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Why the High Offer Gets Snubbed

by Tara-Nichole Nelson - inmanNews
February 12, 2010

Q: I've been making offers on homes for what seems like forever.  I make offer after offer, and don't ever get them accepted. I've been doing this for so long, though, that a number of the homes I didn't get have closed escrow and their sales are now public record.  I'm seeing that some of the places sold for less than I offered. Why would the seller take an offer lower than mine?

A: Doesn't that make you crazy? I also work in a market where most first-time buyers face (and get outbid or rejected in) multiple-offer situations time after time before prevailing and getting "their" home.

Some of my clients face the same exasperating reality -- they usually lose a few homes while they're becoming educated about the need to offer more than the asking price in what they thought was a smoking buyer's market and then see that a few of their lost dream homes actually sold for less than they had offered!

I can't speak specifically to the homes in your market, but I can tell you about situations I've seen in which the highest bidder does not end up as the buyer.

Cash offers often trump offers that are contingent upon obtaining financing, even when the cash offers are lower than the financed offers. This is because a cash offer can close much more quickly (two weeks on average, versus 45 days on average currently for a financed contract to close escrow).

With most cash offers, there's no question as to whether the home will appraise at the sale price; there are no potential glitches that might arise if a condition problem is found with the property; and there are no potential problems like the buyer losing their job or having their credit score drop at the last minute.

Because they offer certainty and speed, most cash buyers insist on a major discount -- and they often get it, even in multiple-offer situations.

Similarly, if your offer is financed by an FHA loan, it's not unusual to get beat out by an offer financed by a conventional (i.e., non-FHA) loan.  Many homes – even ones in seemingly good condition – have seemingly minor condition problems that make the listing agent a little doubtful as to whether the place will meet FHA's particular condition guidelines.

Additionally, an FHA buyer's typical characteristics, including low down payment and little assets in the bank, tend to make sellers who have other options wary of whether their transactions will actually close.

Finally, if you've been making offers on bank-owned homes, be aware that some asset managers are hesitant to accept offer prices significantly above the asking price, for the express reason that they are so high above asking.  This is counterintuitive, as you'd think they'd just want to recoup as much money as possible.

However, there were a number of buyers out there who offered excessively high prices for foreclosed homes just to beat out the other offers, counting on them not to appraise that high. Then, they'd just turn around and demand a price reduction when the appraisal came in low.

You've got to understand the context.  Before a bank-owned property comes on the market for sale, there has usually been a couple of weeks (or months) of wrangling between the listing agent and the asset manager, with the listing agent making the case that a low listing price is supported by the comparables.

Listing agents know the lower the price, the more likely the place is to sell.  However, that primes the asset manager to disbelieve that the property will appraise at a significantly higher price than the list price.

So, even if you and your agent see comparables that support a higher price, and believe it will appraise at the higher price, the listing agent might feel you're trying to game the system and set yourself up for a price reduction down the road.

Asset managers look bad when their projected recovery on a given property doesn't come to fruition at closing. They'd rather have a sure deal that will close at the contract price than have to go ask their boss for a price reduction mid-stream.

Accordingly, my REO (Real Estate Owned) listing agent buddies are telling me that some of their asset managers prefer to accept either (a) a sale price that they are 100 percent certain will be supported by the appraisal or (b) an over-asking sale price accompanied by documents demonstrating your ability to make up the difference between the list price and your offer price with cash in the event the property doesn't appraise.

There are lots of other things that happen in isolated instances resulting in an offer other than the highest one being accepted, including situations where the listing agent represented both sides (and gave the seller a break on commission), but these are the most frequent.

Moving forward, make sure that your offer paints the strongest honest picture of your financial qualifications to close the deal, and eventually you will prevail!

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Buyers Need to Act Fast
to Capitalize on
Expanded Tax Credit!

RISMEDIA, January 23, 2010

By now it is well documented that today’s affordable housing prices, historically low interest rates and federal home buyer tax credit have combined to create one of the most attractive first-time buyer markets in recent memory. What many Americans might not realize is that a recent expansion of the buyer tax credit has created an equally desirable opportunity for existing homeowners.

