It’s been a great few months. As foreclosure inventory has sunk, more of my buyers have been buying what we call “traditional seller” homes. This is where you have a real human seller and there are no corporate entities involved in the sale. For many months these types of sales were scarce and I almost forgot how nice it can be when both the seller and listing agent are attentive and workable. I’ve also had several of my listings sell lately too!
Even though we still have a couple years of foreclosures coming, I am starting to believe that we’re not going to see the high inventory levels we saw very early in 2009. If that’s the case, foreclosures will still make up a significant, but not a majority, of the sales in 2010. I also see more short sales selling in 2010 as banks learn how to simplify the short sale process.
I know that there are a lot of home sellers out there right now (both listed on the MLS and sitting on the sidelines) that are looking to make a move-up in price range but have to have their current home sell first before they can buy a new home. These sellers have been competing with foreclosures and short sales for much of 2009. 2010 will still see that competition but traditional seller will have a better opportunity to sell their home.
In a tough housing market, strategy can make all the difference. I believe that 2010 offers an opportunity to go back to an old trick: negotiating contingent sales.
In a Contingent Sale, buyer and seller negotiate a purchase with all terms and conditions but make it subject to the successful sale of the buyer’s current home, which does not yet have an accepted offer on it. The buyer and seller agree on a timeline for the buyer to secure an accepted purchase agreement on their current home. The seller is able to continue to show the property to other interested parties and can “call the contingency” on the accepted offer if they receive a better offer.
“A bird in the hand is worth two in the bush.”
A seller should consider a contingent offer because it is an opportunity to secure an interested buyer and and still encourage other buyers to come forward. A buyer will find this as an opportunity to quantify their cost to purchase the new house so they know what they can afford to negotiate on their current house. One thing that most agents, buyers and sellers overlook with a contingent offer is the ability for the parties to come back to the negotiating table if time passes and nothing changes.
Mr. Seller has a 4 bedroom two story listed at $357,000 and has been on the market 60 days. He’s looking to retire to Florida but needs to sell first. He’s motivated but not desperate.
Mr. & Mrs. Buyer need more space and are interested in Mr. Seller’s house but they need to sell their $210,000 split entry, which has also been on the market for a couple months. Mr. & Mrs. Buyer really like this house and so they approach the seller with the following offer:
“We’ll pay $345,000 for the house but we need to sell our current house first. We are offering 30-day contingency on the house with a scheduled closing date 60 days from today.” The seller and buyers negotiate the price up to $350,000 and sign the agreement. During the next few weeks the seller does have a few more showings but no one else comes forward with an offer. Both the buyer and seller are frustrated. This time the seller approaches the buyer with a proposal:
“I’ll reduce the sales price on my house by $5,000 and if you will reduce the sales price on your house by my $5000 plus $5000 of your own money. Further, I’ll extend the contract for an additional 30 days.” This brings the list price of the buyer’s house down $10,000, nearly 5% of their price, to $200,000. Any reduction less than 5% is unlikely to make a significant difference – if a home is only overpriced by 2% or 3%, To make an equivalent percentage drop, the seller would have to reduce his price by over $17,000!
By having the seller and buyer “share the pain” of a price reduction, they both benefit by making an eventual sale that much more likely because they’ve dramatically improved the salability of the buyer’s home.
Of course this is not as simple as it sounds, but to get into much more detail is difficult as each specific situation dictates the details. The way for buyers, sellers and their agents to be more successful in 2010 is to become more creative in their efforts – this is just one idea on how to do that.