Successful Home Buyers Embrace "Measured Risk"

There’s risk in everything. If we defer to the stats most people wouldn’t drive, fly, invest, gamble, play sports or do pretty much anything beyond sit in the basement wearing a mask, gloves and bicycle helmet waiting for instruction. Most folks look to mitigate risk but it’s a part of daily life. It’s also part of buying a home; successful home buyers embrace risk. "Measured risk” is a good way to summarize how buyers need to think right now as conventional tactics are simply not effective in this market (4/22).

Measured Risk

Measured risk is just that, it's not being reckless or stupid. It's understanding the current market and the influences at play. What are the trends, inventory, mortgage rates, forecasts? What are the winning buyers doing; waiving/modifying contingencies, extra earnest money, option money, post close occupancy for sellers? For home buyers, it’s evaluating the current situation and asking, “am I a serious buyer, am I working with professionals that can guide me”? The current market (April 22) is brutal for home buyers and some are literally quitting; punching out because they cannot/will not compete. While there are no guarantees (esp in real estate), most of the buyers getting under contract are exercising measured risk. Some however, are tossing caution to the wind and just buying a home. Frequently these are buyers from higher priced areas with pockets full of cash. To them, “overpaying” is relative; they are fine getting a home they want even if it’s above a market supported price. There really isn’t a way to compete with a cash buyer willing to significantly overpay but fortunately those are not the norm.

The Winner’s Circle

The single most common concession winning buyers make is waving contingencies. Right now, waiving or providing appraisal gap coverage is almost routine. The buyer assumes some or all expense if the appraisal comes in low. Zero or a day or two of due diligence is common; buyers that are focused are willing to take this risk provided they get a good feel for the home during the showing. Those not waiving inspections try for the “right to inspect”; a modified and very narrow inspection option. This at least offers some ability to have an inspector's eyes on the home. Many buyers are also waiving the finance contingency. Instead of just a generic pre-approval letter, they are formally applying for the loan ahead of time and know they will qualify once a home is found. Other buyer concessions include post close possession, 3-5% earnest money and even option money. Many are willing to meet most or even all of the seller's demands for the right home.

Learn from Rejection

A smart guy named Einstein summed this up perfectly; “Insanity is doing the same thing over and over and expecting different results". If a buyer continues to be rejected, what is the reason? Many times listing agents will offer suggestions as to what the seller would like, is the offer in line the those? It might be verboten to a buyer to discuss an appraisal or finance waiver, but if that's expected but not included will the offer be considered when others are meeting the seller's requirements? Writing offers that won't compete is a waste of time and begs the "are you a serious buyer" question. And if you are a serious buyer that continues to be rejected, is it an agent issue? Does your agent have the skills and experience to work in a market like this? Understand how to write effective contracts, available 24/7, well connected and respected by agent community? Is your lender similarly credentialled and experienced? Seller's are calling the shots now. If 90% of the offers are going in with what the seller requests, at what point does it become clear that this may be required to simply compete?

Wait it Out

Every market is cyclical and this one will eventually find balance. The Fed raised the bench mark rate for the first time since 2018 and is promising more in an attempt to control raging inflation. These rising rates are hurting buyers; for every 1% bump buyers lose 10%-11% of purchase power. Some economists are revising predictions; now expecting standard 30 yr rates to be in the 5.5% range. “I’ll wait and rent” presents challenges. The rental market is also tight; rents have skyrocketed over the last two years and that trend isn’t going to stop. So that places the buyer that’s unwilling or unable to adjust in a tight spot; time for measured risk. Scrub the data, assess the risk and consider where this market and rates are expected to be over the next year or two. Renting and delaying the decision may be the move for some, Wall Street is certainly betting on that. For others, taking that measured risk can put them in a home and get them off the hamster wheel.

Atlanta is a transitory market, as HQ to several major companies and hundreds of smaller ones, folks are moving in and out on a regular basis. Atlanta is also the most popular investor market, hedge funds down to mom and pop investors work the sprawl. Combine that with record low inventory, continually increasing prices and now rising rates...the musical chairs type competition for homes is in overdrive. Successful buyers adjust, adapt and overcome. They consider and take measured risks, work with seasoned pros and do what it takes to secure a home. We're here to help and counsel, reach out and we'll be happy to chat.

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