Let's Dig In The changes in the real estate market this past month in Austin have been sweeping and dramatic. No price segment of the market has been spared from the run-up currently occurring, and no agent in Austin has ever been through this situation - because it's never happened before. I've been in the real estate business for over 25 years and the closest situation I can compare it to is the summer of 2000, but it's not even comparable to that. But don't take a my word, let's look at the data. Another broker and friend of mine for over 10 years (credit Eric Bramlett) recently took a survey of agents in town to get a more concrete idea of what is currently transpiring in the market.
38.1% of agents expect it to take 5-10 offers before their client has a winning offer. 38.9% say 3-5 offers
When a property is priced under 1M, 36.5% say that they expect 10-20 competing offers. Another data point was 15.9% said they expect over 20.
When a property is priced under 500k, 44.4% of agents expect that the property will sell for 10-20% over, while 38.9% expect that number to be greater than 20% over. When the property is priced between 500k and 1M, 44.4% of agents expect the property will sell for 10-20% over.
Even in the >1M segment, agents are 33.3% of agents are expecting 5-10 offers with 26.2% expecting 5-10% over and 25.4% expecting 10-20% over.
The reason he did this is because we're all flying blind right now, so data at least gives us some clarity, however anecdotal and limited, which allows all of us to serve our clients better. As of this morning we have only 774 available single family homes in the greater Austin area. In a balanced market this number usually sits with several thousand. Supply (the number of new listings added) increased by over 40% last week but after the weekend sales, we're actually lower today in available listings than we were last week at this same time. Appraisal Waiver? One other new factor that has become very prevalent is the use of the appraisal waiver addendum. This is a form that TREC promulgated towards the end of 2018 and I used sparingly - until the past few months. Every month since August the market has been accelerating, and the request (requirement?) by sellers that an appraisal waiver accompany an offer has become very commonplace. For resale homes, the chance that a seller is going to accept an offer without a waiver of the appraisal is low. There are two degrees of waiving you can do. One is to waive the appraisal completely, so if the home is listed for 550k and you offer 600k, but the appraisal only comes in at that original list of 550k then the buyer is responsible to cover the 50k spread in cash. The other option is a partial waiver, wherein you establish a floor/ceiling, such that the home is listed at 550k, you offer 600k, but say the appraisal must come in at 570k, you would then be responsible for up to 30k. In the prior example, sellers are much more likely to accept a 590k offer with an appraisal waiver than a 600k offer without. Over the past few months I have frequently been asked the question, "if it doesn't appraise, doesn't that mean the property isn't worth that". The quick answer - no. The longer answer is that a property is worth whatever a willing buyer and seller agree to, as with any market commodity, and that appraisers are currently at a disadvantage. Appraisers can really only use properties that have closed to establish value. While they can look at the trends a bit, they are slaves to the concrete data - sold price. In a rapidly escalating market that data lags, sometimes badly. An appraiser can go as far back as 6 months in the sold date without having to make an exception, and the market is definitely not the same now as it was 6 months ago. I don't blame the appraisers, but the only time an appraiser can really wrap around the actual value of the property at that moment is when a market is relatively flat. If it's going up or down with any significance, the appraisal is not a true indicator of market value. It's also something the lender uses to mitigate risk, so whether you waive an appraisal or not, your lender is beholden to that value. You are not, but that only works if you have the extra cash to cover a spread.
I wrote 27 offers in January, 2 were accepted. Both were on a new build that we knew the price and, as long as we wrote the contract first, we got the home. I have 2 contracts in February so far - one new build and one where the buyer was flexible on location so we were able to push out further where the market isn't behaving quite as irrationally. The large percentage of offers I wrote in January were over ask, usually 5-10% but I even had a handful that were 15-20% over and all cash. I was told, even on those cash ones, that we weren't even close (although my clients finished in second on quite a few).
So what can be done?
Offer price being the same, Cash > Appraisal Waiver > Partial Appraisal Waiver > No waiver
An offer price with an Appraisal Waiver that is higher than a Cash deal does stand a decent chance of being accepted. I would guess the delta on that is a couple percentage points, where a seller might take the cash deal that is only 1 or 2% lower than the higher financed deal, even with the waiver.
Free up some cash: If you don't have the cash available to cover an appraisal waiver, consider restructuring your loan to reduce your down payment. Yes, if you were intending to do 20% down it sucks to have to potentially do a second lien or PMI, but rates are low - second liens are running at the same interest rate that first liens were running last year at this time. You can always refinance to get rid of the second lien or PMI, maybe even just a few months from now.
Higher earnest money to show seriousness and is only at risk once the option is terminated. Whereas earnest money is typically 1%, buyers are offering 2x, 3x, and I've even seen 20x that.
Higher option money is a very common tactic right now on winning offers. Whereas option money in a normal market generally runs about .05-.1% of the sales price, that also is a way of showing seriousness by offering more, given that is the sellers compensation for effectively pulling the property off-the-market to allow for the buyer to get inspection and have the risk the buyer may terminate.
Some buyers are waiving their termination option period entirely. I just can't recommend that unless we are talking about a home that is very recently built or new.
There's also the option of waiting it out. Where do end up on the other side of this and how long will it last? Is this 1) a new floor being established, 2) just a percentage of people overpaying and in a few months it'll settle down a bit, or 3) just the beginning and in six months properties are going for even more than they are selling now? I simply don't know the answers to these questions, so you have to assess the risk/reward of each and make the call. I'll continue to give you the best and most current data and information for you to be as successful as possible with your offers.
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