Here we are in July, and there is talk of a cooling in the real estate market. San Francisco continues to be different. So what does a softening or cool-down really mean here?
First it is about summer, but not just about the fog rolling in and creating a blanket over the city for the summer months.
Typically after Memorial Day, both buyers and sellers take a few months off. Then it is all about multiple offers. Only a few months ago, agents would be sending out 15, 20, or even 30 disclosures on desirable properties. I can hear you asking “What do you mean ‘desirable’?” The answer I give to my clients is that it is any place you want to live. Today it is difficult to find an undesirable property. Moving into June and now summer, that number has shrunk to 3, 5, or on a special property 10 disclosures. Generally you can figure that between 25 and 30 percent of buyers requesting disclosures will write an offer. The end result is that there are still multiple offers, but not as many offers on a given home, and some properties receive only one offer.
Buying a home is always stressful and facing a multiple offer situation magnifies the stress. It is difficult enough to wade through negotiating with a seller for a home. Add to this the great unknown of other buyers and trying to figure out how much they are willing to pay for a home might feel like an impossible task. It should, because there is no way to know what another buyer will pay for a home.
One of the most difficult things for new buyers to understand is that comparable sales are not as important as how many offers there are on a home. A seller only needs two to issue a multiple counter offer with the hope of the buyers betting against each other to raise the price. Ouch!
To relieve stress and be successful, buyers need a plan. Here is what I recommend to my clients:
- Commit to going to as many Sunday open houses as possible. You need to get to know the market before you will feel comfortable making an offer on a home.
- Figure out your real limit on price. It is amazing to me how many buyers miss opportunities because they are hoping to find a home at a lower price.
- Don’t be afraid to make offers. It is the rare buyer who is successful on the first offer. It is reasonable for your first offer to be more cautious. Once you make an offer you will learn how many offers there were on the home and where your offer was in relation to the others. Was your offer on the bottom, the middle, second from the top? Were you offered a back-up position? If not, why? Nothing is more educational than a real-life experience. Eventually you will become more aggressive once you fully understand the process.
- Decide whether you are comfortable making your best offer first or leaving some room to respond to a counter offer. Ask your agent for advice. Your agent will be able to help you figure out the best approach for each offer. One size does not fit all.
- Try to remove yourself from competing with other buyers. Decide what a home is worth to you and make your offer. Remember there is no way to know what other buyers will pay for a home.
The good news about multiple offers is that typically the sellers will make a back-up offer to one or more of the buyers who made an offer on their home. This gives a buyer a second chance if the home falls out of escrow. How do back-up offers fit into the big picture of buying a home? If there are many offers on a property, the seller may offer a back-up position to as many as three or more buyers. They would be in first, second, or third back-up position.
There is no downside to being in back-up position. There are only three things that can happen: You find another home and withdraw from back-up position; the seller closes escrow and you are no longer in back-up position; or you are lucky, the home falls out of escrow, and you will be in contract.
Recently I had a client who, after several offers and two back-ups, bought a home when a cash buyer backed out of escrow. It might happen for you, too.
