortgage consumers. It’s in meeting the rigorous documentation requirements that most people [borrowers] fall flat.”  

So, now that today’s borrower has acquired insight and understanding of the lender’s objective, i.e., avoiding loan defaults or bad loan buy backs, the borrower should be better prepared to deal with the rigorous screening process and the stringent documentation requirements imposed by the lender. Page 3 of the Forbes article is must read for prospective borrowers, whether you are a first-time borrower, a co-borrower, a borrower that is also a current homeowner, or a borrower who went through a previous short sale. I’ll save this information for borrowers to read for themselves, but I will say that it is definitely worthwhile for all prospective borrowers to read through these scenarios.

As always, thank you for visiting and feel free to contact me with your questions.

Until the next time,

Jackie Farrell, Realtor®

BuyerBrokersRealty