There’s a well known real estate blogger in the mid west who wrote a post a week or so ago in which she disputed the use of the term “recovery” with regard to the real estate market. She really wasn’t being negative, it just doesn’t seem to fit with the reality of her market place. At one point she states

“There won’t be any recovery because recovery implies that it will get back to what it was and that can not happen.”

I think that’s a very interesting point. Is it true? Certainly, we’re not heading back into a market where large numbers of buyers are using zero down, sub prime loans to purchase homes. We aren’t going back to that era…I hope! I think in many parts of this country the devastation that was wrought in the last 5 years was incredibly potent. I’m sure it’s hard to see how it can be possible to become whole again. Clearly, there’s still plenty of folks under water and we have not reached a stage where everybody is in the black again around this area too.

The thing is though, we’re actually seeing homes sell in 2012 for all time high prices. I really think the idea of recovery is one that’s very real if you live in our area. When there’s multiple offers on just about everything it’s sort of hard not to think that recovery is more than just a novel idea. I was around before the big tech boom, during the dot-com early years and all through the meltdown years. This market feels as hot to me as any I’ve seen in 22 years. Maybe it’s not 2004…but it’s close. Maybe it’s not a recovered market but it’s a different and pretty healthy market if you ask me.

As much a pain as short sales have been there’s one thing that’s pretty much been a certainty when you go about trying to buy one. That is that you don’t really have to commit until the bank approves the short sale. You don’t need to make your deposit with a Title company, you don’t need to spend money on inspections since it could take months to get the bank to even look at the file on this type of property. I mean really, why would a buyer spend their money on inspections when the bank could easily reject their offer or not respond in 5 months? Why would you put a 3% deposit into escrow where an underwater seller has to sign a release if you decide you’re sick of waiting for the bank to work this out…if it even is possible? The California Association of Realtors has a nice little disclosure called the “Short Sale Information and Advisory” that says the following:

“Buyers may expend money on inspections, loan applications, escrow fees and other costs that they will not be able to recover from anyone if the lender does not approve the transaction. Buyers may also have difficulty obtaining the return of their deposit in escrow if the seller becomes uncommunicative during the short sale process”.

Well, we’ve now entered the crazy world of 2012 real estate around here. Short sales are getting multiple offers now. I saw one this week where the listing agent has a sheet of rules for the transaction that states the following:

 ”Must have initial deposit up front deposited to escrow upon acceptance of offer by seller”

What? Seems the new rules in 2012 want to eliminate risk for sellers of short sales. A buyer in this case should tie up their deposit for months. It seems crazy, doesn’t it? The real question is, will enough buyers comply so that this becomes the norm?

Short sales are not fun. Some folks (me included) sort of think of them as hellish. I have one right now that was (supposedly) approved when we ratified our offer in early January that’s still out there waiting for completion. You get excited, you buy a place…and then you wait, and wait….and wait for somebody at the bank or their service company affiliate to finalize your deal. When most folks hear about a short sale they get queasy. When you hear there’s a short sale, which happens allot, where there’s 2 loans queasy turns into weak at the knees. The reason being is that you’ll have to negotiate with both lenders to make this fly. You see, often the seller of a short sale owes on his original mortgage plus a second loan as well. Quite often that’s an equity line. Every once in awhile you’ll see a short sale where there’s 3 loans. Often that happens when it’s a condo and the seller hasn’t been paying both his loans as well as the HOA dues. # lien holders makes you go from queasy to weak in the knees all the way to nauseous.

I recently saw a Short Sale that had 8 loans on it. Talk about the Short Sale From Hell, the First lender will have to get all of the lenders to agree on a short Payoff in order to complete the Short Sale. In this crazy market it will most likely still get multiple offers. 

There’s a very strong element of thinking among buyers in this market that really is a hold over from the last two years…but in my opinion is no longer relevant. Whether it's a Short Sale or a Bank owned or regular seller, That element is the strong desire to negotiate the best possible deal. For some folks it really is the most important thing. In answer to the question, what’s important? these folks deep down think it’s the deal.

