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5 insider secrets every buyer should know- Thanks the awesome Tara Trulia

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By Tara-Nicholle Nelson | Broker in San Francisco, CA

5 Insider Secret Stats Every House Hunter Should Know

We live in the era of the spreadsheet. An unprecedented number of today’s home buyers are smart about basic market data, understand the need to focus on comparable home values and their own money matters and have taken the lead in running their own spreadsheets, calculations and budgetary math to be as savvy a house hunter as possible.

Most folks know they should be keeping their eye on a few key neighborhood-specific stats: the average sale price of the type of home you want, the average number of days a home stays on the market (DOM) and the average list price-to-sale price ratio top the list. But today’s market - hot and heating, in most areas - presents some unique challenges to buyers. In turn, those challenges (multiple offers, super short DOM, way over-asking sales prices) give rise to the need for a unique set of “statistics.”

These numbers work to do two things: (1) manage your expectations and (2) get you quickly up to speed on today’s market realities. The goal: converting you into a wiser house hunter and more successful offer-maker, with minimal friction, failed offers, discouragement and wheel-spinning.

Here are some of the insider stats that house hunters should be paying attention to. (Note - your local agent should be able to help you source these numbers.)

1. The number of homes most of your buyers “lose” before they “win.”
Have you ever taken up running? If you just go out there cold, you might stop as soon as you feel the heart-pounding, chest cramping distress of the first minute or two on the track or trail. But if you do the research first or talk to other runners, you’ll find out that everyone experiences those awful sensations and - more importantly - that they go away once you get through the first few moments of a run.

Knowing that might make you more likely to hang in there through those first painful few moments, and boost your chances of becoming a real runner.

If you know that it’s normal for even smart, strategic, aggressive buyers to lose out on a few homes before they are the prevailing bidder in your market, it takes a little bit of the sting out of it if and when you lose out on a property. That can change the experience from “Woe is me - it’s the end of the world!” to “Well, now we’re just one step closer to our ‘real’ home.” And that can keep you from getting discouraged, help you keep your mind in the house hunting game and move quickly to make the next offer.

On the other hand, if it’s common for most buyers in your market to get the first or second property they make an offer on and you find yourself making offer #13 - this knowledge waves a red flag, positioning you with the objective knowledge that something about your offer strategy is not working and requires a reset.

2. Average number of offers per listing. If you’re reading this, you’ve probably read what feels like a million articles about how today’s buyers are facing a multiple offer market. But what on earth does that mean to you? In some markets, 3 or 4 offers is the norm; in others, it’s common to hear agents speak of receiving 15 or 20 offers on a regular basis.

As early as possible in the buying process, talk with your agent about what is normal in the way of competition levels in the various neighborhoods, price ranges and property types in which you’ll be hunting. That way, you’ll understand how aggressive you might need to be about house hunting in price ranges below your top dollar.

Now, obviously the fact that the average house in your area receives 20 offers doesn’t mean that every house does. But you might not be able to get a full offer count on any given home in advance of the time you put your offer together. Knowing the average number of offers listings are receiving in your area, on today’s market helps you avoid the sick-to-your-stomach sensation of learning you’ve offered $250 over asking in a situation where you weren’t competing with two dozen offers.

3. Neighborhood “run rate.”
You calculate a run rate by projecting mathematically how the current rate of rise in home prices in an area would look like if it continued for the whole year. For example, if homes have risen 7.5% this quarter, a run rate for the year would look like 30%.

Now, here’s a caveat: home price fluctuations are seasonal. So spring and summer home price increases will likely outpace the increases the same market will see in the fall and winter - especially in cold weather markets. A run rate is by no means a highly precise way of predicting the market’s performance - but it still has utility (see below). That said, in many markets, the market still has a long way to go before it fully recovers. As a result, the pace of appreciation might actually continue to increase over a one-year horizon, as the market continues to make its comeback and buyer demand continues to outweigh seller supply. So right this moment, a run rate is not a terrible tool to use, either.

You might logically understand the need to be aggressive in multiple offer markets or face the prospect of being priced out. But thinking through the run rate for your target neighborhood can help you understand precisely what that could look like. Instead of just being worried about the vague danger of being priced out, in the abstract, a run rate allows you to get a much more vivid . “If homes continue to increase in value at the rate they did this quarter, that home that just sold at $200,000 will actually go for $260,000 this time next year.”

This can create the reality check you need to make your real best offers in a heated, ascending market climate like today’s. But if you do decide to calculate a run rate, don’t take it too terribly seriously. Stay grounded in the fact that appreciation could very well slow after the summer. Or it could speed up. No buyer should feel scared into buying prematurely or overextending herself financially.

The best use of a run rate is to minimize the chances of being in denial about the realities of today’s ascending market, not to project what you think a home will be worth next year, to excuse yourself for overspending or to justify offering a price wildly higher than the comparable sales data backs up. Definitely discuss any run rate math you do with your agent.

4. Average pest report repair estimates.
Are you house hunting in an area with older homes? Do many of the homes have decks, woodwork or other items that commonly need repair? Does your agent tell you that your area is an “as-is market,” one where sellers don’t do work or repairs, but instead provide a pest or home inspection report up front and expect buyers to make their best as-is offer?

You may balk at the concept of taking a home as-is and still paying top dollar - despite the fact that the pest inspector is calling for $10,000, $20,000 or even $30,000 of repairs. But that is the reality of what it takes to be a successful home buyer, in many areas. Before you can know whether or not such a transaction is a solid deal, you need to know what the standard practice is in your area. But you also need to know the normal dollar amount range for pest report repair estimates in your neck of the woods.

So ask your agent, as early as possible, what the average pest report bill is for homes being sold as-is in your neighborhood or town. This information should inform your house hunt in several ways, including helping you understand what your cash needs will likely be after closing so that you can factor that into the price range you’re willing to spend for the property itself. Increasingly, today’s sellers are looking for offers that have “clean” terms (e.g., as-is, minimal contingencies, etc.), not just high prices. Getting a good grasp on the average amount of home or pest repairs required on home sold as-is in your market also empowers you to make an offer that is competitive not just on price, but on terms.

5. Inventory rate and the direction it’s trending. If you consider yourself to have highly discriminating tastes, or your house hunting wish list is laden with hard-to-find home features, you might have seized onto the mantra of hard-to-please house hunters: “I only need to find one.” As you encounter homes that might work for you and face decisions about compromises and how much a given home is worth to you, it’s important to know what your chances are of finding another home that fits the bill. And it’s just as important to know how those chances are trending, upward or down.

In fact, if very few homes on the market will work for you and that the trend in inventory is flat or declining, this should change the way you approach offer-making. You might want to loosen the purse strings when you do make an offer on a home that checks all the boxes on your wants and needs list. You might also decide to deprioritize some ‘needs’ to non-essential ‘wants,’ when a house comes up that could work for you.

Buyers: What stats have you found helpful in your house hunt?

Agents: What insider numbers do you use to brief your homebuyer clients?

ALL:
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Comments

By adl330, Thu Jun 6 2013, 10:37
Hardly insider secrets
By alleykm, Thu Jun 6 2013, 10:55

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