Top 10 Tips on How to Buy a Home in South Pasadena
If you are in the market for a home in South Pasadena, California these days then you know it’s a ‘seller’s market’. This means that the moment a home is offered for sale there is a feeding frenzy of rabid buyers clamoring to get a look, evaluate the price and make an offer. For the lucky few, that effort pays off in a home purchase. The vast majority of prospective home buyers in South Pasadena walk away empty handed – and disappointed.
So if you are serious about buying a home in South Pasadena you need to give yourself every edge you can. That’s where our ‘Top 10 Tips for Home Buying’ in South Pasadena come in. We’ve caught up with the top real estate professionals who are actually buying and selling in this frenetic marketplace to learn what you can do to give yourself the best chance of being the preferred buyer of your dream home. Remember that these strategies may not suit your individual situation, so it’s always best to work together with a great full-service real estate agent and also obtain the advice of professionals in their field if necessary (for example a CPA, lawyer, mortgage lender, etc.).
1. Pay All Cash – Statistics tell us that 20% of homes recently sold in greater Los Angeles were ‘all cash’ offers. That’s kind of like walking up to the home seller with a suitcase full of money and asking to seal the deal.
There are several benefits of receiving cash for the buyer:
All cash means that there is virtually no possibility that a bank or mortgage company will delay or refuse the financing for the deal. The money is in the bank – so to speak.
In a rapidly appreciating marketplace – where home prices are rising swiftly – the possibility that a home won’t appraise for the sale price is increased. That’s because appraisers are always looking at historic data when determining home prices. If few homes have been recently sold that are directly comparable to your dream home – then it’s likely the price arrived at by an appraiser will be lower than the true market value. That’s great for the lenders. It protects them from risky lending. It’s bad for buyers as any difference between the offering price and the appraised price must be raised or negotiated with the seller. An all cash offer takes this risk away for the seller.
All cash offers can close the deal fast – (see point number 4). For most buyers, getting the deal done quickly is preferable. That means the buyer who is willing to get the deal completed quickly will have an edge. In an all cash offer it’s often possible to close quite quickly. That’s because the money lending entities (banks, mortgage companies, other lenders) are not standing in the way of the deal closing.
One additional benefit for a home buyer in paying all cash is that it may be possible to actually purchase the home for a lower price than another offer which is contingent on financing. That’s because the all cash offer is practically a sure thing – so a home seller may prefer to accept an all cash offer that is a few percent below the highest offer which requires a bank or mortgage lender to approve the sale.
2. Get ‘Double Qualified’ – Many prospective buyers simply can’t raise the total purchase price for their South Pasadena home in cash. They will need to work with a reputable lender to lend them the difference between the negotiated purchase price and the their saved down payment. How can a buyer who needs financing complete with other offers – including all cash offers? Simple. Get “double qualified”. That means that you have been vetted by two separate lenders who have both pre-approved you for your loan amount. In other words, instead of just getting loan approval from a single lender you essentially apply for the loan twice. Once with your preferred lender and once again with a second or backup lender. This indicates to the home seller that your financing is rock solid and is much more likely to go through – therefore closing the deal on time. It’s also a hedge against any sellers or seller’s real estate agents who have had a bad experience with a particular lender in the past. When they see the name of a lender that has been slow or hard to work with on a previous transaction – they may be less likely to want to engage in a deal with that lender again. By listing two separate lenders you are ensuring the seller and seller’s agent that they won’t be obligated to work with a lender that has performed poorly in the past.
3. Increase Your Down payment to 30% or More – When prices are rapidly escalating, home sellers will be concerned that any offer contingent on financing (borrowing money from a bank, mortgage lender or other lending source) will falter if the home appraises for less than the agreed upon purchase price. That’s because mortgage lenders often work under strict “ratios” that determine how much they can lend based on the appraisal. If the appraisal comes in low – then someone other than the lender needs to make up the difference. That means either the seller has to lower the price or the buyer has to raise more cash (or a combination of the two). By increasing your down payment you address two issues with one action: first, you assure the seller that you will not be affected by a low appraisal. Second, the higher down payment signals to the seller that you are a serious purchaser who stands out.
4. Offer to Close Fast – In a tight seller’s market such as that which currently exists in South Pasadena, buyers like to know that the deal will close quickly. Not every buyer has this requirement, but of course you can always close the deal more slowly if required. The best way to ensure a fast close is to work together with a well-oiled team of professionals who cover every major aspect of the purchase process including: selecting the home and making a solid offer, integrating the offer with a finance and lending team, and finally integrating the offer and financing with an experienced and attentive escrow team.
