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Why Buyers No Longer Dominate

With record low interest rates and distressed properties at super low prices, there has never been a better time to buy real estate. This has been a huge motivating factor for mom and pop investors, first time buyers and move-up buyers to buy now. So why are qualified and motivated buyers having such a hard time finding a home? The buyer’s market we have been in has officially turned.

With record low interest rates and distressed properties at super low prices, there has never been a better time to buy real estate. This has been a huge motivating factor for mom and pop investors, first time buyers and move-up buyers to buy now. So why are qualified and motivated buyers having such a hard time finding a home? The buyer’s market we have been in has officially turned.

Sellers, of every type of sale, are beginning to have the upper hand. The cause of this is a low level of inventory. This means that although prices are stabilizing, there are still not enough houses on the market to meet the demand of buyers. For example, there were over 1900 residential listings available in Fresno County at the end of February this year. In February of 2011, there were over 3500 listings available! As a buyer, it’s important to know why this number has significantly decreased, and how it is significant in the buying process.

It’s difficult to pin point the cause of a market change while it is happening. Most causes are confirmed after the fact, when the results can be compared over a specific length of time. However, as a real estate professional, I can draw a few conclusions based on what is happening in our economy and local market.

The largest change was Fannie Mae and Freddie Mac’s halt of foreclosures during the holiday season. They have been one of our largest feeds of new listings coming on to the market. It is reported that they have continued their foreclosure process now, and should be releasing listings soon.

Investors, whether they are “mom and pop” operations or professional groups, are currently dominating the market. They are able to buy homes in bulk and are more attractive to bank sellers, who only look at the bottom line of a sale. The bottom line of investors is they pay cash, want a quick escrow, have no appraisal contingency to obtain a loan, and are less likely to ask a seller to make repairs to a property.

Compare that to the typical buyer who may not be able to get a loan due to property condition or appraisals, need at least a 30 day escrow, and are likely to ask for repairs. Which buyer looks like less of a risk on paper? Banks are more likely to award investors the winning bid on a home, even if loan backed buyers offer more! Investor buyers are able to buy large amounts of inventory, and in less time. This means they clear out the inventory levels before they can be replenished.

Traditional sales have become the minority in our current market. Homeowners are not selling unless they absolutely have to because of low prices. It is generally more profitable for them to rent their home out, if they must move for some reason, than to sell. Homeowners are holding on to their homes, with the hope that prices will come back up, and they will be able to make a profit at a later date. This means fewer homes on the market.

Short sales have been gaining momentum as popular solution for homeowners that owe more on their homes than they are worth and need to sell due to illness, job loss/change or financial hardship. Buyers today enter into short sales purchases knowing their wait time may be months, if they receive an approval at all.

Our national government is creating legislature in hopes to increase the efficiency of this process, and shorten the time between an offer coming in, and the sale being approved (HARP 2). This will make short sales an even more attractive option to buyers.

At this time, short sale homes are listed below market values to create a fire sale, and solicit multiple offers.When a property is significantly underpriced, it is on the market for a much shorter period of time, and drives prices of all other properties lower. This deters traditional sellers from listing their homes, and further perpetuates homeowners owing more on their home than it is worth.

Since there are currently less homes on the market, the well-priced and highly desirable ones sell quickly and generally get multiple offers. Sellers have their choice of offers, and can normally negotiate buyers to pay higher sales prices, and at least half, if not all of closing costs. This is what has created the shift of power from buyers to sellers.

Now that sellers are gaining back control of the market, buyers need to do their due-diligence to be competitive, and successfully purchase a home. This includes preparing all financials, doing their research and being ready to pull the trigger when they find the perfect match. Preparing financials includes getting preapproved for a loan, saving all money need for closing costs and down payment, and being sure all the funds used for this are one account and remained untouched.

Research that should be done ahead of time includes knowing and clearly defining what the buyer wants and needs a home. A buyer should also be familiar with the process of making an offer and required contracts that they will need to sign. All of this prep work will make it quick and easy to make a decision to buy, and get the offer in before the competition!

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