What an Escalation Clause Can Do for You

Here’s how escalation clauses help homebuyers in our market.

An escalation clause is a popular tool being used right now to help buyers get

their offers accepted. What is an escalation clause?

In a multiple-offer environment, it’s sometimes hard to know how to price your offer. You might be willing to go higher than the next buyer, but you don’t even know where to start. Thus, buyers oftentimes make their best guess as to where they think other offers might be. An escalation clause allows you to increase your offer to beat the next highest offer.

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You’ll have to carefully weigh 

whether this is the right option for you based on the situation.

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Escalation clauses should be used judiciously because there obviously may be a price you simply can’t afford. You’ll have to carefully weigh whether this is the right option for you based on the situation. Sometimes, you can put a cap on your escalation clause that states you’re willing to pay x amount of dollars higher than the next highest offer up to a certain point. If you don’t put a cap on your escalation clause and the price goes too high, you can always withdraw your offer as well. 

If you have questions about how to utilize this tool or know someone who could benefit from it, give me a call. I’d love to speak with you.

How to Get an Offer Accepted in This Competitive Market

Here’s what we do to help buyers win in this strong seller’s market.

In a competitive seller’s market like this, things can be tough for buyers. With most condos and homes garnering multiple offers these days, they’re frustrated about not having theirs accepted. We’ve seen as many as 50 offers come in for some single-family homes. 

There are a number of things we do upfront with our buyers to put them in the strongest position possible. The first thing we do is make sure they’re getting all of their documentation to a local lender who’s going to give them the best service (and interest rate) possible. We have several preferred lenders we trust and are happy to recommend to our clients. 

Once all the documentation is in and verified, we get the pre-approval. We can feel safer removing the loan contingency when we make an offer because everything has been checked off by the lender.

Obviously, one of the big issues for sellers is price. That’s why we make sure not to max out our clients’ budget when making offers. We generally back off the top-end price of what our buyers are approved for because homes in this market are seeing offers anywhere from 16% up to 50% above list price. We give our buyers the room to go up a little bit in price and be competitive in this crazy market.

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We’ve seen as many as 50 offers 

come in for some single-family homes.

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With that being said, one other strategy we like to use with our buyers is the strength of their down payment. Unfortunately, an offer with only 3% or 5% down can make you a much weaker buyer. There are options we can look at to get you the cash to support a larger down payment and a stronger offer, depending on your situation. 

One additional problem buyers have to deal with is low appraisals. Sellers want to know that they’ll still get the agreed-upon sale price even if the appraisal comes in low. They also want to know that you will still pay the price even if your lender won’t foot the entire bill. Ultimately, a property is worth what a buyer is willing to pay and what a seller is willing to sell for. 

Finally, we make sure our buyers have nice, clean offers. We contact the listing agent to ask what’s important to their client in an offer. Often, we end up buying properties as is. In addition, the sellers may need to rent the property back for a time after closing until they find their new home in this competitive market. 

If you have any questions about how we help buyers win in this market or anything else related to real estate, don’t hesitate to reach out via phone or email. I look forward to hearing from you soon.

A Great Way to Get Into Real Estate Investment

As a first-time real estate investor, consider buying a multifamily property.

If you’re interested in owning real estate as an investment, you know that the market is very competitive in Southern California pretty much all the time. It's very competitive right now, but even before 2020, the last decade or so was the same story. 

The market is extremely competitive for single-family homes in particular. There is very little inventory, and what does come on the market is generally seized after 20, 30, or even 40 offers have been submitted. The good news is, there are alternative options you can consider. Multifamily properties can be a great way to get started in real estate investment because that market is less competitive.

 

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The bottom line is that this 

is a great way to get into 

real estate investing.

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Even better, if you’re a first-time buyer or perhaps selling a condo and moving into a multifamily property, you can put less money down to buy a multifamily property and live there for several years. After two or three years have passed, you can go ahead and buy a single-family home and live in it. Meanwhile, you’ll still have that multifamily property you can then rent out for the long term. Now that you’ve established rental history, you’ll get a better interest rate and more favorable qualifications when the time comes to buy your next property. On top of that, you’ll have all that extra income coming from that multifamily property. 

You may have to compete against other offers to win the multifamily property you want, but we’re only seeing as many as two or three other offers in these situations—not the 20, 30, or 40 we see for single-family homes. The bottom line is that this is a great way to get into real estate investing. 

As always, if you have questions about this or any real estate topic, don’t hesitate to reach out to me. I’m happy to help.

A Strong Market Grows Stronger in 2021

 

Here’s a quick market forecast for the rest of 2021.

With all the eviction moratoriums ending this January (UPDATE: This has been

extended five more months at least!) and foreclosures dominating the news

cycle, a lot of people are wondering if our 2021 real estate market will soon fall

apart. I can only speak to what’s happening in Southern California, and in our

area, we continue to see a lack of supply and high demand for homes.

In fact, with record-low interest rates hovering around 3%, demand is extremely

high. On top of that, many apartment and condo residents are looking to move

into bigger homes because they want more space. 

As we look ahead to the rest of 2021, I predict that we’ll continue to see a

strong housing market well into the year. One thing capable of changing that,

though, is interest rates, but they’re expected to remain low for the time being,

so I don’t see our level of demand changing. 

Another factor that can affect our market is supply. Over the past year (and

even in previous years), we’ve maintained an inventory supply between two

and 2.5 months. Even as the market tightened up once COVID hit, inventory

stayed around two months. The really good news is that in December, which

is traditionally thought of as a slower month, we still had 900 homes listed in

the Long Beach area alone. 

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   I predict that we’ll continue to see a strong housing 

market well into the year.

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As you can imagine, many people who are looking for homes are wondering

where they’ve all gone. Our average days on market is just 10 days, which

means homes are selling quickly and often with multiple offers. This is all

reflected in the record-high prices we’re seeing in our area. In fact, the average

sale price in Long Beach last December—again, traditionally considered a

slower month—was $740,000. The average sale price across the entire

Southern California region was $873,000.

Prices have reached an all-time high, and I predict they’ll continue to rise

throughout 2021 as long as interest rates stay low. That said, homeowners

who are struggling with their mortgage payments can sell and take significant

equity with them for the near future. 

If you’re considering making a move or have any questions about our Southern

California market, don’t hesitate to reach out to me. I’d love to hear from you.