So what exactly is a “fast close” if you are borrowing the balance of your funds to buy a home in South Pasadena? According to escrow expert Regan Franklin at Inter Valley Escrow, a “fast close” for a typical home sale in South Pasadena is 15 days. “The standard closing time frame is 30-45 days in this market. So for a buyer with a loan – a 30 day closing would be ‘good’ and a 15 day closing would be ‘excellent’ or very fast.” Mr. Franklin also pointed out that buyers can sweeten their home buying deal by agreeing to a per diem should the close of the transaction go past the contractual closing date. Sellers may have a concern when a buyer has a loan, since the lender can potentially delay the transaction. A per diem is in effect a daily penalty paid to the seller if the deal fails to close on time. This introduces additional risk for the buyer – but can make the critical difference between getting the home or losing the deal.
5. Include a Letter to the Seller – Believe it or not, many South Pasadena home sales have been decided based on a personal letter from the prospective buyers.
A sincere, heartfelt, personal letter which explains why you would love to live in the home can tip the scales in your favor. That’s because for many sellers their home is more than just a financial asset. It’s a part of their family and legacy. They want to ensure that the future homeowners will treasure the property just as they did during their time in the home.
Should you include a picture with your letter? That’s a personal preference. The benefit of including a photo is obvious – the seller can take a look at you (and possibly your family as well) and get a better sense of who you are. The drawback is that- for whatever reason – if the seller doesn’t like the way you look in the photo – they could be disinclined to sell the home to you.
6. Conduct a Professional Home Inspection Prior to Making an Offer – Although most professional home inspections are made after an offer has been accepted, you may give yourself an edge by arranging with the seller and seller’s agent to conduct a home inspection prior to submitting your purchase offer. This inspection would be at your cost – not the seller’s cost.
The best case scenario is that the home inspection doesn’t reveal any major flaws or issues with the house. In that case you can make your purchase offer and waive the home inspection contingency. This is preferable to the seller as it potentially speeds up the sale by removing one extra step in the closing process, and also ensures the seller that you won’t be coming back later to ask for concessions on the purchase price or for costly repairs to correct any issues which arose during the inspection.
If the home inspection does reveal issues which need to be repaired or otherwise addressed – then you need to decide if the risk of covering those repairs or issues yourself is worth the benefit of beating out other offers to purchase the home. This is definitely the time to speak with professionals who can advise you on the true cost of any repairs or issues which have cropped up. If you are working together with a full service buyer’s agent then your agent should be able to provide a deep list of vetted vendors who can help you in this regard.
7. Send a Gift with Your Offer – Similar to the personal letter, a personal gift can sway a seller who is on the fence. Imagine the surprise and delight when a seller receives and offer with a $10 Starbucks gift card complete with a personalized message such as: “I know you’re spending long hours looking through offers, here’s something to help you stay alert.” How about a box of See’s Candies to “sweeten the deal”? If you think on this for a bit, I’m sure you could come up with a few great gift ideas to make your intention to be the preferred buyer clear.
8. Move at Lightning Speed – In the current real estate climate in South Pasadena speed is of the essence. This means that you as a buyer need to be working in concert with an alert and nimble real estate agent to identify any new homes for sale (listings) the moment they become available and to view, evaluate, and make an offer on any home that you desire within 48 hours.
You should definitely get on an alert system that sends you any new homes for sale in South Pasadena the moment they are listed. Why be in such a hurry to act? To prevent any other potential buyers from beating you to the sale. While it isn’t uncommon for home sellers to set a pre-determined date to examine all offers concurrently, it is also possible that the seller will simply accept the first great looking offer for the full purchase price. In the case where the seller is in a hurry to move the property, the “first mover” can have a tremendous advantage over other offers. To truly enable this strategy to work to it’s fullest – you should come right out with your best and strongest offer right away. Forget about haggling or looking to get into a counter-offer situation. This may cost you the sale. Of course you need to have viewed enough properties to be certain about your desire for the property and the price you will pay. Remember to gain the edge you will have to make a decision based on limited time viewing and evaluating the property – so it’s best to be well educated about the current South Pasadena housing market inventory and pricing. A great real estate agent can help you with that.
9. Make Your Initial Offer Over the Asking Price. By Alot – While the price you pay isn’t the only thing that the seller cares about – it’s always near the top of the list. Coming in with a strong offer which is over the asking price sends a strong message to the seller that you are serious about acquiring the property. By working together with a professional who is intimately familiar with the market and precise, accurate and current home values, you can make a strong offer that wins the day without drastically overpaying for the home. Just know that in this tight seller’s market – many many properties are selling above the original listing price. To get the home of your dreams you will need to compete against the other buyers who are most likely aware that homes in South Pasadena are selling above the asking price.
10. Offer to Cover Your Buyer’s Agent Commission – While rarely done, it is possible for the buyer to pay the commission for their own buyer’s agent themselves. This is typically somewhere around 3% of the purchase price. You are in effect increasing your offer by whatever that commission is calculated to be. Although you may feel a small sting at increasing the price in this way – since it is an unusual tactic – it will almost certainly get the seller’s attention. That may get you the home of your dreams.
Need Some Additional Expert Help? Give me a call anytime at (626) 437-6800 or email me at: Derek@SouthPasadenaHomes.com to get answers to any home buying questions you may have. I’m here to help.