You could avoid a bidding war by reaching out to a homeowner who’s not currently selling.
Residential real estate has largely followed the same narrative for the past few years: While there are plenty of buyers shopping around and ready to make a bid, there simply aren’t enough homes on the market.
There are more than 75 million owner-occupied households in the U.S., according to the U.S. Census Bureau. Despite that large number, just a fraction accounts for the homes that go on the market. The National Association of Realtors reports that while the total number of home sales increased in 2017 compared with the previous two years, the amount of inventory decreased – 1.46 million homes were on the market last December, nearly 200,000 fewer homes than in December 2016. The lower number leaves just 3.9 months of inventory, per NAR, while six months of inventory is considered a balanced market.
With numbers like these, it’s no wonder buyers find themselves putting off their hunt for a home in hopes of saving up more or waiting for more houses to be listed. David Marc Harris, founder of the off-market home sales tool Remzy, says the entire process has a bit of a butterfly effect.
“The agent loses an opportunity, the buyer doesn’t get to buy anything and basically what you’re having is the whole real estate economy is starting to slow down,” he says.
If you’re a buyer who’s made more than one offer, only to be outbid by other house hunters, there’s no need to feel discouraged. You may simply need to explore your options. One of those, of course, is pursuing houses that aren’t currently available for buyers.
It may seem counterintuitive to offer to buy a home the owner isn’t trying to sell, but in tight real estate markets, agents can find a lot of success for buyer clients by reaching out with an unsolicited offer.
Homeowners may throw out the letter they receive, call an agent to represent them or be willing to entertain a for-sale-by-owner deal, but by taking the chance, you’ve managed to open more doors in your search for your next home.
Remzy provides a searchable database of all properties (not just those on the market) and facilitates the letter delivery to property owners for off-market properties, allowing buyers and agents to write the content. Harris says the platform’s first year in business has shown promising results, with a 40 percent response rate during the peak homebuying season last summer.
If you’re ready to explore this unconventional house-hunting strategy, here are four things to keep in mind.
Don’t go it alone. It may sound like a great idea to cut out even more middlemen by approaching an owner without a real estate agent, but you run the risk of coming up against more obstacles if you don’t have a professional involved in a deal, or the homeowner may not take you seriously as you try to wade through a purchase without professional help.
“There are so many things that can go wrong in the closing process,” Harris says.
Ensure you select an agent who’s willing to take those extra steps to help you successfully purchase a home, especially if you’re a first-time buyer and you live in a hot market.
Creig Northrop, a real estate agent and president of the Creig Northrop Team of Long & Foster Real Estate Inc. in Clarksville, Maryland, says the agents on his team have to be willing to go beyond the local multiple listing service when their client can’t find a house they like or can’t find one that will accept their offer. “It’s really being a proactive agent. … It doesn’t just stop at, ‘Hey, I can’t find you anything,’” he says.
On the opposite side, of course, expect a seller to consider bringing his or her own agent representation into the deal. With representation, the seller may want to test the market before accepting your bid, which would both delay your purchase process and potentially leave you in the midst of an unwanted bidding war. But this also means the seller would have to go through the process of preparing the property for public viewing, a step the off-market deal would avoid.
Look for properties with owners who are more likely to consider an offer. Offering to buy a house that sold in the last couple of years likely isn’t going to get much interest from an owner who’s enjoying the space. You are most likely to receive interest from homeowners who previously listed their home with an agent but took it off market before it sold.
Of course, if you live in a market with low inventory, the number of houses that are taken off market without selling are few and far between – and may not be what you want anyway. Harris recommends taking a close look at properties with absentee owners who rent out the property to tenants, which you might see in listings online for rentals or Airbnb, with “For Rent” signs out front or simply hear about through conversations with people who live in the neighborhood. Owners currently using the home as an investment are more likely to consider an offer to purchase than someone still placing sentimental value on the property.
“Every single Airbnb rental, in my opinion, could be a potential letter to that homeowner,” Harris says.
Make a realistic offer. Even though the homeowner hasn’t run reports on the recent comparable home sales in the neighborhood, you still need to avoid insulting the potential seller with your offer. In fact, your offer has to include price and conditions that entice the homeowner to sell to you – rather than putting the home on the market.
“It has to be realistic in value,” Northrop says. “Why would the seller sell it, if they’re not on the market, for anything less than what it’s worth?”
Write a good letter. With that realistic purchase price, keep in mind that you have to write a compelling letter – not just to ensure the owner that you’re not a scam, but also to show them the deal will be worth it in the long run.
“Every offer that you submit, whether you go it alone or you use an agent, … you have to compose a plea to the homeowner of why you would be the right fit for a home,” Harris says. He also advises against trying to approach a homeowner in person first since people tend to view strangers knocking on their door warily, plus some cities have even made it illegal for agents to go door to door for business purposes.
Many homebuyers bidding on listed properties now write letters that include information about why the house is a good fit for them. If you’re able to evoke emotion in a homeowner as well, while making it clear that selling is equally beneficial for him or her, you’re more likely to see that letter turn into a transaction.
By: Devon Thorsby
USNews Real Estate