Of course everybody has heard that this is a buyer's market. But
not everybody knows what that means, or what's unprecedented about
today's real estate market. Historically, a buyers market has simply
meant a market where there were too many sellers and too few buyers.
One way to quantify this is to say that a
buyers market is when the current inventory of homes equals more than
the number of homes expected to sell in the next 5 months. We have
that situation now in most of the Twin Cities metro area, but I
remember having too many sellers and too few buyers back in the 80's.
This market is different. In fact I would suggest that this real
estate market is unique in having low interest rates, and
attractive financing options, and at the same time still having a
shortage of buyers.
In previous markets, I remember that low interest rates were a mixed
blessing for buyers. Every time interest rates went down, home prices
went up and homes sold faster. It seemed that lower interest rates
benefited sellers more than they benefited buyers. As I recall, my
sellers spent more time hoping interest rates would fall than my buyers
did. I remember when interest rates finally fell below 10%, sellers and home
builders were thrilled-they knew that it would benefit them.
In today's market, with rates hovering around to 5%, it's hard for me
to get too excited when they move up or down by a fraction of a
percent. I remember doing deals at 12%, so anything close to 5% sounds
pretty good. Considering that mortgage interest is tax deductible for
most people, and that homes are priced substantially lower than just a few years ago,I think this is a great time to be a home buyer. People with dinged up
credit might argue with me about that, and it is true that many of
their options have dried up. So it would probably be more accurate to
say that for buyers with solid credit, this market has everything they
could hope for: great financing options, motivated sellers, and an
abundant inventory of homes in the Twin Cities to choose from.
I believe that the confluence of lower home prices and low interest rates is a unique occurrence. It is at least unique to me in my 20
years as a Saint Paul area real estate agent. In all endeavors, unique situations lead to unique opportunities--but
only for people who are informed and ready to act. There are several
things buyers can do to take advantage of the current real estate
market in the Twin Cities. If you can't do all of them, do as many as
Get Pre-approved for a Mortgage:
I know everybody has already told you to do this. Just about every
mortgage lender has a website discussing how important this is. But
after I reiterate all of the important and true things that they are
going to tell you, I want to share with you a couple of things they
probably aren't going to tell you. Meeting with a banker, getting a
good faith estimate, and getting pre-approved will help you know where
you stand. You'll have an idea what your monthly payment will be, and
what your closing costs will be. Of equal importance, you will be in a
stronger position when you begin negotiating with your seller. Sellers
love to know that the financing has already been approved by a
reputable lender. They are more likely to consider less than full
price offers when they can be assured that everything is going to go
smoothly, on time, and with no surprises.
Now here is where your mortgage loan officer might not tell you
everything, or where different loan officers might tell you different
things. The established Twin City lenders are going to tell you how
important it is to work with a reputable, local bank. This part is
true. Your sellers will be more impressed with a pre-approval letter
from a local bank than they will with one from an out of state bank
that you found on the internet. Also, their agent will remind them
that the underwriting, loan package, and other closing documents should
be taken care of locally; there are fewer last minute surprises that
way. But a short internet search will find that there are many lenders
claiming to have lower interest rates, or lower fees. So which side
should you listen to? Both sides!! It isn't just sellers and Realtors
who are facing slow times right now. Mortgage bankers are finding that
they need to be more competitive too. There is absolutely nothing
wrong with shopping rates and terms. The internet is a great place to
shop interest rates, but it is a bad place to choose a lender. Take
the rate and terms you find on the internet, and see if a local,
reputable lender can match them. If they can, that's great. If no
local lender can match what you find on the internet, then that should
tell you something too. Some things really are too good to be true.
Use a local lender, but don't hesitate to negotiate the best terms you
can get from them. Even if they can't match something you found on the
internet, just letting them know that you're shopping will ensure that
you are getting their best rate and best terms.
I'm not saying you should buy a home you don't like, or live
somewhere you don't want to live. I'm just suggesting that if your
goal is to get the best deal possible, you want to keep your options
open. Especially for first time buyers, part of your search criteria
should be to find a home that is a great value. The more doors you
leave open for yourself, the more likely you are to find a great value.
