We're in the housing hunt right now and we're losing to all-cash offers and ridiculous terms (like months of rent-free to the previous occupany: those sort of terms don't come from someone looking for a new place to live). We even lost on two offers where we were the high bid. We have pre-approval, solid financing and were willing to even waive the appraisal. It's not enough.
Also on the housing hunt and have had the same experience. It's really disheartening to tell someone I'm going to give you exactly what you are asking for and have that transaction, that seems so easy without any kind of counter-offer back and forth, fall apart... multiple times. An article like this definitely brings out a little anger.
You said it. One of the most galling things was sellers' agents that don't even let your agent know that you didn't get the bid (let alone ask for counteroffers). We only found out we lost out a couple times when it went pending on the MLS; we never heard a word. We're just interchangeable piggy banks to these people, apparently.
Been house hunting as well. You know what I've seen more than ever? Seller's agents behaving as jerks. Things we experienced going to open houses:
- Agent sizes us up (I dress down on purpose), says something to the effect of "You know this house will probably sell for even more than (already high) asking".
- Agent just sits around playing with her phone. No shits given.
- Agent sizes us up, realizes we're just window shopping/taking our time, "mansplains" to us "you know how this works, right? 24 hours from now there will be multiple offers and it will be gone"
The other unfortunate thing right now is that loan rates are (finally) spiking. Like > 4% for 30 year fixed. I wish we bought before the winter... And even worse if this keeps up the housing prices will crash just when we bought high. Oh well.
I hate to say it but when you are on the selling side and you are getting all sorts of offers, you just go for the most money and the easiest closing (in most cases). Then it's your turn to enjoy the buyers side of the sellers market... Unless you've decided to just rent for the foreseeable future with your newly attained cash horde.
Do you expect things to get better in the future? I'm not in the market to buy right now, but I'm trying to understand if the current situation is the new normal or still a reaction to covid upheavals. My gut tells me that in 2-3 years things will be much closer to normal as rates rise and people that fled to suburbs decide to move back to the city.
My theory is that places that are inherently more desirable, whether because of culture, geography, or employment opportunities, will remain high. This probably includes most coastal regions and trendy inland spots (Austin, Boulder, etc.).
I think a lot of 'secondary' markets could take a hit. These are places that the main appeal is their current relative affordability or proximity to a more-desirable area. I think buyers that are priced out of 'desirable' areas today are effectively settling for these secondary areas, which is raising those prices. I feel like those will be the first areas to take a hit. How big that hit will be, I certainly can't say. It could be as little as a reduced rate of property appreciation, or it could be as large as a 20% hit.
I'd expect a lot of this depends on where you are. Some places it won't matter a whole lot what happens with Covid/rates.
Friends in the DC region aren't worried as this has been an ongoing trend for quite a long time (they have enough equity that a dip won't matter much). Friends in Southern California would probably say the same thing. But in Phoenix, I already hear some questions as to whether this will come tumbling down in a year or two.
Myself, bought a place (not a city and not quite the 'burbs) last year and I'm still curious about my local market so I still constantly check the real estate sites/apps just to see how things are moving in my area. Would suspect I'm not alone in doing this.
My assumption is that a large percentage of the people who fled NYC/SF in March 2020 are either 1) going to miss the city once it fully reopens and they remember why they lived there in the first place; or 2) their "remote forever" job is actually going to become hybrid and they won't want the 2 hour commute.
Probably not. The majority of the tenants in my building are young professionals and empty nesters. Families with children come through but are gone after a year. Once you're on that track it's very hard to go back to city living. Space is at a premium and kids need space for 18 years. I assume the suburbs are made of people that love suburb living (so much space!) and people with children.
Outside of finance and government there isn't a large sector in most cities. Most businesses are in cheaper, suburban office parks. So beyond the social and cultural aspects there aren't that many advantages to city living, IMO.
I'm sure some people will return to cities, but I feel that many will remain in the suburbs. To me, one of the pieces of this surge in prices is due to millenials reaching prime homebuying age. But millenials are also at prime ages for starting and raising families, so I suspect many will prefer to keep the larger size of their suburban homes.
Sometimes (or often?) mortgages and financing can fall apart at the last minute, so sellers often prefer all-cash offers because they know there's virtually nothing that can make the deal fall through or drag on long. Pre-approval is usually done by different people than much stricter people who do the underwriting, so things can fall appart there, too.
When I bought my last house (newly built), on the DAY OF closing, 2 hours before the closing appointment, my mortgage officer calls me to tell me I'd need to bring another $5000-ish (due to a reason I've blocked from my mind). He told me my builder would bring a check for an equivalent amount made out to me, but to make the accounting/financial all legal, we couldn't just "zero each other out". The money had to clear from both accounts. (I wish I could remember exactly the circumstances). And, this money couldn't just be a check but had to be a cashier's check that was guaranteed. It couldn't be cash, either, because it had to be from an account that the underwriters had reviewed and done money laundering screening for.
Due to the logistics of that day, I had to go through herculean efforts to get that cashier's check made. I usually bank with online-only banks, and thank god that I had a local bank with just enough balance to make it all work... And that's for someone who is lucky enough to be able to bring that extra money and to be able to take the day off of work to make happen. I imagine many others wouldn't be as lucky.
That closing could've been easily pushed off a couple days had this surprise made us unable to close that day.
Sellers like not dealing with this, so they prefer cash offers.