What I mean by that is that, for some buyers, the deal is the most important thing. Not the house/townhouse/condo…it’s the deal. It’s sort of funny to me that in the face of 10 offers or more on a property somebody will inevitably want to negotiate downward. I hear frequently questions like:

“Can we ask the seller to pay for our closing costs?”

“Do you think we can get the seller to fix all those things on the pest report?”

“How can we get the seller to fix the foundation?”

As I see it in markets like this one, heck in ANY market, the property is the most important thing. That’s the bottom line. If the place is in a good location, has the features you want and is in reasonably good shape,then negotiating over relatively small amounts of money is silly. Yet many folks feel bad if they don’t get a concession out of a seller. So many of the offers I’m seeing right now have no contingencies, have large down payments and are way over the asking price. The actual definition of “deal” in these cases is whether or not we got the place and is it in a location that is likely to appreciate well. The majority of the market here in Tracy California are Short Sales and they are always sold " As Is" the seller nor the Bank will do 0 repairs.

The irony is that making the deal top priority is ultimately a desire to save money. After wasting months of attempting to negotiate these relatively small amounts of money and losing homes in competition…the prices of these homes goes up. By the time it becomes apparent that the home is the most important thing, you’ve lost more money than you had been trying to negotiate originally in market appreciation. I can’t even tell you how many times I’ve seen that…and I’ve seen people who have actually been completely priced out of this area.

Yet another aspect of the insanity of the current marketplace and one that’s becoming more and more prevalent is the practice of dispensing with any and all contingencies in order to get a home in competition. In the last few weeks especially it seems to quickly becoming the norm. Honestly…I hate the idea. Talk about going way out on a limb! You can, of course, inspect all you want…you just don’t have a contingency to negotiate further over what you might discover. You also can’t back out over these discoveries either.

The long limb really applies to the appraisal and loan contingencies. Since this is a new phenomenon, the values that are coming in on appraisals are typically below the comparable sales for any time prior to. Many times the buyer will check the No appraisal contingency box which means In essence the buyers are saying “Don’t worry about the appraisal, if it doesn’t come in we’ll go ahead and make up the difference in cash to make this deal close.” This can be pretty risky stuff. You’re really guaranteeing the sale for the seller to get them to take your offer.

 I really hope it doesn’t start becoming the "Norm" If you don’t have 20% down you’re at risk. I actually had an agent tell me today that she received an offer on a Four Hundred Thousand dollar plus house where an agent presenting an offer with 25% down apologized for not writing an all cash offer. “I’m really sorry, but my clients need a loan” she heard the agent say. Amazing!

It happens all the time. There’s multiple offers on a given property and one knucklehead thinks they can successfully win it with their offer written under the asking price. InTracy last month, a house got 15 offers and one of them came in $25,000 under asking. Huh? My question is, what’s wrong with that agent? Who writes an offer like that?

OK, maybe I’m assuming too much. Here’s an absolute. A guarantee. If there’s 15 offers on any given property it’s going to sell over the asking price. No doubt about it. I promise. Also…I think the odds are WAY in favor of a house going over the asking price if there’s as few as 3 offers. If you’re competing in this 2012 market you’re going to need to make an offer over asking. 

Still, with every multiple offer scenario out there comes a story about somebody coming in under asking. Hilarious! Of course that’s the biggest piece, but there’s other silly things buyers do in this environment too. Asking the seller to pay your closing costs is almost as bad an idea as coming in under asking.

It’s really fairly easy to know if there’s going to be multiple offers on a place too. Simply ask, or have your agent ask, the listing agent 24 hours before the deadline how the activity has been. How many offers do you have? If the answer is over 25 you better get ready to write your strongest offer. Call again about an hour before the deadline and see if the agent can give you a solid number. One feeding frenzy I went through 2 weeks ago had 21 offers but when I called the agent about an hour before the deadline he told me he had 4 in hand and was expecting 2 or 3 more at best. Turned out he was wrong. Still, 6 offers invites you to swing for the fence in my mind as well.

If you’re writing an offer under asking in this environment your simply driving the overall price up, in my opinion. Most folks base their number on how many other offers are in play. Writing a silly offer like that just helps the seller get more money.