Want to buy a house in Austin? The Austin real estate market is very fluid right now. It is data-informed and not as data-driven as I would like. A non-data-driven market is volatile when it comes to home values and hard to predict because much of it is based on how much cash someone has available and how much emotion is driving the decision.
How to Buy a House in Austin
These are the options a buyer has right now in today’s market:
- Some people just have the cash to buy a home with no loan (checking or savings account money) Cash = no lender.
- Some people now utilize a bridge company (the company gives the buyer ~85% of the value of their current home before they close it. They essentially buy the next home for the buyer and then the buyer pays them back once their current home sells.
- Required down payments on mortgage loans vary but buyers with limited liquid assets to put down may need to use a bridge company to play in this market. The more cash available to put down, the more solid a buyer appears to a seller.
What offers aren’t appealing to a Seller in today’s market?
* Contingency offers
* Minimal down payments
At the end of the day, there is not a lot of incentive to play with buyers who don’t have a lot of liquid cash, because there are too many that do. Understand, it isn’t necessarily because of the money that a buyer with cash is more appealing. It is because of the volatility accompanying buyers with low down payments that don’t turn heads. For starters, if the contract on a buyer’s contingent home falls apart – they can’t buy the second home. That’s why the contingency addendum is used and it’s exactly the reason the offer becomes volatile. Secondly, homebuyers who don’t often have a lot of equity to put down on their home often become fearful of the large dollar amount being financed. The fear makes them often change their mind as they look at their budget and that makes them volatile.
The importance of knowing your numbers in this housing market
We now also have a form that acts as an appraisal waiver, which voids the appraisal being an underwriting condition normally required with third-party financing. Buyers can either set a cap for the waiver, but most are fully waiving the amount. When the appraisal is fully waived, that form means if a home appraises for $550,000 and the contracted sales price is $615,000, that buyer is stating they are bringing the difference to the closing table.
Using the above example, the buyer would bring $110,000 (20% down on a conventional loan) + $65,000 ($615,000-$550,000) = $175,000 to the closing table not including closing costs.
A buyer needs a lot of liquid equity to play in this market. My last listing had 90% of offers with loans came with an appraisal waiver.
Multiple Offers spark creativity where nothing is standard practice anymore
A note about closing costs. Understand, every element of the contract is negotiable but some elements used to be standard practice in terms of who pays for what. Those elements have also gone a bit out the window.
▪ It used to be standard practice for the Seller to pay for the owner’s title policy. That doesn’t always happen anymore.
▪ A 7-day option used to be about $150-$300. Option periods are now generally non-existent to 5 days and the fee for them is 3 to 5 digits in length.
▪ Earnest money used to be a standard 1% of the sales price. I have heard of earnest money placed up to 6 digits.
▪ The seller may or may not pay for a residential service contract.
▪ Oh and a seller leaseback…might even be free.
Sellers need to look at the offer more than ever as a package. There are a lot of moving parts, no one element trumps another. Remember, there are about 32 ways for a Buyer to get out of a contract. Any one head turning element needs to be weighed with the offer as a whole. The offers tell the story of not only which one is going to net the seller the most money, but offer the most flexibility while resulting in successfully closing. A leaseback can be very enticing for a seller and could very easily trump the highest offer.
Buying and Selling a home in Austin right now means listening to your heart and looking at the market with clear expectations based on what the data is showing.
I write this all to help you understand why the very black and white market, I prefer to live in, is very gray right now. I like data and part of the problem right now is that we just don’t have enough data (houses) because if we did, we wouldn’t be where we are.
At the end of the day, for me anyway, both my buyer and sellers have done extremely well. Markets are local. That means the strategy that is happening in one subdivision in any given city, is not necessarily going to work in another. You need to learn that market and let the data drive the strategy, not dictate it. At the end of the day, one data point trumps all others – even in this market, and that is when it is meant to be, it will.