Do your customers have to bid on the asking price? A look at the pros and cons
In a dynamic seller’s market, how should agents help their clients with pricing, bidding strategies, and a successful close? Broker Jenny Usaj offers keys to setting appropriate buyer expectations from the start.
In April, one of Inman’s most popular recurring theme months returns: Back to Basics. Throughout the month, real estate professionals from across the country share what’s working for them, how they’ve evolved their systems and tools, and where they’re investing personally and professionally to drive growth in 2022. It’s always a good idea to go back to basics with Dans homme.
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The early months of 2022 have seen an acceleration of the extended seller market. A February report from Realtor.com found the median home price jumped to $392,000, a new all-time high. This price represents a 12.9% increase over the previous year and reflects an increase of 26.6% compared to February 2020right before the world changed with the pandemic.
Appreciation rates are valuable to sellers and buyers
For agents representing buyers, set the expectation of having to bid on the asking price early. This is most often the case in housing markets with double-digit appreciation rates.
Before any auction begins, agents should compile data and projections to determine how competitive a bidding war can be – and what bid value is most likely to prevent a bidding war from starting. . To facilitate a stress-free on-demand bidding strategy, agents should work with experienced and creative lenders who can act quickly to get the home under contract.
The appreciation rate is essential for buyers. The rate relieves buyers faced with the realities of submitting an offer well above the original asking price.
To guide buyers through this process, agents can work with a trusted and experienced mortgage lender to calculate numbers that show when their clients can expect return on investment (ROI) from their homes in performing an on-demand submission analysis.
For agents representing sellers, knowing the appreciation rate of the listed house’s neighborhood means having data on past performance when selecting a stock. Appreciation rates provide potential buyers with the financial justification for the home’s listing price and allow them to conduct their own baseline analysis of the comparable market.
This way, they can judge whether the asking prices for listed homes are reasonable or too expensive. As a seller, the goal is to help buyers orient their bids in relation to the asking price.
Do the math
Nicole Rueth, senior vice president and producing branch manager at The Rueth Team with Fairway Mortgage, encourages agents to use bid versus demand analysis because it can quantify for buyers the return on investment of bid higher than competing buyers. More often than not, ROI will take less time than they imagine in a strongly appreciating market.
Rueth explains that the analysis is an assessment of how long it will take to recover the money you may have overpaid, thanks to the appreciation. For example, for a home listed at $1.1 million, if a client pays $100,000 more than requested and assumes a modest appreciation rate of 5.29%, they will break even after just 28 months. .
The calculations and projections from the analysis can help support buyers’ eagerness to outbid the competition.
In some areas of very hot competition, the asking price does not make sense. At the beginning of February, a house of Santa Clara sold for $800,000 above demand. It was not a spec house with a $15 million purchase listing price at $15.8. It was originally listed at $1.7 million and sold for nearly $2.5 million. Buyers have likely budgeted for this price and created a bidding strategy to secure the sale.
Proceed with caution to avoid potential inconveniences
Lenders may not approve the mortgage if the sale price exceeds the appraised value, so buyers should exercise caution if financing the home. Agents should speak to their buyers about this potential hurdle and discuss with sellers the consequences of choosing a high offer that will not be approved by the lender.
This valuation gap is very common in areas like San Diego or Denver. The valuation gap forces buyers to over-demand to cover the price gap with cash or use valuation gap insurance, a tool that can be implemented as part of their mortgage insurance.
Lenders can offer more information about valuation gap insurance, which is helpful for buyers who can afford monthly payments but may not have the money available to cover the gap. price.
On the seller’s side, agents can remind their clients that the best deals are based on a competitive and accurate home price when they come on the market to create the possibility that offers will come in above the asking price and close. with success.
A common mistake for buyers is to fall in love with a home they can’t afford. Agents should remind buyers to focus on homes within their price range.
Agents are best equipped to do this by knowing market conditions, having honest conversations about their budget, and preparing with a smart bidding strategy.
Jenny Usaj is the broker-employer and owner of Usaj Realty, a Denver real estate agency, and a member of the Denver Metro Association of Realtors.Market Trends Committee.