When I mention being flexible, most buyers assume I'm only talking
about the features and location of the home. But being flexible in
terms of time will also help you take advantage of today's market
conditions. If you absolutely need to close on a home next Thursday,
you need to understand that you just limited your options. On the
other hand if you can be flexible with time it will help you in two
important ways. First of all you'll have more homes to choose from.
Secondly, you can use time to your advantage when negotiating with a
seller. By offering to close when they want to close, you just made
the other terms of your offer more acceptable to your seller. Right now
there are many foreclosed homes for sale. Banks appreciate
non-contingent offers with quick closing dates. On the other hand,
traditional sellers have varied needs as far as closing dates. Find
out when they want to close. If you can accommodate their closing date, then
you're in a better position to ask for what you want.
Learn to Think Like a Seller Part One:
If you can understand what sellers want, you are in a better
position to negotiate with them. Give them a pre-approval letter.
Close when they want to if you can. This will help you get the price
and terms you want.
Learn to Think Like a Seller Part Two:
This part is much more important than part one, because in my
experience most buyers understand part one. You need to think like a
seller, because someday you're going to be one!! In this uncertain
economy that day is coming sooner than expected for many home owners.
You don't want to own anything that you couldn't sell if you had to.
Almost all buyers understand the importance of knowing what's for
sale and at what price. It's true they do need this information. And
this information is easily accessible on most St. Paul area real estate
websites, including this one. The problem is that having all of this
data readily available gives buyers a false sense of security. It can
be a powerful feeling to sit at a computer and instantly see all of the
active listings in your price range. Buyers think they are searching
the entire MLS, and that they have all of the information they need.
Nothing could be further from the truth. The most important information on the MLS is not available online to consumers. A smart seller would never make the mistake of using only active
listings to decide what their home is worth. But buyers make this
mistake all the time.
When determining the value of a home, there are a several pieces of
information that must be considered, and almost none of them are
available without the help of a professional real estate agent. The
most important piece of information is accurate data showing what
similar homes in the same neighborhood have recently sold for. MLS
data will show how long the homes took to sell, their list price, sale
price, and how much the seller contributed to the buyer's closing
costs. A look at "pending" listings is next in order of importance. "Pending" means there is a signed purchase agreement, and that a
closing has been scheduled. You won't know what the actual sale price
is until it closes, but a search of pending listings is critically
important, because it shows what is happening right now. And the ratio
of pending listings to active listings gives you an idea of how many
buyers you're competing against. I'd also want to look at expired and
cancelled listings. If there are a lot of similar homes that are
failing to sell at all, you want to know about it. As far as
establishing value, homes are definitely worth less than the list price
of similar homes that failed to sell. The expired and cancelled
listings at least show you what you don't want to pay for a home. And
if there are too many expired and cancelled listings surrounding the
home you are interested in, you might want to consider another location
Before taking a listing, all competent real estate professionals go
over all of this information with their sellers. It's really
impossible to establish value without a detailed analysis of sold,
pending, expired, and cancelled listings. Of course agents and sellers
consider active listings when they determine value, but the smart ones
understand that active listings are only one piece of the puzzle.
So what does it mean to think like a seller? Educated sellers list
their homes with somebody they trust to represent their interests.
They have their agent prepare a detailed market analysis that considers
sold, pending, expired, and cancelled listings as well as active
listings. I see too many buyers do just the opposite. Many of them
don't even retain a buyer broker to represent their interests. And even buyers who do have their own
agent representing them generally don't demand the same level of
accountability from their agents that sellers expect. For the last
several years, I watched too many people buy homes that they never
would have purchased if they had seen all of the data that sellers
typically are given. I can only assume that the buyers didn't know
what to ask for and that their agents found it easier (and more
profitable) not to give it to them.
Write non-contingent offers:
I mean non-contingent on the sale of a home you already own. If you're interested in purchasing a foreclosed home,you should know that banks generally won't even read contingent
offers. In fact all sellers prefer to look at non-contingent offers.
