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Sacramento First-Time Homebuyers Now Have a Fighting Chance
Compared to a few years ago, first-time homebuyers in Sacramento now have a fighting chance to buy a home without a ton of competition from cash investors. They just have each other to compete with, yet some of them are going about it the wrong way. The wrong way is when the buyers refuse to take their agent’s advice. They might say they listen to it, and then they do things their own screwed-up way. When the offer doesn’t get accepted, though, they tend to blame their agent instead of themselves.
This is nuts. My heart goes out to buyer’s agents who end up writing offer after offer that gets rejected because buyers are hung up on the wrong things. Like list price, for example. List price can be meaningless. It’s a measurement. It’s the comparable sales that matter. But people get attached to personal agendas, mantras and odd beliefs, not to mention our favorite sidekick: fate.
Homebuyers last week told me they had a specific price point in mind, but they were looking at an Elk Grove home priced higher. This home had been on the market for only a few days and they wanted to offer less than list price because it didn’t fit their plan to pay slightly more. Well, a reasonable person would say: stop looking at a home you can’t buy at the price you want to pay. But reasonable people aren’t necessarily buying real estate. The fact is a hesitant buyer needs to conform because some other proactive buyer will conform. These buyers reconsidered, conformed and they got the house, over a full-price cash investor.
This market in the spring of 2014 in Sacramento is different than previous markets. We no longer face stiff competition from cash investors. Of course, we Sacramento listing agents still receive full-price cash offers and a few lowballs from investors, but for the most part, the market is made up of first-time home buyers and move-up buyers. I counsel my sellers about choosing between an investor buyer and a buyer who will occupy the home. Does it matter who buys your house? You bet it does. And sellers can legally choose to sell only to an owner occupant.
Not surprising to real estate agents, a story in the Sacramento Bee says homeownership in Sacramento has fallen to a 40-year low. That’s not surprising, given the number of sellers we observed who said yes to the cash investors over the years and no to the first-time home buyers. But now the tide is reversed, and we still have a fighting chance to take back our neighborhoods, providing first-time homebuyers step up to the plate.
The kind of purchase offer a buyer makes can mean the difference between buying a home and not buying a home. Here’s my general advice: Study the comps, listen to your agent and, if the home is on the market for only a few days and the price is justified, pay it or somebody else will. A more savvy buyer will probably pay more than list if the deck is stacked against them. If the home is super desirable, a hot commodity and you’re an FHA buyer or a VA buyer, you’re just not as desirable to the sellers as the conventional buyers, so step up your price and terms or you’ll fall to the bottom.
Hey, agents don’t make the rules. The market dictates.
The Problems With Cash Investors in Sacramento
I’ve had investors call to ask if I was an “investor friendly” real estate agent. That seems to be such an odd question. You’ve got to wonder why an investor would ask such a thing. Because a Sacramento real estate agent is happy to list or sell a home for any type of person. It doesn’t matter if the person is a corporation, an owner occupant or a celebrity. We’ll do it because that’s our business. So, if a person is asking if we are “investor friendly,” you wonder what that means. I suspect it means they want something out of the ordinary.
When an investor is deliberately seeking out and talking to a Sacramento real estate agent who primarily handles listing — like this Sacramento real estate agent — it means the cash investors in Sacramento expect priority over other offers, and that’s just not gonna happen. To give an investor priority would mean I was breaking my fiduciary with my primary — my seller — and I won’t do it. It doesn’t mean other agents won’t, though, which is why investors ask. Sorry business this is sometimes.
But there are other problems with offers from cash investors in Sacramento. First, when I am representing the seller, and I see an offer from an investor, I look at the agent who delivered the offer. There are agents who are wholly intimidated by investors and the investors can push them around. Maybe it’s because the investors have more money than the agent or perhaps even more experience. Hard to say. But it’s not like the agent is most likely able to sit down and reason with the investor as an agent might do with an owner occupant. Lots of times the investor calls the shots 100% and is in control.
Second, sometimes the offers are written as all-cash and presented as all-cash offers and they are not. I question whether that’s legal. I don’t think it is. But it doesn’t stop them from doing it. Nobody gives a dang what I think. But a cash offer is an offer in which the seller presents proof of funds and those are the proof of funds the investor intends to use to purchase the property. It’s not supposed to be a smoke screen while the investor trots off and acquires a hard-money loan. A hard money loan is not cash. It doesn’t matter that there is no appraisal, it’s not cash. It doesn’t matter that the hard-money lender has always performed in the past for the investor, it’s not cash. Stop presenting hard money loans as cash offers, you guys. It’s a lie. It’s deceiving.