It de-risks and accelerates the transaction. Most mortgage based purchasing requires the loan lender to approve the house for the value (even if you are 'pre-approved' for a loan of $X, if the bank doesn't think the house is worth $X it won't let you take the loan out for it). All cash offers don't have those approvals or risks, however slight, and also have no/less time delay - you can close in a week (just a title/deed history search, generally).
Because with cash you have the money to actually make the deal happen. With a mortgage you depend on a bank giving you the money.
A bank says they will lend 75% LTV, you are preapproved for a $2M house, so will bring $500K to the table and bank will provide $1.5M you think.
But wait, the appraisal comes back for $1.6M instead of the $2M you bid. Bank says no problem, we will lend 75% LTV or $1.2M. Now you have to find (within days) $300K. And you can't borrow it because that will mess up underwriting on your current loan.
Or you buy a car before closing. Whamo - your DTI is toast.
Or you have someone open a CC in your name. Whamo - no closing.
One reason I can think of is because the bank does an appraisal and may reject the loan if the appraised price is too low. They don't want to be stuck with a house worth less than the loan. I had this happen several years ago with a house I bid on (I was also pre approved and all that stuff).
Time to close a loan is couple of weeks at the very least (could be 4 or more). The cash offer closes in days. Sellers prefer the latter: bis dat, qui cito dat.
What kind of mortgage allows you to waive the appraisal? Seems a little negligent for the bank. How can they finance something if they don't know how much it is worth?
No, you waive the appraisal contingency; the bank still does their own appraisal. If the property appraises low, you pay the difference. In this market, we kept some reserve for that eventuality to make the application competitive. The sellers want a buying frenzy and that's what's happening, so many properties don't appraise since those values are usually calculated on historical sales.
The bank will only cover what it is appraised at. You have to split the difference with cash. Some banks might be willing to give you different terms (higher apr, more down) but that is generally how it works in my experience.
I'm in this boat too. It feels like a line was drawn sometime in 2020 or 2021: either you bought before then, and now you can enjoy your appreciation and relatively low mortgage, OR you're currently desperately trying to grab onto the last rung of the ladder as it gets lifted above you.
Regarding all cash offers, have you looked at all cash options that are available through lenders like accept, inc [0] or better.com [1]?
I’m in the market for a place now and recently lost to an all cash bidder. Turns out they were using [0]. I was already pre-approved through a conventional lender, but all-cash seems to be the new norm.
pre-approval doesn't amount to much. One thing you can do to compete with cash is to get a fully underwritten mortgage (you need to find a lender that does this). For a fully underwritten mortgage, the lender will give a $10,000 guarantee that the mortgage will close: this makes the offer more similar to a cash offer.
These still have lots of stars. They will close IF property appraises at value you bid. Heads up, in a multiple offer scenario it very likely WILL NOT.
I went though exactly that, and it's disheartening, indeed. I was fortunate enough to finally get my financed offer accepted, but only because the sellers were explicitly rejecting cash offers from investors. It was a family home, and they wanted it to go to someone who would maintain and live in it. Keep looking, keep trying, and maybe you'll get lucky too.
I dunno, I'm looking for a place to live, but ideally starting in July, so if I can get a better deal by offering the current owner/tenants free rent until then, that'd be perfect.
If you're starting a job in a new town in March, it's not a great option, but if you're looking months ahead of your preferred move date, why not?
Another why not-- you've just signed a tennancy lease. If they don't voluntarily leave on the assigned date, you need to run eviction proceedings.
where do you start? what grounds for evicition? Unpaid rent? You've already agreed that rent is zero...
Why would a REIT/Private Equity not care about this? Because their goal is to rent the property in any case. Professional landlords already have this in their risk models.
Trespass; at the expiration of the lease period, without an agreement (which can be inferred from acceptance of rent after the expiration, so don't do that) the tenants become trespassers.
> Unpaid rent?
That or other lease violations are typically only needed as the basis when the tenant has a current rental agreement. (Either in writing or inferred from acceptance of rent by the landlord.)
But, yes, the potential of having to deal with the process isn't something that should be ignored (nor are all the positive obligations on landlords.)
Why not pay thousands of dollars to let someone else live in your house for free? Is that a serious question?
The idea of rent-free occupancy wasn't even a thing two years ago. It's just sellers taking advantage of the current market where a lot of the buyers have no intention of living in the house and so a few months of rent-free occupancy make absolutely no difference as long as they get to buy the house.
No, for a house. If I'm spending $600,000-$700,000 on a house, paying $600,000 + three months rent is still on the lower end of that range. It's just a different structure, not more money.
Sure, but a month's rent is something like 0.5% of the cost of a house. If they simply offered 1.5% more for the house to get the one they wanted would anyone say "No person actually looking for a place to live would do that"?
$10k on the base offer or $10k in "free rent" is $10k either way.
The difference is that if they increased the price by $10K, you can get the loan to pay them, and you amortize that payment over 30 years. Many people are financially stressed enough to pay the downpayment - essentially you are saying the downpayment should go up by $10K. They may not have that $10K.
Yes, this is a very material difference to a lot of people, but the original claim was that it's something that only a speculator would do. I'm saying that as a person looking to buy and move into a house, this is 100% something I'd be happy to do.
Where I am, I'm seriously considering down payments in the hundreds of thousands. Should houses be that expensive? No, I personally believe we should build so much housing that it tanks the market. But the reality for people trying to buy a house here (Austin TX), +$10k to the down payment is insignificant compared to the price variation between home A and home B.
