I hate today’s real estate market. It’s completely nuts and is super challenging to run a real estate business in this environment. There are many reasons why I hate it, but I thought I’d share an email that I wrote to a potential buyer earlier this week. This probably explains it better than anything I could say.
After much discussion last night with my team members, I find myself forced to make an executive business decision and this decision does involve you and your family.
I’m not sure how much you know about the current real estate market, but this is the toughest market I’ve seen in my 16 years of being in the business. For the past five years, we’ve been in a very strong seller’s market because of the shortage of available homes for sale. One year ago, when Covid hit the United States, it actually made things even worse because many people decided not to sell and simply stay put in their current home. When there are a handful of homes for sale and 15 to 30 buyers for each home that comes on the market, it creates a crazy “bidding war” environment. Let me give you an example.
In the price range and area you are looking at, it’s not uncommon for a home to have 40 buyers tour the home in the first 48 hours and receive 5 to 15 offers. All those buyers will typically be willing to take the home in “as is” condition (they’ll do a full home inspection, but are agreeing in advance not to ask for repairs) and many of them will offer $5,000 to as high as $30,000 over the seller’s asking price. It’s quite common to see a home hit the market and be sold within 24 hours at a very high asking price.
Here’s the bigger problem that affects your situation. In the last few months, it’s become impossible to get a seller to accept your offer unless you have at least 20% cash down. FHA buyers (3.5% cash down), VA buyers (100% financing) and anyone with 5-10% cash down are making offers, but they’re losing to buyers that have at least 20% down cash or all-cash buyers. The sellers view these buyer’s offers as being less risky because if the home doesn’t appraise for the agreed price, these buyers have the available cash to make up the difference and purchase the home anyway.
As we discussed on the phone yesterday, you stated you have about $10,000 cash and will be using a VA loan. Up until recently, we would have been able to find you a great home and would have been more than happy to help you, but in this current real estate market, it will be virtually impossible for you to buy a home.
It’s very emotional when a buyer views a few homes, picks the one they love, writes up a great offer, then receives the bad news that the sellers chose another offer. Then they repeat the process again, and again, and again. This scenario is happening way too many times in today’s market and we’ve already had five buyers (all first time home buyers) give up and decide to just keep renting.
I want you to understand this pains me very deeply and I hate the situation it puts buyers in . There are literally two or three buyers per week that I will now be forced to turn away because they don’t have enough cash to put down. Obviously I’d love to help them because that’s how I make a living, but I also don’t believe it makes sense to meet with you and get your hopes up. I prefer to be honest with you up front and tell you this is not the time for you to buy a home.
There are a few possible solutions I might suggest to you. You may consider searching For-Sale-By-Owners who are not as likely to get a bidding war on their home due to their limited ability to market the home to a very wide audience. Another possible solution we’ve recently used is when parents, a family member, or a close friend, has the ability to pay cash and buy the home for the buyers (cash always wins in a bidding war). Once the home closes, they can then sell the home to their family member at the same price. Or if you had a family member that could give you a short term loan to get to the 20% cash down, then once you buy the home, you could refinance it by doing a 100% VA loan and pay them off.
If either of you want to talk on the phone, I’m more than happy to do that. I’m truly sorry about this. Hopefully the market will cool slightly next year.