The Nashville Real Estate "Frustration" Market
I don't know about you, but if you're in the market for a new home in Middle TN - especially Nashville - take some valium!
Despite the fact that I'm a Real Estate Broker here in Nashville, I'm also in the market for a house. I think it has to be one of the most frustrating experiences I've had - and I've had many in my life.
I actually think it's worse than when I was a Realtor in the Miami, FL market, back in the day, before the Real Estate "Crash". A house would come into the market and there would be a swarm of people with contracts shoving them down your throat, everyone wanting your attention and acceptance.
This is much worse now!
Why? Because there is an average of 100 people moving into the Nashville, Middle TN area everyday. Yes, you read that correctly - 100 people per day! And it's because people are leaving areas of high congestion and high prices like California and the East Coast to make us an area of high congestion and high prices!
We're known here for our temperate climate and great music industry, the publishing industry, car industry and the health industry.
And we have a much lower cost of living than Cali and the East Coast. Pretty soon we'll be saying that we HAD a much lower cost of living, as prices are starting to climb as there is a higher demand for goods and lower supplies.
So, if you're seriously looking for a home in this Seller's Market in Middle TN or Nashville, you're finding yourself under a lot of stress making sure you're Realtor is sending you those listings as soon as they come into the market. Then you're rushing your Realtor to make sure you get to see the house, or apt, only to find out that there are multiple offers on the property in question - a property that is only zero days in the market.
Really?
Are you serious???
What's up with this?
You justify: "Oh, but this house has everything - and I mean EVERYTHING... I have to have it!!!!"
So, now it begins - get ready to join Alcoholics Anonymous because this will get you to start drinking:
You put in your best and highest offer because if you don't, the other 10 Buyers, that are experiencing this same frustration as you by now, will outbid you, and they get the pretty house. You, on the other hand, get to go back to your small, 1960-ish house or apartment dwelling that reeks like wet dog or old paint, that has poor plumbing and that has the crazy neighbors and loud dog who is now defecating on the sidewalk because the lawn is full of poop already...
Get the picture?
It's beyond frustrating!
And if you're trying this on your own, without the help of a Real Estate professional, good luck with that! Frustration is not the word I'd use when going about this solo without representation.
So you are willing to put in the bid for $5,000 over the asking price and hope your Realtor says nice things about you so that the Seller and Listing Agent can find you favorable.
The Realtor writes that you're great parents, or an amazing single mother with a wonderful job and you just need this house to make sure you're children are safe or near a good school. The Realtor will write that you have been in your current job for many years, and that you're responsible. The Realtor will state that you have excellent credit, and submit a pre-approval letter from a mortgage lender.
But guess what? All the other Realtors are doing the same for their Buyers. So, what gives you the edge over someone else getting that "dream home"? Well, I wish there was one trick to get you to win the bid but there isn't. It's actually a combination of things.
Here are some things that the Seller and Listing Agent look at when determining who's offer they'll pick. Note that the more of these that you have, that benefit the Seller, the higher the probability that you'll win the bid.
This means that you have a good and strong credit score. A 580 middle score will get you an FHA loan. If you have an 800 score, you could probably go with a conventional loan. The underwriters will have an easier time approving you when you have a high score, than if you have a low score. If you have a 580 for example, they will look for compensating factors that will help them make a decision to lend you the money. This will include how much cash you have in the bank, how much time you've been at your current job and in your position, what your salary is and if you've received raises in the past. The underwriter wants to make sure you're not going to be house poor. So if you've been used to paying a rent or mortgage of lets say $500 per month and now your new mortgage will jump to $1500 per month, they may say no to giving you the loan based on payment shock!
But, if you have a healthy, strong score, are putting down a good down payment, have a good solid job that you've been in for years, have savings in the bank etc., you have a very high probability of getting approved. So, have your Realtor say these favorable things about you to help "sell" YOU to the Sellers and Listing Agent.
Also, you can go with an FHA loan even if you have a high score because you don't want to put so much money down. FHA only requires 3.5% of the purchase price as a down payment. Conventional will go as low as 5% down. So, if you have limited cash, you may want to go FHA. The drawback with the low down payment whether it's an FHA loan or Conventional is that you will have Mortgage Insurance attached to your payments. So your payments will be higher because of this. With FHA, you will have this mortgage insurance payment for as long as you have that loan. So, refinancing this loan would be a good idea once you have the chance to do so. With a Conventional loan, you can get rid of the private "mortgage" insurance once you've achieved 20% equity in your home.
