Like many other things in life, what is good on one side just might not be as good on the other. What we mean here is if people who currently own real estate make the decision to sell, it’s a good time since sellers will most likely receive multiple offers and should get a good price for the properties they’re selling.
But if the decision is not to leave town or become a renter then the lucky sellers who were so popular with all the buyers must now join the same group of buyers when a property is found that they want to purchase. The chances of having to compete against multiple offers is a real possibly.
Many buyers are aware of this multiple offer situation and often, in an attempt to be the winning bidder, will make an offer to purchase that just might be more than they really wanted to offer – the motivating factor being that they are so tired of walking away as a losing bidder.
Some of the people that work at our company have been involved in multiple bidding situations. Some were great decisions where they benefited from buying a property where the property continued to go up in value, but there are a couple of other people that paid too much when they purchased, since they were the last person to buy just before prices started coming down.
People who invest in the stock market have become very familiar with price fluctuations. Real estate is just like any other commodity on the stock market where the laws of supply and demand dictate prices. Many potential buyers often get caught up in the frenzy of the moment in an attempt to be the winning bidder and put a stop to the difficult task of searching for another property. Sometimes they end up paying too much.
More Buyers than Sellers
According Lawrence Yun, Chief Economist for the National Association of Realtors (NAR), the number of available homes for sale has reached a low that has not been seen since 1999. The percentage of buyers in the market to purchase is up over 40% from year ago. Currently the supply/demand ratio is out of balance. The market now can only be described as a seller’s market.
Many sellers are purposely pricing their homes at prices low enough to prompt buyers to make multiple offers in an attempt to be the winning bidder. The sellers usually benefit from multiple offers from buyers. There are those that believe that low balling the asking price is a manipulative act by sellers and causes buyers to enter into a situation of one upping each other in an attempt to out-maneuver each other with no knowledge as to what actual prices the sellers really want for their homes.
It is so important to take into consideration comparative property sales when making an offer for a near identical property. In addition, the location and condition of the property to be purchased must be taken into consideration when making purchase offers. A bad location will, in most instances, not get better over time and properties that need repairs will cost buyers additional money following the close of escrow. This will actually add to the acquisition price of the properties.
The forces that are currently driving the recent rise in prices and the corresponding increase in buyer’s offers are due to several factors, including:
- Ultra low interest rates on mortgages
- Low available of real estate on the market
- High rental rates
- Increase in consumer confidence
- Fear of missing the real estate boat
The following 2 charts were compiled by the federal governmental department known as the Federal Housing Finance Agency (FHFA). For some reason this agency has little name recognition but plays a very large role in governing the extension of credit in our country. The Federal Housing Finance Agency is the regulatory body that regulates both FNMA (Federal National Mortgage Association) and FHLMC (Federal Home Loan Mortgage Corporation). Combined, these two quasi-governmental sponsored entities (GSE) play a part in over 75% of all residential mortgages made in our country annually. The data provided in the past by FHFA has been reliable and as such we are happy to provide the information. We thank the FHFA for allowing us to re-publish the following data.
National Home Price Recovery Strong; Regions Mixed
U.S. house prices rose 0.7 percent from January to February according to data released this morning by the Federal Housing Finance Agency (FHFA). FHFA said this was the fifth consecutive time its seasonally adjusted Home Price Index (HPI) had risen more than a half-point from one month to the next. Monthly prices have not declined since January 2012.
House prices have now increased 7.1 percent over the last 12 months to a level last seen in October 2004. The HPI is now 12.5 percent below the peak it reached in April 2007.
Regionally the recovery in home prices is ragged. On a monthly basis, prices increased in eight of the nine census divisions ranging from +0.3 percent in New England to +1.7 percent in the South Atlantic division (Delaware, Maryland, District of Columbia, Virginia, West Virginia, North Carolina, Georgia, Florida). Prices in the Middle Atlantic division (New York, New Jersey, Pennsylvania) declined 0.6 percent.
All divisions reported price increases for the previous 12 months but ranging from 1.9 percent in the Middle Atlantic to 14.0 percent in the Mountain division (Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, New Mexico) and 15.3 percent in the Pacific region (Hawaii, Alaska, Washington, Oregon, and California.)
FHFA uses the purchase prices of houses with mortgages owned or guaranteed by Fannie Mae or Freddie Mac to calculate the monthly index.
As can be seen from the 2 charts real estate prices are going back up.
It has been a long time since the possibility existed where it could cost less to own rather than rent due to record low mortgage interest rates.
With the increase in home prices, sellers who might have not considered selling just might be swayed into putting their properties on the market which should lead to a balancing of the supply/demand ratio. There has been an increase in construction of residential properties and their arrival soon on the market should help further to level out the supply imbalance.
Buyers should consult their real estate brokers or agents to get complete information of all comparative properties when determining a sale price for their homes. Buyers need to make certain that the price offered is not at a price that can be considered “overpaying for the neighborhood.”
Buyers should never lose sight that just a number of years ago billions of dollars were lost by buyers paying too much and when prices fell they ended up owing more than their houses were worth. This situation can have devastating financial consequences.
If a property has been located and it’s apparent there will be or currently are multiple offers then buyers need to do their homework and decide on the highest price they are willing to offer. Make the offer and if it the price offered is not as high as others then stop and look elsewhere for a property to purchase.
Don’t get caught up in the frenzy of the moment and get carried away. Do your homework, take your time and be persistent. The right property awaits you.