This past November, Congress elected to expand the home buyer tax credit to repeat buyers after seeing the success the temporary financial incentive had on the housing market and overall economy. As a result, current homeowners who will have lived in their home for 5 consecutive years out of the last 8 may now be eligible to receive a $6,500 tax credit.

First time home buyers can still receive up to an $8,000 tax credit, but they must also have a signed and binding contract by April 30th, 2010 and the close on the home must be by June 30, 2010! Special Note: A first time home buyer is considered to be anyone that hasn't owned a home within the past three years.

The expanded tax credit offers a great financial opportunity for existing homeowners, particularly those looking to trade up. Not only can buyers receive a large sum of money from the government, they’ll also likely purchase their next home for less money and at a lower interest rate than they could have in years past or years to come.

To qualify for the tax credit, the repeat buyer must have signed a binding contract by April 30, 2010 and close on the home by June 30, 2010. Tax credit eligibility is subject to income limits, $125,000 for single buyers and $225,000 for couples. In addition, the sale price of the home being purchased can not exceed $800,000.

There is no requirement that existing homeowners must have sold their home to be eligible for the $6,500 tax credit. However, existing homeowners who want to benefit from this incentive are encouraged to move quickly, particularly those who prefer to first sell their current home before purchasing a new one.

Typically, it takes three months or longer to sell a home. That’s why it is critical repeat buyers put their home on the market right away. Otherwise they might not leave themselves enough time to both secure a buyer for their current house and find a new home by the April 30 deadline.

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Like many people, Terry Hoskins has had troubles with his bank. But his solution to foreclosure might be unique. Hoskins said he’s been in a struggle with RiverHills Bank over his Clermont County home for nearly a decade, a struggle that was coming to an end as the bank began foreclosure proceedings on his $350,000 home.

“When I see I owe $160,000 on a home valued at $350,000, and someone decides they want to take it – no, I wasn’t going to stand for that, so I took it down,” Hoskins said.

Hoskins said the Internal Revenue Service placed liens on his carpet store and commercial property on state Route 125 after his brother, a one-time business partner, sued him. The bank claimed his home as collateral, Hoskins said, and went after both his residential and commercial properties.

Hoskins said he’d gotten a $170,000 offer from someone to pay off the house, but the bank refused, saying they could get more from selling it in foreclosure.

Hoskins told News 5 that he issued the bank an ultimatum. “I’ll tear it down before I let you take it,” Hoskins told them. And that’s exactly what Hoskins did.

This story makes no sense on a number of levels. For example, it’s just implausible that, if Hoskins only owed $160,000 that the bank would have refused a $170,000 payoff. One, I don’t think they can legally do that. And, two, they’d owe him the difference between what the home brought at auction and what he owed, minus transaction costs.

John Cole, though, doubts that bulldozing assets owned by others ahead of foreclosure will catch on but offers “it would be great if it did.” He doesn’t explain why. But it’s apparently a common sentiment, judging from the comment thread at WLWT5.

Lending institutions provide a tremendous public service, albeit for a hefty profit. Most of us simply could not afford to buy major end items like cars, much less houses, without the availability of banks and mortgage companies to front us the cash. In return for the ability to buy and live in a home we couldn’t otherwise afford, we agree to pay a fully-disclosed monthly payment for a fixed period of time. Further, the lender gets a lien on the asset in question as collateral in the event of nonpayment.

There was a blog meme a couple months back as to whether it’s “immoral” for people whose houses are no longer worth what they paid for them — a phenomenon that’s been dubbed being “under water” in one’s home — to simply walk away, handing the mortgage holder the collateral in return. My sense is that it isn’t: Both sides have a contract and the borrower is exercising his rights under the contract. In accepting the asset as collateral, the bank assumed the risk that its value would decline because of the vagaries of the market. It may or may not be a smart financial decision in a given set of circumstances, but morality doesn’t enter into it.

Here, though, Hoskins’ actions are clearly immoral. He’s committing an act of theft against an institution that lent money in good faith, expecting either payment or return on the asset.

He’s almost certainly committing a crime, too, in so doing.

About the Author: James Joyner is the publisher of Outside the Beltway and the managing editor of the Atlantic Council. He's a former Army officer, Desert Storm vet, and college professor with a PhD in political science from The University of Alabama. He lives just outside the Beltway in Alexandria, Virginia with his wife and infant daughter