Earnest Money given and who it's held with
How much are you putting as a deposit - or Earnest Money? Some people think they should put the bare minimum, just in case the deal doesn't go through or they change their minds. Here's the thing: a Listing Agent is working for the Seller and looking out for their best interest. If you come in with a $500 deposit and you're going for a $200,000 home that you're trying to buy, the deposit tells the Listing Agent you're not really serious about buying this home. In other words, you have no "skin in the game"! The more you put down, the more it says that you are serious about buying this home and that you are not going to back out of the contract by having changed your mind.
If the house doesn't appraise for the price you're paying or if there are issues with the inspection, these are ways that you can get out of the contract - assuming these contingencies were in the contract you signed and that the Seller signed.
But, if you change your mind about buying the house because your mother-in-law doesn't like the tile in the bathroom then you will lose that Earnest Money Deposit. This is what the Listing Agent is assured that won't happen with your contract because they know you'll lose that money.
Sometimes we just have to because we're so tight with cash that we need some help. In a Buyer's Market, this is more common because a Seller finally has a Buyer - and who knows how long they had been waiting to get an offer. They are more flexible in letting go of some of the profit in order to get out of the house. But in a Seller's market, one with multiple offers, there is really no reason a Seller would want to let go of any profit if someone else is offering close to asking price and not asking for anything. So, if you have a need for help with closing costs, make sure you are offering at least what they're asking for and or above that amount. You do this so that they feel they're not losing out on their profit. Otherwise, they'll take the offer of the person not needing this help.
Despite the fact that I'm a Real Estate Broker here in Nashville, I'm also in the market for a house. I think it has to be one of the most frustrating experiences I've had - and I've had many in my life.
I actually think it's worse than when I was a Realtor in the Miami, FL market, back in the day, before the Real Estate "Crash". A house would come into the market and there would be a swarm of people with contracts shoving them down your throat, everyone wanting your attention and acceptance.
This is much worse now!
Why? Because there is an average of 100 people moving into the Nashville, Middle TN area everyday. Yes, you read that correctly - 100 people per day! And it's because people are leaving areas of high congestion and high prices like California and the East Coast to make us an area of high congestion and high prices!
We're known here for our temperate climate and great music industry, the publishing industry, car industry and the health industry.
And we have a much lower cost of living than Cali and the East Coast. Pretty soon we'll be saying that we HAD a much lower cost of living, as prices are starting to climb as there is a higher demand for goods and lower supplies.
So, if you're seriously looking for a home in this Seller's Market in Middle TN or Nashville, you're finding yourself under a lot of stress making sure you're Realtor is sending you those listings as soon as they come into the market. Then you're rushing your Realtor to make sure you get to see the house, or apt, only to find out that there are multiple offers on the property in question - a property that is only zero days in the market.
Really?
Are you serious???
What's up with this?
You justify: "Oh, but this house has everything - and I mean EVERYTHING... I have to have it!!!!"
So, now it begins - get ready to join Alcoholics Anonymous because this will get you to start drinking:
You put in your best and highest offer because if you don't, the other 10 Buyers, that are experiencing this same frustration as you by now, will outbid you, and they get the pretty house. You, on the other hand, get to go back to your small, 1960-ish house or apartment dwelling that reeks like wet dog or old paint, that has poor plumbing and that has the crazy neighbors and loud dog who is now defecating on the sidewalk because the lawn is full of poop already...
Get the picture?
It's beyond frustrating!
And if you're trying this on your own, without the help of a Real Estate professional, good luck with that! Frustration is not the word I'd use when going about this solo without representation.
So you are willing to put in the bid for $5,000 over the asking price and hope your Realtor says nice things about you so that the Seller and Listing Agent can find you favorable.
The Realtor writes that you're great parents, or an amazing single mother with a wonderful job and you just need this house to make sure you're children are safe or near a good school. The Realtor will write that you have been in your current job for many years, and that you're responsible. The Realtor will state that you have excellent credit, and submit a pre-approval letter from a mortgage lender.
But guess what? All the other Realtors are doing the same for their Buyers. So, what gives you the edge over someone else getting that "dream home"? Well, I wish there was one trick to get you to win the bid but there isn't. It's actually a combination of things.
Here are some things that the Seller and Listing Agent look at when determining who's offer they'll pick. Note that the more of these that you have, that benefit the Seller, the higher the probability that you'll win the bid.
