Buying That Perfect Home Is Going to Take a Winning Offer
BY MICHAEL ROBLETO JANUARY 2ND, 2021 1:56 PM PST
Realtor with Compass Pasadena. Specializing in the buying and selling of Pre-War, Historic and Architecturally significant homes and lofts in Altadena, Pasadena, Eagle Rock, Highland Park, Silverlake, Los Feliz and DTLA.
If you are shopping for real estate in Altadena, Pasadena, Eagle Rock, Highland Park, Los Feliz, or Silverlake you will only see two categories of houses on the market: homes that sell within ten days and those that sit on the market for longer than 30 days.
Of the latter, there is always a reason for languishing on the market. Being overpriced is the number one reason, the second reason is either location or the home needs significant repairs (beyond paint and countertops). You did not fall in love with one of these.
The first category is what is most common, homes that 40 interested buyers, receive multiple offers, and accept an offer within seven days. This is what you are truly up against.
Now, the winning offer isn’t always about the highest price, there is a myriad of factors at play. Let’s break down what it takes to have your offer beat out the competition.
Can I Get The Home For Under List Price?
A seller’s priority comes down to price but they also want to make sure the sale goes through and that comes with some caveats. Offer under list price for a house that just came on the market will never get accepted. If the home is overpriced, the seller will not believe this until time has passed. If the offer deadline comes and goes and the Days on Market grows, your chances of a below list offer increases.
The listed price of a home is usually under or at value as part of a strategy to draw multiple offers. Your agent should be able to find out the offer deadline, how many offers are in, and where you need to be price-wise to be competitive.
There is a controlled limit to how must a buyer can pay for a home and that is found in the appraisal contingency. Essentially the bank that is giving a homebuyer a loan will do an appraisal, if the house does not appraise for the sale price the deal falls apart or the buyer has to come out of pocket the difference. This controls some of the over-paying possibilities.
All About The Contract Contingencies
Every purchase contract will have a series of contingency deadlines. These deadlines have standard time periods that can be shortened. The shorter time periods are more attractive to the seller.
The first contingency you will face is your inspection deadline. This is the time given for you to complete all of your inspections and request any repairs. The standard time given is 17 days. This can be easily done in less time.
The standard appraisal contingency period is also 17 days, your lender can advise if they can do it faster, a great lender can even though it is challenging right now with interests rates being so low and many homeowners are refinancing.
The third and final contingency period is your Loan contingency. This is the time it takes for a lender to confirm you can get a loan. If your pre-approval process included pre-underwriting, this process can go a little bit faster. This one is rarely shortened.
Seller Contingencies
If you need to sell a home to buy your next home (referred to as Contingent on Sale), then you are at a major disadvantage. In a multiple offer situation, a seller will take an offer for a lower price over a “sale contingent” offer that is at a higher price.
You are better off selling your other home first, moving into something temporary or applying for a Bridge Loan to float the second mortgage.
The Length of Escrow is Key
Escrow is the process of transferring ownership of a home. This process starts when your offer is accepted and ends when you take possession of your new home. The standard number of days for escrow in California is 45 days, 30 days is way more attractive and more common. If your lender can pull it off in less time than 30 days, this is a major bonus and something you can include in your offer.
Pre-Approval
You will need a Pre-Approval letter from a lender to have an offer accepted. In fact, due to Covid-19 showing restrictions, many times you will need this letter just to tour a home.
The Pre-Approval process is when a lender reviews your income statements, credit card bills, tax documents to determine what you are likely to qualify for.
However, not all Pre-Approvals are created equal. A strong Pre-Approval letter will include the fact that you have been processed through pre-underwriting and Pre-Approvals from local lenders will be more attractive than those from big banks. Agents know that dealing with big banks will make the process slower and more challenging. Just remember, the lender that does your pre-approval does not have to be the lender that actually does the loan.
Does My Down Payment Amount Matter?
When you are faced with competition, all of the little details become major factors. Submitting an offer with 5% down will never look as strong as an offer with 20% down. This is because your likelihood to be approved for a loan is greater with a higher downpayment and sellers don’t want to sale to fall apart because of your financing.
You want the down payment amount in your offer to be as high as possible. Note: you can change your down payment percentage once in escrow, just know that it always makes the most financial sense to put the most possible down.
Count on A Counter Offer
Most homes that receive multiple offers will go through at least one round of counter-offers and you should prepare for that. Once all of the initial offers are submitted, the seller will take the best pieces of all offers and make them into the baseline requirements for the counter.
This will be the shortest escrow period, shortened or waived contingencies the baseline. You will need to accept these terms and provide your best and final offer. Sometimes you will see a minimum amount required for the counteroffer price, which is usually based on the highest offer price from the initial offers.
How you devise your “best and final” offer can be challenging. A good agent will offer insight, a great agent will use tools to ensure your offer is the highest despite competing offers.
Finding a home you can see yourself living in for your budget is very challenging in these areas of Los Angeles and Pasadena but getting your offer accepted is even more challenging. You never want to find out that you lost out on a house because someone paid $2,000 more than your offer.
In Closing
Home buying in Southern California is very challenging and it goes beyond the price point, but the benefit of not paying rent and watching your investment grow makes it worth it.
Working with an agent that is well versed in negotiations and the nuances of the 80 pages of contracts and offer documents will help make that house you love into a house you call home.
Michael Robleto is a Los Angeles based REALTOR® that specializes in Historic Pre-War residential properties and those with architectural merit in Pasadena, Los Feliz, Silverlake, Eagle Rock, and Mount Washington. Michael uses his vast knowledge of historic homes, residential construction, and modern-day marketing to predict and solve the many problems that arise in real estate transactions. His client accolades of insight, prompt communication, integrity, and hard work support the fact that he is not your average agent.
Michael leverages his personal passion for historic architecture to provide his clients with the unknown insight into the pros and cons of older homes. Michael, the son of a contractor, a California native, grew up in an older Bungalow home and has spent 23 years in Southern California admiring the unique architecture of the region. Michael brings 20+ years of negotiation and sales experience to his seven-year career in residential real estate. He often writes on homeownership strategy, historic residential architecture, and related topics that can be found on Facebook, YouTube, Twitter, and Instagram under the common profile name of his blog; BungalowAgent.
Michael is a committee member and frequent volunteer for the preservation efforts of Pasadena Heritage and the LA Conservancy. When not working you can find Michael on hiking trails statewide with his faithful German Shepherd Axel.
