Silicon valley offer writing class - june 27, 2012
Redfin’s Offer Writing ClassSilicon Valley TeamJune 27, 2012 San Jose, CA
AGENDAREDFIN● Why we’re different● How the Redfin rebate works● Our team & how we workMORTGAGES● Get started by getting pre-approved!● Start shopping for lenders● Rates & EstimatesMAKING YOUR OFFER● Pricing a home, what to consider● Low Inventory/Market trends● Competing in a Multiple Offer Situation● Get ready to write a strong offer● Main points in contract● What is As-Is?ESCROW PROCESS
A Little Bit About Who We AreRedfin is a real estate brokerage that has helped over 20,000people buy or sell a home; 97% would refer us to a friend.● Customers, not commissions● Informed decisions● The right home for the right price No obligation Get back a portion of our commission Redfin Video
Make Sure He’s a Good Fit See all deals & reviews
How Our Team Works AGENT Responsible for your success Writes your offer Handles negotiations YOU FIELD AGENT COORDINATOR Takes you to see homes Schedules tours See 50+ homes a week Prepares paperwork Works with escrow
Overview •Search homes online & tour •Get pre-approved •Find a dream homeFinding •Consult with agent, write offerYour Home •Submit offer to listing agent •Negotiations •Success! •Earnest money •Inspection contingency Mutual •Title review Acceptance •Financing contingency •Waiting for loan approval •Escrow signing appointment •Get keys and take possession! Closing •Receive Redfin refund •Complete Redfin Survey
Review Your Financial SituationTo Buy or Not to Buy● Pull credit report, look for errors● Establish comfort level for monthly payment● Figure out how much monthly income goes towards debt: 28 – 33% healthy● Pay down credit balances to 1/3rd● Don’t open any new lines of credit● Don’t buy any big ticket items● Source of money● Current employment status
Getting Pre-Approved A pre-approval letter is a letter from a bank or a lender estimating how much theyll lend you ● Establishes what you can afford & makes offer process go faster ● Good for 90 days, depending on lender ● Ask for a few different amounts ● Similar, yet different from pre-qualification ● Redfin asks that you get pre-approved before your third tour ● Are gift funds involved? ● How much do you have for a down payment? Information needed: ● W-2, two pay-stubs, tax returns, bank statements
Review Your Debt● Pull credit report, look for errors● Figure out how much monthly income goes towards debt: 28 – 33% healthy● Pay down credit balances to 1/3rd● Don’t open any new lines of credit● Don’t buy any big ticket items● Co-borrower will need to do the same
Your Job● Wage Earner (W2) ● Self Employed● If you plan on ● Two years of self- changing jobs, employment required disclose it to your to qualify loan officer ● If you are thinking of● Don’t assume your starting a business bonus and and leaving your W2 commission income job, this will impact will automatically be qualifying counted
Start Shopping for LendersCompile a list of 3-4 lenders & brokersGood sources include:● Redfins partner lenders● Referrals from friends, family & co-workers● Your real estate agent● Online review sites, such as Yelp● Local chains and offices*Know your lender
Local Recommended Lenders *In no way does Redfin benefit financially from recommending lenders – we just think they’re great lenders!
Types of Loans● Conventional: ► As low as 5% down ► Fixed or adjustable rates, conforming or non-conforming● Federal Housing Administration Loan (FHA): ► Always have mortgage insurance ► Buyers need only a 3.5% down payment● VA Guaranteed Loan: ► Veterans, active duty personnel, reservists/national guard, surviving spouses ► No down payment● Ask your lender if they have special loan programs ► Example: BB&T Chips Program
Comparing Loan Estimates ● Gather loan estimates ► A minimum of three, more is better ► These aren’t final numbers, but within a few thousand dollars ► Compare similar loans Program (FHA, conventional) Timeframe (same day) ● Compare costs side-by-side ► Discount & origination points ► Interest rates ► Insurance premiums (FHA, PMI) ► APR (interest rates + fees + points + PMI)
Make Your Decision ● When possible, get a loan commitment ● Make alternative funds liquid (401k, stock) Good news! Loan payments are made in arrears, so your first loan payment won’t be for two months.
