Wednesday, February 21, 2018

Which Bidding War Strategies Are Most Effective?

by Rachel Musiker

Nearly one in four (23.6%) homes that sold in 2017 went for more than their asking price, up from 21.8 percent in 2016. These stats provide an indication of how competitive the market is, because prices are most likely to escalate when more than one buyer bids on the same home. But she who offers the highest price is not always the winner. It’s often a lot more complicated than that.
“I try to avoid the term ‘bidding war’ because there’s rarely any fighting, nor do traditional home sales take place in live auctions,” said Kyle Moss, a Redfin agent in Seattle. “Rather than prepare for battle, I help my clients gather and analyze as much information as we can about the home, the seller and the seller’s situation. I advise my buyers in crafting their strongest offer, both in terms of price, and in terms of earning the seller’s confidence that the transaction will close smoothly.”

Beyond offering the highest price, buyers have an array of strategies to consider, from offering all cash, if you’ve got it, to waiving the inspection, financing and appraisal contingencies. They are often used in various combinations, depending on the situation.

“I see each strategy as a lever we can pull to customize our offer so it meets the seller’s individual needs,” said Moss.

So if you’re thinking about buying a home in a competitive market, you should start to familiarize yourself with some of the strategies that can help your offer stand out. We recommend talking to your local agent to come up with the right combination of strategies for the home you’re bidding on or for the seller you’re trying to woo.

We looked to the data on about thousands of offers Redfin agents wrote in the last two years to see how the strategies we track affected buyers’ odds of winning a bidding war:

Rank     Strategy      Improves a Competitive   Improves a Competitive 
                                 Offer's Likelihood              Likelihood of Successs in  
                                 of Success by…                  the Luxury Market (Top
                                                                            10% by List Price) by...

                                                                                             
#1      All-Cash Offer          97%                                     438%


#2      Waived Financing     58%                                     76%
           Contingency 


#3      Personal Cover Letter  52%                          No Significant Gain


#5       Pre-Inspection      No Significant Gain         No Significant Gain


#6       Waived Inspection  No Significant Gain       No Significant Gain
           Contingency  


Cash, of course, is king. All else equal, offering with all cash nearly doubles your chance of getting your offer accepted in a competitive situation. In the luxury market, which we defined as the top 10 percent of the market by list price for the purpose of this analysis, an all-cash offer increases a buyer’s odds of success more than fourfold.

“Cash gives buyers a leg up in the negotiation because it ensures the fastest and most seamless transaction, without the involvement of a loan or an appraisal, which, if things don’t go according to plan, can quickly stymy a deal or delay a closing, even for the most well-intentioned buyers,” said Redfin chief economist Nela Richardson.

Of course, not everyone has the luxury of making an all-cash offer. That’s where the financing contingency, which makes your offer dependent on your loan’s approval, can come in handy. Waiving it increases a buyer’s odds of success by 58 percent. It works by making an offer nearly as ready to close as an all-cash offer by guaranteeing that the buyer will come through with the money if their lender doesn’t. One way buyers who waive their financing contingency reduce their risk of winding up on the hook for the cash is by getting a fully-underwritten loan pre-approval from their lender before they submit their offer. Some companies, like Redfin’s wholly-owned mortgage company, Redfin Mortgage, offer a fully-underwritten pre-approval letter for their borrowers, but not all lenders can or will do this, so it’s an important question to ask when choosing a lender.

Fortunately for most buyers, cash is not the only way into a seller’s heart. We found that a personal letter from the buyer to the seller is nearly as effective at increasing the odds of bidding war success. Often referred to as “love letters,” they can forge a powerful connection between the buyer and seller, highlighting shared hobbies or interests, earning a seller’s compassion or trust, or ensuring that the home will be loved and cared for in the years to come.

For Redfin agent Tony Wright’s buyers, the personal letter ultimately resonated with the listing agent.

The letter introduced the five family members, including a seven-year-old son with severe disabilities, for whom the home’s accessible layout was a perfect fit and a rare find in Salem, Mass., a highly competitive Boston suburb. As his clients were finalizing their offer, Wright learned that there were several other offers being considered by the seller, which happened to be an investor group.

