3 Essential Tips to Select the Right
Home Buyers in
Every Real Estate Market
The state of the real estate market at a given time does not matter when it comes to making sure that you will not “lose your buyer(s)” and close escrow on time.
As you can imagine, there are unfortunate consequences to losing a buyer including but not limited to having to “remarket” the property which will usually send the wrong message to the next wave of potential buyers (i.e., there must be something wrong with the property and/or we can get a deal), extending the number of "days on the market" of the property (a critical indicator for real estate agents) and of course triggering pressure to reduce the price tag.
Here are a few tips to avoid the hassle and ensure that the transaction will not fall through:
Tip #1: Look for the safest offer, not necessarily the highest one
The highest offer is not always the safest one. If the offered price is too high and the buyers intend to purchase the property with a loan, the property might not pass the appraisal test.
As most of you are probably aware, the buyers' lender will send an appraiser to assess the market value of the property for sale. In other words, the appraiser will determine whether or not the property is worth the price the buyers are willing to pay for it.
If the property appraises, meaning the appraiser considers the value of the property is at or higher than the offered purchase price, the offer can go through.
If the property does not appraise, the amount of the loan which will be granted to the buyers will usually not exceed 80% of the appraised value. If buyers do not have the personal funds to pay the difference between the revised loan amount after appraisal and the offered purchase price, they might ask for a price reduction or simply bail out of the contract.
As far as I am concerned, I always carefully check the amount of the proof of funds attached to the offer to purchase to find out if the buyers have the means to pay the difference between the revised loan amount after appraisal and the offered purchase price even if they waived their appraisal contingency.
In theory, by waiving the appraisal contingency the buyers will have no other choice than to purchase the property even if the price they offered is higher than the price determined by the appraiser.
That said, I have witnessed too often buyers who waive their appraisal contingency as a means to get their offer accepted even when they do not have enough personal funds to buy the property if the property does not appraise at the offered price. In this situation, buyers will use any means possible to bail out of the contract. During that time, sellers are stuck with those buyers until the issue is settled and cannot put the property back on the market.
Tip #2: Perform inspections before listing your property for sale
Keep in mind that in Santa Clara County, homes are usually sold “As Is”, which means that:
The sellers are not liable for any defect in the property's condition that was not concealed by them by fraud or as a result of a misrepresentation. Therefore, it is always beneficial to the sellers to do at least a pest and a home inspection before listing their home for sale.
Also, bear in mind that having the inspections done does not mean that the sellers will have to address the issues described in the inspection reports. The issues need to be disclosed not necessarily repaired.
As far as I am concerned, I usually encourage home sellers to pay, if doable, for any potentially hazardous and/or dangerous items found in the course of the inspections to avoid scaring potential buyers.
The most obvious benefit of performing these inspections is that potential home buyers will be better informed of the condition of the property and are less likely to come up with "lowball" offers. To put it simply, whenever home sellers let the buyers pay for the inspections, buyers will offer a reduced price by relying on every item that is not 100% perfect based on the inspection reports. When the inspections are done upfront by the sellers, buyers should have a pretty good idea of the condition of the property and will have less leverage to ask for nonsensical price reductions.
Tip #3: Disclose as much as possible
Disclose everything you know about the property, do not try to hide or cover up any issues.
Remember that every home seller has the legal obligation to disclose any material facts to the buyers, i.e. the “facts that, if known, might have caused a buyer to make a different decision with regards to the price and the offer”.
If you do not disclose what you know regarding the property, not only you might lose the buyers but you might also encounter legal issues depending on the gravity of the omission.
Should you have any questions regarding this matter, feel free to contact me.