Sellers Beware, Rent If You Dare

There is no question that the Phoenix Valley and the surrounding cities have continued to grow providing year-round activities for families, young professionals, our beloved winter residents and, of course, the sports fans that descend upon us in spring. With such a wide demographic of Phoenicians, the housing market is seeing extremes in all directions.  For over five years, Phoenix has seen a steady increase in home values, which has seemingly flooded the market with cash investors overnight. After all, more millionaires are made every day from real estate than any other field, right? Jokes aside, what consequences are these cash investors having on our real-estate economy, especially on traditional or first-time buyer and those still renting?

From a buyer’s agent standpoint, I can attest the competition for good homes under $300,000 is as fierce as it gets! With qualified buyers eager to buy with their low rates against all the cash offers, it’s no wonder prices continue to rise. There is less inventory and more buyers which leads to situations of multiple offers or above asking price purchases and often this occurs during the first days on market. Unfortunately for many first-time buyers who can afford something in the $100s and $200s, cash is king. Cash is much more appealing to a seller for numerous reasons, such as quicker closes, waived appraisals, no concessions, no emotionally driven decisions, etc. These benefits make it near impossible for any loan to compete with. In a scenario of two equal offers, one being cash and the other being financed, the seller will have the same monetary take home, however getting that payday even sooner with less opportunity for unnecessary roadblocks ultimately drives their decision.

Seller beware! Quick offers from sight unseen cash investors can be extremely risky and may be too good to be true. From recent experience these big named investors come with an initial offer worth entertaining. However, later in the process the seller is insulted with suggestions of extreme price reductions and other outrageous requests. These bully tactics work in many cases because of the fear it brings to the seller. The thoughts that potential buyers have moved on to other homes or the length of time the home has been on the market will lead to lower submitted offers. After wading through these unfortunate, although very real, possibilities, the seller is forced to make the difficult decision. In our specific case, the seller declined the offensive request for price reduction based on a bogus inspection report and we still ended up with the original deal. It truly feels like they were just trying to squeeze every penny out of the seller and were going to move forward with the transaction despite their empty threats of a cancellation.

Cash buyers are the reason for the increase in renters to buyers over the last 10 years.

Again, this is a theory, but let’s look at the facts. In 2006, the percentage of renters was about 31 percent. Since then, it has been an up and down roller coaster ride to about 40 percent last year. Why are more people renting than buying? It is not because renting is cheaper than owning. Rates are so low right now that more and more people are being able to get qualified. So, it comes down to a couple of things. Money talks in this market, and traditional buyers are losing, not once, but multiple times to investors because they simply cannot compete. That can be very demoralizing for someone so excited to buy their first home. They may give up and decide it isn’t the right time or they just cannot get what they want. Why would a buyer settle on a home they don’t want? The caveat to this is that investors are winning the negotiation, and then turning around and renting the homes to the very buyers they beat out. Residual income, by leasing a home, is a big part of any wise investor’s real estate portfolio. It’s a vicious cycle.

It is unsure how long this cycle will continue, and it will no doubt be an ongoing frustration for your buyers and sellers. It is important for agents to be open with their clients about some of the struggles that may be experienced in the popular investor price ranges.  Clients who are more informed are less likely to take the bad news of a not accepted offer and keep their optimism to move on to the next home. Also, I urge you to trust your partners and use them when you find an opportunity. More times than I can count, a lender phone call to a listing agent or a personal letter from a beautiful family to the seller can make a world of difference for your client. No doubt that every seller has a different reason or motivation for selling and all we can do is persevere and do the best for our clients with what and who we have to work with. Good luck out there! If all else fails, I heard the rental market is pretty hot right now. –Jennifer and Ryan Slack

Got any questions? Let us know!

Ryan Slack  |  520.237.3000  |  rslack@jasonmitchellgroup.com

Jennifer Slack  |  520.248.9772  |  jslack@jasonmitchellgrou.com

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