Homebuyers: To get the house, get there first

(Money Magazine)

Housing inventory is stiflingly tight in many locations, making it a challenge to find, much less land, your dream home.

The number of available houses in the hottest markets has dropped dramatically over the past year, says the National Association of Realtors: In the Boston area, for one, inventory levels are down 29% vs. 2012. And Denver, Seattle, and San Francisco aren't far behind.

"Some homes are flying off the market in a matter of days," says Paul Bishop, VP of research for NAR.
Shopping in a popular spot? You'll have to go beyond the usual sellers' market tactics, such as getting prequalified for a mortgage. These strategies will help you find homes first, stopping a bidding war before it starts.
Go unlisted
One way to head off the competition is to look for so-called pocket listings, homes that are for sale but don't show up on the multiple listing service, where brokers post available properties.
Owners may choose not to list because they want to keep details about their houses private, or simply because they don't want to deal with staging the home and taking photos, says Zillow contributor and agent Brendon DeSimone, who works in New York and California.
Related: Secret 'pocket listings' return in hot housing markets
To find these homes, you'll need a well-connected broker. "You want someone who has an inside track," says DeSimone. Agents who have experience with pocket listings should be able to tell you about examples of off-the-radar houses they've handled in the past, as well as any they are currently aware of (keep in mind that pocket listings are most common in areas with tight inventory).
A caution: Buyers considering an unlisted property should be on the lookout for defects and check that the price is in line with the area, says San Francisco broker Samuel Cadelinia. Owners sometimes use this low-profile method to avoid calling attention to a problem or to see if they can sell for more money.
Get the real-time scoop
Many would-be buyers depend on automatic search, a regular roundup of listings sent out by the local MLS. But by the time these emails go out to shoppers, included homes may have been online for hours or even days.
Ask your agent about real-time MLS alerts, emails that are sent the moment a new listing goes live. While not yet in all markets, the alerts are available in the San Francisco Bay area, Las Vegas, Columbus, parts of Connecticut, and more.
Related: 10 things to know about buying a home
Agents often have a home for 24 hours or so before entering it into the MLS, so your broker may be able to give you a heads-up on a house he just received. To increase your chances of getting that call, tell him that you'd like to be notified immediately, and be sure he knows exactly what type of house you're after.
See through bad listings
Don't be scared off by a hideous paint job, bad lighting, or unflattering photos. "Sometimes sellers don't listen to agents about getting the house ready for sale," says DeSimone.
In a tight market, he says, it's worth checking out marginal listings to avoid missing a badly packaged gem -- just factor in the price of any project required to bring the home up to snuff.

 

Céline Dion's $28 million island mansion

Set your search criteria a bit higher than your target price; you'll likely catch some overpriced homes that may eventually go for less. How will you know? The number of days on the market is one telltale sign, says Cadelinia.
Related: For sale by owner: Homeowners ditching brokers
For example, if most homes in the area are gone within a month but this one's been on the market for two, the owner may be willing to consider a lower offer. If the listing is new, get a sense of how realistic the cost is by comparing it with the recent sale price of similarly sized houses in the same area.
Spot would-be sellers
Finding a home that's not for sale but might be soon is tricky but not impossible.
One strategy: Ask your agent to search expired listings, says Mark Cenci, a Chillicothe, Ohio, realtor. Owners who tried to sell a couple of years ago may not be up on rising home values (June median home prices were 16% higher than two years prior, says the NAR) and might be swayed by what you're willing to pay.
Rental properties are another prospective target, since landlords may also be out of touch with current prices. Sure, it's a reach, but in this market, says Cenci, "you need to explore every option."

Short of funds for a down payment and have good credit? Consider an 80/20 Loan.

80/20 loans are not as complicated as people may think. Many lenders will only finance 80% of the home purchase price, which leaves 20% for the borrowers to come up with. While having a down payment is ideal, some borrowers do not have enough of a down payment to cover 20%, and some may not have a down payment at all. In this scenario, a second loan for 20% of the home value can be taken out, as a home equity or piggyback loan. This is the best way to get 100% financing because neither the 80 or the 20 loan will require a down payment, since they are both incomplete loans.

How They Work

The first loan is for 80% of the purchase price. The second loan, for 20% of the purchase price, works as a revolving line of credit for 15 years and then must be paid in full over the course of the last 10 years of the loan term. The first loan prevents the borrowers from having to take out a private mortgage insurance (PMI) policy, which helps them save money. PMI is usually required when any mortgage covers more than 80% of the home value, because it is a risk for the bank. The insurance works to protect the bank, but since the cost is passed on to the borrower, it makes it harder for the borrower to handle.

When a borrower cannot come up with 20% down, an 80/20 loan is usually the best route to go, because it is less expensive than having to carry PMI. The 20% loan will generally carry a higher interest rate than the first trust deed loan, so it is important to carefully manage finances.

Qualifying for an 80/20 Loan

Generally, only those with a good credit standing, a score of at least 700, can qualify for 80/20 loans. Because there is no down payment involved, 100% financing is a very large risk for most lenders, so they will only trust borrowers who have shown they have the ability to pay their debts. In addition to a good credit history, applicants should have a stable employment history, a decent amount of money in savings, a stable history of residency, and a low debt-to-income ratio (DTI). The debt-to-income ratio should be 45% or less if possible. The better the employment, residency and DTI are, the lower the interest rates on the loans will be.

Due to the recent housing industry crisis, these loans are only extended to the most worthy borrowers, and are not offered by all lenders. If you are interested in getting 100% financing through an 80/20 loan, look at your credit report before you begin talking to various lenders to find a program that works for you. Depending on the situation, you may be better off waiting for a few more months to improve your credit and pay down some debt.

Contact me with questions or for a referral to lenders who offer these loans.

What Would YOU Do to Get That House?

What Would YOU Do to Get That House? [INFOGRAPHIC]

Great Infographic here.

Strategy for a Multiple Offer SItuation

It is definitely a buyer’s market out there in San Carlos, so if you want to buy a home, chances are, there will be a lot of other buyers right behind you. If you think you have found the home of your dreams, what can you do to guarantee that you will get it over someone else?


You have to remember that there simply is no guarantee. There are many factors that go into putting a bid in on a house.

First off, work with a reputable, savvy agent. Have have them determine what the fair market value of the home is.  Review the disclosures so you are familiar with the condition of the home. Talk it over and decide what you are comfortable paying for the home.

A good agent will get as much information as possible from the listing agent so that your offer will be as strong as possible.  In addition to price, it is helpful to know what the ideal terms for the seller would be (close date, rent back, items to include/exclude, etc...) so they will be included in the offer.

If you are working with a lender, it is always helpful if it is a well known reputable one.  In addition to writing a pre-approval letter to submit with the offer, have them call the listing agent before you present the offer to let them know how highly qualified you are and confirm the terms.

If this is your dream home and you want it at all costs, then perhaps investing in inspections prior to writing the offer so that your offer does not need an inspection contingency.  If you have the means, you may also consider an escalation clause. (See my previous post on escalation clauses.)

As always, try to work with an experienced and trusted REALTOR®, who can ease the process for you. They can work with the seller, and hopefully, you can all come to a deal that will leave everyone happy.

We are experienced, trusted and happy to assist you!

Kelly Clarke MBA
Realtor
The Clarke Team
650-489-5399