Likelihood of obtaining the financing
This means that you have a good and strong credit score. A 580 middle score will get you an FHA loan. If you have an 800 score, you could probably go with a conventional loan. The underwriters will have an easier time approving you when you have a high score, than if you have a low score. If you have a 580 for example, they will look for compensating factors that will help them make a decision to lend you the money. This will include how much cash you have in the bank, how much time you've been at your current job and in your position, what your salary is and if you've received raises in the past. The underwriter wants to make sure you're not going to be house poor. So if you've been used to paying a rent or mortgage of lets say $500 per month and now your new mortgage will jump to $1500 per month, they may say no to giving you the loan based on payment shock!But, if you have a healthy, strong score, are putting down a good down payment, have a good solid job that you've been in for years, have savings in the bank etc., you have a very high probability of getting approved. So, have your Realtor say these favorable things about you to help "sell" YOU to the Sellers and Listing Agent.
Type of financing
The type of financing you are seeking is also important. If you are telling the Listing Agent that you are going with a Conventional Loan as opposed to an FHA loan, they tend to think it's more favorable, because it conveys the idea that you have a strong score and that you're putting more money down. This is a fallacy actually. I lost a bid like this. My client was going FHA and we were being counter-offered, when a new Buyer came into the scene going Conventional and putting down 20%. The Seller and Listing Agent thought it was a stronger Buyer. But, in truth, my client had scores in the 800s. The other Buyer may have been required to put down more because in not doing so, they would have had to finance a larger amount, which maybe he couldn't afford as a monthly payment. Therefore they had to bring down the payment by reducing the loan amount...Also, you can go with an FHA loan even if you have a high score because you don't want to put so much money down. FHA only requires 3.5% of the purchase price as a down payment. Conventional will go as low as 5% down. So, if you have limited cash, you may want to go FHA. The drawback with the low down payment whether it's an FHA loan or Conventional is that you will have Mortgage Insurance attached to your payments. So your payments will be higher because of this. With FHA, you will have this mortgage insurance payment for as long as you have that loan. So, refinancing this loan would be a good idea once you have the chance to do so. With a Conventional loan, you can get rid of the private "mortgage" insurance once you've achieved 20% equity in your home.
Earnest Money given and who it's held with
How much are you putting as a deposit - or Earnest Money? Some people think they should put the bare minimum, just in case the deal doesn't go through or they change their minds. Here's the thing: a Listing Agent is working for the Seller and looking out for their best interest. If you come in with a $500 deposit and you're going for a $200,000 home that you're trying to buy, the deposit tells the Listing Agent you're not really serious about buying this home. In other words, you have no "skin in the game"! The more you put down, the more it says that you are serious about buying this home and that you are not going to back out of the contract by having changed your mind.
If the house doesn't appraise for the price you're paying or if there are issues with the inspection, these are ways that you can get out of the contract - assuming these contingencies were in the contract you signed and that the Seller signed.
But, if you change your mind about buying the house because your mother-in-law doesn't like the tile in the bathroom then you will lose that Earnest Money Deposit. This is what the Listing Agent is assured that won't happen with your contract because they know you'll lose that money.
Using Seller's Title Company
Whenever possible, if you don't have any other incentive to use a specific title company, go with the Seller's company. Why? We do this to show the Seller good will and to expedite matters. There's less back and forth for information. So the process should be smoother - in theory. If the Seller is paying some of your closing costs, they tend to get a break in these costs when both parties use the same title company. It also shows you're willing to cooperate and have the transaction close.
Don't Ask for Concessions
What's a concession? It's asking for the Seller to pay for your closing costs and pre-paid items.Sometimes we just have to because we're so tight with cash that we need some help. In a Buyer's Market, this is more common because a Seller finally has a Buyer - and who knows how long they had been waiting to get an offer. They are more flexible in letting go of some of the profit in order to get out of the house. But in a Seller's market, one with multiple offers, there is really no reason a Seller would want to let go of any profit if someone else is offering close to asking price and not asking for anything. So, if you have a need for help with closing costs, make sure you are offering at least what they're asking for and or above that amount. You do this so that they feel they're not losing out on their profit. Otherwise, they'll take the offer of the person not needing this help.
Your Offer - How Strong Is It?
It boils down to how badly do you really want this house or property? If it's you can take it or leave it, then you can low-ball it, as long as you're aware that you may not get it. If the house or property has everything you need and want, then give your best and highest offer. This may be conceding to their asking price and/or going above it to beat other Buyers. In a Seller's Market, if you low-ball an offer, the Seller will not take you seriously, may get offended and may not even give you a counter-offer! Now, even if you wanted to go up in price, you would have shot yourself in the foot because the Seller will no longer entertain ANY offers from you... So, before making an offer, make sure you know what your best and highest offer is and then have a heart-to-heart talk with yourself about being okay with not having your offer accepted. If you feel bad afterwards, then you may have short-changed your offer.