When you write a contingent offer, what you're really saying is "maybe
I'm going to buy your home." The word maybe is a real downer for
sellers. They understand how tough this market is, and now you're
asking them to trust that you'll get your home sold. And you can't
even promise when you're going to close, because that depends on what
you can negotiate with a buyer you haven't even found yet. Even if you
do get a seller to accept a contingent offer, the chances are that you
could have negotiated a lower price if you had presented them with a
non-contingent offer. And the seller is going to keep marketing their
home looking for a non-contingent buyer. So now you're in a position
where you have to sell your home fast--before somebody comes along and
buys the one you want. Being forced to sell fast is no way to get top
dollar for your home. So by writing a contingent offer, you'll
probably pay too much for the one you're buying, and get too little for
the one your selling.
Writing a non contingent offer is easier for some buyers than it is
for others. First time buyers are in the best negotiating position
right now because it's easy for them to write non-contingent offers,
and they generally can be flexible with time which will work to their
advantage. But if you already own a home you have some advantages of
your own, especially if you are moving up to a more expensive home.
Emotionally it is difficult to sell your home for less than you could
have very recently. But I always ask move up clients how it would help
them to wait for prices to come back up. If they get 10% more on the
one they're selling and then pay 10% more on a more expensive home they
have actually lost money by waiting for a "better" market.
This market is hard on sellers emotionally as well as financially.
But when they think with their heads and not their hearts, they realize
that this is a great time to move up to a bigger home. So their only
question is do they get their home sold, and put themselves in a
position to be a non-contingent buyer, or do they go looking for homes
and write a contingent offer? The only reason I would ever write a
contingent offer is if my needs for my next home were so specific that
I was afraid I might sell my own home and then not find anything I
wanted to buy. This just isn't happening right now to very many
people. There are too many homes for sale in almost every price range.
If you own a home, you need to decide whether to sell first and then
buy, or write a contingent offer. Here's how you decide. Become
educated on what's available in your price range. Chances are there
are lots of sellers who would welcome non-contingent offers. In this
case the decision is easy: Get your home sold, and now you're in
position to negotiate a good deal on your next home. On the other
hand, if there is only one home that you're interested in, you may need
to consider writing a contingent offer.
Search for Value:
Too often buyers ask me how much sellers typically are willing to "come down." I always tell them that they are asking the wrong
question. Many of the best values sell for close to full price. And
many of the sellers that are willing to accept low offers are still not
offering a great value. As we discussed, you need to know what similar
homes are actually selling for--then you're in a position to recognize a
good value when you see it.
Have the Sellers Pay Your Closing Costs:
Typically your closing costs are going to be around 3% of your
mortgage amount. Almost all lenders will allow you to have the sellers
pay the closing costs. And a good buyer broker should be happy to help
you negotiate this point with your sellers.
Negotiate, Negotiate, And Negotiate:
Times are hard for sellers right now. Buyers know this. The smart
buyers are taking advantage of this market, and negotiating strongly
with sellers. Be sure to negotiate on price and closing costs. Also,
your purchase agreement should be contingent on an inspection. If the
inspection finds significant problems, you should negotiate again to
get the seller to help fix the problem. Sellers want to hold onto
buyers once they find one. The inspection addendum allows you to
cancel the agreement if you're not satisfied with the results of the
inspection, so you are in a strong position to negotiate.
Wow, negotiate with the sellers. That's really innovative advice!!
Well this market has been slow for everybody in the business.
Everybody is hungry, and everybody has to be more competitive. You
should be negotiating with lots of people. Negotiate with the bank to
get the best rate and terms. They won't be offended--they want your
business. Use a title company that offers competitive rates for title
insurance and closing fees. You can save a few hundred dollars here.
Some of the more expensive title companies will also match rates if you
show them a quote from another company.
There is one more place to negotiate. Negotiate directly with your real estate agent!! I represent Minnesota's Largest Discount Broker.
So I always have sellers asking me about our low commissions. Buyers
almost never ask me. They don't think they're paying me. They're
wrong. Without their participation and money there isn't going to be
any money to pay anybody at the closing. It's just not much of a
closing without a buyer. I can't speak for all agents. But when a
buyer asks me to share some of my commission I do it more often than
Good luck looking for homes:
This is a great time to be a buyer!! Take advantage of the
situation you are in. If you have any questions please don't hesitate
to contact me.