As you know inventory in San Francisco is at its lowest mark in more than seven years. With such a low supply comes steeper competition which can put 1st time homebuyers at a disadvantage. I like to look at it as an opportunity to be informed and prepared. (Tips at the end)
Evaluating property and the market.
With low inventory the first time home buyer may be going up against investors who are also targeting the bargain-priced or lower priced homes that are in the same pool in which you are looking. Investors and contractors come to the table with buying power, large down payments and/or cash, which can edge you out of the deal. One strategy is to prepare to compete.
In a Sellers market, a strategy that is often employed by listing agents, are to list the homes for well under the market, in hopes of attracting a large number of offers. This means each home must be individually evaluated against the market to see if this is the case. If so, the buyer must be prepared to bring their offer in at the regular market price which can be substantially, sometimes $10k-$100k or more over the inappropriately low asking price. Just because a price is listed, it does not reflect the market value or the actual final purchase price range. Conversely, some homes do not require an overbid and your agent will be able to advise you accordingly.
Another contribution to the competitive, multiple offer situations are that values are beginning to inch up. What you may overbid for now, may not even be the starting asking price in 3-6 months from now as values rise. The next series of homes that come to market will be based upon the final sales prices of these competitively bid sales. Your timing is right to search and purchase your home right now!
Days the property has been on the market is not always reflective of the desireability of the property. Often, the home may have been in contract and fallen out due to no fault of the seller or the property. Days on market can also reflect as an active listing, if the property is a short sale or REO due to requirements by the Banks to keep the listing as Active on the market. Check with your agent.
FHA financing is attractive, though will likely tighten its mortgage standards in 2013 and include some additional costs, like impound accounts and mortgage insurance. You may end up with more than you bargained for. There are ways to negotiate a traditional loan to reduce interest, and even apply for an 80/10/10 which is a first and second loan with a 10% down payment. Check with your lender first and make sure to get a Truth in Lending Statement when you commit, which will spell out the details of your loan and discuss a loan lock option with your lender, to lock a favorable rate. Rates fluctuate daily.
TICs (Tenant in Common) as an entry level purchase are an excellent way to get in to the San Francisco market. They are typically lower priced than condominiums and offer a value to the first time home buyer. The 2-6 unit TIC has the option to condo convert, adding value. TIC’s typically re-sale within 3-5 years of purchase when the owners life circumstances, new job, family expansion or trade-up occurs. Look as this as a winning option to have you living in the City of San Francisco at a price point that is comfortable for the first time home buyer, even if this is not your forever home.
The fractionalized loans available for TICs are at a higher interest rate that the traditional mortgages, though the difference in monthly payment, may not be that much and one may have the option to buy down a loan point, typically 1% of the loan, at the time of origination, which will lower the interest rate to be competitive with the traditional loan.
Condos with litigation. Many condos that have been built in the last 5-10 years have suits that have been brought against the developer by the HOA. Some for serious reasons, some may be slightly erroneous. There are attorney’s who work full time in this realm. It is very difficult to obtain a loan for a Condominium that has ongoing litigation, only a couple of banks will do them, which will pigeonhole you to that lender. Also, condos with too large of a ratio of renters in a building can also pose lending challenges. The lender likes to see a higher % of owners in a condominium building to lower their risk profile. Check with your lender first.
If you can work with local known lenders or mortgage brokers. Mortgage Brokers are able to shop many loan sources which can be a benefit to you. Most agents have a referral list of a variety of banks and mortgage brokers who have proven performance. Just ask!
It’s important to have the right mind set as a 1st time homebuyer. This is an exciting and big life event that requires all of the time, effort and respect that it deserves. Finally, partner with the right agent who will be your advocate, likely custom match you with the right home and provide you with the market and contracts knowledge to lead you professionally and personally through to a successful offer. Keep your own counsel, follow your instincts and listen to advice. A strong agent will expertly guide you and make the process comfortable and easy. Sit down at the start and receive a buyer’s guide, maps, review market strategy, receive a home warranty and so much more. Good preparation, I promise, will make this so!
Tips to make your purchase successful
- View homes nearly the moment they come to market. Ask your agent for an MLS email drip of new listings or an MLS direct search engine invite. Ask your agent to arrange showings for those that interest you after work or on a Saturday, before an OPEN HOUSE.
- Take a private tour on a weekday, Tuesday Brokers Tour, Saturday or after work to see multiple properties in one block of time, by private appointment. This is a fast way to detail with your agent in person, on-site to compare homes and understand the market thoroughly so that when you are touring on your own, or new listings come up, you have 1st hand market knowledge and understanding to create your best purchase strategy.
- When you attend a self tour for OPEN HOUSE, ask the showing/list agent if they are going to set an offer date and/or will accept a pre-emptive offer. Communicate information you have learned about the home to your agent to help strategize for an offer and so that they can view the home asap, if they have not already.
- Ask your agent to email comparables of homes that you are interested in to determine if they are priced appropriately before setting your sites on a home that may not reflect true market value or looks too good to be true, and will likely receive multiple offers with overbids.
- Ask your agent to keep you informed of any off market or pre market listings and be prepared to view them immediately.
- Be prepared to overbid, if needed on a home that you want. Try looking in a price point slightly lower than your top, so that you have comfortable negotiating room and can make your offer competitive if needed.
- Look at new construction or TIC buildings, as generally a developer is satisfied with the an offer at or a little above asking price and overbids are not the norm for new developments, depending upon location and how many units are available.
- Make sure you are prepared. Obtain a pre-qualification letter from your lender to submit with your offer, before you begin your search in earnest. This will also confirm the right price point in which you should be looking, your comfortable monthly payment and set you on your path with confidence.
- Be prepared to produce proof of funds for your down payment for submittal with your offer. This shows the seller that you have the deposit funds and are able to make a successful purchase. This usually consists of a cover page of a bank account(s) where the funds are held. You can leave your name, and black out your acct. number.
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