“I always advise my buyers to write personal letters–except when the seller is an investor–as those deals are all about the bottom line,” said Wright. “But in this case, my clients had already written a letter by the time we learned the seller was an investor, so we submitted it anyway. And I’m glad we did, because the letter tipped the scales in our favor, even though there were higher offers. The listing agent quickly responded saying that she had a background in special education, and to let the buyers know that if they brought their price up by $2,000, the home would be theirs.”

Waiving the inspection contingency and the pre-inspection, typically conducted to mitigate the buyer’s risk when waiving said contingency, come with no significant gain in the odds of winning a bidding war. But this won’t stop Redfin agents from advising their clients to use them in appropriate situations while considering the associated risks. Instead, the absence of an odds increase is more likely a reflection of the fact that these strategies are used in some of the most competitive situations in which the seller will only seriously consider offers that waive the inspection contingency.

“A waived inspection contingency is practically required for entry when bidding on a home in San Francisco and in extremely hot neighborhoods in other parts of the country,” Richardson said. “It becomes part of the local real estate culture in very competitive markets.”

“For nine out of every 10 homes I helped clients bid on last year, the seller hired an inspector to conduct a pre-inspection and shared the inspection report with interested buyers as part of the property disclosures,” said Miriam Westberg, a Redfin agent in San Francisco. “This has become common practice here because it makes things easier for sellers by encouraging buyers to waive the inspection contingency and reducing the likelihood of requests for repairs or credits. It also simplifies the process for buyers, who should still do some research and ask their own agent to ensure the seller has chosen a trusted inspector.”

Methodology

Analysts used data on offers Redfin agents wrote in 2016 and 2017 that faced competition to determine how each bidding war strategy affected the associated offer’s odds of getting accepted.

My name is Scott Grebner and I have been helping my clients realize their own personal real estate dreams. Real estate is a relationship-based business that works best when client relationships are built on trust and confidence. My goal is having clients be completely satisfied with the professional and caring service they have received.

The role of technology is rapidly changing how the real-estate market functions in this country today. Re/Max Preferred Choice is embracing these new mediums of communication to better serve our customers. We have created our company to better place important information in your hands to help you with your housing needs. For a personal consultation please contact me at my Website.It seems that the dream of past generations was to pay off a mortgage. The dream of today’s young families is to get one. I would love to hear from you, about your Real Estate Dreams and questions.

How to Get a Mortgage Without a Full-Time, Permanent Job

by Credit.com

The growing number of gig economy workers in this country may have the freedom to work whenever they want, and sometimes from wherever they want, but when it comes to buying a home, all of that freedom has its price.

It turns out employees who have many part-time jobs, hop from one short-term contract or project to the next, or rely on freelance work as opposed to permanent jobs, don’t come packaged in the tidy financial box that mortgage lenders typically like.

“Historically the mortgage industry wants everything — residency, credit score and a two-year history of employment. And we’re also trying to predict the likelihood of that continuing for the next three years,” said Whitney Fite, senior vice president, strategic accounts for Atlanta-based Angel Oak Home Loans. “With the gig economy, we’re seeing less and less people fitting in that box.”

Gig economy workers don’t often have the requisite stack of W-2s to document wages. And predictions for future income can be murky. All of which can make obtaining a mortgage an uphill climb unless you, as the gig economy worker, do your homework and start preparing your finances and paperwork well in advance.

Here are six tips to help prepare you for the home loan application process.

1. Get Organized

The No. 1 piece of advice Fite has for gig economy workers who want to own a home is to spend time organizing all of your documentation, including proof of employment and income, the names and phone numbers of references, previous employers, landlords and more. You’ll also want to pull your credit scores so you know exactly where you stand. You can get your two free credit scores on Credit.com.

“Have all of your records, have all the dates of where you worked, who you worked for. It’s going to be onerous from a documentation standpoint, but you need to be prepared,” said Fite.

Gathering this information is more important for gig economy workers than typical borrowers, because you will have to work harder to convince a mortgage lender to approve a home loan.

2. Go the Extra Mile to Educate Your Mortgage Lender


You need to be able to explain to your mortgage lender what you do for a living.

