Thursday, June 22, 2006

Tight Real Estate Market - Strategy Makes all the Difference

This post is continued from the Seattle Real Estate Professionals blog at the Seattle PI.

The supply of available housing in Seattle is limited by geography and zoning regulations, and our area has a strong demand for highly skilled workers. This means that there are many people in our greater community whose wages are going up and who want to buy a house or condo, but there are not enough properties to go around. This is great for home sellers, but it makes life hard for homebuyers. The housing crunch is intense in the center of Seattle and the effects are felt throughout the county.

With market conditions as they are, seller’s agents can encourage multiple competing offers to purchase their clients’ property. This is simply done by making the property as visible as possible to potential buyers for 10 – 14 days, and then reviewing all offers simultaneously on a date that is chosen in advance. (To keep it fair and legal, the date to review offers is posted in the MLS listing for the property.) If the property isn’t priced too high, then multiple offers are likely to come rolling in, which in turn fetches a higher sale price than could have been achieved with a high list price. This process is very similar to a sealed bid auction, and the strategy is most successful in Seattle’s and Bellevue’s core neighborhoods. This strategy can also be used effectively with more desirable properties throughout King County.

Home buyers are forced to compete against each other on price and terms, but there are strategies that can be used to enhance the buyer’s position while minimizing their sacrifice.

When competing on price, buyers can use an Escalation Addendum. This is an addendum to the purchase and sale agreement stating that the buyer will beat all comparable offers by a certain dollar amount (i.e. $2,000), but will not pay more than a specific price for the property (i.e. will beat all offers up to $775,000). The buyer only needs to determine the subjective value of the property based on their intended use for it, the availability of comparable properties, their desired time frame for moving in and how long they plan to own the property, and then work with their agent to set the offer price accordingly.

Sellers generally prefer that buyers eliminate the inspection contingency that protects buyers from purchasing a home with hidden problems. They aren’t usually trying to hide defects in the property, but sellers don’t want to renegotiate the price after the inspection based on common superficial defects that are itemized by the buyer’s inspector. Buyers can protect themselves and enhance their position by hiring their inspector to examine the property before the offer is written and then waiving the inspection contingency.

A good listing agent knows how to take advantage of current market conditions to get the best price and terms for their client, and a talented buyer’s agent will help their client obtain the property they want while avoiding unnecessary sacrifices.

If you want to discuss buyer or seller strategies further, or if you would like specific information about buying or selling your home, please post a comment or drop me a line at