Real Estate Today
By Josh Mettle - Fairway Physician Mortgage Loans
It’s no secret, getting your real estate offer accepted in today’s hyper competitive real estate market is no simple task – especially in the highly sought after neighborhoods most physicians are competing in. Inventory is low in most areas of the country and the competition for the best homes is fierce.
Most buyers you will be competing against (and their Realtors) only know one way to compete, which of course is with price. But like any game, there are rookie tactics and there are insider expert tactics for getting the job done.
Before I share the 7 insider tactics with you, allow me set the stage as to where we are today with the national real estate market and what you need to know to be competitive.
Home prices nationally are up 6.7% over the last 12 months. If you are physician buying on the West Coast, North East, or any coastal area, chances are prices are up significantly more. This is simple supply and demand. Unemployment is low, wages are increasing, and new jobs are being created, all of which stimulate the demand for new and existing homes.
Supply is short and getting shorter. If you draw a line on the bar graph below from November 2016 to August 2017, you will see a consistent downward trend line representing decreasing inventory of homes nationally. A market in equilibrium between buyers and sellers is generally considered 6 months inventory. Anything over that, the buyer has the negotiating advantage and anything under 6 months inventory usually means the seller is in control and sets the terms of the deal.
Average Days on the Market
Nationally most newly listed homes go under contract within 30 days of being listed. In some markets it only takes days or hours, not weeks or months, for homes to go under contract. These market conditions require you to be all-in if you want to buy a home. You need to be fully pre-approved, down payment funds ready to roll, actively seeking homes on a daily or weekly.
When you find the home you are interested in, tying it up with an real estate offer quickly, then performing a thorough inspection and due diligence is often the only way to get the best homes in the best neighborhoods where many doctors are seeking to find housing.
7 Tactics to get your Real Estate Offer Accepted and Pay Less
This brings us to our 7 tactics to get your real estate offer accepted and pay less than the competition. These are the tactics we are seeing top Realtors from across the country employ in order to consistently get their clients the home they really want.
1. Tight deadlines-
7 to 10 day physical inspection, financing & appraisal deadlines, typically closing within 14 to 21 days depending on the level of competition for the property. In order to make this happen, I recommend our physician clients have all credit, income, and assets verified and reviewed by an underwriter before making an offer. We call this a Credit and Income Approval and I consider this a must when pre-qualifying for a doctor mortgage.
2. Coordinated effort between the Realtor and the loan officer-
As soon as the real estate offer is sent, the loan officer starts texting the listing agent, schedules a call and explains the level of financing due diligence already performed and how it is possible to close so quickly. The loan officer’s job is to help sell the financing and ensure the listing agent is comfortable with the physician home loan program and ultimately recommending your offer above all others to their seller.
If you can do better than the average days to close a loan (below), your offer has a significant advantage!
3. Strong purchase agreement/offer-
Showing the maximum amount of potential down payment available and considerable earnest money communicates strength and certainty that you can and will perform.
4. Be prepared to pay over the appraised value-
It is not uncommon for appraisals to come in below the purchase price. This does not mean you are not getting a fair price on the home. Appraisals look at comparable homes that have sold over the previous 90 to 180 days to arrive at a comparative market analysis of value. If you are buying a home in June and one or two of the comparable sales sold in January or March, it is easy to see the market has likely moved higher.
Appraisals do not account for future appreciation or market movement from the date of the previous sales. Thus appraisals that are 1 to 3% below the negotiated price of the home are typical in markets where the supply of homes is less than 6 months.
5. Create a contingency plan for a low appraisal before making a real estate offer-
If you know going in to an offer there is a chance the market has moved upwards quickly, plan accordingly with your Realtor and loan officer. Create a financing plan to deal with that situation, which could include a higher loan to value loan option, potential for additional down payment or gift funds, maybe even adding a small second mortgage to make up for the difference.
One of the advantages with a doctor mortgage is that you can put as little as zero to three percent down payment, so hopefully you can come up with a small additional amount if the appraisal comes in low.
6. Write real estate offers that highlight your willingness to pay over appraisal-
A seller’s greatest fear is that you are going to tie up their home for 30 days and then cancel. Addressing those fears up front provides a higher likelihood they will take your offer over other offers, even if the other offers are higher than yours. The addenda would say something like; “buyer hereby offers to pay $1k higher than the highest competing offer on subject property, not to exceed appraised value by more than $10k”.
7. Close fast and move slowly-
This is really getting aggressive but potentially solves a significant problem for the seller. Once they sell their home, they often need to find a new home, which can be difficult and stressful for them. The real estate offer would have a built in rent back agreement, allowing the seller to get their funds from the sale (your purchase) in 14 to 21 days, but giving them up to 59 days rent back. In some cases I’ve seen buyers waive charging the seller for the rent back. This is perceived by the seller as a significant sign of good will and can be a secret weapon when you know you are in a multiple offer situation.
Depending on the amount of competition and how badly you want the home, consider using as many of these tactics as possible simultaneously. Realtors I work closely with report double or triple the odds of your offer being accepted when these tactics are used in concert with one another.
Happy house hunting!
Josh Mettle NMLS #219996 is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNA, and physician assistants. You can get more great physician real estate and mortgage advice here or his by visiting his book site. Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages. Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here.
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