The Franklin housing market has been brutal on home buyers. Gone are the days of taking out buyers to see several homes and then taking a day or so to decide whether to make an offer. Buyers who don't pull the trigger immediately will likely miss out on a purchase.
This is an especially difficult concept for first-time home buyers. Due to HGTV, these buyers think they'll have lots of time and options before making a decision. Neither are true.
In the last week, I've had an opportunity to work with two first-time home buyers.
First-Time Buyers #1:
My first couple drove six hours to look at one townhome. I had explained the state of our market before the buyers made the trip. They had been looking at listings on my website for months. This was the first property that even remotely interested them. They were prepared to act quickly and had a pre-approval letter in hand.
The buyers had narrowed their search to one particular neighborhood. This was the only townhome on the market. It wouldn't last long. As we drove up to the unit, we could see a coming soon sign on another townhome. I quickly called the listing agent to see if we could get in to see it as well. She agreed.
Great. The buyers would have more than one option.
I took them in to see the first unit. It had been freshly painted in a neutral color with brand new carpet--a real plus for first-time buyers. However, the kitchen was circa 1990's. It would require an update. The appliances, cabinets and counter tops were all original to the property.
We left this townhome and wandered down to the second unit; not in the MLS yet. This townhome was the opposite of the first unit. The kitchen had been completed updated with cherry cabinets, granite counter tops and stainless steel appliances. It also was painted with some very vibrant colors--not really to the buyers liking. This unit was 300 square feet larger and priced $55K higher.
We walked back to the first unit. The buyers carefully walked through it again. They felt there was a lot they could do to make this townhome their own. We looked at comparable sales and they decided to write an offer. This unit had been on the market 5 days with no offers. Given there was no competition, we wrote lower than asking. The buyers were willing to take the chance. By the end of the day, we had these first-time home buyers under contract.
First Time Buyers #2:
The second couple hasn't been as lucky. Their price point is such that everything, and I mean everything, is going under contract within hours of hitting the market. They have been trying to get in to see houses for weeks but everything goes under contract before we can get in.
A new listing came on the market. The buyers acted quickly. Mrs. Buyer even took off work to make the showing happen. The home was freshly painted and had an updated kitchen with granite counters and stainless steel appliances; not often seen at this price point.
While at the showing, I received a text from the listing agent four offers had already been received. If the buyers wanted this house, they would need to act quickly and be competitive. Did I mention this was the very first house the buyers had ever seen?
The buyers wanted to move forward with an offer. There wasn't time to head to the office, McDonald's would have to do to write this one up. We hurried over.
Since the buyers needed seller's assistance with closing costs, we knew we'd have to be over asking price. We reviewed the comparables and wrote a strong offer. E-signatures gave me the ability to have the buyers sign immediately and send over to the agent's office. We were offer #5.
Before I got back to my office I received a text from Mr. Buyer. They wanted to withdraw their offer. After we separated, Mrs. Buyer confessed to her husband that she thought there would be more room to negotiate. While she thought they would have to eventually pay more than asking price, she didn't realize that's where they would have to start.
This had all been discussed prior to writing the offer. I reminded Mr. Buyer we may not get a second chance at this house. After a short conversation, it was decided to withdraw their offer.
One couple under contract. One couple still looking.
Home Inspection for Buyers #1:
Tennessee real estate contracts require home inspections and the resolution period (the time used to negotiate these repairs) be completed within a specified number of days. We had requested five days to complete the inspection and another five days to resolve the repairs.
The home inspection was completed and the repair proposal sent within our allotted time. The sellers had 5 days to negotiate repair requests. Less than 12 hours after submitting our repair request, I received an email from Mr. Buyer. The buyers had expected the sellers would respond to their repair request immediately agreeing to fix everything. Since they had not, the buyers wanted out of the deal.
I called Mr. Buyer. I reminded him that the sellers had five days to respond to our request and that there was no requirement that the sellers fix everything. I suggested we wait to learn their response to the repair requests. Mr. Buyer felt the kitchen updates they'd have to make and the age of major components such as HVAC, water heater and roof would be too costly.
Our final purchase price was below market value. We had gotten the unit for a good price because there were no competing offers. Money had already been spent on a home inspection. With the exception of a dated kitchen, the unit was move-in ready. I felt confident we could negotiate repairs to the buyer's satisfaction. I never got the chance to do that; the buyers withdrew their offer.
