It should be the best time in the world for first-time homebuyers. Bargain-basement home prices coupled with rock-bottom mortgage rates have made home ownership more affordable than it’s been in decades, said the National Association of Realtors (NAR).
However, many in the home-buying trenches are discovering that it’s only a “buyer’s market” if you’re the right kind of buyer – and that’s an investor with a wad of cash. Most first-timers need mortgages, inspections, appraisals and title insurance — which few veteran property flippers want to deal with.
Professional investors and real estate agents understand that investors do have the inside track, but there are ways for novice buyers to get more respect. Candy Miles-Crocker at Long and Foster Realtors in Washington, DC says that one way of competing is simply to offer more money. “It is extremely difficult to compete with all cash offers, but there are times when an owner-occupied buyer can make a higher offer because they will renovate over time and don’t have to worry about margins. An investor will only offer so much for a property because they want to make a specific profit when it’s flipped.”
Investor Jean Norton at JeanNorton.com agrees. “Offer a higher price for the property,” she says, “Interest rates are so low that the monthly impact to their budget is negligible.”
Go to the Front of the Line
Ms. Norton also recommends that home buyers skip the slugfest with investors and look into HUD Homes, Homepath Homes and HomeSteps Homes. These are foreclosure properties that have been taken back by HUD, Fannie Mae and Freddie Mac. When these houses are put up for sale, owner-occupant buyers have several days to get their offers in and buy without competition from investors.
Joanne Cleaver at jycleaver.com recommends finding condominium buildings and developments that have reached their maximum allowable rental units (many HOAs limit the number of units that can be rented out or held by investors). “Ceilings may prevent investors from buying any more units, which means that owner-occupiers are the only option for sellers.”
Be Prepared and In Earnest
Want sellers to show you more love? Put up as much earnest money as you can. Some experts recommend an old investor trick, attaching a check for the earnest money to your offer – it makes a psychological impact that could put your nose ahead of the competition.
Make sure that you have full credit approval for your mortgage – not just prequalification. To get credit approval, you’ll submit your entire application package to a lender, providing all income, asset and other documentation requested. Don’t start looking for property until you have credit approval with NO outstanding conditions. “Credit approval” in mortgage lending means that if the property appraises for at least the sales price and meets the lender’s guidelines, you’ll be able to close on your loan.
Not all sellers are hard-nosed house-flippers. Deb Tomaro, of RE/MAX Acclaimed Properties in Bloomington, Indiana, advocates finding out what you can about the seller and using that to make a personal connection. “Look up the seller on the Internet, Facebook, Pinterest. See if you have anything in common or mutual friends. If you have mutual friends, see if you can have them put a good word in for you,” she recommends. “Write a letter to accompany your offer, personalizing who you are and why you love their home (of course, this only works with owner-occupant sellers). If you know they raised children there and you are going to or hope to raise children there, make that connection.”
Know When to Say No
Don’t get so emotionally caught up with being the “winning” bidder that you make a rash purchase or pay too much. It’s easy to do in a frenzied bidding war, says Bruce Ailion of RE/MAX Greater Atlanta. In Atlanta today, he explains, “Competing is difficult. We are seeing 70 offers in a week’s time. Final prices regularly 20 percent above list, sometimes 50 percent or more above list. For investors that purchase 50, 100 or 200 properties per month, paying too much based on the condition for an acceptable percentage of acquired properties gets averaged in. These hedge and equity funds have access to very cheap financing and buying leverage with contractors and supply houses, allowing them to pay more for the property and still make out.”
He warns, “To an owner occupant or small time investor offering more than the big players in a ‘best and final’ round can have harsh consequences. Sometimes winning the bid is not winning the best return.”