If you want to present an offer that looks like cash but is not, it is much better to reserve the right to obtain a hard-money loan. Otherwise, present the offer as cash only if you have the cash and intend to use it. This “reserving the right” works very well on short sales. If an investor presents the offer the other way around, as a hard-money loan with the right to pay all-cash, it weakens the offer in the eyes of the short sale bank. So, an investor can write an all-cash offer, present proof of funds for that cash, and then put a line in the offer that says he or she reserves the right to obtain a hard-money loan. Then, you’ve got disclosure, in my opinion. But I’m not a lawyer and this is not legal advice.
The third problem with all-cash offers from investors is sometimes the investors are writing a bunch of offers at one time, although they can only buy one or two properties. I advise my sellers not to get all excited when we receive an offer from cash investors in Sacramento, especially when the buyer’s agent says he will need the full 72-hours to get us an answer back. If he needs 3 days, he could be buying time for the other offers to respond so he can pick among them.
Which brings me to the fourth problem with all-cash offers. The home inspection. Every home inspection will disclose defects. A cash investor will say he or she is buying the home in its “as is” condition, but as soon as the home inspection is delivered, he or she might comb through it and pull out a number of items, assign a dollar figure, and then ask for a price reduction. Because investors don’t care; it’s just a business transaction to them.
You might read this and wonder why anybody would sell to an investor or that I am dead-set against investors, and that’s not true. I work with investors. Just sayin’, beware.
Cash Investors, Pie Crusts and Robot Agents
There is an acronym company doing business as a limited liability corporation and trying to buy homes in Sacramento as a cash-infused investor. There are undoubtedly many such companies and investors vying for homes in Sacramento. But this one in particular canceled an escrow because it didn’t do its due diligence upfront, so I’m wary about them. This particular company has also hired at least 3 different real estate agents in Sacramento to throw offers at the wall. I know this because I have received offers from 3 different agents representing the same company.
You know, not a day goes by, honestly, in which I don’t answer my phone and hear the words: I am a cash investor. I suspect the callers feel I should treat them differently than I would anybody else, but they’re in for a rude awakening. Just like I am a number to them, they are a number to me. I realize they have little vested interest in the property or in meeting the seller’s needs. They probably have not even seen the property. If the escrow demands a special consideration, they are unlikely to provide it. They are not special. Their cash is not “king” to me.
It seems like the REO robot agents are being replaced by the robot buyer’s agents. The tide has changed from robot listing agents who represent banks and asset managers of foreclosed homes to robot selling agents who represent cash investors. These guys comb MLS daily looking for new listings, writing offers, uploading the purchase offers to DocuSign and emailing those offers to listing agents. You throw enough at the wall, something is bound to stick.
As a Sacramento short sale agent, I have to look out for my seller’s interests and help them to choose the most motivated buyer to close their short sale. As a general rule, short sale banks don’t seem to like limited liability corporations (LLCs). I’m not sure why, either. It could be that an LLC is in-your-face about profit, versus a home owner who just wants a roof over her head. In any case, it’s hard to get excited over these cash offers. If push comes to shove, they don’t shove.
You know, short sales involve a lot of frustration. I dodge a lot of whipped cream pies in this business. Speaking of pies and throwing crap at the wall, I’d like to share a story with you. It involves a pie crust. Those of you who have never made a pie crust may perhaps find it difficult to believe that pie crusts do not live in your grocer’s freezer. Yes, you can actually make a pie crust at home out of flour, salt, shortening and water.
The trick is to not overwork the dough. If you massage it and roll it too many times, it will become tough and crumble. I was probably 7-years-old when I made my first pie crust. I thought I had followed the directions explicitly but I was having trouble. It wasn’t sticking together. I blamed it on my rolling pin. After I had rolled out the dough, I tried to fold it into quarters and lift on waxed paper to the pie tin, but it fell apart. I rolled it again. It crumbled again. In a split second of frustration, I hurled it at the wall.
Uh, oh. I could not believe I did that. I was horrified. My mother stopped what she was doing and stared at me. I was in big trouble, and I knew it. My heart started to pound. I might never get to bake again in the kitchen. I might go to bed without dessert. Maybe stand in the corner. But instead, my mother started to laugh. “That’s exactly where my first pie crust ended up,” she said.
Today, I make a perfect pie crust. And I’m a pretty darn good Sacramento short sale agent, too. Just don’t call and tell me you’re a cash investor, because I don’t care.