Getting The House You Want ● Research seller & listing agent ► Reviews agent-only comments ► Studies sellers situation and motivations ► Contacts listing agent ● Prepares a comparative market analysis and discusses ► Where do you want to start? ► Where do you want to end up? ● Writes up your offer ► Inspection contingency ► Financing & Appraisal contingency ● Submits offer ● Negotiates on your behalf
How much should I offer?● Days on market● Seller’s motivation and current loan situation● Disclosures & Inspection reports● Interest level from other buyers● Comparable homes● Multiple offer situation
Why all the Multiple Offers?What’s driving the sudden demand for homes? Interest rates still at historical lows Recent & imminent IPOs “Paper millionaires” have cashed out to buy homes Foreign investors, all-cash buyersLOW INVENTORYMonths of Supply – The time it would take to sell through all the homes on the market, given the current pace of sales In a balanced market, Months of Supply is between 5-6 moths - -- Anything less is a seller’s market In April, Santa Clara County Months of Supply was 1.6! The lowest we’ve seen in more than a year
What trends are we noticing? Homes are being listed at strategically low prices So properties are selling way above list price Base your offer price on comps & trends – NOT on list price Deadlines are being set to accept & review offers Sellers usually review offers after about 7 days on market To give property exposure and create buzz amongst buyers Multiple offers are not only against 3 or 5 buyers, but more like 10, 20 and sometimes even 30 others Some buyers are waiving their inspection contingency
Get Ready!Obtain a Pre-Approval LetterYour Lender is part of our Team! Ask your loan officer how they can help you in a competitive situation (shorter contingency period, quick closing?) Request that your LO be available to speak with the listing agent Get a preapproval letter with your maximum approval amount, you can customize later if necessary Use a lender with local expertise - in a competitive situation it can be the difference between winning and losing No pre-qualification letters please
Get Ready!Let’s Do our Homework Call listing agent, find out what the sellers situation is & why they are selling What are the sellers’ motivations? Will they need to remain at the property after closing? Do they need a quick sale? Request for copies of disclosures and reports Find out how many disclosure packages have been sent out to other buyers, has there been heavy traffic? Is there an offer due date? How should offers be submitted – via email, drop off at listing office or in person? Build rapport with listing agent and check scouting report
Get Ready!Know the Numbers Run a Comparative Market Analysis (CMA) Understand pricing for the area Determine your maximum price Calculate payment difference at incremental price points $5,000 more equals $?/month Know When To Walk Away You can’t control what someone else is willing to pay
Get Ready!DocumentationHaving your finances and other required documents in orderprior to making an offer can accelerate the process. Here’s whatwe’ll need at a minimum to include with your offer: Pre-Approval Letter Not a pre-qualification Proof of Funds Bank statement, 401k, brokerage statement Earnest Money Deposit Check Just a copy (picture, scan or fax) Typically 3% - increased between 5-10% to be competitive & show you are serious
Writing a Winning OfferOffer Price - Price & Terms are the King & Queen of Winning in Multiple Offer Situations Study Comparables Understand pricing trends in the area Base your offer on the comparables – not the listing price especially if it is strategically low, then factor in the multiple offers List Price to Sales Price Ratio for the Area How much negotiating room is there? Days on Market Fewer DOM – sellers are less flexible More DOM – sellers are usually more motivated/open to negotiating Know the Sellers Current Loan Situation
Writing a Winning OfferHighest & BestIn a multiple offer situation you may have only one shot at offering and no opportunity to further negotiate Blind betting – you don’t know what the other offers are What is the maximum price you are willing to pay for this property? How much do you really want this property? Determine your walk away price Go in with your Highest Price and Best Terms right from the start
Writing a Winning OfferTERMS - Understand & offer the terms that seller desires Contingencies protect the buyer and gives the option to negotiate further, or cancel the transaction if no agreement is reached. Inspection Contingency – Typically 7 to 12 days Financing Contingency - Typically 14 to 17 days Appraisal Contingency - Typically 14 to 17 days Close in 30 days… or less! Shorter contingency periods makes your offer stronger & shows how serious you are as buyers Need a Home Warranty? Seller Rent Back?
CAR vs. PRDS ContractsCAR PRDS● As-is and more seller ● As-Is is a selected option friendly ● Widely used in the Peninsula & preferred by● Widely used in California larger brokerages● Used for all bank owned homes● Repairs by sellers or ● Repairs say licensed contractors through othersThe listing Agent determines which contract to use forsubmitting offers
Major Points in a Contract• As-is• Contingency period • 7-14 days for property • 14-17 days for financing & Appraisal• Closing Costs: San Mateo County • Buyer pays title & escrow (~0.75%) • Seller pays County Transfer Tax • Buyer & Seller Split (50/50) the City Transfer Tax in San Mateo & Hillsborough only• Liquidated damages• Arbitration of Disputes• COE (Close of Escrow) - 30 days• Expiration of offer – 24 to 48 hours
Offers are made “as-is”● The property is being sold in its PRESENT physical “as-is” condition as of the date of acceptance – subject to buyers investigation rights.● You are offering to purchase the home without asking the seller to make any repairs based on what is currently disclosed in the reports and disclosures● You may investigate & inspect further later● There is another opportunity to negotiate on a price concession if our own inspections turn up something new and/or significant…or you can simply walk away ► Think “game changing” repair ► Sometimes easier when it’s a larger ticket item
Focus on The Big Picture● Don’t sweat the small stuff● Don’t take things personally, (but the sellers likely will!)● Don’t assume the other side is dishonest● Don’t create an adversarial environment
Escrow Process● Sometimes the easy part is getting the house! The real work is when the escrow period begins.● We will guide you through escrow● We work with your lender, the title company, inspection companies, and listing agent to ensure everything goes smoothly
Thanks for Coming!Please fill out the survey that was handed out at the beginning ofclass. We appreciate the feedback!Check out our upcoming classes and events athttp://www.redfin.com/buy-a-home/classes-and-eventsInterested in having Redfin host a free 1 hour home buyingsession at your company?Let us know. We’ll provide lunch!