Take the time to educate him or her about your job. Perhaps print out a news article or other information that will help a lender understand what you do.

“You need to prove that your past two years are normal. And that the likelihood of continuance is there,” said Fite. “Be prepared to supply a lot of documentation for that, such as articles about your industry. Things of that nature go a long way. The mortgage lender is not going to make a decision based on it, but it will help create a level of comfort.”

In addition, showing consistency in terms of the type of work you do will improve your chances of obtaining a mortgage, said John Moran, a mortgage professional who runs The Home Mortgage Pro.

A mortgage underwriter is looking for a stable history. Even if the gigs themselves start and stop frequently, gigs within the same industry or utilizing the same skill set will be considered more favorably.

3. Ease Up on the Deductions…


Self-employed individuals, as gig economy workers typically are, often use a Schedule C when filing taxes to report income and write off numerous expenses tied to working the way they do.

The downside of deducting a long list of expenses from your income is that it reduces your profits on paper. You may bring in $73,000 in a given year. But after deducting the cost of everything from internet and cell phone bills, to travel, business meals and professional memberships, your net income on paper may be far less.

“Use caution in how you’re deducting expenses as it’s the net income that’s used to qualify for a mortgage, not the gross pay,” said Kevin Hardin, a senior loan officer with HomeStreet Bank. “It’s tempting to use the full breadth of the IRS tax laws to reduce taxable income, but every dollar that is reduced from that taxable income reduces the income that can be used for qualifying for a mortgage.”

So, if you know you want to buy a home in the near future, consider forgoing some or all of the deductions for a year or two to increase the income you’re reporting.

4. …But First, Talk With a Mortgage Officer About Your Goals


Before completely doing away with claiming any or all expenses on your tax return, however, talk to a mortgage officer about your home buying goals. (Here are some tips for finding a good mortgage lender.)

“Go to a mortgage officer and say, ‘This is the amount of home I want to buy, how much income will I need to show?’” said Hardin. “Don’t just arbitrarily stop writing things off.”

In other words, get educated about the income you’ll need to show on paper first, before throwing write-offs out the window. Once you’ve identified how much mortgage you’d like, it will be easier to determine what the monthly mortgage payment would be and thus, how much income you’ll need to be able to document.

“The first step is to talk to a mortgage loan officer and then take that information to your tax preparer and say, ‘This is the number I need to hit in terms of income,’” Hardin said.

5. Get Your Debt Down


Let’s stress this one more time — because you are a gig economy worker, mortgage lenders will require more assurance that you’re qualified for a loan and that you’re a good risk.

To that end, work to get your debt down to zero, or as low as possible before applying for a mortgage, and keep your credit score in excellent standing, said Casey Fleming, a mortgage adviser since 1995 and author of The Loan Guide: How to Get the Best Possible Mortgage.

“Self-employed borrowers are going to be held to a higher standard because there is an added layer of risk with them,” said Fleming.

6. Try a ‘Bank Statement’ Mortgage


Newly emerging “bank statement” mortgage programs may be a good option for self-employed or gig economy workers to consider, said Fite, of Angel Oak Home Loans.

Such mortgages rely upon reviewing 12 to 24 months worth of deposits to one bank account and a profit and loss statement for your business, in lieu of the traditional two years of tax returns, W-2s, and payroll checks.

“These are geared toward the gig economy. It’s a rapidly growing segment of mortgages across our industry,” said Fite.

A variety of mortgage lenders are beginning to offer this loan option.

My name is Scott Grebner and I have been helping my clients realize their own personal real estate dreams. Real estate is a relationship-based business that works best when client relationships are built on trust and confidence. My goal is having clients be completely satisfied with the professional and caring service they have received.

The role of technology is rapidly changing how the real-estate market functions in this country today. Re/Max Preferred Choice is embracing these new mediums of communication to better serve our customers. We have created our company to better place important information in your hands to help you with your housing needs. For a personal consultation please contact me at my Website.

It seems that the dream of past generations was to pay off a mortgage. The dream of today’s young families is to get one. I would love to hear from you, about your Real Estate Dreams and questions.