It raises the question, should first-time home buyers purchase in a HOT seller's market?
Buying real estate is stressful, regardless if it's your first time or your tenth. That's why an experienced real estate agent is crucial to the process. An agent will be able to share information about your market and advise you as to how you should proceed. You want an agent who will be honest about your market and know the best way to successfully get you into your new home. However, there are a few things you should consider before starting on this journey.
1. Know Your Market
Your agent has told you it's a hot seller's market, how do you know this is true? There are three indicators:
- Homes are selling quickly.
- There isn't much inventory sticking around.
- Houses are selling for more than asking price.
Look through our listings, if houses have been sitting on the market for more than six months, it's not a seller's market. However, if the average days on the market are less than 60 days, then you're definitely in an extreme seller's market and properties are being snatched up quickly.
2. View New Listings Immediately
Once you've determined you're in a hot seller's market, make yourself available to see houses. Your agent should have you set up to receive new listings as they come on the market. Don't hesitate a day. Call your agent immediately to schedule a showing when you see something you like. House hunting must be your priority. If you wait until the weekend, the house you want to see will likely be under contract. This means you may have to view a house during your lunch hour or in the evening. Make whatever time is necessary to work towards a successful outcome.
3. Get Your Offer to the Listing Agent ASAP
You've seen the house. You think it's the one but it's hard to know because this is the first house you've even toured. Unfortunately, this may be your only opportunity to make an offer on this particular house. Whether it's the first house you've seen or the 15th, you'll need to act quickly.
You'll undoubtedly be up against other offers. You should already have a pre-approval letter from your mortgage lender. If you're a cash buyer, you need a proof of funds letter. Talk is cheap. The seller wants evidence that you can actually afford to buy his house.
4. Sweeten the Offer
Normally, buyers who are making an offer will do so with contingencies. For example, they'll buy the house if their financing goes through or the home inspection is good. In a seller's market, you may want to waive some of these contingencies to make your offer more competitive in a multiple offer situation.
I never advise buyers waive their home inspection, especially if they are first-time buyers. However, cash buyers can waive the appraisal. Buyers who require financing have fewer options. If you choose to waive your appraisal and the property doesn't appraise, you'll have to pay the difference between the appraised value and the purchase price. Only do that if you have cash reserves available.
5. Make Your Offer Competitive
In a typical real estate transaction, buyers make an offer and then there's a healthy negotiation process. Remember, there's nothing typical about a hot seller's market. If your goal is to get the house, you may need to come in with your highest and best right away. Forget about negotiating. You may only get one crack at this.
A seller is not required to review your offer because it was the first one received. In all likelihood, he'll be reviewing all offers at the same time. It doesn't matter if your offer was the first or the sixth, he'll choose the best offer available to him. Don't think you'll have an advantage because you're the first. That really doesn't matter in the big scheme of things. The buyers who have offered the best price and terms are likely to be the couple who gets the house.
If you find you don't have the ability to offer asking price or above, you may want to consider buying in an area that is less competitive. That may mean you'll have a further commute to your job to buy a home. Ask your agent to make suggestions about locations that may be less costly and competitive than the Franklin housing market.
6. A Word About Home Inspections
A home and termite inspection in our area will cost buyers around $400, depending on the size of the home. Sellers are not required to fix everything an inspector will find. And you should expect, in a hot seller's market, they're likely not to.
In some cases, these sellers may already have backup offers in place waiting for your deal to fall apart. If you have an expectation the sellers will repair everything on your list, you may be in for a disappointment. Just because an HVAC unit is 10 years old, doesn't mean the seller must replace it, especially, if the unit is functioning within parameters. Be reasonable in your repair requests and remember these items are negotiable.
If you are first-time home buyers purchasing in a hot seller's market, you want to carefully consider these things before viewing properties. In the Franklin housing market, you'll need to act quickly and may need to be over asking price to buy a home. If that's not something you are prepared to do, you may want to wait until the market levels off a little.
No matter what the housing market, buyers never want to overpay for a property. However, in a hot seller's market, there's a high probability you will need to do that to get the house. If you can't live with that, then wait for a better time to buy.
If you would like assistance with a home purchase, call Tammie White of Franklin Homes Realty LLC at (615) 495-0752.