How Quickly Can You Close?
Remember that the Sellers want their cash out of the house as quickly as possible. They may need to move and buy another house, or they may be losing the house. We don't really know the circumstances behind their motivation to sell, but they aren't going to wait around for you in a Seller's Market! If you have a close date that is way past 30 days, they may reject your offer and go with someone who can close sooner. So, make sure you ask your lender how quickly they can close on this deal based on your credit score and other criteria. Make sure the Realtor you're working with puts that date as the closing date. Don't make it for less than 30 days because most lenders need that time to get your documents processed and into underwriting, not to mention that they need to do an appraisal and wait for the appraisal report to make sure their collateral - the house - is at least worth the sales price and the amount that they will be lending you.
If you have to sell your home before you can buy the current one, this is a red flag for the Seller and the Listing Agent will recommend that they don't consider your offer. The reason is that there is no way to know when you'll sell the house. You may have a Buyer already in the process of getting financing when the underwriter discovers that there isn't enough income to make the mortgage payments and then that Buyer is declined. Now you'd have to start all over again finding a new Buyer. In the meantime, the house you're buying won't close till you close yours, and the Seller is counting on the money to buy their own home. So make sure that the closing date is within reason so that the Seller's feel they can move on with their own lives.
Contingencies
Putting an offer with contingencies means that you're wanting to buy the house or property only if certain things happen. What could be some of these things? One could be selling your own home first. Another could be that you want to put an offer contingent upon you seeing the property. Sometimes you find such a good deal that you jump the gun and put in an offer without having seen the property. You may be out of town and saw this wonderful property on the internet, or your Realtor called you about it. Now, you just want to place an offer on it to take it off the market so no one else buys it or jumps in with a better offer. Well, in this market that doesn't work out. No Listing Agent will take your offer if you haven't seen the property because you can back out of it once you see it. If the Agent has several offers, they will more than likely bypass yours.
But, sometimes there are tenants in the property and these aren't being cooperative. The Listing Agent will allow you to make an offer contingent upon viewing the property. If the Listing Agent says it's okay, then it's okay. The acceptance of this contingency is usually seen in the remarks section of the MLS sheet that the Realtor provides. It may not be seen on the Buyer's sheet, but maybe it's on the Agent's MLS sheet.
Acceptable contingencies are: Appraisal, Financing and Inspection. These are usually pre-written in the sales contract and are the ones that all Realtors are in peace with.Cash Buyer
If you're a cash buyer offering at asking price, you're more than likely in. If you're offering above asking price, you're offer will probably have a very, very high percentage of being accepted. Cash means that the transaction will close faster. There are no risks of being turned down for a loan and having to start all over again with a new Buyer. Cash doesn't require you to have a fantastic credit score. You may have a score in the 400s and you'll still be able to buy. Cash is your trump card for getting the property you want. If you don't have the cash to cover the entire purchase price, then putting a bigger chunk down will help the lender mitigate the risk of the loan with someone who has less than a perfect credit profile. Again, the premise is that you won't just walk away from a loan when you have so much "skin in the game". But, beware that if you are going with a lender that is asking for a huge down payment based on your less-than-desirable credit profile, you will be paying a higher interest rate as well.
Again the more of these categories you can fulfill in your offer, the easier it will be in getting your offer accepted. And if this still doesn't work, you may try a lease with an option to buy. This will allow you to "test-drive" the home, work on your credit and save up cash for a year or two so that you can buy the home you're leasing. The only problem is that in a Seller's Market, these are far and few in between and they are snatched up very fast.
If you're seriously looking to buy in this market, my suggestion is don't go at it solo and don't seek "For Sale by Owner" property. The reason is that you need good advice and someone that knows the market and the values of homes in the area. You may be buying something that is overpriced and that has issues. Buying a home is not like buying stereo equipment or even a car. The investment is huge and the risks of foreclosure are high if you get into a bad house. Seek professional help so that you feel good about where you live and your future.
If you need a good, professional real estate broker, and one experienced in mortgage financing, I'll be happy to represent you so that you don't become frustrated in this complicated process...
Buying or selling real estate shouldn't be a burden. Hire the right professional so that you can get the results you need and so you can stay in a positive and happy mind-set.
The time to buy and sell is now. Real estate is scarce. Interest rates are slowly climbing. If you don't buy or sell now, the market could change where people won't qualify anymore for a loan due to higher interest rates that equate to higher mortgage payments. If you are ready to buy or sell now, give me a call. Let's talk!
Ari Kopel
Broker, Realtor
Hodges and Fooshee Realty
Cell: 615-336-5451
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